U.S. federal and state civil laws frequently overlap with criminal laws. This creates the opportunity for what is often referred to as parallel proceedings, e.g., simultaneous or successive civil and criminal proceedings.
As explained below, companies are often in a legal bear trap when caught in parallel proceedings because of the assertion of Fifth Amendment rights against self-incrimination by current and former employees.
Overview of Fifth Amendment Rights
Under the Fifth Amendment and Mich. Const. art 1, § 17, no person can be compelled to be a witness against him or herself in a criminal trial. The privilege may be raised in civil as well as criminal proceedings and applies to all stages of the litigation process. A few more important points pertaining to asserting Fifth Amendment Rights include the following:
- An individual may assert the Fifth Amendment privilege against self-incrimination. A business entity such as a corporation, however, generally does not have any Fifth Amendment rights.
- The Fifth Amendment privilege extends not only to “answers that would in themselves support a conviction under a federal criminal statute” but also to answers “which would furnish a link in the chain of evidence needed to prosecute the claimant…” Hoffman v. United States, 341 U.S. 479, 486 (1951).
Unique Issues Employers face when Employees Assert Fifth Amendment Rights
Information Blackout: When a current or former employee asserts his or her Fifth Amendment rights in civil litigation it is like an aneurysm in that it signals something very serious but it is unknown when it will cause trouble and the scope of that trouble. For companies, their first notice of this litigation “aneurysm” is not until long after a criminal investigation has begun and, more likely than not, after the government has arrested an individual employee. At that point, it is common for this arrest to also include the seizure of records, computers, documents, and other information that were in the possession of the person arrested.
The end result is that the company will not be in a position to effectively investigate the alleged wrongful conduct involved in the civil action without access to the seized information and without the assistance of its indicted employee. This may also effectively preclude the company from presenting an effective defense because current or former employees would not be able to testify or to provide responsive declarations in response to the civil litigation without placing themselves at risk of self-incrimination.
Negative Inferences: Unlike criminal cases, reliance on the privilege in civil cases may give rise to an adverse inference against the party claiming its benefits. See Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). What this means is that a decision to plead the Fifth in response to a question at a civil deposition or trial may give rise to an adverse inference that the answer to the question would have been unfavorable to the individual or a legitimate inference that the witness was engaged in criminal activity. Although courts will generally require that an adverse inference may only be drawn from the defendant’s assertion of Fifth Amendment rights in response to evidence offered against the person asserting the privilege, this is not a high standard to overcome.
Also, courts do not automatically preclude drawing an adverse inference against a company based on a current or former employee’s invocation of their Fifth Amendment privilege against self-incrimination. This negative inference coupled with the fact that the employer may be unable to adequately investigate the matter and circumstances is especially crippling in the context of civil litigation.
Decisions for responding to parallel proceedings must be made with the insight and collaboration of both civil and criminal legal counsel. Points to consider, however, include:
- Quickly Investigate before the Information becomes Unavailable: As noted above, it is likely that access to both your former or current employee will be significantly limited. For this reason, it is important to promptly investigate the facts and circumstances at soon as the opportunity presents. Having a good understanding of the facts before the government gets involved and before an employee invokes his or her Fifth Amendment Rights allows the employer to critically assess its vulnerabilities and strategic decisions about how to address the prospective litigation or criminal proceeding.
- Stay of Proceedings: Although courts have the power to stay civil proceedings, it is not constitutionally required to do so. But if this strategy is chosen, an effective argument is that the resolution of the criminal action will likely efficiently resolve the civil proceeding in that it increases prospects for settlement of the civil case. It will also result in many of the civil issues being disposed of in the criminal proceeding. Conversely if a civil proceeding goes first, a significant amount of information would likely be withheld” due to the invocation of the Fifth Amendment privilege against self-incrimination.
- Preservation Obligations: No matter the ultimate strategy chosen, companies must quickly implement a litigation hold in order to preserve information relevant to both the criminal and civil proceedings.
Jason Shinn has worked with corporate clients to conduct internal investigations in response to parallel proceedings, including multi-million dollar civil fraud claims subject to a criminal probe by the Federal Bureau of Investigation. In that particular case, the FBI probe resulted in the indictment and eventual conviction of several former employees while the corporate client was not charged of criminal wrongdoing and was able to settle the civil claims for extremely favorable terms.