In re DG Acquisition Corp., 97 Civ. 4638 (SAS).
| Decision Date | 27 October 1997 |
| Docket Number | No. 97 Civ. 4638 (SAS).,97 Civ. 4638 (SAS). |
| Citation | 213 BR 883 |
| Parties | In re DG ACQUISITION CORP., et al. |
| Court | U.S. District Court — Southern District of New York |
Gregory V. Varallo, Russel C. Silberglied, Richards, Layton & Finger, Wilmington, DE, Tracy L. Klestadt, Tracy L. Klestadt & Associates, New York City, for Trustee.
Gerald B. Lefcourt, Sheryl E. Reich, Gerald B. Lefcourt, P.C., New York City, for Ivette Dabah.
Richard Ware Levitt, New York City, for Barbara Dabah.
Joshua J. Angel, Leonard H. Gerson, Angel & Frankel, New York City, for Yvette Dabah.
Steven Kimmelman, James Burke, Pollack & Greene, New York City, for Renee Dabah.
DG Creditor Corp. ("the Trustee") appeals pursuant to 28 U.S.C. § 158 from a decision of the United States Bankruptcy Court for the Southern District of New York denying its motion to hold debtors' non-debtor spouses in contempt for failure to produce documents relating to certain of the debtors' alleged unscheduled assets. For the reasons that follow, the decision of the Bankruptcy Court is affirmed.
In bankruptcy cases, a District Court sits as an appellate court and applies a dual standard of review to the Bankruptcy Court's findings. The Bankruptcy Court's findings of fact may not be set aside unless they are clearly erroneous. Fed. R. Bankr.P. 8013. See In re Artha Management, Inc., 91 F.3d 326, 328 (2d Cir.1996). Questions of law, however, are subject to de novo review. See In re Maxwell Newspapers, Inc., 981 F.2d 85, 89 (2d Cir.1992) citing Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 88 (2d Cir.1987).
The facts as found by the Bankruptcy Court are not disputed on this appeal. To summarize: Morris Dabah, Haim Dabah, Ezra Dabah, Isaac Dabah and DG Acquisition Corp. ("the Debtors") filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Delaware court") on November 25, 1992. The Delaware court confirmed a plan of reorganization on October 26, 1993. Because it had allegedly discovered unscheduled assets held by the Debtors in 1994, the Trustee sought authorization from the Delaware court to depose the Debtors and their wives Barbara, Ivette, Renee and Yvette Dabah (the "Dabah wives" or the "wives") and to require them to produce certain documents. Pursuant to this motion, the Delaware court ordered the requested documents to be produced on May 25, 1995 and the Dabah wives to be deposed on June 20 or 21, 1995. See In re DG Acquisition Corp., 208 B.R. 323, 325 (Bankr.S.D.N.Y.1997) ().
The Trustee issued three subpoenas under the aegis of the court order in April, November and December, 1995. In response to the first two, the Dabah wives objected by letter — not raising the Fifth Amendment but expressly reserving other defenses — and failed to appear for their scheduled depositions. In response to the third, they moved before the Bankruptcy Court to quash the subpoenas, primarily on the grounds that the information sought was privileged by virtue of spousal immunity. The Trustee cross-moved to compel production of the documents. See id. at 325-26.
On February 21, 1996, the Bankruptcy Court denied the motion to quash and granted the motion to compel. The documents were ordered produced by March 15, 1996. See id. at 326. The Dabah wives appealed, but their appeal was dismissed on the grounds that discovery orders are not appealable. In re DG Acquisition Corp., 96 Civ. 3496 (S.D.N.Y. Sept. 4, 1996).
Shortly thereafter, the Trustee gave notice that the Dabah wives would be deposed and required to produce documents in late October, 1996. After a thirty-day extension agreed to by the parties, the date for document production was set at December 4, 1996 and the depositions for December 11-13, 1996. See In re DG, 208 B.R. at 326.
The Dabah wives refused to produce any documents on December 4, raising their Fifth Amendment privilege. Two days later, the Trustee moved to hold them in contempt. The Bankruptcy Court ordered the wives to respond by December 11 or produce the subpoenaed documents for an in camera inspection. On December 11, each of the wives was separately deposed, and each asserted her Fifth Amendment privilege against self-incrimination in response to almost every question asked. Shortly thereafter, the wives submitted the requested documents to the Bankruptcy court. See id. at 326-27.
On April 21, 1997, the Bankruptcy Court issued an order denying the Trustee's motion for contempt. In so doing, it rejected the Trustee's argument that the wives had waived their Fifth Amendment rights and/or that the denial of the motion to quash barred further litigation of the Fifth Amendment issue. See id. at 326-29. This appeal followed.
A preliminary issue is whether this court has jurisdiction to hear an appeal from a discovery order of a bankruptcy court. Under 28 U.S.C. § 158(a), district courts "have jurisdiction to hear appeals from final judgments, orders and decrees. . . ." Ordinarily, discovery orders are not immediately appealable because they are not "final . . . orders." See United States v. Pappas, 94 F.3d 795, 798 (2d Cir.1996). However, there is a judicially-created exception to this rule: Orders denying discovery of non-parties in suits pending in other jurisdictions are treated as final for the purposes of appellate jurisdiction. See Republic Gear Co. v. Borg-Warner Corp., 381 F.2d 551 (2d Cir.1967); see also Corporation of Lloyd's v. Lloyd's U.S., 831 F.2d 33, 34 (2d Cir.1987). The order of the Bankruptcy court fits this description precisely; therefore, it is immediately appealable.
The Trustee argues that because the Dabah wives failed: to assert their Fifth Amendment privilege when they moved to quash the subpoenas, res judicata bars them from doing so as a defense to its contempt motion. See DG Creditor Corp.'s Opening Brief on Appeal at 24. Under the doctrine of res judicata, "a final judgment on the merits in an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Computer Assocs. Int'l v. Altai, Inc., 126 F.3d 365, 369 (2d Cir.1997) (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2428, 69 L.Ed.2d 103 (1981)) (internal quotes omitted). The policies underlying res judicata are clear: The rule serves "the dual purpose of protecting litigants from the burden of relitigating an identical issue with the same party or his privy and of promoting judicial economy by preventing needless litigation." Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 326, 99 S.Ct. 645, 649, 58 L.Ed.2d 552 (1979).
The Fifth Amendment of the United States Constitution provides that "no person . . . shall be compelled in any criminal case to be witness against himself. . . ." U.S. Const. amend. V. This right has long been understood to be fundamental to the preservation of individual rights in a democratic society. As the Supreme Court has observed:
The privilege against self-incrimination registers an important advance in the development of our liberty — one of the great landmarks in man\'s struggle to make himself civilized. It reflects many of our fundamental values and most noble aspirations: our unwillingness to subject those suspected of crime to the cruel trilemma of self-accusation, perjury or contempt; our preference for an accusatorial rather than an inquisitorial system of criminal justice; our fear that self-incriminating statements will be elicited by inhumane treatment and abuses; our sense of fair play which dictates a fair state-individual balance by requiring the government to leave the individual alone until good cause is shown for disturbing him and by requiring the government in its contest with the individual to shoulder the entire load; our respect for the inviolability of the human personality and of the right of each individual to a private enclave where he may live a private life; our distrust of self-deprecatory statement; and our realization that the privilege, while sometimes a shelter to the guilty, is often a protection to the innocent.
Murphy v. Waterfront Comm'n of New York Harbor, 378 U.S. 52, 55-56, 84 S.Ct. 1594, 1597, 12 L.Ed.2d 678 (1964) (internal quotes and citations omitted).
While the policies furthered by res judicata are unquestionably important, they are not, on balance, as significant as these profound constitutional concerns. The full weight of the res judicata rule, therefore, may not be applicable when it threatens to diminish the policies underlying the Fifth Amendment. It is certainly true that the assertion of Fifth Amendment rights can be barred by a prior judgment, at least when the issue has been fully litigated. See United States v. Secor, 476 F.2d 766, 770 (2d Cir.1973). However, it is also true that courts show an unmistakable disinclination to preclude assertion of such rights when the issue has never actually been raised.
For example, in United States v. Edgerton, 734 F.2d 913 (2d Cir.1984), the court reversed a contempt order issued against an "obstreperous" taxpayer who had continuously refused to respond to court orders to produce documents. The struggle began when the IRS issued a summons that ordered Edgerton to produce certain financial records. When he ignored this summons, the IRE petitioned the district court for an order of enforcement. At the enforcement hearing, Edgerton cited his privilege against self incrimination as the justification for his non-compliance. The court rejected this argument (insofar as it related to documents created by third parties) and ordered him to produce, all non-privileged documents. See id. at 915-16.
Edgerton defied the order, persisting in his refusal to...
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