Beware of Judgment Debtors Using the Fifth Amendment To Shield Their Assets

Perhaps no constitutional right is as misunderstood and abused as the privilege against self-incrimination guaranteed by the Fifth Amendment of the U.S. Constitution.

Whether it is the endless stream of television and motion picture legal dramas, which almost always sacrifice accuracy for the sake of dramatic effect, or a general climate of risk aversion in the legal profession which is to blame, the public and their attorneys are increasingly under the impression that the Fifth Amendment may be invoked at will, regardless of the context or the line of inquiry, simply by representing that the witness fosters a fear of criminal prosecution no matter how remote that risk may actually be. This is equally true and no more obvious than in the context of a judgment debtor examination.

Admittedly, the Supreme Court long ago explained that the Fifth Amendment should be given a liberal interpretation: “It has been repeatedly decided that [the Fifth Amendment] should receive a liberal construction, so as to prevent stealthy encroachment upon or ‘gradual depreciation’ of rights secured by [it], by imperceptible practice of courts or by well-intentioned, but mistakenly overzealous executive officers.” Gouled v. United States 255 U.S. 298, 304 (1921).

Similarly, in Fisher v. United States 425 U.S. 391 (1976), the Supreme Court noted that “[h]istory and principle, not the mechanical application of its wording, have been the life of the [Fifth] Amendment.”

No Blanket Application.

Nevertheless, the Fifth Amendment cannot be invoked in blanket fashion. For example, in California, that is true even if the witness invoking the Fifth Amendment is the subject of a pending criminal investigation or prosecution. See, e.g., Troy v. Superior Court, 186 Cal.App.3d 1006, 1013 n. 5 (Cal. Ct. App. 1987) (explaining that even the pendency of criminal proceedings does not relieve a witness of his/her obligation to testify in civil proceedings).

The court explained, “[i]t is not enough that the witness [invoking the Fifth Amendment privilege] fears incrimination from answering questions; the fear must be reasonable in light of the witness’ specific circumstances, the content of the questions, and the setting in which the questions are asked.” (quoting Brunswick Corp. v. Doff 638 F.2d 108, 110 (9th Cir. 1981)).

Rather, the Troy court said that “the privilege protects only against ‘real dangers,’ and not ‘remote and speculative possibilities.’ ” (quoting U.S. v. Jones, 703 F.2d 473, 476 (10th Cir. 1983)); see also, e.g., Ohio v. Reiner 532 U.S. 17, 21 (2001) (explaining that a danger of incrimination “of ‘imaginary and unsubstantial character’ will not suffice.”) (citation omitted); Hoffman v. U.S. 341 U.S. 479, 486-487 (1951) (explaining that the privilege “must be confined to instances where the witness has reasonable cause to apprehend danger from a direct answer”); Capital Products Corp. v. Hernon 457 F.2d 541, 543 (8th Cir. 1972) (explaining that in evaluating a Fifth Amendment privilege claim, the trial court must determine whether the claimant is confronted by “substantial and ‘real’ ” and not merely “trifling or imaginary,” hazards of incrimination).

Nexus Required Between Information, Prosecution.

The Court of Appeal has explained that in order to establish that his or her fear is reasonable in nature under the circumstances presented, the person asserting the Fifth Amendment privilege must demonstrate a “nexus” between the information being sought and the risk of criminal prosecution and/or conviction. See Troy (citing Martin-Trigona v. Gouletas 634 F.2d 354, 360 (7th Cir. 1980)).

Accordingly, a “blanket refusal to testify is unacceptable; a person claiming the Fifth Amendment privilege must do so with specific reference to particular questions asked or other evidence sought.” Warford v. Medeiros 160 Cal.App.3d 1035, 1045 (Cal. Ct. App. 1984). “[O]nce this is done, the trial court must undertake a particularized inquiry with respect to each specific claim of privilege to determine whether the claimant has … establish[ed] that the testimony or other evidence sought might tend to incriminate him.” Id.; see also Fuller v. Superior Court 87 Cal.App.4th 299, 305 (Cal. Ct. App. 2001) (explaining that “a court determines whether a specific question poses the threat of self-incrimination after conducting a particularized inquiry, deciding in connection with each specific area that the questioning party seeks to explore whether or not the privilege is well founded.”).

Thus, the burden is on the witness invoking the Fifth Amendment privilege to show that the testimony or other evidence being compelled could tend to incriminate him or her. See, e.g., Warford at 1045.

Last-Ditch Effort.

Nevertheless, depending upon the circumstances, a judgment debtor may attempt to invoke the Fifth Amendment during his or her judgment debtor examination in a last-ditch attempt to shield their assets from judgment creditors attempting to identify and/or locate assets potentially available for satisfaction of their judgment.

Unfortunately, overcoming the Fifth Amendment could prove to be a costly and time-consuming endeavor for judgment creditors. In fact, there is no guarantee that judgment creditors will succeed. In which case, a judgment creditor is left with a judgment that grows with each passing day and cannot be enforced.

As a preliminary matter, it is well-established that the Fifth Amendment privilege does apply in judgment debtor proceedings. See, e.g., Troy at 1010; Hooser v. Superior Court 84 Cal.App.4th 997, 1002-1003 (Cal. Ct. App. 2000) (same).

However, Troy is particularly instructive in terms of the burden faced by judgment debtors seeking to invoke the Fifth Amendment privilege in response to questions regarding their assets as it clearly establishes that inquiry regarding assets, in the context of a judgment debtor examination, rarely, if ever, will justify invocation of the Fifth Amendment privilege, let alone in blanket fashion.

Questions Posed to Judgment Debtor.

In Troy, the witness, who had previously been convicted of conspiracy and mail fraud and had been sentenced to three years in federal prison, and who was then serving a three-year period of formal probation, objected to questions put to him during a judgment debtor examination in connection with a subsequent and related civil lawsuit. In assessing the questions posed to the judgment debtor (Troy), the Court of Appeal commented:

[I]n this case, the questions put to Troy were those customarily asked at judgment debtor examinations. Their incriminating nature is not self-evident. It was therefore Troy’s burden to show why any response on his part would pose a threat of self-incrimination. Troy did not meet that burden.

The Court of Appeal noted:

Troy’s theory is that the revelation of any assets or personal information about himself could lead to inquiry of how and when those assets were acquired, making that information a ‘link in the chain’ of evidence which any number of prosecuting agencies might use to initiate a new criminal case against him.

The Court of Appeal further noted:

As evidence of his status as an easy target for further prosecution, Troy points to the fact that he was investigated by the United States Postal Inspectors even after he had been convicted and sentenced to federal prison. Added to this is the fact that Troy is still on formal probation and is also subject to an injunction procured by the Securities and Exchange Commission in connection … . A violation of either the probation or the injunction could earn Troy a swift return to federal prison.

Lastly, the Court of Appeal observed:

This is a civil proceeding in which a [judgment creditor] … is interested only in discovery assets which can be used to satisfy outstanding judgments. Were we to accept Troy’s argument, as the respondent court aptly put it, ‘a defrauder who makes it big can always be cloaked and immune from a subsequent judgment debtor examination because there’s always, quote, somebody out there who can come around and initiate a prosecution.’ Troy’s fear of inadvertently providing information which might cause him to be preyed upon by various prosecutorial agencies is based upon pure speculation and not the existence of the ‘real danger’ which must exist for Troy to properly invoke the Fifth Amendment privilege. (emphasis added).

Judgment Creditors Get Leeway in Inquiry.

At this point, it bears noting that judgment creditors are traditionally given a great deal of leeway in terms of the scope of inquiry during a judgment debtor examination. Indeed, “[a]t the [judgment debtor] examination, the judgment creditor has the opportunity to inquire of the judgment debtor regarding property the debtor has, or may acquire in the future, that may be available to satisfy the judgment.” Hooser at 1002.

As explained by the California Court of Appeal, “[a] judgment debtor examination is intended to allow the judgment creditor a wide scope of inquiry concerning property and business affairs of the judgment debtor.” See id.; see also Troy (“While the relevance of some of the questions may seem remote, the purpose of a judgment debtor examination is to leave no stone unturned in the search for assets which might be used to satisfy the judgment.”) (citing Martin-Trigona at 357).

With that in mind, during a judgment debtor examination, a judgment creditor will typically pose questions which are intended to solicit information regarding the nature, size and location of the judgment debtor’s then current assets which, in turn, can potentially be used to satisfy the judgment against them.

Almost No Limit to What Can Be Asked.

By way of example, a judgment creditor may consider questioning a judgment debtor regarding his or her tax returns, outstanding debts, ownership interests in entities, annuities, commodities, powers of attorney held by him or her, stocks, bonds, insurance policies, vehicles and any other real or personal property held in his or her name. A judgment creditor may even ask a judgment debtor about the amount money in his or her pocket (or wallet or purse) and whether he or she owns the car they drove to their examination. Indeed, under normal circumstances, there is almost no limit on what can be asked during a judgment debtor examination assuming the answer may shed some light regarding the judgment debtor’s assets.

As noted in Troy, the incriminating nature of such questions is not self-evident. The Court of Appeal perhaps said it best in describing the nature of questions typically posed during a judgment debtor examination:

[N]othing either inherent in the questions or in the setting in which they were asked suggests that the defendant was confronted by a substantial and real hazard of incrimination. The questions themselves were innocuous. There was nothing to link the defendant with any criminal investigation or proceeding. The defendant has not alleged that the purpose of the examination was anything other than an ordinary search of his assets in order to satisfy the judgment against him.

The fact is that a judgment creditor is ordinarily not concerned with the source of a judgment debtor’s assets and/or the circumstances under which the judgment debtor acquired said assets. A judgment creditor merely wishes to be paid. As soon as possible. Nothing more.

Fifth Amendment Invoked in Blanket Fashion.

Nevertheless, during recent judgment debtor examinations, the judgment debtors invoked the Fifth Amendment in blanket fashion when I attempted to question them about their assets. In attempting to explain why the judgment debtors were invoking the Fifth Amendment, their counsel asserted that the judgment debtors were the subject of ongoing state and federal criminal investigations regarding some unspecified crime(s).

Specifically, counsel for the judgment debtors asserted that certain unspecified business transactions, financing activities and/or business operations in which the judgment debtors were purportedly either directly or indirectly involved were being actively investigated by unnamed agencies. Relying on these claims, counsel for the judgment debtors asserted that any questions regarding the judgment debtors’ ownership, possession or control of assets, whether personal or business related, justified invocation of the Fifth Amendment privilege. The insinuation was that those assets, whether personal or business related, were the result of the unspecified business transactions and/or financing activities being investigated.

However, as discussed above, unless a judgment debtor can establish that he or she is then currently being investigated for a definitive crime, then the judgment debtor has failed to and cannot establish the requisite nexus between information regarding their current personal assets and finances and a substantial and real risk of criminal prosecution or conviction required to invoke the Fifth Amendment privilege.

Need to Invoke Fifth Amendment Negated?

Of course, there is also the possibility that certain crimes are now time-barred, which would also negate the need to invoke the Fifth Amendment privilege. See, e.g., Blackburn v. Superior Court 21 Cal.App.4th 414, 428 (Cal. Ct. App. 1993) (“It has long been the law that if a witness can no longer be punished, there is no need for the protection of the Fifth Amendment.”).

In my case, when I pressed for details regarding the purported ongoing criminal investigation, the judgment debtors’ counsel claimed to have spoken to some unnamed source with some undefined connection to and/or knowledge of the purported criminal investigation who, in turn, represented that the criminal investigation was still pending or, at least, remained open.

Yet, the judgment debtors’ counsel refused to disclose the name of his contact, his contact’s agency affiliation, the agency(ies) conducting the criminal investigation, the criminal charges being investigated, and/or when his contact anticipated that the purported criminal investigation would be completed or resolved. In refusing to do so, the judgment debtors’ counsel cited the confidential nature of a pending criminal investigation.

Needless to say, this presented a near impossible challenge for me as well as the presiding judge (a referee) because there was no way to test the veracity of the judgment debtors’ counsel’s representations (or those of his unnamed contact) regarding the nature and current status of the purported ongoing criminal investigation.

More Than an Informed Opinion Required.

In short, without names and other details, there is simply no way to know whether the individuals on which the judgment debtors’ rely are providing first-hand information, merely offering an informed opinion or are simply speculating regarding the purported criminal investigation, including its scope and current status.

Unfortunately, in my case, the judge upheld that judgment debtors’ assertion of the Fifth Amended privilege and severely narrowed the permissible scope of the judgment debtor examination.

While disappointed, I was not entirely surprised. It stands to reason, given that a constitutional right is at issue and the possibility of being appealed, that a judge may, and likely will, be less inclined to challenge or reject an individual’s invocation of the Fifth Amendment privilege, assuming the individual invoking the Fifth Amendment privilege puts forth a colorable basis for doing so. Accordingly, as was true in my recent case, the judge (or referee) may choose to rely on the representations of the judgment creditor’s counsel, regardless of whether those representations are unsubstantiated and/or speculative in nature.

Alternatively, if uncertain, a judge or referee may simply put off resolving the issue for a few months to see what comes of the purported pending criminal investigation or prosecution. Of course, that could happen repeatedly. In the meantime, the judgment creditor will be left with a judgment that grows with each passing day and with no available means by which to enforce it assuming the nature and location of the judgment debtor’s assets is unknown.

Rights of Judgment Creditor Shouldn’t Be Sacrificed.

When representing a judgment creditor, it is essential that the judge or referee be reminded of that fact as well as the fact that the interests and rights of a judgment creditor may not simply be dismissed or sacrificed for the benefit of a judgment debtor, regardless of whether the judgment debtor is seeking to invoke the Fifth Amendment. The judge or referee owes a duty to both the judgment debtor as well as the judgment creditor and, as such, must make every effort to ensure that there is a legitimate and proper basis for invoking the Fifth Amendment privilege. See, e.g., In re Marriage of Sachs 95 Cal.App.4th 1144, 1159 (Cal. Ct. App. 2002) (quoting Coleman v. Galvin, 78 Cal.App.2d 313, 321 (Cal. Ct. App. 1947)) (“[I]t is the duty of the court, while it protects the witness in the due exercise of the [Fifth Amendment] privilege, to take care that he does not, under the pretense of defending himself, screen others from justice.”)

The foregoing is not intended to discourage a judgment creditor from initiating a lawsuit or seeking to enforce a judgment when and if a favorable judgment is achieved and entered. Rather, the purpose is to encourage attorneys to properly assess the risk and costs associated with proceeding to judgment and relying on a judgment debtor examination to identify assets which are potentially available for satisfaction of the judgment. This is particularly true if the judgment creditor is aware of prior or pending criminal proceedings or investigations involving the judgment creditor.

A judgment creditor needs to understand that there is a difference between what the law provides, or rather permits, and what is actually allowed, in practice. As explained above, while California and Federal law grant a judgment creditor a great deal of latitude in attempting to identify and locate the judgment debtor’s assets and imposes restrictions in terms of the circumstances under which the Fifth Amendment privilege against self-incrimination may be invoked, in practice, judges and referees often tend to adopt a more liberal stance on the matter.