United States Securities and Exchange Commission v. Collector's Coffee Inc.

Background

A temporary restraining order required defendant Mykalai Kontilai to provide a sworn accounting of his accounts, assets, and transactions. After the parties agreed to modify that order, the court required Kontilai to produce documents in his custody or control, including financial statements, documents showing defendants’ interests in real or personal property, and documents concerning certain asset transfers.

The Securities and Exchange Commission later sought additional documents in two categories: tax returns and real-property records. Kontilai argued that producing both categories would violate his Fifth Amendment protection against self-incrimination, including the act-of-production doctrine. That doctrine can protect the communicative aspects of producing documents, even when the documents themselves are not privileged.

Tax Returns

The court rejected Kontilai’s Fifth Amendment objection to producing tax returns. It explained that tax returns and related documents are “required records” and therefore are not protected by the Fifth Amendment. The court also rejected Kontilai’s argument that the exception did not apply because he was required to file tax returns but was not required to keep copies. The court relied on authority holding that a required record need not be legally required to be kept if it is the type of record customarily kept; copies of tax returns meet that description.

The court overruled Kontilai’s Fifth Amendment objection as to the tax returns. It ordered him to produce all tax returns from the 2014 tax year onward that were within his possession, custody, or control. If he did not have particular returns, the court directed him to obtain copies from his tax preparer or the Internal Revenue Service.

Real-Property Documents

Kontilai maintained that he had already produced the real-property records he had and objected to producing other documents within his control based on the act-of-production doctrine. He also argued that the exceptions to that doctrine did not apply and that he had not waived his Fifth Amendment rights.

The Securities and Exchange Commission did not address the Fifth Amendment argument concerning the real-property records. Instead, it relied principally on the fact that Kontilai’s counsel had agreed to the modified restraining order without raising a Fifth Amendment objection. The court held that it was not prepared to find that this agreement waived Kontilai’s ability to assert the privilege. It also concluded that the Securities and Exchange Commission had not clearly explained the legal basis for preventing Kontilai from resisting production of documents covered by the modified order.

The court therefore denied the Securities and Exchange Commission’s motion to compel further documents relating to Kontilai’s real-estate holdings. The conclusion stated that the remainder of the Securities and Exchange Commission’s application was denied.

Disposition

The court ordered production of the tax returns and denied the remaining request for additional real-property documents. The opinion’s conclusion says that the tax returns were due “on or before May 6, 2019,” although the order is dated April 24, 2020 and separately refers to an affidavit due May 6, 2020.