It is Possible to Incriminate Yourself in the United States Bankruptcy Courts

By: Andre Brittis-Tannenbaum

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

            The Fifth Amendment of the United States Constitution provides that, “[n]o person…shall be compelled…to be a witness against himself….”[1] This constitutional provision protects an individual from being mandated to “answer official questions put to him in any other proceeding…where the answers might incriminate him in future criminal proceedings.”[2] Although the text of the Constitution only refers to criminal proceedings, the Supreme Court has extended the privilege against self-incrimination to any proceeding, “wherever the answer might tend to subject to criminal responsibility him who gives it.”[3] However, the Supreme Court has ruled that the privilege can be waived.[4] For example, consenting to an order to provide the privileged information may waive the privilege against self-incrimination.[5] This occurred in Reid v. Wolf, where a waiver of the Fifth Amendment privilege prevented a party from withholding computerized data.[6]

            The Chapter 7 trustee for Michael Wolf, the debtor, filed a complaint with the United States Bankruptcy Court for the Northern District of Illinois against Scott Wolf (“Wolf”), the debtor’s son, to recover certain property or its value that the debtor had transferred to him as part of a family business titled “Monday Morning Quarterback” (MMQB).[7] The trustee served Wolf with discovery requests, one of which was for the production of “all computers used to publish MMQB Contract Furniture News in all ‘formats’ referenced on the [business’] website,” but Wolf failed to respond.[8] Therefore, the trustee filed a filed a motion for an order requiring Wolf to grant the trustee access to a cloud server account containing information related to the debtor’s business.[9] Wolf then agreed to resolve the issue and never objected to turning over information on Fifth Amendment grounds.[10] However, Wolf failed to comply with the court order, leading the court to impose sanctions against him, none of which prompted him to raise a Fifth Amendment claim.[11] Later, in response to a new motion seeking to have Wolf held in default for ignoring the initial sanctions, Wolf asserted his Fifth Amendment Privilege, arguing that providing the Cloud Server would be a “testimonial and incriminating act.”[12]

            Following Wolf’s assertion of his right, the court found his Fifth Amendment privilege to be waived for two reasons. First, according to the court, Wolf “agreed to the form of an order commanding him to perform the very act he now claims to be privileged.”[13] The court stated that in accepting there was ample opportunity for Wolf to reserve his privilege[14] and that there had been no material changes to his circumstances between the time of his agreement to the motions and the compliance date.[15] The court cited SEC v. TelexFree, Inc. for this proposition,[16] where a defendant was found to have waived his Fifth Amendment privilege by consenting to an order to provide accounting, or by providing a partial accounting that incriminated him in several potential or actual criminal proceedings.[17] Second, the court found that Wolf failed to “timely raise the privilege as an objection.”[18] Because of a one year delay in asserting the privilege, the court assumed that “Wolf’s eleventh-hour invocation is at least in part an attempt at dilatorily engaging in procedural gamesmanship.”[19]  These two factors ultimately led the court to hold Wolf in default, with a proposed default judgment order to be filed by the trustee, and also ordered him to “pay the trustee the amounts owed as a sanction for noncompliance….”[20]

            The Fifth Amendment provides a vital safeguard for individual liberties; however, the privilege is not absolute.  It may be waived depending on the circumstances, and an agreement to provide documents may effectuate a waiver of the privilege.

[1] U.S. Const. amend. V.

[2] Baxter v. Palmigiano, 425 U.S. 308, 316 (1976) (quoting Lefkowitz v. Turley, 414 U.S. 70, 77 (1973)).

[3] McCarthy v. Arndstein, 266 U.S. 34, 40 (1924) (distinguishing the American Right from English common law which excepts information sought for the purpose of discovering an estate in bankruptcy proceedings).

[4] Maness v. Meyers, 419 U.S. 449, 466 (1975) (protecting the progress of the trial); See also Yakus v. United States, 321 U.S. 414 (1994) (stating, “[n]o procedural principle is more familiar to this Court than that a constitutional right may be forfeited… by the failure to make timely assertion of the right…”).

[5] See SEC v. Oxford Capital Secur., Inc., 794 F. Supp. 104, 108 (S.D.N.Y 1992).

[6] In re Wolf, Case No.17-27066, 2018 Bankr. LEXIS 1549 (Bankr. N.D. Ill. May 24, 2018).

[7] Id. at *5 n. 4.

[8] Id. at *5-6.

[9] Id. at *5.

[10] Id. at *5–6.

[11] Id. at *6–7.

[12] Id. at *7

[13] Id. at *15.

[14] Id. at *11.

[15] See Id.

[16] Id.

[17] SEC v. TelexFree, Inc., 165 F. Supp. 3d 187, 192 (D. Mass. 2015).

[18] In re Wolf, Case No. 17-27066, 2018 Bankr. LEXIS 1549 at *15.

[19] Id. at *14.

[20] Id. at *9.