United States Securities and Exchange Commission v. Narvett, et al

Filing 21

ORDER granting 16 Motion to Compel, signed by Chief Judge William C Griesbach on 04/14/14. The law provides no support for Narvetts refusal to comply. Therefore, IT IS ORDERED that Defendants must produce all responsive documents to Plaintiff within twenty (20) days. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

UNITED STATES SECURITIES
AND EXCHANGE COMMISSION,
Plaintiff,
v.

Case No. 13-C-927

ROBERT NARVETT and
SHIELD MANAGEMENT GROUP, INC.,
Defendants.

ORDER GRANTING MOTION TO COMPEL

The United States Securities and Exchange Commission (SEC) brought this action against
Defendants Robert Narvett and Shield Management Group, Inc., for an order enjoining alleged
violations of the Securities and Exchange Acts, requiring the defendants to disgorge any ill-gotten
gains, and directing the defendants to pay appropriate civil penalties. The case is before the court
on a motion to compel filed by the SEC. The SEC seeks production of a variety of documents in
response to its first set of requests for production. Defendants Robert Narvett and Shield
Management Group, Inc., objected to Plaintiff’s requests, asserting that production would violate
Narvett’s Fifth Amendment privilege against self-incrimination. This was the sole objection to each
of the SEC’s requests. After an unsuccessful conference required under Civil L.R. 37, the SEC filed
this motion.
This motion is about the intersection of two related, but distinct, doctrines controlling the
application of the privilege against self-incrimination: the collective entity doctrine and the act-ofproduction doctrine. The collective entity doctrine flows from the fact that the Fifth Amendment

privilege against compulsory self-incrimination is personal in nature. Bellis v. United States, 417
U.S. 85, 90 (1974). Collective entities, like corporations, do not enjoy this privilege because they
are legal entities distinct from their members. Id. at 90, 101; see also United States v. White, 322
U.S. 694, 698 (1944) (“The constitutional privilege against self-incrimination is essentially a
personal one, applying only to natural individuals.”). Because collective entities do not enjoy the
privilege, an individual who holds records in a representative capacity cannot rely upon the privilege
to avoid producing the records of the collective entity. Braswell v. United States, 487 U.S. 99,
108–09 (1988).
The act-of-production doctrine, as the name implies, focuses not on the content of the
documents to be disclosed, but on the “communicative aspects” of the acts performed by the person
who provides the documents. Fisher v. United States, 425 U.S. 391, 410 (1976). For example, the
act of providing the documents “tacitly concedes the existence of the papers demanded and their
possession or control” by the individual, as well as the individual’s “belief that the papers are those
described.” Id. Depending on the facts and circumstance of the case, these “tacit averments” could
be “both ‘testimonial’ and ‘incriminating’ for purposes of applying the Fifth Amendment.” Id.; see
also United States v. Hubbell, 530 U.S. 27, 36 (2000) (“[W]e have also made it clear that the act of
producing documents in response to a subpoena may have a compelled testimonial aspect. We have
held that ‘the act of production’ itself may implicitly communicate ‘statements of fact.’”); United
States v. Doe, 465 U.S. 605, 612 (1984) (“Although the contents of a document may not be
privileged, the act of producing the document may be.”).
The Supreme Court directly addressed the intersection of the collective entity and act-ofproduction doctrines in Braswell. The Braswell Court concluded that the petitioner—who was also
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the corporate custodian, sole shareholder, and one of three directors of two corporations in that
case—could not “resist a subpoena for corporate records on Fifth Amendment grounds” because the
“agency rationale undergirding the collective entity decisions” remains good law despite the rise of
the act-of-production doctrine in Fisher and Doe. 487 U.S. at 108–09. In fact, Fisher “reaffirmed
the obligation of a corporate custodian to comply with a subpoena addressed to him.” Id. at 112.
The rejection of the extension of the act-of-production doctrine was not complete, however. The
Supreme Court expressly left open the question of whether the Fifth Amendment protection applies
to the production of business records when a corporation has only a single employee who also serves
as the sole officer. Id. at 118 n.11 (“We leave open the question whether the agency rationale
supports compelling a custodian to produce corporate records 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.”).
Narvett seizes upon this footnote to assert that his act of production on behalf of Shield
would implicate him. (Def. Resp. in Opp’n 1, ECF No. 19.) He argues that he falls within the
possible exception that the Supreme Court left open in Braswell because he is the corporate
defendant’s “bookkeeper; its record-keeper; its only employee; and its only shareholder.” (Id.)
According to Narvett, if he produces the information and documents requested by the SEC, “Narvett
will implicitly concede that he personally created the documents, that they were in his personal
possession or control, and that the documents are authentic.” (Id. at 3.) Because these concession
have “testimonial aspects,” his Fifth Amendment privilege should extend to protect him from
producing the information. (Id.) Narvett does not, however, cite to any court that has extended the
act-of-production doctrine as he suggests in the more than 25 years since Braswell was decided.
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Indeed, the argument has been rejected by every court that has addressed it. In United States
v. Insurance Consultants of Knox, Inc., the Seventh Circuit rejected a claim of privilege under the
Fifth Amendment to avoid compliance with an IRS summons requiring production by a taxpayer in
both his individual capacity and as secretary of a corporation of records of his financial transactions:
If Miller could refuse to comply with the summons issued to him as custodian of
documents because he has a personal interest in not incriminating himself, Braswell
and the entire line of cases that establish the collective entity doctrine, going back 93
years to Hale, would be overruled. Needless to say, that is not feasible. Even if
Miller could assert a personal interest, the Fifth Amendment privilege against
self-incrimination which exists for private papers would not protect individuals
against being forced to produce records required by law, see Shapiro v. United States,
335 U.S. 1, 17 (1948), like most of those demanded in the summonses here.
187 F.3d 755, 760 (7th Cir. 1999).
It is not clear from the decision in Insurance Consultants whether the company was a “oneman” operation as is alleged here. The First, Second, and Fourth Circuits, however, have all rejected
his argument in cases that are factually indistinguishable from this case. See, e.g., In re Grand Jury
Subpoena Issued June 18, 2009, 593 F.3d 155, 158 (2d Cir. 2010); Amato v. United States, 450 F.3d
46, 52 (1st Cir. 2006); United States v. Stone, 976 F.2d 909, 912 (4th Cir. 1992). The Ninth Circuit
rejected the extension in a case where the defendant was the sole owner, operator, and member of
several limited liability companies. United States v. Feng Juan Lu, 248 F. App’x 806, 807–08 (9th
Cir. 2007). District courts in the Seventh Circuit have also uniformly rejected the extension. See,
e.g., U.S. S.E.C. v. A Chicago Convention Ctr., LLC, 13 C 982, 2013 WL 4010585, at *6–7 (N.D.
Ill. Aug. 5, 2013); United States v. Maxey & Co., P.C., 956 F. Supp. 823, 829 (N.D. Ind. 1997);
Hewitt Associates, LLC v. Zerba, 96 C 2428, 1996 WL 734716, at *2 (N.D. Ill. Dec. 19, 1996).

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Narvett has not made any effort to distinguish any of these cases; in fact, he does not even
cite to them. He also does not make any argument based on law or policy that supports the extension
of the act-of-production doctrine, other than noting that he is the sole bookkeeper, record-keeper,
employee, and shareholder. This was equally true in the above cases where the record custodian’s
assertion of his Fifth Amendment privilege was uniformly rejected.
In Grand Jury Subpoena Issued June 18, 2009, the Second Circuit offered several reasons
for this rejection. “First, it prevents the erosion of the ‘unchallenged rule that the corporation itself
is not entitled to claim any Fifth Amendment privilege.’” 593 F.3d at 158-59 (quoting Bellis v.
United States, 417 U.S. 85, 90 (1974)). “Second, it recognizes that the decision to incorporate is
freely made and generates benefits, such as limited liability, and burdens, such as the need to respond
to subpoenas for corporate records.” Id. at 159. “Third, it avoids creating a category of
organizations effectively immune from regulation by virtue of being beyond the reach of the
Government's subpoena power.” Id. The Court also questioned the basic premise of the argument
that compliance with the subpoena was testimonial, suggesting that a jury need not be told how the
records were obtained by the government: “For example, the jury might believe the Government
obtained the documents entirely on its own, such as by conducting a search. Even if the jurors
learned that the Government obtained the documents via a subpoena, they might infer that the
corporation engaged a third party to search its records and make the production on its behalf.” Id.
The fact that the government could obtain the same documents through the execution of a
search warrant on the custodian’s home or business would seem reason enough to reject the
argument that the custodian has a Fifth Amendment right to withhold them. The records themselves
are clearly not protected. See Fisher, 425 U.S. at 410 (“The taxpayer cannot avoid compliance with
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the subpoena merely by asserting that the item of evidence which he is required to produce contains
incriminating writing, whether his own or that of someone else.”). Requiring the custodian to
produce the records in response to a subpoena is far less intrusive than executing a search warrant
for them at his home or business and no more incriminating. For this reason, it is difficult to see
how requiring the custodian to produce the records could ever be deemed a violation of the
custodian’s Fifth Amendment rights.
In any event, the law provides no support for Narvett’s refusal to comply. Accordingly,
Plaintiff’s Motion to Compel is GRANTED.
IT IS THEREFORE ORDERED that Defendants must produce all responsive documents
to Plaintiff within twenty (20) days.
Dated this 14th

day of April, 2014.

s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court

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