In Re: v. Grand Jury Subpoena
U.S. Court of Appeals for the First Circuit
In Re: v. Grand Jury Subpoena
Opinion
USCA1 Opinion
August 31, 1992
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No. 92-1881
IN RE:
GRAND JURY SUBPOENA.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
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Before
Torruella, Cyr and Stahl,
Circuit Judges.
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Albert F. Cullen, Jr., Susan A. Correia and Cullen & Butters
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on brief for appellant.
A. John Pappalardo, United States Attorney, and Mark W.
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Pearlstein, Assistant United States Attorney, on brief for
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appellee.
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Per Curiam. At issue here is whether an individual
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involved in a Massachusetts "nominee trust" can assert the
Fifth Amendment privilege against self-incrimination in order
to resist a grand jury subpoena seeking trust records. The
district court held that no privilege was available because
the trust was a "collective entity." We agree and therefore
affirm the order of contempt.
I.
In December 1986, appellant John Doe, along with his
brother, created a nominee trust (the "Roe trust") for the
purpose of conducting real estate transactions. Doe and his
brother designated themselves as the sole beneficiaries and
the sole trustees. The Roe trust purchased a 204-unit
apartment complex in Arlington, Massachusetts that same
month, thereafter converting it to condominium form and
offering the units for sale.1 Subsequently, a federal grand
jury commenced an investigation into whether fraudulent
information had been provided to federally insured financial
institutions in connection with the sale and financing of
these condominiums. As part of this inquiry, Doe was served
on February 14, 1992, in his capacity as custodian of
records, with a subpoena duces tecum calling for the
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1. According to an FBI affidavit, the Roe trust undertook
similar measures with respect to a second complex containing
124 units, and eventually succeeded in selling over half the
units at each location.
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production of various trust records. The scope of the
subpoena was narrow and specific: it called for "[a]ll
closing documents, including, but not limited to, purchase
and sale agreements, with respect to the sale of [ten
specified units at the Arlington complex] sold in January
1989 to [a specified individual]."
Doe refused to comply with the subpoena, claiming that
to do so would impinge on his personal Fifth Amendment
privilege. The district court granted the government's
motion to compel, but Doe persisted in his refusal to produce
the records at an appearance before the grand jury on July
13. That same day, the district court held him in contempt,
and on July 29 it denied his motion for a stay pending
appeal. Doe filed the instant appeal on July 31, and on
August 4 we stayed the order of confinement pending appeal.
II.
The collective entity rule reflects the notion that the
Fifth Amendment privilege against self-incrimination is a
"purely personal" one, Bellis v. United States, 417 U.S. 85,
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90 (1974), which applies "only to natural individuals,"
United States v. White, 322 U.S. 694, 698 (1944). The
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privilege thus "cannot be utilized by or on behalf of any
organization." Id. at 699. In particular, "an individual
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cannot rely upon the privilege to avoid producing the records
of a collective entity which are in his possession in a
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representative capacity, even if these records might
incriminate him personally." Bellis, 417 U.S. at 88; accord,
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e.g., Braswell v. United States, 487 U.S. 99, 109 (1988)
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(collective entity's custodian of records cannot resist
subpoena on ground that act of production, as opposed to
contents of records, would be personally incriminating). As
we noted in In re Grand Jury Proceedings (John Doe Co.,
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Inc.), 838 F.2d 624 (1st Cir. 1988), the "often quoted
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rationale" for the collective entity rule is that
individuals, when acting as representatives of a
collective group, cannot be said to be exercising
their personal rights and duties nor to be entitled
to their purely personal privileges. Rather they
assume the rights, duties and privileges of the
artificial entity or association of which they are
agents or officers and they are bound by its
obligations. In their official capacity,
therefore, they have no privilege against self-
incrimination.
Id. at 625 (quoting White, 322 U.S. at 699).2 See generally
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Braswell, 487 U.S. at 104-09 (reviewing evolution of rule).
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Whether an organization is properly deemed a collective
entity has little to do with its size. "It is well settled
that no privilege can be claimed by the custodian of
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2. See also Bellis, 417 U.S. at 90 ("In view of the
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inescapable fact that an artificial entity can only act to
produce its records through its individual officers or
agents, recognition of the individual's claim of privilege
with respect to the financial records of the organization
would substantially undermine the unchallenged rule that the
organization itself is not entitled to claim any Fifth
Amendment privilege, and largely frustrate legitimate
governmental regulation of such organizations.").
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corporate records, regardless of how small the corporation
may be." Bellis, 417 U.S. at 100 (applying rule to three-
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person partnership). Indeed, Braswell held the rule
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applicable to a one-person corporation.3 See 487 U.S. at
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101; accord, e.g., United States v. Lawn Builders of New
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England, Inc., 856 F.2d 388, 394 (1st Cir. 1988) (per
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curiam). Rather, in defining the nature of a collective
entity, the Court has emphasized
the existence of an organization which is
recognized as an independent entity apart from its
individual members. The group must be relatively
well organized and structured, and not merely a
loose, informal association of individuals. It
must maintain a distinct set of organizational
records, and recognize rights in its members of
control and access to them.... [I]t must be fair
to say that the records demanded are the records of
the organization rather than those of the
individual ....
Bellis, 417 U.S. at 92-93. See, e.g., 1 W. LaFave & J.
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Israel, Criminal Procedure 8.12(b), at 695 (1984) (entity
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exception not inapplicable "simply because an organization
embodie[s] a combination of personal and group interests; the
presence of an organizational structure serving the group
interest [is] sufficient"). The crucial factor, the Bellis
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3. At the same time, the Braswell Court held that the
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government could make no evidentiary use of the act of
production against the custodian in his individual (as
opposed to representative) capacity. 487 U.S. at 118 n.11.
It also left open the question whether the privilege might
apply "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." Id.
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Court indicated, was whether the organization has "an
established institutional identity independent of its
individual [constituents]." 417 U.S. at 95. See In re Two
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Grand Jury Subpoenae Duces Tecum, 793 F.2d 69, 72 (2d Cir.
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1986) (describing this as the "critical issue").
Doe acknowledges that ordinary trusts have been held to
fall within this definition. See Watson v. Commissioner of
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Internal Revenue, 690 F.2d 429, 431 (5th Cir. 1982) (per
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curiam); United States v. Harrison, 653 F.2d 359, 361-62 (8th
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Cir. 1981); In re Grand Jury Proceedings (Hutchinson), 633
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F.2d 754, 756-57 (9th Cir. 1980); In re Grand Jury Subpoena,
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No. 91-10708-Z (D. Mass 1991) (non-nominee Massachusetts
realty trusts). He contends, however, that a Massachusetts
nominee trust is not an ordinary trust. Indeed, he argues
that it should not be regarded in this context as a "trust"
at all, but rather as something "comparable to a sole
proprietorship" or "similar to a joint tenancy or a tenancy
by the entirety." Brief at 11. We agree that the Roe trust
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(in common with all nominee trusts) possesses some unique
characteristics, but we disagree that these suffice to
exclude it from the definition of collective entity.
A nominee trust is a "form of ownership of real estate
which is in considerable use in Massachusetts as a title-
holding device," Penta v. Concord Auto Auction, Inc., 24
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Mass. App. 635, 639 (1987), "one which affords certain tax
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[and other] advantages," Apahouser Lock & Sec. Corp. v.
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Carvelli, 26 Mass. App. 385, 388 (1988). Its typical
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features are the following: (1) the names of the
beneficiaries are filed with the trustees, rather than being
publicly disclosed; (2) a trustee may serve simultaneously as
a beneficiary; (3) the trustees lack power to deal with the
trust property except as directed by the beneficiaries; (4) a
third party may rely on the disposition of trust property
pursuant to any instrument signed by the trustees, without
having to inquire as to whether the terms of the trust have
been complied with; and (5) the beneficiaries may terminate
the trust at any time, thereby receiving legal title to the
trust property as tenants in common in proportion to their
beneficial interests. See Birnbaum & Monahan, The Nominee
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Trust in Massachusetts Real Estate Practice, 60 Mass. L.Q.
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364, 364-65 (1976).4 The third listed feature
is the key to the nominee nature of the trust.
Unlike in a "true trust," the trustees of a nominee
trust have no power, as such, to act in respect of
the trust property, but may only act at the
direction of (in effect, as agents for) the
beneficiaries.
Id. at 365. See, e.g., Johnston v. Holiday Inns, Inc., 595
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F.2d 890, 893 (1st Cir. 1979) (trustees of nominee trust have
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4. See also Cohen, Massachusetts Estate Tax Planning for
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Non-Massachusetts Residents Owning Real Estate Located in
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Massachusetts, 70 Mass. L. Rev. 124, 126-29 (1985); Partan,
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Nominee Trusts: Refresher Course, 14 Mass. Law. Wkly. 850
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(Feb. 24, 1986); MCLE, Forms and Tax Consequences of Real
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Estate Ownership, 193-205, 221-32 (1986).
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"only perfunctory duties"); Apahouser, 528 Mass. App. Ct. at
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135 ("trustees are frequently seen as agents for the
principals' convenience rather than as trustees in the more
familiar fiduciary sense").
The declaration of trust creating the Roe trust contains
each of the features described above. In particular, the
discretionary authority of the trustees is narrowly
circumscribed. They are directed to hold the trust
principal, receive the income therefrom, and distribute it to
the beneficiaries at least annually. And they are authorized
to open and close bank accounts, deposit and withdraw funds,
and sign checks. Apart from these functions, "the Trustees
shall have no power to deal in or with the Trust Estate
except as directed by the beneficiaries." Declaration of
Trust 3.
As Doe correctly notes, the fact that a nominee trust's
beneficiaries retain control over the trustees has led, in
other contexts, to the "trust" status being disregarded.
See, e.g., Druker v. State Tax Comm'n, 374 Mass. 198, 201
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(1978) ("extreme degree of control exercised by beneficiaries
... vitiates the creation of a trust for purposes of [state
income] taxation").5 Doe relies particularly on two
bankruptcy cases: In re Village Green Realty Trust, 113 B.R.
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5. As it was unnecessary to its decision, the Druker Court
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avoided deciding whether the nominee trust should be regarded
as a partnership. 374 Mass. at 202 n.1.
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105 (Bankr. D. Mass. 1990), and In re Medallion Realty Trust,
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103 B.R. 8 (Bankr. D. Mass. 1989), aff'd, 120 B.R. 245 (D.
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Mass. 1990). Both courts held that nominee trusts were not
"business trusts" within the meaning of the federal
bankruptcy statute. More important, in determining how the
entities should be characterized, they each disregarded the
trust status and inquired into the relationship among the
beneficiaries. The Village Green court, for example, stated:
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Since the beneficiaries of the nominee trust
have the exclusive power to direct the activities
of the trustee, it makes sense to view the
beneficiaries as the owners of the trust res and to
look to their relationship to each other for
bankruptcy purposes. In other words, it is not the
nominee trust itself that engages in business; it
is the principals who engage in business
activities, using the device of a nominee trust and
the assistance of their trustee/agent. The
relationship of the beneficiaries may be a
partnership, corporation, co-tenancy or other
entity.
113 B.R. at 114; accord Medallion Realty, 103 B.R. at 12.
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After examining Massachusetts law, the Medallion Realty court
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determined that the "trust" was properly viewed as a
partnership. Id. at 12-14. The Village Green court, by
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contrast, simply dismissed the petition, putting the onus on
the beneficiaries to refile under a proper format. 113 B.R.
at 114-15.
By analogy, Doe contends that we should overlook the
trust status of the Roe trust. He further argues, without
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elaboration, that construing the "trust" as a partnership
(which would keep it within the definition of a collective
entity) is precluded inasmuch as the declaration of trust
fails to define the relationship between the beneficiaries.
He concludes, accordingly, that he holds title to the
property as co-tenant or sole proprietor, that the documents
sought are his personal records, and that he can resist the
subpoena on personal Fifth Amendment grounds. This line of
reasoning falters on several grounds.
Were we to disregard the Roe trust's nominal status as
requested and attempt a redefinition under state law, it is
safe to say we would not end up with a sole proprietorship.6
Doe, after all, is not the sole beneficiary. And we think it
unlikely that we would end up with a tenancy in common.
Something more than joint ownership would seem to be
involved; through the vehicle of the Roe trust, Doe and his
brother over several years engaged in the purchase,
conversion, and attempted sale of over 300 condominium units,
presumably for profit.7 Yet we are disinclined to undertake
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6. A sole proprietor (unlike the sole owner of a
corporation) is not subject to the collective entity rule.
See, e.g., Braswell, 487 U.S. at 104, 111 n.5.
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7. Moreover, even if the Roe trust were deemed a tenancy in
common, we note that, in the view of one court at least, the
collective entity rule would nonetheless apply. In In re
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Grand Jury Proceedings (Shiffman), 576 F.2d 703 (6th Cir.),
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cert. denied, 439 U.S. 830 (1978), two individuals, who with
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their spouses owned real estate as tenants in common, opened
a bank account under the name "G&S Investment." The sole
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any such inquiry. For one thing, the present record
militates against it. Doe conveniently proffers a
redefinition of the Roe trust based exclusively on the terms
of the trust declaration. It is true that little of
relevance in this regard can be gleaned from that document.
See Birnbaum & Monahan, supra, 60 Mass. L.Q. at 373 ("The
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declaration of trust which creates a nominee trust creates no
'association' among the beneficiaries and does not define
their rights inter se with respect to the control of the
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business."). Yet in order properly to characterize the legal
status of the Roe trust, one would need to ascertain whether
any subsidiary agreements existed between Doe and his brother
regarding the trust's operations. Doe has offered no
evidence in this regard. As the proponent of the privilege
claim, it was his burden to do so. See, e.g., United States
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v. Wujkowski, 929 F.2d 981, 984 (4th Cir. 1991). Cf. United
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States v. Bay State Ambulance and Hosp. Rental Service, Inc.,
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874 F.2d 20, 28 (1st Cir. 1989) (attorney-client privilege).
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purpose of that entity was to receive income from the
property and disburse it to the owners after deducting for
expenses. In response to a subpoena for G&S records, one of
the owners interposed a Fifth Amendment claim. The court
determined that G&S was not a partnership under state law,
but nonetheless deemed the collective entity rule applicable.
"Though there was no organized institutional activity
equivalent to the usual business activity of the corporation
or partnership, the records of G&S undeniably reflect
transactions which were not wholly those of Dr. Shiffman."
Id. at 707. He was thus held to possess the records in a
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representative, rather than personal, capacity.
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More important, we think such an inquiry unnecessary.
In In re Grand Jury Proceedings (Hutchinson), the condemnee
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argued that the IRS considered her trust to be grantor-
controlled, rendering it "a shell for purposes of the
analysis set forth in Bellis." 633 F.2d at 757. The court,
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while acknowledging that the trust "may possess certain
characteristics that affect the way it is treated for federal
tax purposes," nonetheless held that "its treatment for tax
purposes is largely irrelevant to the determination of
whether it is an organization separate and apart from its
creator." Id. Analogously, we think that the Roe trust,
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regardless of its technical status under state law, has a
sufficiently "established institutional identity independent
of its individual [constituents]," Bellis, 417 U.S. at 95, to
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fall within the definition of collective entity.
"An organization may constitute a collective entity even
when it has not taken steps to formalize its status." In re
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Two Grand Jury Subpoenae, 793 F.2d at 72 (finding collective
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entity rule applicable to two-person law firm, despite lack
of partnership agreement and lack of partnership tax
returns). Here, the Roe trust possesses a formal status, the
validity of which is not questioned under state law. See
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Penta, 24 Mass. App. Ct. at 639. It was established in 1986
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by the execution and filing, with the appropriate registry of
deeds, of a trust declaration detailing its structure and
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operation, and has remained in operation since that time.
The trustees are authorized to act independently on behalf of
the trust in specific (albeit limited) ways--e.g.,
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maintaining bank accounts; writing checks.8 Third parties
are entitled to rely on actions taken by the trustees,
without inquiring as to their authority. The trustees, even
if deemed agents with respect to third-party transactions,
retain fiduciary obligations with regard to the trust itself.
And, while the evidence is unclear in the instant case, it
cannot be doubted in general that a nominee trust is held out
to the world as being separate and apart from its
beneficiaries; indeed, one of the inducements for creating
such an entity is to enable the latter to remain anonymous.
It is also significant, of course, that Doe is not the
sole beneficiary. As with his contention that the trust is a
sole proprietorship, his assertion that the trust records are
his "personal papers" flies in the face of this fact. The
other beneficiary obviously has an equal interest in, and an
equal right of access to, such records. To the extent that
the collective entity rule still draws nurture from notions
of privacy, Doe cannot be said to have any expectation of
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8. Doe states (without supporting evidence) that the trust
maintains no separate bank accounts. Yet the trust
declaration provides therefor. He similarly states that the
trust has filed no separate tax returns. As just mentioned,
the same was true in In re Two Grand Jury Subpoenae, 793 F.2d
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at 72, where a collective entity was held to exist.
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privacy with respect to such records. See In re Grand Jury
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Proceedings (Shiffman) 576 F.2d 703, 707 (6th Cir.), cert.
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denied, 439 U.S. 830 (1978). This consideration, in any
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event, reinforces the view that Doe possesses, and is
directed to produce, the trust records in his representative
rather than personal capacity. Finally, we might observe
that Doe has on occasion mischaracterized, and otherwise
failed to address, the nature of the privilege at stake here.
To the extent that the Fifth Amendment applies to the
contents of private papers--a matter currently in some doubt,
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see United States v. Doe, 465 U.S. 605, 610-12 (1984); id. at
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618 (O'Connor, J., concurring)--it does so "only in rare
situations, where compelled disclosure would break the heart
of our sense of privacy." In re Steinberg, 837 F.2d 527, 530
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(1st Cir. 1988) (quotations omitted). Yet the trust records
here, pertaining to the sale of condominiums, cannot
conceivably be deemed "intimate personal papers." Id.
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Contrary to Doe's suggestion, therefore, the contents thereof
are clearly not privileged. Rather, the potential for self-
incrimination arises only from the act of production, i.e.,
from the tacit concession that the records exist, are in
Doe's possession, and are authentic. See, e.g., Fisher v.
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United States, 425 U.S. 391, 410-11 (1976). As mentioned,
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Braswell held that the act-of-production privilege does not
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apply to a collective entity's custodian of records. Yet
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were we to accept Doe's argument that the collective entity
rule is inapplicable, he would have the further task of
demonstrating a viable act-of-production privilege.
Curiously, Doe has failed to address this concern. We note
only that, given his concession that the ten condominium
sales in question occurred, and given the specificity with
which the subpoena describes the documents sought, it is by
no means clear that he would be able to establish such a
claim. See id. at 411 (describing "foregone conclusion"
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exception); accord Doe, 465 U.S. at 614 n.13. See also 1 W.
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LaFave & J. Israel, supra, 8.12, at 181 n. 25.16 (Supp.
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1991) (noting that communication of authenticity may be non-
testimonial when specificity of subpoena obviates need of
custodian to discriminate among documents).
The order of contempt is affirmed.
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