In re Hulon

• Court: U.S. Bankruptcy Court — Northern District of Texas
• Writing for the Court: STEVEN A. FELSENTHAL
• Citation: In re Hulon, 92 B.R. 670 (Bankr. N.D. Tex. 1988)
• Decision Date: 02 November 1988
• Docket Number: Bankruptcy No. 387-36574-SAF-7.
• Parties: In re Susan Petr HULON, Debtor.

92 B.R. 670 (1988)

In re Susan Petr HULON, Debtor.

Bankruptcy No. 387-36574-SAF-7.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

November 2, 1988.

Christian P. Nielson, W. Steven Walker, Mike Wilson, Dallas, Tex., for debtor, Hulon.

Herbert L. Gilles, Dallas, Tex., for trustee, Pritchard.

MEMORANDUM OPINION AND ORDER

STEVEN A. FELSENTHAL, Bankruptcy Judge.

On June 30, 1988, the court granted a motion filed by Gregg Pritchard, trustee in this chapter 7 case, for a bankruptcy rule 2004 examination of the debtor. The debtor's counsel of record consented to the examination. On July 7, 1988, the court entered its order requiring the debtor to submit to the examination. The debtor appeared at the scheduled 2004 examination but refused to take the oath or answer any questions. Instead she invoked the fifth amendment privilege against self-incrimination. On August 4, 1988, the trustee moved for an order holding the debtor in contempt, compelling the debtor's testimony, and granting sanctions against the debtor. On September 9, 1988, the court held a hearing on the trustee's motion. Both the trustee and the debtor were represented by counsel at this hearing.

A debtor who voluntarily petitions a bankruptcy court for a discharge of debts under Chapter 7 of the Bankruptcy Code does not forfeit her rights guaranteed by the United States Constitution. To obtain a discharge, the debtor must, among other responsibilities, attend a meeting of creditors and comply with court orders, including an order compelling her examination by a trustee under the bankruptcy rules. The court must determine whether the debtor's testimony under oath at a meeting of creditors waives her subsequent ability to invoke her fifth amendment privilege against self-incrimination and, if not, whether she properly invoked the privilege at her court-ordered 2004 examination. The court does not address the effect of invoking the fifth amendment privilege at a trustee's 2004 examination on the debtor's eligibility for a discharge of debts, that issue not being before the court on the present motion.

Under the facts and circumstances of this case, the court determines that the debtor did not waive her right to invoke the fifth amendment privilege by testifying under oath at the meeting of creditors but improperly invoked the privilege at the court-ordered 2004 examination. Her manner of invoking the privilege does not warrant a finding of contempt of court. But the trustee has incurred needless expense to the detriment of the debtor's creditors. The trustee should be compensated by the debtor for these expenses. Accordingly, the debtor must submit to a 2004 examination by the trustee within 10 days of the entry of this memorandum opinion and order. The debtor is compelled to take the oath and listen to each question propounded by the trustee before specifically invoking her fifth amendment privilege against self-incrimination (if applicable) by refusing to answer specific questions. She must also reimburse the trustee for fees and expenses totaling $1,350.00.

I. Facts

On December 15, 1987, Susan Petr Hulon, the debtor, voluntarily filed for relief under Title 11, Chapter 7 of the Bankruptcy Code. Steven Walker represented the debtor as bankruptcy counsel. The debtor filed her schedules and statement of affairs on January 29, 1988.

The United States Trustee appointed Gregg Pritchard the Chapter 7 trustee to assume control of the debtor's bankruptcy estate. On February 1, 1988, the debtor submitted to an examination of creditors required by 11 U.S.C. § 341. Mr. Pritchard, as trustee, administered the oath at the meeting of creditors. The meeting of creditors was recorded by cassette tape and was transcribed. The written transcript of the § 341 meeting was provided to the court.

Approximately four months after the § 341 meeting was held, the trustee moved the court for an order requiring the debtor to submit to a Bankruptcy Rule 2004 examination. The motion also requested that the debtor be required to produce documents relevant to her examination. Mr. Walker, bankruptcy counsel for the debtor, by certificate of conference on the motion for Rule 2004 examination, consented to the examination on behalf of the debtor. The court held a hearing and thereafter entered an order on July 7, 1988, requiring the debtor to appear before the trustee for an examination under Rule 2004 and to produce the requested documents.

On July 17, 1988, counsel for the trustee appeared and prepared to proceed with the scheduled examination. The debtor also appeared at the scheduled examination with her bankruptcy attorney, Mr. Walker, and Mike Wilson, an attorney who announced that he was representing the debtor in connection with any potential criminal investigation. When the court reporter requested that the debtor raise her right hand for the purpose of administering the oath, the debtor refused on the advice of counsel to take the oath. Instead she asserted the right to silence by invoking the fifth amendment privilege against self-incrimination. Following her testimony at her meeting of creditors, debtor learned that the Department of Justice and the Federal Bureau of Investigation had begun an investigation into her financial and personal affairs.

On August 4, 1988, the trustee moved the court for an order holding the debtor in contempt of court for violation of the 2004 examination order. The motion also requested that the court compel the debtor's testimony at a future 2004 examination. Furthermore, the motion requested that the court grant sanctions against the debtor for necessitating actions by the trustee to compel the debtor's testimony.

In order to promote the orderly and prompt administration of this case, the court inquired whether the United States Attorney would immunize the debtor's testimony in the bankruptcy case under 11 U.S.C. § 344. An attorney for the Department of Justice on behalf of the United States Attorney, declined to immunize the testimony. The court must now proceed to manage the case to promote fairness to the parties and judicial economy. See, In re Timbers of Inwood Forest Associates, Ltd., 808 F.2d 363, 373-74 (5th Cir.1987), affirmed, 485 U.S. ___, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988). On August 16, 1988, Mr. Walker moved the court to allow him to withdraw as counsel for the debtor because, among other reasons, actual conflicts of interests with the debtor. At a hearing on September 22, 1988, with the debtor's consent, the court granted Mr. Walker's motion to withdraw. See, Local District Court Rule 13.5. The debtor also represented to the court that she had obtained other bankruptcy counsel.

II. Nature of the Fifth Amendment Privilege

The criminal justice system not only convicts the guilty, but also safeguards the accused from governmental oppression. To protect accused individuals the government must meet its burden of proof in a criminal prosecution without the forced assistance from the accused. See, Malloy v. Hogan, 378 U.S. 1, 7, 84 S.Ct. 1489, 1493, 12 L.Ed.2d 653 (1964). In contrast, the bankruptcy process places greater emphasis on full disclosure of an individual's financial affairs for the benefit of all creditors of the debtor's estate and thus affords the debtor only a thin shield against wide-ranging discovery. See, generally, Bankruptcy Rule 2004(b).

"No person . . . shall be compelled in any criminal case to be a witness against himself . . ." U.S. Const. Amend. V. The privilege against self-incrimination protects a person from being compelled to give testimony that might provide a link in a chain of evidence leading to that person's conviction. See, Hoffman v. United States, 341 U.S. 479, 486, 71 S.Ct. 814, 818, 95 L.Ed. 1118 (1951). An individual is privileged to refrain from answering any "official questions put to him in any other proceeding, civil or criminal, formal or informal, where the answers might incriminate him in future criminal proceedings." Lefkowitz v. Turley, 414 U.S. 70, 77, 94 S.Ct. 316, 322, 38 L.Ed.2d 274 (1973); see also, Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972); In re Connelly, 59 B.R. 421, 430 (Bankr.N.D.Ill.1986).

The former Bankruptcy Act expressly conferred broad immunity on a debtor. See, Bankruptcy Act § 7(a)(10) (former 11 U.S.C. § 25(a)(10)). The former Bankruptcy Act provided that "no testimony given by a debtor shall be offered in evidence against a debtor in any criminal proceeding." See, Glickstein v. United States, 222 U.S. 139, 140-41, 32 S.Ct. 71, 72, 56 L.Ed. 128 (1911).

The current Bankruptcy Code eliminated that immunity. Since a debtor's bankruptcy testimony can be used in criminal proceedings, a debtor may invoke the fifth amendment privilege against self-incrimination in a bankruptcy proceeding unless granted immunity. See, 11 U.S.C. § 344.

III. Waiver by the Debtor of the Fifth Amendment Privilege

The trustee asserts that the debtor "waived" her fifth amendment privilege against self-incrimination by testimony given at the § 341 meeting of creditors. The court disagrees with the trustee's assertion and holds that the debtor did not waive her right by testifying at the § 341 meeting. Although the fifth amendment's privilege against self-incrimination may be waived by a witness' prior statements, a waiver will not be lightly inferred. Klein v. Harris, 667 F.2d 274, 287 (2d Cir.1981), citing, Smith v. United States, 337 U.S. 137, 150, 69 S.Ct. 1000, 1007, 93 L.Ed. 1264 (1949). Courts indulge every reasonable presumption against finding a testimonial waiver. Klein, 667 F.2d at 287, citing, Emspak v. United States, 349 U.S. 190, 198, 75 S.Ct. 687, 692, 99 L.Ed. 997 (1955), and United States v. O'Henry's Filmworks, Inc., 598 F.2d 313, 318-19 (2d Cir.1979).

A court should only infer a waiver of the fifth amendment's privilege against self-incrimination from the debtor's prior statements at the § 341 meeting if (...