Sunday, March 14, 2021

Sole Member of LLC May Not Rely Upon 5th Amendment to Avoid Discovery of the LLC’s Records

Sole Member of LLC May Not Rely Upon 5th Amendment to Avoid Discovery of the LLC’s Records

            In this February, 2021, decision from Delaware, the court was called upon to consider the assertion that the sole member of an LLC could on the basis of the 5th Amendment resist discovery requests for the LLC’s books and records.  The argument, consistent with prior decisions on the matter, held the 5th Amendment to be in applicable.  Wood v. U.S. Bank National Association, C.A, No. 2017-0034-JTL, 2021 WL 391610 (Del. Ch. Feb. 4, 2021).

            In response to discovery requests issued in case over Burn’s alleged looting of certain companies, he responded that he would produce only those documents “not otherwise subject to  Burns’ right to invoke the Fifth Amendment of the United States Constitution.”  Courts have previously held that the production of documents by “collective entities” does not implicate the 5th Amendment rights of the constituents of the entity. Braswell v. U.S., 487 U.S. 99 (1988) (decided in the context of a single shareholder corporation).  In contrast, the 5th Amendment does apply to the books and records of a sole proprietorship.  See U.S. v. Doe, 465 U.S. 605, 608 (1984).

            Finding that an LLC “has a separate judicial existence distinct from its members,” the court found that:

Burns and Heartland are distinct for purposes of the Self-Incrimination Clause.  The collective entity doctrine therefore applies, notwithstanding the fact that Heartland is a single-person entity.

Id., *5.

No comments:

Post a Comment