MORRIS KIRSCHMAN COMPANY, LLC, v. HARTFORD FIRE INSURANCE COMPANY.

Civil Action No. 03-1743, SECTION: “A” (4).United States District Court, E.D. Louisiana.
June 16, 2004

KAREN ROBY, Magistrate Judge

On May 20, 2004, the plaintiff, Morris Kirschman Company, LLC (“Kirschman”), filed a Motion to Compel (doc. #24) seeking an order compelling Edie Sicuro (“Sicuro”) to answer questions posed to her while being deposed in this matter. A hearing on the motion was held on June 16, 2004.

During the hearing, Kirschman argued that Sicuro has presented a distorted view of the truth of her involvement in the manipulation of credit accounts at Kirschman’s. Further, Kirschman argued that Sicuro has provided only a portion of the truth by admitting to having a motive to manipulate, but then invoking the Fifth throughout her deposition in response to direct questions about her involvement in the scheme. Kirschman asserted that Sicuro’s use of the Fifth was improper in that the privilege had been waived by Sicuro’s past admissions in response to Request for Admissions. Finally, Kirschman argued that the admission was incriminating.

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Sicuro argued that the notion that she waived her right to invoke the privilege by responses captured on an October 1, 2001 videotape or by her non-incriminating response to an imprecise Request for Admissions ignores the precept that a waiver in one proceeding cannot affect the rights of the witness in a separate proceeding. Further, Sicuro argued that she faces the real danger of criminal prosecution for felony theft. Additionally, Sicuro contended that she did not concede in her response to Request for Admissions that her practice of re-aging accounts led to increases in her bonuses or salary.

1. Background

This matter arises from a claim for damages filed in the Civil District Court for the Parish of Orleans on May 28, 2003 (Morris Kirschman Company, LLC v. Edie Sicuro and Hartford Fire Insurance Company, Case No. 2003-8152, Section 13, Division J). On June 17, 2003, Hartford Fire removed the action to this Court.[1]

Hartford Fire issued Kirschman a “crime shield” insurance policy by which Hartford Fire insured Kirschman for, inter alia, the loss of money or damage to other property which results directly from theft by an employee. The policy defines theft to include “. . . the unlawful taking of money, securities, or other property to the deprivation of the insured.”[2]

In September of 2001, Kirschman’s discovered that one of its employees working in the collections department, Edie Sicuro (“Sicuro”), had been manipulating credit accounts by forgiving aged or old balances of Kirschman’s customers (re-aging the accounts). Mr. Arnold Kirschman, president of Kirschman’s, testified in deposition that Sicuro visited him and confessed that she had

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re-aged many of Kirschman’s accounts, making the balances current. Mr. Arnold further testified that on the visit in question, Sicuro came to his office and said “you caught me”.

Upon asking for an explanation of what Sicuro meant by this, Mr. Kirschman testified that Sicuro reiterated that she had been “caught” when Kirschman’s management revoked security privileges to employees in the credit department. Without such privileges, Sicuro was apparently unable to manipulate the accounts.

On October 1, 2001, Kirschman’s obtained a videotaped conversation with Sicuro regarding and describing the previous conversation Sicuro had with Mr. Kirschman. The videotape reveals that Sicuro had been re-aging accounts for approximately two years, and that her motivation for doing so was the desire to maintain the portfolios of the collectors in the department. Sicuro indicated that she saw this as a way to minimize the workload of the collectors and she knew that the re-aged accounts involved thousands of customers and millions of dollars.

Kirschman’s performed an internal audit which revealed a loss on accounts of $5,488,059. Further, regarding the bonuses and raises given to the employees for collection success, Kirschman’s approximately lost an additional $210,000. Kirschman’s reported the financial losses to Hartford Fire, pursuant to the crime shield policy, however Hartford Fire informed Kirschman’s on December 5, 2002, that its claim was denied except to the extent Kirschman’s seeks the bonuses it paid to Sicuro. This amount equaled $22,000.

Kirschman’s propounded Request for Admissions upon Sicuro on January 15, 2004, which she responded to, denying ever having manipulated Kirschman’s collection accounts. However, she did admit to receiving financial bonuses from Kirschman’s which were dependant upon collection success.

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On March 16, 2004, during Sicuro’s deposition, she invoked her Fifth Amendment privilege against self incrimination to every question posed to her with one exception. Sicuro answered yes to the question whether it was her who appeared on the October 1, 2001 videotape. Now, Kirschman’s seeks to compel Sicuro to answer the questions posed to her during deposition claiming that the information will be useful to its suit against Hartford Fire. Kirschman’s further argues that Sicuro has given conflicting statements regarding whether she manipulated the accounts, and her invocation of the Fifth Amendment privilege was improper due to her previous response to the Request for Admissions.

Sicuro opposes the motion arguing that the Fifth Amendment (clause 2) shields her from the inquiries of Kirschman which seek to elicit from her self-incriminating testimony likely to lead to a criminal conviction.

II. Analysis

The Federal Rules of Civil Procedure govern discovery in all civil actions. Specifically, Rule 26(b)(1) provides that “parties may obtain discovery regarding any matter, not privileged that is relevant to the claim or defense of any party . . .” If Sicuro has properly asserted the Fifth Amendment privilege, Kirschman is not entitled to order compelling discovery, unless waiver has occurred.

A. Application of the Privilege

The Fifth Amendment protects the person asserting the privilege from testimony that is compelled. United States v. Doe (Doe I), 465 U.S. 605, 610, (1984) (citing Fisher v. United States, 425 U.S. 391(1976)). The privilege allows a witness to refuse to answer questions that would tend to incriminate her, and may be asserted in a civil proceeding. See e.g. Hoffman v. United States, 341 U.S. 479, 486 (1951), and Kastigar v. United States, 406 U.S. 441, 444 (1972). The Fifth

[1] Rec. Doc. No. 1.
[2] Id. at Exhibit A, Petition for Damages ¶ IV.