Debtor fails to comply with the terms of his or her contractual obligations. Creditor then sues Debtor for breach of contract and ultimately prevails and obtains a judgment against Debtor. Creditor then seeks post-judgment discovery from Debtor in a search of Debtor’s assets in order to satisfy the judgment against him or her. In response, Debtor invokes the constitutional privilege against self-incrimination under federal and state law and Debtor refuses to provide the requested post-judgment discovery to Creditor. Now what?
In New York, a judgment creditor is generally entitled to broad discovery to assist in enforcing the judgment, especially since the evidence is typically within the possession of the judgment debtor. See Petrocelli v. Petrocelli Elec. Co., Inc., 121 A.D.3d. 596 (1st Dep’t. 2014). In addition, N.Y. C.P.L.R. § 5223 compels disclosure of all matter relevant to the satisfaction of a judgment and sets forth a generous standard which allows the judgment creditor a broad range of inquiry through either the judgment debtor or any third person with knowledge of the debtor’s property. See ICD Group, Inc. v. Israel Foreign Trade Co. (USA), 224 A.D.2d 293, 294 (1st Dep’t. 1996).
The refusal of the Debtor to provide the requested post-judgment discovery will likely result in the Creditor moving to hold Debtor in contempt. The law is clear that a party may not be held in contempt based upon a good faith invocation of the privilege against self-incrimination, which can be asserted in any proceeding, civil or criminal, and which protects against disclosures which the debtor reasonably believes could be used in a criminal prosecution or could lead to other evidence that might be so used. See Carver Fed. Sav. Bank v. Shaker Gardens, Inc., 167 A.D.3d 1337, 1340 (3d Dep’t. 2018) (internal cites omitted). However, the law is also clear that the witness asserting the privilege must have reasonable cause to apprehend danger from a direct answer and the witness is not exonerated from answering merely because the witness declares that in so doing he or she would incriminate himself or herself. Id.
Among the documents usually sought from a judgment debtor by a judgment creditor in the search of assets to satisfy a judgment are tax returns. Generally, the disclosure of tax returns is disfavored due to their confidential and private nature. See Pinnacle Sports Media & Entertainment, LLC v. Greene, 154 A.D.3d 601 (1st Dep’t. 2017). However, once a judgment debtor invokes the privilege against self-incrimination, the issue becomes whether any recognized exception to that privilege allows production of the judgment debtor’s tax returns. The answer is yes. It has been held in New York that a judgment debtor’s income tax returns, W-2 wage statements and 1099 forms all fall within what is known as the “required records exception” to the privilege against self-incrimination. Shaker Gardens, Inc., supra, 167 A.D.3d at 1341.
Under the “required records exception”, the Fifth Amendment privilege against self-incrimination cannot be asserted with respect to records which are required, by law, to be kept and which are subject to governmental regulation and inspection. Id. (internal cites omitted). In order to constitute “required records” the documents must satisfy a three-part test: (1) the requirement that they be kept must be essentially regulatory, (2) the records must be of a kind which the regulated party has customarily kept, and (3) the records themselves must have assumed ‘public aspects’ which render them analogous to public documents. Id. Tax returns, W-2 wage statements and 1099 forms have all been held to fall under this rubric. Id. That means that despite Debtor’s invocation of the privilege against self-incrimination, Debtor is required to produce his or her tax returns, W-2 wage statements and 1099 forms in response to post-judgment disclosure requests made by Creditor. The Debtor’s failure to produce the requested tax documents can lead to a judicial finding of civil contempt against the Debtor.
What about the rest of the documents sought by Creditor to assist in the search of assets to satisfy the judgment? Assuming the information sought by Creditor is customarily asked at judgment debtor examinations and there is no indication that the purpose of the examination is anything other than an ordinary search of Debtor’s assets to satisfy the judgment against him or her, then Debtor will be required to establish that any fear of criminal prosecution based on the disclosure of the requested information is anything other than “imaginary” or based on something more than a “remote and speculative possibility.” See Shaker Gardens, Inc. , 167 A.D.3d at 1342 (internal cites omitted). Where the danger of incrimination is not readily apparent, the witness is required to establish a factual predicate for the invocation of the privilege against self-incrimination. Id. That means that Debtor cannot make a broad, undifferentiated assertion of the privilege as to each and every question asked at a judgment debtor examination or to all documents requested by Creditor. Instead, in order to effectively invoke the protections of the privilege against self-incrimination Debtor must make a particularized objection to each discovery request. Id. That will likely require the trial court to conduct an in camera inquiry to assess the validity of the assertion of the privilege upon particularized objections. Id. As to documents, Debtor is required to establish a factual predicate and will usually require the submission of the documents at issue for an in camera inspection and/or compiling a privilege log in order to aid the Court in its assessment of a privilege claim and enable it to undertake in camera review. Id. (internal cites omitted).
In sum, Debtor cannot invoke the privilege against self-incrimination as a vehicle to prevent disclosure of his or her tax returns, W-2 wage statements and 1099 forms to Creditor. The failure to produce the tax documents can lead to a finding of civil contempt. As to other requested post-judgment documents and questions asked during judgment debtor examinations, in order to invoke the privilege against self-incrimination, Debtor must show that the hazards of incrimination are substantial and real and not merely trifling or imaginary and that usually requires particularized objections to each discovery request and a determination by the Court of the validity of those particularized objections under the circumstances.
If you have any questions regarding the enforcement of contract rights, the satisfaction of judgments, or the interplay of enforcement of judgments with the privilege of self-incrimination, please feel free to contact Scott Fisher at (516) 746-8000, Ext. 248 or at email@example.com.