NY Law Remains Unclear on Non-Party 5th Amendment Invocations and Negative Inferences

The Fifth Amendment “not only protects the individual against being involuntarily called as a witness against himself in a criminal prosecution but also privileges him not to answer official questions put to him in any other proceeding, civil or criminal, formal or informal, where the answers might incriminate him in future criminal proceedings.” Lefkowitz v. Turley, 414 U.S. 70, 77 (1973).

Though a witness in a civil action may invoke the Fifth Amendment, its invocation by a defendant in a civil action is not always without consequence. Courts in New York have routinely permitted negative inferences following a party-defendant’s Fifth Amendment invocation. A question remains, however, as to whether a non-party’s invocation of the Fifth Amendment can result in a negative inference against a party in a civil case in New York.

Prince, Richardson on Evidence—the venerable amalgamation of New York’s evidentiary rules—makes a sweeping pronouncement: “No inference arises from the invocation of [the Fifth Amendment] privilege by a nonparty witness.” Prince, Richardson on Evidence, §5-711 (Richard T. Farrell ed., 11th ed.1995).

Tellingly, however, this statement is made without citation. And, in practice, the New York State Court of Appeals has never considered the question of a whether a non-party’s Fifth Amendment invocation may result in a negative inference being drawn against a non-invoking party.

However, this question has been asked and answered in the federal courts. In LiButti v. United States, 107 F.3d 110 (2d Cir. 1997), the Second Circuit held that, under certain circumstances, a negative inference may be drawn against a party following a non-party’s Fifth Amendment invocation. The LiButti court set forth a non-exhaustive list of factors for use when considering such an inference, including the nature of the relevant relationships, the degree of control of the party over the non-party witness, the compatibility of the interests of the party and non-party, and the role of the non-party in the litigation. At bottom, the LiButti factors seek to answer a simple question: will the negative inference advance the search for the truth?

LiButti has been widely cited by courts across the country as a guide in considering negative inferences from non-party Fifth Amendment invocations, including by courts in nearly every federal circuit, and even in state courts in Alaska, Colorado, Connecticut, Massachusetts, Ohio, Tennessee, and Washington. Indeed, Massachusetts’ highest court has noted that “the analysis of the LiButti court strikes an appropriate balance between the right and the need to present relevant evidence, on the one hand, and the need to provide a safeguard against the inherent difficulty in responding to such powerful evidence, on the other hand.” Lentz v. Metropolitan Property & Casualty Ins. Co., 437 Mass. 23, 28, 768 N.E.2d 538 (2002).

Even so, there is exactly one court in New York to ever use the LiButti factors. That case—Andrew Carothers, M.D. v. Ins. Companies Represented by Bruno, Gerbino & Soriano, 26 Misc. 3d 448, 451, 888 N.Y.S.2d 372, 375 (Civ. Ct. 2009)—made its way to the Court of Appeals last year.

Andrew Carothers, M.D., was a physician holding himself out as the sole owner of a medical professional corporation providing diagnostic imaging in New York to patients who had been involved in automobile accidents. However, beginning in 2006, insurers began denying bills submitted through the diagnostic imaging professional corporation, asserting that it was fraudulently incorporated within the meaning of the landmark Court of Appeals case, State Farm Mut. Auto. Ins. Co. v. Mallela, 794 N.Y.S.2d 700, 827 N.E.2d 758 (2005). In particular, the insurers alleged that the Carothers’ diagnostic imaging practice was actually secretly owned and controlled by unlicensed laypersons, rendering the practice ineligible to collect on its billing under New York law. Carothers sued to recover on his unpaid billing.

A consolidated trial followed. During the trial, the jury heard excerpts from the depositions of two unlicensed laypersons, Irina Vayman and Hillel Sher—the individuals alleged by the insurers to be the secret owners and controllers of Carothers’ professional corporation. Neither Vayman nor Hillel was a party to the Carothers action, and both Vayman and Hillel had invoked the Fifth Amendment during their depositions. At the conclusion of evidentiary presentations, the trial court charged the jury that they could draw adverse inferences against Carothers as the result of Vayman and Hillel’s Fifth Amendment invocations.

The Carothers jury returned a verdict in favor of the insurers to the effect that Carothers’ diagnostic practice was fraudulently incorporated and therefore ineligible to collect its billed-for no-fault insurance benefits.

Carothers moved to set aside the verdict, arguing that the court had erred by, among other things, instructing the jury that they were permitted to draw a negative inference against Carothers (a party) from Vayman and Hillel’s (both non-parties) invocation of the Fifth Amendment. In denying Carothers’ motion, the trial court held that, under LiButti, the adverse inference charge was proper:

Finally, in deciding whether or not it was appropriate to give the adverse inference charge, the Court was guided, in part, on seminal case of LiButti …, which is widely accepted in the Federal courts. While LiButti has not been officially adopted by any New York State Court, the decision is well reasoned, consistent with New York law and provides an excellent analytical framework for deciding whether an adverse inference charge should be given where an alleged non-party invokes his or her Fifth Amendment privilege.

After reciting the LiButti factors, the trial court found that “[w]hen these and all the other relevant circumstances were considered, it was clear to the Court that an adverse inference would be trustworthy and advance the search for the truth.”

Carothers appealed to the Appellate Term. While the Appellate Term ultimately affirmed the jury verdict, it found that the trial court erred by giving an adverse inference instruction, noting that “generally, the adverse inference is inappropriate when it is based on a nonparty’s decision to remain silent.” Andrew Carothers, M.D. v. Progressive Ins. Co., 42 Misc. 3d 30, 44, 979 N.Y.S.2d 439 (App. Term 2013).

Despite this pronouncement, the Appellate Term recognized the existence of two “exceptions” to this general rule: where the non-party witness is the alter ego of the party, and where “other unique circumstances exist.” For this second “exception,” the Appellate Term cited only to LiButti, though it did not suggest that it had actually employed the LiButti analysis.

This issue was not clarified on Carothers’ appeal to the Second Department. In fact, the Second Department went further than the Appellate Term, and announced a per se rule that no negative inference “may be drawn where, as here, the privilege is invoked by a nonparty witness.” Here, the Second Department cited to two cases—Access Capital v. DiCicco, 302 A.D.2d 48 (1st Dept. 2002), and State v. Markowitz, 273 A.D.2d 637 (3d Dept. 2000)—in support of their proffered rule. A closer inspection of these cases, however, reveals that the Second Circuit’s reliance on the decisions may have been misplaced, and the circuitous citations contained in these decisions ring oddly hollow.

For example, in Access Capital, the First Department set forth the same rule proffered by the Second Circuit in Carothers, using identical language. The support for this statement was cited as Markowitz, the second decision cited by the Second Circuit. In turn, the Third Department in Markowitz proffered that same rule, but cites primarily to Prince, Richardson’s aforementioned unsupported assertion that non-party Fifth Amendment invocations cannot give rise to an adverse inference.

Arriving back at Prince, Richardson’s “rule,” the question remains: Where, then, did this “rule” actually come from? And is it really the “rule” at all? Last year, the Court of Appeals had the opportunity to answer this very question in Carothers.

Carothers appealed the Second Department’s decision to the Court of Appeals. During oral argument, Carothers’ counsel urged the court to adopt a per se rule that a non-party’s Fifth Amendment invocation can never give rise to a negative inference. The responses from the bench did not indicate the court was inclined to adopt such a rule. For example, Judge Leslie Stein responded:

Well, there certainly are some circumstances under which the indication of the Fifth Amendment privilege … can be used to support a permissible inference. Obviously the question here is a little different; it’s about whether the invocation by a nonparty can be used, right? But … there have been other courts that have grappled with this issue and … many of them have said that there are circumstances in which it is permissible.

Similarly, at another point during the argument, Judge Michael Garcia made specific reference to the “alignment of interests” factor from LiButti. These comments certainly suggested that, not only was the supposed “rule” coming out of the First and Third Departments not settled, but that the Court of Appeals would at least consider allowing the LiButti factors to be employed to decide the issue on a case-by-case basis.

However, in its opinion affirming the Carothers jury verdict, the Court of Appeals sidestepped the issue:

This Court has held that, in a civil case, failure to answer questions by a witness who is a party “may be considered by a jury in assessing the strength of evidence offered by the opposite party on the issue which the witness was in a position to controvert.” In a civil trial, “an unfavorable inference may be drawn against a party from the exercise of the privilege against self-incrimination” (Prince, Richardson on Evidence §5–710). We have not previously decided whether a nonparty’s invocation of the Fifth Amendment may trigger an adverse inference instruction against a party in a civil case, and we have no occasion to do so here because any error by the trial court was harmless….

Andrew Carothers, M.D. v. Progressive Ins. Co., 33 N.Y.3d 389, 407 (2019).

While not reaching a substantive decision on this issue, the Court of Appeals’ language may answer some questions surrounding non-party Fifth Amendment invocations. First, the court did not address the issue as settled law, as the Second Department had done below. Moreover, while the court cited to Prince, Richardson’s general assertion regarding negative inferences, the court declined to adopt any “rule” concerning inferences flowing from non-party invocations. Similarly, the court did not address, cite, or adopt any of the decisions discussed above—including Access Capital and Markowitz—to even so much as suggest that a per se rule regarding non-party Fifth Amendment invocations exists under New York law.

Instead, the Court of Appeals left the question open: Can a non-party’s Fifth Amendment invocation give rise to a negative inference against a party? The adoption of the LiButti balancing test—which has been widely adopted and has proven workable in both federal and state courts—could serve as the answer.

This article is reprinted with permission from the September 14, 2020 issue of the New York Law Journal. Copyright ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.