Court Opinion

ID: 2961503
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:44:05.72521+00
Date Added: 2024-06-11T15:01:56.310420
License: Public Domain

USCA1 Opinion

	

          August 31, 1992                                 ___________________          No. 92-1881                                                    IN RE:                                 GRAND JURY SUBPOENA.                                  __________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                 ___________________                                        Before                              Torruella, Cyr and Stahl,                                   Circuit Judges.                                   ______________                                 ___________________               Albert F. Cullen, Jr., Susan A. Correia and Cullen & Butters               _____________________  ________________     ________________          on brief for appellant.               A.  John Pappalardo,  United  States Attorney,  and Mark  W.               ___________________                                 ________          Pearlstein,  Assistant  United  States  Attorney,  on  brief  for          __________          appellee.                                  __________________                                  __________________                 Per  Curiam.   At  issue here  is whether  an individual                 ___________            involved in  a Massachusetts  "nominee trust" can  assert the            Fifth Amendment privilege against self-incrimination in order            to resist a grand  jury subpoena seeking trust records.   The            district court  held that no privilege  was available because            the  trust was a "collective entity."  We agree and therefore            affirm the order of contempt.                                           I.                 In  December 1986,  appellant John  Doe, along  with his            brother, created a  nominee trust (the  "Roe trust") for  the            purpose  of conducting real estate transactions.  Doe and his            brother designated themselves as  the sole beneficiaries  and            the  sole trustees.    The  Roe  trust purchased  a  204-unit            apartment  complex  in  Arlington,  Massachusetts  that  same            month,  thereafter  converting  it  to condominium  form  and            offering the units  for sale.1  Subsequently, a federal grand            jury  commenced  an  investigation  into  whether  fraudulent            information  had been provided to federally insured financial            institutions  in connection  with the  sale and  financing of            these  condominiums.  As part of this inquiry, Doe was served            on  February  14,  1992,  in his  capacity  as  custodian  of            records,  with  a  subpoena   duces  tecum  calling  for  the                                          ____________                                            ____________________            1.  According to  an FBI  affidavit, the Roe  trust undertook            similar measures with respect  to a second complex containing            124  units, and eventually succeeded in selling over half the            units at each location.                                         -2-            production  of  various  trust records.    The  scope of  the            subpoena  was  narrow  and  specific: it  called  for  "[a]ll            closing documents,  including, but not  limited to,  purchase            and  sale  agreements,  with  respect  to  the  sale  of [ten            specified  units at  the Arlington  complex] sold  in January            1989 to [a specified individual]."                 Doe refused  to comply with the  subpoena, claiming that            to  do  so  would  impinge on  his  personal  Fifth Amendment            privilege.    The  district  court  granted the  government's            motion to compel, but Doe persisted in his refusal to produce            the  records at an appearance  before the grand  jury on July            13.  That same day, the district court held  him in contempt,            and on  July 29  it  denied his  motion  for a  stay  pending            appeal.   Doe filed  the instant  appeal on  July 31,  and on            August 4 we stayed the order of confinement pending appeal.                                          II.                 The collective entity rule  reflects the notion that the            Fifth  Amendment privilege  against  self-incrimination is  a            "purely personal" one, Bellis v. United  States, 417 U.S. 85,                                   ______    ______________            90  (1974),  which  applies "only  to  natural  individuals,"            United  States v.  White,  322 U.S.  694,  698 (1944).    The            ______________     _____            privilege thus "cannot  be utilized  by or on  behalf of  any            organization."   Id. at 699.   In particular,  "an individual                             ___            cannot rely upon the privilege to avoid producing the records            of  a  collective entity  which are  in  his possession  in a                                         -3-            representative   capacity,  even   if  these   records  might            incriminate him personally."  Bellis, 417 U.S. at 88; accord,                                          ______                  ______            e.g.,  Braswell v.  United States,  487 U.S.  99, 109  (1988)            ____   ________     _____________            (collective  entity's  custodian  of  records  cannot  resist            subpoena  on ground  that act  of production,  as opposed  to            contents of records, would  be personally incriminating).  As            we  noted  in In  re Grand  Jury  Proceedings (John  Doe Co.,                          _______________________________________________            Inc.),  838  F.2d  624  (1st Cir.  1988),  the  "often quoted            _____            rationale" for the collective entity rule is that                  individuals,  when acting  as representatives  of a                 collective group,  cannot be said to  be exercising                 their personal rights and duties nor to be entitled                 to their purely  personal privileges.  Rather  they                 assume  the rights,  duties and  privileges  of the                 artificial entity or association of which  they are                 agents  or  officers  and  they are  bound  by  its                 obligations.      In   their   official   capacity,                 therefore, they  have  no privilege  against  self-                 incrimination.            Id.  at 625 (quoting White, 322 U.S. at 699).2  See generally            ___                  _____                      _____________            Braswell, 487 U.S. at 104-09 (reviewing evolution of rule).            ________                 Whether an organization is  properly deemed a collective            entity has little to do  with its size.  "It is  well settled            that  no  privilege  can  be  claimed  by  the  custodian  of                                            ____________________            2.  See  also Bellis,  417  U.S.  at  90  ("In  view  of  the                _________ ______            inescapable  fact that an  artificial entity can  only act to            produce  its  records  through  its  individual  officers  or            agents, recognition of  the individual's  claim of  privilege            with  respect to  the financial  records of  the organization            would substantially undermine the unchallenged rule  that the            organization  itself  is  not  entitled to  claim  any  Fifth            Amendment   privilege,   and  largely   frustrate  legitimate            governmental regulation of such organizations.").                                         -4-            corporate records, regardless  of how  small the  corporation            may be."   Bellis, 417 U.S.  at 100 (applying  rule to three-                       ______            person  partnership).     Indeed,  Braswell   held  the  rule                                               ________            applicable  to a  one-person corporation.3   See 487  U.S. at                                                         ___            101;  accord, e.g.,  United States  v. Lawn  Builders of  New                  ______  ____   _____________     ______________________            England,  Inc.,  856  F.2d  388,  394  (1st  Cir. 1988)  (per            ______________            curiam).   Rather,  in defining  the nature  of  a collective            entity, the Court has emphasized                  the   existence  of   an   organization  which   is                 recognized as an independent  entity apart from its                 individual members.   The group  must be relatively                 well  organized and  structured, and  not merely  a                 loose, informal  association  of individuals.    It                 must  maintain a  distinct  set  of  organizational                 records,  and recognize  rights in  its  members of                 control and access to them....   [I]t must be  fair                 to say that the records demanded are the records of                 the   organization  rather   than   those  of   the                 individual ....            Bellis,  417 U.S.  at 92-93.   See,  e.g., 1  W. LaFave  & J.            ______                         ___   ____            Israel, Criminal  Procedure   8.12(b), at  695 (1984) (entity                    ___________________            exception  not inapplicable  "simply because  an organization            embodie[s] a combination of personal and group interests; the            presence  of an  organizational structure  serving  the group            interest [is]  sufficient").  The crucial  factor, the Bellis                                                                   ______                                            ____________________            3.  At  the  same time,  the  Braswell  Court held  that  the                                          ________            government  could  make  no  evidentiary use  of  the  act of            production  against  the  custodian  in  his  individual  (as            opposed to representative) capacity.   487 U.S. at 118  n.11.            It also  left open the  question whether the  privilege might            apply "when the  custodian is able  to establish, by  showing            for example  that he is the sole  employee and officer of the            corporation, that the jury  would inevitably conclude that he            produced the records."  Id.                                    ___                                         -5-            Court  indicated,  was  whether  the   organization  has  "an            established   institutional   identity  independent   of  its            individual [constituents]."   417 U.S. at 95.  See  In re Two                                                           ___  _________            Grand  Jury Subpoenae Duces Tecum,  793 F.2d 69,  72 (2d Cir.            _________________________________            1986) (describing this as the "critical issue").                   Doe acknowledges that ordinary  trusts have been held to            fall  within this definition.   See Watson v. Commissioner of                                            ___ ______    _______________            Internal Revenue,  690  F.2d 429,  431 (5th  Cir. 1982)  (per            ________________            curiam); United States v. Harrison, 653 F.2d 359, 361-62 (8th                     _____________    ________            Cir. 1981);  In re  Grand Jury Proceedings  (Hutchinson), 633                         ___________________________________________            F.2d  754, 756-57 (9th Cir. 1980); In re Grand Jury Subpoena,                                               _________________________            No.  91-10708-Z  (D.  Mass 1991)  (non-nominee  Massachusetts            realty trusts).   He contends, however,  that a Massachusetts            nominee  trust is not an  ordinary trust.   Indeed, he argues            that it  should not be regarded in  this context as a "trust"            at  all,  but rather  as  something  "comparable  to  a  sole            proprietorship" or "similar to a  joint tenancy or a  tenancy            by the entirety."  Brief at 11.  We agree that  the Roe trust                               _____            (in  common with  all nominee  trusts) possesses  some unique            characteristics,  but  we  disagree  that  these  suffice  to            exclude it from the definition of collective entity.                 A nominee trust is  a "form of ownership of  real estate            which is  in considerable  use in  Massachusetts as  a title-            holding  device," Penta  v.  Concord Auto  Auction, Inc.,  24                              _____      ___________________________            Mass. App. 635,  639 (1987), "one  which affords certain  tax                                         -6-            [and  other]  advantages," Apahouser  Lock  &  Sec. Corp.  v.                                       ______________________________            Carvelli, 26  Mass.  App.  385,  388  (1988).    Its  typical            ________            features   are  the   following:   (1)  the   names  of   the            beneficiaries are filed with  the trustees, rather than being            publicly disclosed; (2) a trustee may serve simultaneously as            a beneficiary; (3) the  trustees lack power to deal  with the            trust property except as directed by the beneficiaries; (4) a            third  party may rely  on the  disposition of  trust property            pursuant to  any instrument  signed by the  trustees, without            having to inquire as  to whether the terms of  the trust have            been complied  with; and (5) the  beneficiaries may terminate            the trust at any  time, thereby receiving legal title  to the            trust property as  tenants in common  in proportion to  their            beneficial interests.   See  Birnbaum & Monahan,  The Nominee                                    ___                       ___________            Trust in  Massachusetts Real  Estate Practice, 60  Mass. L.Q.            _____________________________________________            364, 364-65 (1976).4  The third listed feature                  is the  key  to the  nominee nature  of the  trust.                 Unlike in a "true trust," the trustees of a nominee                 trust  have no power, as such, to act in respect of                 the  trust  property,  but  may  only  act  at  the                 direction  of   (in  effect,  as  agents  for)  the                 beneficiaries.            Id. at  365.  See, e.g., Johnston  v. Holiday Inns, Inc., 595            ___           ___  ____  ________     __________________            F.2d 890, 893 (1st Cir. 1979) (trustees of nominee trust have                                            ____________________            4.  See  also  Cohen, Massachusetts  Estate Tax  Planning for                _________         _______________________________________            Non-Massachusetts Residents  Owning  Real Estate  Located  in            _____________________________________________________________            Massachusetts, 70  Mass. L. Rev. 124,  126-29 (1985); Partan,            _____________            Nominee  Trusts: Refresher  Course, 14  Mass. Law.  Wkly. 850            __________________________________            (Feb. 24,  1986); MCLE,  Forms and Tax  Consequences of  Real                                     ____________________________________            Estate Ownership, 193-205, 221-32 (1986).              ________________                                         -7-            "only perfunctory duties"); Apahouser,  528 Mass. App. Ct. at                                        _________            135  ("trustees  are  frequently   seen  as  agents  for  the            principals' convenience  rather than as trustees  in the more            familiar fiduciary sense").                   The declaration of trust creating the Roe trust contains            each of  the features described  above.   In particular,  the            discretionary   authority   of  the   trustees   is  narrowly            circumscribed.     They  are  directed  to   hold  the  trust            principal, receive the income therefrom, and distribute it to            the beneficiaries at least annually.  And they are authorized            to  open and close bank accounts, deposit and withdraw funds,            and sign checks.   Apart from these  functions, "the Trustees            shall  have no  power to  deal in  or  with the  Trust Estate            except  as directed  by the  beneficiaries."   Declaration of            Trust   3.                 As Doe correctly  notes, the fact that a nominee trust's            beneficiaries retain  control over  the trustees has  led, in            other  contexts,  to the  "trust"  status being  disregarded.            See, e.g., Druker  v. State  Tax Comm'n, 374  Mass. 198,  201            ___  ____  ______     _________________            (1978) ("extreme degree of control exercised by beneficiaries            ... vitiates the creation  of a trust for purposes  of [state            income]  taxation").5     Doe  relies  particularly  on   two            bankruptcy cases: In re Village  Green Realty Trust, 113 B.R.                              _________________________________                                            ____________________            5.  As  it was unnecessary to its  decision, the Druker Court                                                             ______            avoided deciding whether the nominee trust should be regarded            as a partnership.  374 Mass. at 202 n.1.                                           -8-            105 (Bankr. D. Mass. 1990), and In re Medallion Realty Trust,                                            ____________________________            103 B.R.  8 (Bankr. D. Mass.  1989), aff'd, 120  B.R. 245 (D.                                                 _____            Mass. 1990).  Both  courts held that nominee trusts  were not            "business   trusts"  within   the  meaning  of   the  federal            bankruptcy statute.   More important, in  determining how the            entities should  be characterized, they each  disregarded the            trust  status and  inquired into  the relationship  among the            beneficiaries.  The Village Green court, for example, stated:                                _____________                      Since the beneficiaries  of the nominee  trust                 have the  exclusive power to direct  the activities                 of  the  trustee,  it   makes  sense  to  view  the                 beneficiaries as the owners of the trust res and to                 look  to  their  relationship  to  each  other  for                 bankruptcy purposes.  In other words, it is not the                 nominee trust  itself that engages in  business; it                 is   the   principals   who  engage   in   business                 activities, using the device of a nominee trust and                 the  assistance  of   their  trustee/agent.     The                 relationship   of  the   beneficiaries  may   be  a                 partnership,   corporation,  co-tenancy   or  other                 entity.            113 B.R. at  114; accord  Medallion Realty, 103  B.R. at  12.                              ______  ________________            After examining Massachusetts law, the Medallion Realty court                                                   ________________            determined  that  the  "trust"   was  properly  viewed  as  a            partnership.   Id.  at 12-14.   The  Village Green  court, by                           ___                   _____________            contrast, simply dismissed the  petition, putting the onus on            the  beneficiaries to refile under a proper format.  113 B.R.            at 114-15.                 By  analogy, Doe  contends that  we should  overlook the            trust  status of the Roe  trust.  He  further argues, without                                         -9-            elaboration,  that  construing the  "trust" as  a partnership            (which  would keep it  within the definition  of a collective            entity)  is precluded  inasmuch as  the declaration  of trust            fails to define  the relationship between  the beneficiaries.            He  concludes,  accordingly,  that  he  holds  title  to  the            property as co-tenant or  sole proprietor, that the documents            sought are his personal  records, and that he can  resist the            subpoena on personal Fifth Amendment  grounds.  This line  of            reasoning falters on several grounds.                   Were we to disregard  the Roe trust's nominal  status as            requested and attempt  a redefinition under state law,  it is            safe to say we would not end up with  a sole proprietorship.6            Doe, after all, is not the sole beneficiary.  And we think it            unlikely  that  we would  end up  with  a tenancy  in common.            Something  more  than  joint   ownership  would  seem  to  be            involved; through the vehicle  of the Roe trust, Doe  and his            brother  over   several  years  engaged   in  the   purchase,            conversion, and attempted sale of over 300 condominium units,            presumably for profit.7  Yet we  are disinclined to undertake                                            ____________________            6.  A   sole  proprietor   (unlike  the   sole  owner   of  a            corporation) is  not subject  to the collective  entity rule.            See, e.g., Braswell, 487 U.S. at 104, 111 n.5.            ___  ____  ________            7.  Moreover,  even if the Roe trust were deemed a tenancy in            common, we note that, in the  view of one court at least, the            collective entity  rule would  nonetheless apply.   In  In re                                                                    _____            Grand Jury  Proceedings (Shiffman), 576 F.2d  703 (6th Cir.),            __________________________________            cert. denied, 439 U.S. 830 (1978), two individuals,  who with            ____________            their  spouses owned real estate as tenants in common, opened            a bank account  under the  name "G&S Investment."   The  sole                                         -10-            any  such  inquiry.    For  one  thing,  the  present  record            militates  against   it.     Doe   conveniently  proffers   a            redefinition of the Roe trust  based exclusively on the terms            of  the trust  declaration.    It  is  true  that  little  of            relevance in this  regard can be gleaned  from that document.            See Birnbaum &  Monahan, supra,  60 Mass. L.Q.  at 373  ("The            ___                      _____            declaration of trust which creates a nominee trust creates no            'association'  among  the beneficiaries  and does  not define            their  rights inter  se with  respect to  the control  of the                          _________            business.").  Yet in order properly to characterize the legal            status  of the Roe trust, one would need to ascertain whether            any subsidiary agreements existed between Doe and his brother            regarding  the  trust's  operations.    Doe  has  offered  no            evidence in this regard.   As the proponent of  the privilege            claim, it was his burden to  do so.  See, e.g., United States                                                 ___  ____  _____________            v. Wujkowski, 929  F.2d 981, 984 (4th Cir. 1991).  Cf. United               _________                                       ___ ______            States v. Bay State Ambulance and Hosp. Rental Service, Inc.,            ______    __________________________________________________            874 F.2d 20, 28 (1st Cir. 1989) (attorney-client privilege).                                            ____________________            purpose  of  that  entity  was  to  receive  income from  the            property  and disburse it  to the owners  after deducting for            expenses.  In response to a subpoena  for G&S records, one of            the owners  interposed a  Fifth Amendment  claim.   The court            determined  that G&S was  not a partnership  under state law,            but nonetheless deemed the collective entity rule applicable.            "Though  there   was  no  organized   institutional  activity            equivalent to the usual  business activity of the corporation            or  partnership,  the  records  of  G&S   undeniably  reflect            transactions which  were not  wholly those of  Dr. Shiffman."            Id. at  707.  He  was thus held to  possess the records  in a            ___            representative, rather than personal, capacity.                                         -11-                 More important, we  think such  an inquiry  unnecessary.            In In  re Grand Jury Proceedings  (Hutchinson), the condemnee               ___________________________________________            argued  that the  IRS  considered her  trust  to be  grantor-            controlled,  rendering  it  "a  shell  for  purposes  of  the            analysis set  forth in Bellis."  633 F.2d at 757.  The court,                                   ______            while  acknowledging  that  the trust  "may  possess  certain            characteristics that affect the way it is treated for federal            tax purposes,"  nonetheless held that "its  treatment for tax            purposes  is  largely  irrelevant  to  the  determination  of            whether it is  an organization  separate and  apart from  its            creator."  Id.   Analogously,  we think that  the Roe  trust,                       ___            regardless of  its technical  status under  state law,  has a            sufficiently "established  institutional identity independent            of its individual [constituents]," Bellis, 417 U.S. at 95, to                                               ______            fall within the definition of collective entity.                   "An organization may constitute a collective entity even            when it  has not taken steps to formalize its status."  In re                                                                    _____            Two Grand  Jury Subpoenae, 793 F.2d at 72 (finding collective            _________________________            entity rule  applicable to two-person law  firm, despite lack            of  partnership   agreement  and  lack  of   partnership  tax            returns).  Here, the Roe trust possesses a formal status, the            validity of which  is not  questioned under state  law.   See                                                                      ___            Penta, 24  Mass. App. Ct. at 639.  It was established in 1986            _____            by the execution and filing, with the appropriate registry of            deeds,  of a  trust declaration  detailing its  structure and                                         -12-            operation,  and has  remained in  operation since  that time.            The trustees are authorized to act independently on behalf of            the   trust   in   specific  (albeit   limited)   ways--e.g.,                                                                    ____            maintaining  bank accounts;  writing checks.8   Third parties            are  entitled  to rely  on  actions  taken by  the  trustees,            without inquiring as to their authority.  The  trustees, even            if deemed  agents with  respect to  third-party transactions,            retain fiduciary obligations with regard to the trust itself.            And,  while the evidence is  unclear in the  instant case, it            cannot be doubted in general that a nominee trust is held out            to   the  world  as   being  separate  and   apart  from  its            beneficiaries; indeed,  one of  the inducements for  creating            such an entity is to enable the latter to remain anonymous.                 It is also significant,  of course, that Doe is  not the            sole beneficiary.  As with his contention that the trust is a            sole proprietorship, his assertion that the trust records are            his "personal papers"  flies in the face  of this fact.   The            other beneficiary  obviously has an equal interest in, and an            equal  right of access to, such records.   To the extent that            the collective  entity rule still draws  nurture from notions            of privacy, Doe  cannot be  said to have  any expectation  of                                            ____________________            8.  Doe states (without  supporting evidence) that the  trust            maintains  no   separate  bank  accounts.     Yet  the  trust            declaration provides therefor.   He similarly states that the            trust  has filed no separate tax returns.  As just mentioned,            the same was true in In re Two Grand Jury Subpoenae, 793 F.2d                                 ______________________________            at 72, where a collective entity was held to exist.                                           -13-            privacy  with respect to such records.   See In re Grand Jury                                                     ___ ________________            Proceedings (Shiffman)  576 F.2d  703, 707 (6th  Cir.), cert.            ______________________                                  _____            denied,  439 U.S.  830 (1978).   This  consideration, in  any            ______            event,  reinforces  the  view  that  Doe  possesses,  and  is            directed to produce, the  trust records in his representative            rather than personal capacity.  Finally,  we   might  observe            that  Doe has  on  occasion  mischaracterized, and  otherwise            failed to address, the nature of the privilege at stake here.            To  the extent  that  the  Fifth  Amendment  applies  to  the            contents of private papers--a matter currently in some doubt,            ________            see United States v. Doe, 465 U.S. 605, 610-12 (1984); id. at            ___ _____________    ___                               ___            618  (O'Connor, J.,  concurring)--it  does so  "only in  rare            situations, where compelled disclosure  would break the heart            of our sense of privacy."  In re Steinberg, 837 F.2d 527, 530                                       _______________            (1st Cir. 1988) (quotations omitted).  Yet the  trust records            here,   pertaining  to  the   sale  of  condominiums,  cannot            conceivably  be  deemed  "intimate  personal  papers."    Id.                                                                      ___            Contrary to Doe's suggestion, therefore, the contents thereof            are clearly not privileged.  Rather,  the potential for self-            incrimination arises  only from the act  of production, i.e.,            from  the tacit  concession that  the records  exist, are  in            Doe's possession, and  are authentic.   See, e.g., Fisher  v.                                                    ___  ____  ______            United States,  425 U.S. 391,  410-11 (1976).   As mentioned,            _____________            Braswell held  that the act-of-production  privilege does not            ________            apply to  a collective  entity's custodian  of records.   Yet                                         -14-            were we to accept  Doe's argument that the  collective entity            rule is  inapplicable,  he would  have  the further  task  of            demonstrating    a   viable    act-of-production   privilege.            Curiously, Doe has failed  to address this concern.   We note            only  that, given  his  concession that  the ten  condominium            sales in  question occurred,  and given the  specificity with            which  the subpoena describes the  documents sought, it is by            no means  clear that  he would  be able  to establish such  a            claim.   See  id.  at 411  (describing "foregone  conclusion"                     ___  ___            exception); accord Doe, 465 U.S. at 614 n.13.  See  also 1 W.                        ______ ___                         _________            LaFave &  J. Israel, supra,    8.12,  at 181 n.  25.16 (Supp.                                 _____            1991) (noting that communication  of authenticity may be non-            testimonial  when specificity  of subpoena  obviates need  of            custodian to discriminate among documents).                   The order of contempt is affirmed.                  __________________________________                                         -15-