Volume 24 Number 12, December 2010 SECURITIES LITIGATION “The Fifth Amendment Can & certainly appears most frequently in the popular imagination in criminal courtroom dramas and Will Be Used Against You In high-profi le prosecutions, it also can have a cru- a (Federal) Court of Law” cial and even a case-determinative effect in just the type of civil litigation that in-house counsel Although it may sound completely counterintui- must deal with day in and day out. Some fre- tive and unfair, an individual’s exercise of his con- quently overlooked quirks of Fifth Amendment stitutional right against self-incrimination could jurisprudence in the civil arena may become traps jeopardize a company’s right to defend itself in civil for civil litigators and in-house counsel if they are litigation. In fact, even when former employees and ignored or not fully appreciated in evaluating and non-parties “take the Fifth,” an adverse inference defending a dispute. This is true whether the dis- of wrongdoing could arise against the company. pute involves issues relating to securities, antitrust, consumer protection, or other business related By David A. Battaglia and laws. In essence, and contrary to popular opin- Vanessa C. Adriance ion, assertion of the Fifth Amendment by pres- ent or former employees can lead to an adverse Attorneys and lay citizens alike feel that they inference of improper or wrongful conduct by have at least a passing familiarity with the Fifth the corporation in civil litigation, in certain cir- Amendment to the United States constitution cumstances and often within a court’s discretion. and its protection against self-incrimination— Accordingly, care is required in addressing this they know that it will protect them and their potential issue. clients from being forced to give testimony that may incriminate them. Corporate in-house coun- Background sel may believe that the Fifth Amendment does not have much of a bearing on their day-to-day The Fifth Amendment to the United States con- civil practice, and think of it as mostly a creature stitution protects individuals from (among other of the criminal courts—a place where they rarely things) being forced to incriminate themselves. The fi nd themselves. While the Fifth Amendment protection afforded by the Fifth Amendment is broad, applying in civil and criminal proceedings, and to guilty and innocent parties. 1 A witness may David A. Battaglia is a partner, and Vanessa C. Adriance assert his Fifth Amendment rights and refuse to is an associate, at Gibson, Dunn & Crutcher LLP in Los provide any “answers [that] could reasonably fur- Angeles, CA. nish a link in the chain of evidence against him.” 2 A witness also may assert his Fifth Amendment supported by independent evidence. 8 Second, the privilege any time that “a responsive answer to proponent must show that there is a substantial the question or an explanation or why it cannot need for the evidence sought, and that no less be answered might be dangerous because injurious burdensome way to get it exists. 9 , 10 disclosure could result.” 3 The Fifth Amendment privilege is broad because “truthful responses of In addition to these two prerequisites, the an innocent witness…may provide…incriminat- type of adverse inference that can be made is lim- ing evidence from the speaker’s own mouth.” 4 It ited. An inference may be made only about the follows naturally from this protection that silence answers to the specifi c questions asked of the wit- following an invocation of the Fifth Amendment ness asserting his rights. An inference may be no privilege may not be used to support a criminal broader than the question asked, and the jury must conviction, and that a jury in a criminal proceeding be instructed about this limitation. 11 Put another may draw no inference from a witness’s invocation way, no inference can be made if the questions that of his or her Fifth Amendment rights. would give rise to that specifi c inference were not asked of the witness. 12 Though these basic tenets In civil trials in most state courts, the same of federal privilege law are relatively clear and rule holds true. 5 A witness may invoke Fifth well established, when they apply is murkier. Amendment rights in a civil proceeding, and the jury may not make any inference based on that Adverse Inferences by Non-Parties invocation that the witness is guilty of some wrongdoing. Indeed, if at all possible, the jury A factor complicating adverse inferences from should be prevented from hearing the invocation Fifth Amendment invocation in civil cases is the at all. However, this currently is not the case in stature of the party invoking the Fifth Amend- Federal court. Under the Federal Rules of Civil ment. In other words, can a fact fi nder in a fed- Procedure and the relevant case law,6 if a witness eral civil case be permitted to draw a negative invokes his or her Fifth Amendment right not to inference against a party based on the invocation incriminate himself in a civil trial, a jury may, in of the Fifth Amendment by a non-party? There certain circumstances, make an inference of guilt is no defi nitive answer to this question. Rather, or wrongdoing by the party against whom the tes- courts must engage in a fact-intensive inquiry that timony is offered. Such an inference may be per- will inevitably be different in each case to deter- missible regardless of whether or not the witness mine how a non-party’s invocation of the Fifth is a party himself. Amendment may be used against a party. When Are Negative Inferences Protected? The most prominent case on this issue comes from the Second Circuit and sets up a loose set In stark contrast to most states’ laws, federal of factors to determine when adverse inferences law can permit a jury to hear and draw nega- should be drawn. In LiButti v. United States , the tive inferences based on invocations of the Fifth court, after outlining the relevant case law, dis- Amendment privilege against self-incrimination in tilled four “non-exclusive factors which should civil trials. 7 Under federal law, an adverse inference guide the trial court” in making determinations can follow from a witness’s exercise of his or her regarding whether adverse inferences can be made rights under the Fifth Amendment to the United from non-parties’ decisions to invoke the Fifth States Constitution when two conditions are met. Amendment. 13 The four LiButti factors are: First, the proponent of the inference must 1. The nature of the relevant relationships . While show that the inference sought is separately no particular relationship governs, the nature of INSIGHTS, Volume 24, Number 12, December 2010 2 the relationship will invariably be the most sig- Former employees do fi t within the LiButti nifi cant circumstance. The relationship should framework. However, there also is a large body be examined from the perspective of a non-party of case law that specifi cally addresses inferences witness’ loyalty to the plaintiff or defendant, as based on privilege invocations by former employ- the case may be. The closer the bond between ees. Generally, courts have held that the fact that witness and party, the less likely the non-party a proffered witness invoking the Fifth Amend- witness would be to render testimony that would ment is a former employee is not a per se bar to damage the relationship. an adverse inference based on that testimony. For example, the Second Circuit addressed this issue 2. The degree of control of the party over the in the case of Brinks v. City of New York . 17 I n nonparty witness. The degree of control which the Brinks , the Second Circuit allowed the jury to party has over the non-party witness in regard to make adverse inferences against Brinks due to the key facts and general subject matter of the lit- the invocation of the Fifth Amendment by its igation will likely inform the trial court whether former employees. 18 Similarly, the Third Circuit the assertion of the privilege should be viewed as in RAD Services Inc. v. Aetna Casualty and Surety akin to testimony admissible under Fed. R. Evid. Co., also allowed evidence of the invocation of 801(d)(2), and may accordingly be viewed, as in the Fifth Amendment by former employees to Brink’s, as a vicarious admission. be used to infer an answer unfavorable to the former employer. 19 In RAD Services , the Third 3. The compatibility of the interests of the Circuit wrote, “the mere fact that the witness no party and non-party witness in the outcome of the longer works for the corporate party should not litigation. The trial court should evaluate whether preclude as evidence his invocation of the Fifth the nonparty witness is pragmatically a noncap- Amendment.” 20 tioned party in interest and whether the assertion of the privilege advances the interests of both the Courts have rejected a non-party witness and the affected party in the outcome of the litigation. mechanical approach to determining whether the 4. The role of the nonparty witness in the litiga- jury may make negative tion. Whether the non-party witness was a key fi g- inferences about an ure in the litigation and played a controlling role in respect to any of its underlying aspects also employer because of an logically merits consideration by the trial court. 14 employee’s silence. LiButti makes clear that the “overarching con- In the employee or former employee context, cern is fundamentally whether the adverse infer- courts generally are willing to allow the invocation ence is trustworthy under all of the circumstances of the Fifth Amendment by a non-party employee and will advance the search for truth.” 15 The to be used to draw a negative inference against the LiButti court thus set up a test that requires an employer, provided all of the other criteria for an intense, fact-based analysis in each case, putting inference are met.