Corporate entities have no Fifth Amendment right that allows their agents to withhold incriminating documents, 14th COA says in denying mandamus relief

In Re Russo (Tex.App. - Houston [14th Dist.] April 27, 2018) 

“An individual cannot rely upon the [Fifth Amendment] privilege to avoid producing the records of a collective entity which are in his possession in a representative capacity, even if these records might incriminate him personally.” [...] Russo has not shown that the documents he withheld are not records of a corporate entity within his possession or that the Fifth Amendment act-of-production privilege applies to these documents. Accordingly, we deny Russo’s petition for writ of mandamus and lift our partial stay of the March 20, 2018 order.  

Petition for Writ of Mandamus Denied and Opinion filed April 27, 2018.

In The

Fourteenth Court of Appeals

NO. 14-18-00228-CV

IN RE CHRISTOPHER J. RUSSO, Relator

ORIGINAL PROCEEDING

WRIT OF MANDAMUS

 295th District Court

Harris County, Texas

Trial Court Cause No. 2016-24818

OPINION

On April 3, 2018, relator Christopher J. Russo filed a petition for writ of
mandamus in this court, his second relating to this discovery dispute. See Tex. Gov’t
Code Ann. § 22.221 (West Supp. 2017); see also Tex. R. App. P. 52. In the petition,
Russo asks this court to compel the Honorable Caroline Baker, presiding judge of
the 295th District Court of Harris County, to vacate her March 20, 2018 order, which

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compels Russo to produce certain documents for which Russo has asserted an actof-production
privilege under the Fifth Amendment of the United States Constitution.

The real parties-in-interest are Superior Energy Services, Inc., and Stabil Drill
Specialties, LLC, and SESI, LLC (collectively, the “Superior Parties”).

The Fifth Amendment privilege does not apply to the records of corporate
entities. Russo has not shown that the documents for which he asserted the privilege
are not records of corporate entities he allegedly owned or controlled. We therefore
deny the petition for writ of mandamus.

FACTUAL AND PROCEDURAL BACKGROUND

The Superior Parties filed suit, alleging, among other things, that Russo and
the other defendants conspired to defraud the Superior Parties of $72 million and
other assets over several years. Specifically, the Superior Parties allege that Russo
and Martin A. LeBlanc were the executive officers of Stabil Drill, a subsidiary of
SESI, and that Russo and LeBlanc engaged in a complex scheme of self-dealing
primarily by creating separate but interwoven corporate entities (which they owned
or controlled directly or indirectly) to improperly invoice Stabil Drill for goods and
services and to benefit themselves by being on both sides of various transactions.
The Superior Parties allege that Russo was a member of, owned, and/or controlled
several limited liability companies which he used to execute his schemes to defraud
the Superior Parties. These corporate entities include, among others, Triple RRR
Investments, LLC, Gulf Coast Wireline, LLC, Maverick Rental Tools, LLC, Quest
Holdings, LLC, Basket Specialties, LLC, Tri-Eagle NDT Services, LLC, Longhorn

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Bits LLC, Prime 337, LLC, Russo Energy LLC, Russo Exploration LLC, and Cole
Joseph Russo Trust, LLC. In their petition, the Superior Parties assert claims against
Russo and his corporate entities for breach of fiduciary duty, fraud, trade secret
misappropriation, and civil conspiracy.

The Superior Parties served Russo and Russo Energy, LLC with several
requests for production. Russo withheld some responsive documents, objecting to
each request “on the ground that it requires production of documents in violation of
Defendant’s Fifth Amendment (U.S. Constitution) act-of-production privilege. See
United States v. Hubbell, 530 U.S. 27 (2000).”

On September 22, 2016, the Superior Parties filed a motion to compel
production of the withheld documents. The trial judge heard the motion on October
3, 2016, and took the matter under advisement. On August 3, 2017, the trial judge
issued an order requiring Russo to prepare a privilege log of all the documents Russo
withheld and to deliver the documents to the court for an in camera review. Russo
submitted a privilege log listing 2,277 documents.

At a hearing on October 20, 2017, the trial judge asked Russo to attempt to
reduce the number of documents for which he was asserting his Fifth Amendment
privilege. Russo later produced some of the documents he had withheld, submitted
amended and supplemental privilege logs (listing a total of 1538 documents), and
delivered the documents on the logs to the court for in camera review.

On February 12, 2018, the trial judge signed an order requiring Russo to
produce all of the documents that Russo had listed on the logs.

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 On February 21, 2018, Russo filed a petition for writ of mandamus, asking
our court to compel the trial judge to vacate her February 12, 2018 order.
On March 1, 2018, the trial judge vacated her February 12, 2018 order.
On March 20, 2018, the trial judge signed an order compelling Russo, within
fourteen days, to produce “all emails (or portions of emails) identified on the
Amended and Supplemental Privilege Logs that were generated by a third party.”
The order directs Russo to file additional briefing regarding whether the documents
he withheld on Fifth Amendment grounds pose a real and substantial risk of
incrimination to him and why the Superior Parties are not entitled to copies of the
Amended and Supplemental privilege logs under Texas Rule of Civil Procedure
193.3.

Because the trial judge had vacated the February 12, 2018 order, we issued an
opinion on April 2, 2018, dismissing as moot Russo’s first petition for writ of
mandamus.

In his second petition for writ of mandamus now before us, Russo argues that
the March 20, 2018 order constitutes an abuse of discretion because in it the trial
judge orders production of documents which Russo contends are protected by his
Fifth Amendment act-of-production privilege.

MANDAMUS STANDARD

To obtain mandamus relief, a relator generally must show both that the trial
court clearly abused its discretion and that the relator has no adequate remedy by
appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig.
proceeding). A trial court clearly abuses its discretion if it reaches a decision so

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arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if
it clearly fails to analyze the law correctly or apply the law correctly to the facts. In
re Cerberus Capital Mgmt. L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig.
proceeding) (per curiam). The relator must establish that the trial court reasonably
could have reached only one conclusion. Walker v. Packer, 827 S.W.2d 833, 840
(Tex. 1992) (orig. proceeding).

A party will not have an adequate remedy by appeal when the appellate court
would not be able to cure the trial court’s discovery error. In re Christus Santa Rosa
Health Sys., 492 S.W.3d 276, 280 (Tex. 2016). “If the trial court issues an erroneous
order requiring the production of privileged documents, the party claiming the
privilege is left without an adequate appellate remedy.” Id. “Mandamus is
appropriate for constitutional protections like the privilege against self-incrimination
that an appeal could not adequately protect.” In re Speer, 965 S.W.2d 41, 45 (Tex.
App.—Fort Worth 1998, orig. proceeding) (citing Tilton v. Marshall, 925 S.W.2d
672, 682 (Tex. 1996)).

STANDARD OF REVIEW

A defendant has the right to assert his Fifth Amendment privilege to avoid
civil discovery if he reasonably fears that the responses would tend to incriminate
him. See Tex. Dept. of Pub. Safety Officers Ass’n v. Denton, 897 S.W.2d 757, 760
(Tex. 1995). “Before the judge may compel the witness to answer, [the judge] must
be ‘perfectly clear, from a careful consideration of all the circumstances in the case,
that the witness is mistaken, and that the answer(s) cannot possibly have such
tendency to incriminate.’” Ex Parte Butler, 522 S.W.2d 196, 198 (Tex. 1975) (quoting
Hoffman v. United States, 341 U.S. 479, 71 (1951)).

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Whether a discovery privilege applies is a matter of statutory construction,
which is a question of law reviewed de novo. See In re Christus Santa Rosa Health
Sys., 492 S.W.3d at 280. We review with limited deference the issue of whether a
trial court properly has applied the law of privileges to the documents. See Keene
Corp. v. Caldwell, 840 S.W.2d 715, 718 (Tex. App.—Houston [14th Dist.] 1992, no
writ).

ANALYSIS

A. The Fifth Amendment act-of-production privilege does not protect
records of entities.

The only privilege asserted by Russo was the Fifth Amendment of the United
States Constitution act-of-production privilege, discussed in United States v.
Hubbell, 530 U.S. 27 (2000). A person may be required to produce specific
documents even though the documents contain incriminating assertions of fact or
belief because the creation of those documents was not compelled within the
meaning of the privilege. Id. at 36. However, the act of producing documents in
response to a subpoena duces tecum may have a compelled testimonial aspect
because the act of production itself may implicitly communicate statements of fact.
Id. “By ‘producing documents in compliance with a subpoena, the witness would
admit that the papers existed, were in his possession or control, and were authentic.’”
Id. “The privilege afforded not only extends to answers that would in themselves
support a conviction under a federal criminal statute but likewise embraces those
which would furnish a link in the chain of evidence needed to prosecute the claimant
for a federal crime.” Id. at 37 (quoting Hoffman v. United States, 341 U.S. 479, 486
(1951)).

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However, it is well established that “artificial entities,” such as corporations,
are not protected by the Fifth Amendment. Braswell v. United States, 487 U.S. 99,
102 (1988). Representatives of a collective entity act as agents, and the official
records of the organization that are held by them in a representative rather than a
personal capacity cannot be the subject of their personal privilege against selfincrimination,
even though production of the papers might tend to incriminate them
personally (known as the “collective entity rule”). Id. at 99–100, 107. The
“collective entity rule” applies regardless of the entity’s size and regardless of
whether the subpoena is addressed to the entity or to the individual in the individual’s
capacity as the records’ custodian. Id. “Any claim of Fifth Amendment privilege
asserted by the agent would be tantamount to a claim of privilege by the corporation,
which possesses no such privilege.” Id. at 100, 110.1 A corporate custodian may not
resist a subpoena for corporate records on Fifth Amendment grounds, even though
the act of production may incriminate the custodian. Id. at 108–113. “An individual
cannot rely upon the [Fifth Amendment] privilege to avoid producing the records of
a collective entity which are in [the individual’s] possession in a representative
capacity, even if these records might incriminate [the individual] personally.” Bellis
v. United States, 417 U.S. 85, 88 (1974). The “collective entity rule” applies even if
the subpoena or document request is addressed to an individual who has custody of
corporate records, rather than to the corporation.2

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Corporate documents are (i) those prepared by an employee, officer, director,
representative or agent of the corporation in furtherance of her or his corporate duties
and responsibilities, or (ii) those sent, received, used or maintained by an officer,
director, employee, agent or representative of the corporation in the course of its
business. See In re Grand Jury Investigation, Special Grand Jury No. II, 600 F.
Supp. 436, 438 (D. Md. 1984); In re Grand Jury 89-4 Subpoena Duces Tecum, 727
F. Supp. 265, 269–70 (E.D. Va. 1989). The following nonexhaustive list of criteria
is relevant to determining whether a document is corporate or personal in nature:
who prepared the document; the nature of its contents; its purpose or use; who
possessed it; who had access to it; whether the entity required its preparation; and
whether its existence was necessary to or in furtherance of the entity’s business. See
In re Grand Jury Proceedings, 55 F.3d 1012, 1014 (5th Cir. 1995); Grand Jury
Subpoena Duces Tecum Dated April 23, 1981 Witness v. United States, 657 F.2d 5,
8 (2d Cir. 1981); United States v. Wujkowski, 929 F.2d 981, 984 (4th Cir. 1991).

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B. Russo has not shown that the withheld documents are not business
entity records, for which there is no Fifth Amendment privilege.

The withheld documents consist almost entirely of emails either to or from
Russo at a Yahoo email account. In its motion to compel, the Superior Parties
correctly argued that Russo may not withhold emails in his custody that are records
of his corporate entities. See e.g., Bellis, 417 U.S. at 88; In re Grand Jury Subpoena,
593 F.3d 155, 157–58 (2d Cir. 2010) (the custodian of corporate records, who acts
as a representative of the corporation, cannot refuse to produce corporate records on
Fifth Amendment grounds; this rule holds true regardless of whether the subpoena
is directed to the corporation or to the custodian in the custodian’s representative
capacity).

The burden is on the party asserting a privilege from discovery to produce
evidence concerning the applicability of the privilege. Peeples v. Fourth Supreme
Judicial District, 701 S.W.2d 635, 635 (Tex. 1985) (orig. proceeding). “The party
who seeks to limit discovery by asserting a privilege has the burden of proof.” In re
E.I. DuPont de Nemours & Co., 136 S.W.3d 218, 223 (Tex. 2004) (orig.
proceeding). It is relator’s burden to establish the applicability of the Fifth
Amendment privilege. Batson v. Rainey, 762 S.W.2d 717, 720 (Tex. App.—Houston
[1st Dist.] 1988, no writ). A person asserting the Fifth Amendment privilege to the
production of documents has the burden to prove that the documents are personal,
rather than corporate. See Wujkowski, 929 F.2d at 984; In re Grand Jury 89-4
Subpoena Duces Tecum, 727 F. Supp. at 270; In re Grand Jury Investigation, Special
Grand Jury No. II, Sept. Term, 1983, 600 F. Supp. at 438.

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In his briefing, Russo alleges that none of the emails he withheld are records
of the entities he owned or controlled. In support of this allegation, Russo cites only
the statement of his counsel at the hearing that Russo will be producing any corporate
records that Russo has in his possession pertaining to Triple RR Investment, LLC or
any of the other entities which he owns or controls. However, unsworn statements
by counsel, such as this, are not evidence. See Daugherty v. Jacobs, 187 S.W.3d 607,
619 (Tex. App.—Houston [14th Dist.] 2006, no pet.); In re Butler, 987 S.W.2d 221, 225
(Tex. App.—Houston [14th Dist.] 1999, orig. proceeding).

Further, there is evidence that the withheld emails likely are records of an
entity because they were sent or received by Russo, as an agent of an entity, in the
course of the entity’s business. See In re Grand Jury Investigation, Special Grand
Jury No. II, 600 F. Supp. at 438. Many of the emails, which Russo initially withheld
under the Fifth Amendment but later produced, are emails to or from a Yahoo
account that relate to the business of one or more of Russo’s corporate entities. For
example, in one email, Russo sends an invoice from his wholly owned entity, Gulf
Coast Wireline, LLC, to obtain payment from a Stabil Drill vendor, Basket
Specialties, LLC, also an entity that Russo allegedly owned. A second email shows
that Russo used the Yahoo account to communicate with Stabil Drill vendor, E&M
Supply Group, and to invoice this vendor for consulting services by Longhorn Bits,
LLC, another entity that Russo allegedly owned. In a third email from the Yahoo
account, Russo expresses his desire to include LeBlanc in “Pro” (short for
“Procyon,” another vendor of Stabil Drill that Russo allegedly owned). The Superior
Parties allege in their petition that Russo and Chris Hart received direct kickbacks
of over $500,000 from Procyon for its basket sales to Stabil Drill. Russo also sent

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an email from this account to attempt to convince a vendor to bill Stabil Drill for
services that were not performed; Russo states in his email to the vendor’s
representative that “nobody outside of you and I would know anything about our
agreement.” Thus, it is clear that Russo used the Yahoo account to conduct the
business of corporate entities which the Superior Parties allege Russo used to
execute his fraudulent schemes.

Additionally, in the privilege logs, Russo states that each of the documents
relate to either the “alleged kickback” or the “alleged unreported related party
transactions.” Russo acknowledges in his mandamus petition that the Superior
Parties allege that “Russo and other co-defendants created several entities to engage
in and profit from undisclosed related-party transactions from which they received
kickbacks and other remuneration.” The Superior Parties allege in their petition that
several vendors of Stabil Drill paid kickbacks to Russo’s entities, including Ragin
Rentals, Longhorn Bits, Prime 337, and Gulf Coast Wireline, among others. The
Superior Parties further allege that Russo’s entities, Basket Specialties, LLC and TriEagle
NDT Services, LLC, misrepresented and concealed their “related party” status
when transacting business with Stabil Drill to induce the company to enter into
business with them. Because the “alleged kickbacks” and the “alleged unreported
related party transactions” were paid to or done with entities that Russo allegedly
owned or controlled, it reasonably may be inferred that the withheld documents
constitute records of one of these entities.

Thus, there is evidence in the record that Russo used the Yahoo account to
conduct business of his corporate entities and that the emails in this account are
likely or may be corporate records. Russo had the burden to prove that each of the

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documents he withheld are personal and not a record of one of his corporate entities.
See In re E.I. DuPont de Nemours & Co., 136 S.W.3d at 223; Wujkowski, 929 F.2d
at 984. Russo has not done so.3

CONCLUSION

“An individual cannot rely upon the [Fifth Amendment] privilege to avoid
producing the records of a collective entity which are in his possession in a
representative capacity, even if these records might incriminate him personally.”
Bellis, 417 U.S. at 88. Russo has not shown that the documents he withheld are not
records of a corporate entity within his possession or that the Fifth Amendment actof-production
privilege applies to these documents. Accordingly, we deny Russo’s
petition for writ of mandamus and lift our partial stay of the March 20, 2018 order.

/s/ Tracy Christopher
 Justice

Panel consists of Chief Justice Frost and Justices Christopher and Jamison.