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Univ. of South Carolina School of Law

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Tuesday, October 21, 2008

You're Never (Un)Available: First Circuit Finds Defendant Can't Create His Own Unavailability For Rule 804 Purposes

The recent opinion of the First Circuit in S.E.C. v. Ficken, 2008 WL 4615797 (1st Cir. 2008), reflects the conventional wisdom that a defendant does not receive the benefit of the Rule 804 hearsay exceptions when he creates his own "unavailability" by claiming his Fifth Amendment right against self-incrimination.  In Ficken, the SEC filed a civil complaint against Justin F. Ficken (“Ficken”) and others, alleging violations of 15 U.S. C. Section 77q(a), 15 U.S.C. Section 78j(b), and 17 C.F.R. Section 240.10b-5.  Specifically, the SEC alleged that Ficken intentionally concealed his identity and the identities of his clients while trading shares of mutual funds, in order to mislead mutual fund companies into processing trades that they otherwise would not have allowed.

The district court granted the SEC's motion for summary judgment against Ficken after precluding him from presenting his exculpatory testimony given during an investigation proceeding conducted by the National Association of Securities Dealers ("NASD"), a private self-regulatory organization (now succeeded by the Financial Industry Regulatory Authority) with regulation and enforcement authority over securities firms under 15 U.S.C. Section 780-3.  In addition to rendering this exculpatory testimony, however, Ficken also asserted his Fifth Amendment privilege or otherwise refused to answer questions regarding blocked customer account numbers.  Ficken again invoked his Fifth Amendment right against self-incrimination during the SEC proceeding and then sought to introduce his prior exculpatory testimony under the former testimony exception to the rule against hearsay.  The district court, however, found that this testimony was inadmissible hearsay, and the First Circuit affirmed. 

The First Circuit noted that for the former testimony exception to apply, Ficken first had to be "unavailable" as defined in Federal Rules of Evidence 804(a)(1)-(5).  And indeed, Ficken satisfied Federal Rule of Evidence 804(a)(1), which states that a declarant is "unavailable" when he "is exempted by ruling of the court on the ground of privilege from testifying concerning the subject matter of the declarant's statement."  The First Circuit found, however, that "[a]lthough this circuit has held that a witness invoking his Fifth Amendment privilege is unavailable under Rule 804,...this likely does not extend to defendants who create their own unavailability."  As support for this argument, the First Circuit noted that "[o]ther circuits [including the 4th and 5th Circuits] have specifically held that a defendant does not become unavailable simply because he asserts his Fifth Amendment privilege." 

This ruling makes sense to me.  The Rule 804 hearsay exceptions exist so that a party can get the statements of a declarant before the jury when he is unfortunately unable to get that declarant to testify at trial.  It thus makes no sense to apply them when the party himself voluntarily chooses not to testify at his own trial.

The First Circuit also noted that even if Ficken were "unavailable," the former testimony exception would not apply.  That exception applies to:

     "[t]estimony given as a witness at another hearing of the same or a different proceeding, or in a deposition taken in compliance with law in the course of the same or another proceeding, if the party against whom the testimony is now offered, or, in a civil action or proceeding, a predecessor in interest, had an opportunity and similar motive to develop the testimony by direct, cross, or redirect examination."

And while the First Circuit found that the NASD was the SEC's predecessor in interest, it found that the NASD did not have a full an fair opportunity to develop Ficken's testimony.  And the reason it did not have this opportunity is that while Ficken answered some of NASD's questions, he invoked his Fifth Amendment right in response to some of its questions.  Because the NASD could thus not fully develop Ficken's testimony, I also agree with the second conclusion by the First Circuit.

-CM      

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