Co-Authors: Lori Voepel and Alexander Lindvall
Published in The JSH Reporter – Fall 2019 Issue
JSH partner Lori Voepel and associate Alexander Lindvall published their article, “Public Service Announcement: If You Own a Closely Held Business Entity, You Have Waived Fifth Amendment Rights,” in the latest issue of USLAW NETWORK’S Magazine+. The article originally appeared in The JSH Reporter – Fall 2019 Issue.
Most people are familiar with “pleading the Fifth.” Most people understand it to mean that they have “the right to remain silent” and that the government cannot force them to disclose incriminating information that could lead to their own indictment or conviction. What most people don’t know, however, is that this right does not apply to most business-related activities. For example, the Supreme Court has held that corporations, partnerships, labor unions, and all “collective group[s]” with an “impersonal” character do not possess any privilege against selfincrimination.
In its harshest opinion on this topic, the Court held in Braswell v. United States—by a vote of 5 to 4—that a corporation’s sole shareholder could be forced to produce, compile, organize, and (by way of compelled testimony) authenticate his company’s incriminating business records. “[T]he custodian of…entity records holds those documents in a representative rather than a personal capacity,” the Court reasoned. Thus, “the custodian’s act of production is not deemed a personal act, but rather an act of the corporation,” which has no Fifth Amendment privilege. In other words, businesses have no privilege against self-incrimination, and records custodians are mere extensions of their businesses; therefore, they forfeit that privilege while acting on behalf of the business.
What this means in real-world terms is that businesses and their records custodians can never resist government-issued subpoenas on Fifth Amendment self-incrimination grounds, regardless of how small the business may be and even if the individual custodian is the actual target of the investigation. Assume, for example, that you and your spouse decide to open up a small business. You go to the Corporation Commission’s website, fill out the necessary paperwork, and form Mom and Pop, LLC. Congratulations, you have just forfeited a fundamental constitutional right. The moment you filed your articles of organization with the Arizona Corporation Commission, you and your spouse, as the business’s records custodians, surrendered your right to withhold any businessrelated documents from the government. The IRS or criminal prosecuting agencies can serve you with a subpoena duces tecum and require you to produce, compile, and authenticate all of your business’s records. If you refuse to comply, you will be held in contempt of court, meaning you could face serious fines and even jail time. In effect, the Braswell Court held that the government can force small-business owners to create the exhibits that will be used against them at trial.
On February 13, 2019, Jones, Skelton & Hochuli, in collaboration with Jones Day, filed a Petition for a Writ of Certiorari with the United States Supreme Court, asking the Court to hear a case that would have overturned or limited this case as it applies to small, family-owned, closely held businesses. The Court, unfortunately, denied this Petition—leaving in place, for now, the rule that businesses and their custodians do not enjoy a constitutional privilege against self-incrimination.
Under current Supreme Court precedent, such businesses have the right to engage in free speech, the right to freely exercise their religion, the right to freely associate with whom they choose, the right to be free from unreasonable government searches and seizures, the right not to be tried for the same crime more than once, the right to a jury trial, the right to equal protection under the law, and the right to due process of law.
In our Petition, we argue that it makes no sense to afford the owners of small businesses so many constitutional rights but to arbitrarily withhold Fifth Amendment rights without even requiring any type of waiver. As the Supreme Court recently explained in its Hobby Lobby decision: small, family-owned businesses are often mere extensions of “the human beings who own, run, and are employed by them.” And when rights are extended to businesses, “the purpose is to protect the rights of these people.” Unfortunately, the Court was not ready to address this discrepancy and will continue to withhold Fifth Amendment self-incrimination rights from the owners of small and family-owned businesses for the foreseeable future.
Lori Voepel has handled over 300 federal and state appeals in virtually every area of the law, including governmental liability, medical and legal malpractice, employment law, civil rights, insurance defense and bad faith, product liability, school law, prison liability, administrative law, commercial law, construction law, airline liability, criminal law, workers’ compensation, and family law.
Alexander Lindvall works in the firm’s Transportation, Auto, Products and General Liability Trial Group. He focuses his practice in the areas of automobile and commercial trucking defense, products liability, wrongful death and personal injury, and general liability defense.