Dier v. Banton

Background

A petition in involuntary bankruptcy was filed on January 14, 1922, against Elmore D. Dier and others, partners doing business as E. D. Dier & Company. Two days later Manfred W. Ehrich was appointed Receiver and the firm was ordered to turn over property, assets, account books, and records into the Receiver’s custody. The Receiver took possession. On February 16 the District Attorney of New York County applied for those books and papers to be produced before a grand jury. Dier asked the court for an injunction, arguing the records would incriminate him and violate his rights under the Fourth and Fifth Amendments. Judge Learned Hand discharged the rule and refused the injunction.

Reasoning

The central question was whether an alleged bankrupt can prevent the use of business records after a court-ordered receiver has taken them. The Court relied on prior authority and explained that once possession and control of the records pass to a receiver and into the custody of the bankruptcy court, the alleged bankrupt’s personal right to refuse production ends. The Court noted the receiver may not have legal title, but that lack of title does not preserve the owner’s privilege. If bankruptcy is not ultimately found, the owner can reclaim the records and then assert constitutional protections, but while the records are in the court’s custody for investigation and preservation of the estate, the owner cannot block their use as evidence.

Real world impact

The decision affirms that business records taken in bankruptcy may be used in criminal investigations while under a receiver’s control, subject to the federal court’s custody rules. The federal court retains discretion to refuse a state subpoena and should consider comity before allowing removal of records to state proceedings.