Fidelity National Title Insurance Company v. APM Management Service's, LLC

                      UNITED STATES DISTRICT COURT 
                 FOR THE EASTERN DISTRICT OF MISSOURI 
                            EASTERN DIVISION 
FIDELITY NATIONAL TITLE                  ) 
INSURANCE COMPANY,                       ) 
           Plaintiffs, 
     v.                              ;      Case No. 4:22-cv-01391-JAR 
APM MANAGEMENT SERVICE’S 
LLC, et. al.,                            ) 
           Defendants. 
                       MEMORANDUM AND ORDER 
     This matter is before the Court on Defendants’ memorandum regarding the application of 
spousal  privileges  during  the  deposition  of Defendant  Sarah  Appelbaum,  wife  of Defendant 
Richard  Appelbaum.   (ECF  No.  115).   After  reviewing  the  memorandum  and  Plaintiff's 
memorandum  in  opposition,  the  Court  holds  that  the  marital  communications  privilege  is 
applicable to this case, although the joint participant exception to the martial communications 
privilege may limit its applicability.  The Court further holds that the adverse testimonial privilege 
is not applicable to this case. 
Background 
     This case concerns the alleged fraudulent diversion of $2,258,274.00 from the escrow 
account of Plaintiff Fidelity National Title Insurance Company (“Fidelity”) to Defendants APM 
Management Service’s, LLC (“APM”), Richard Appelbaum, and Sarah Appelbaum.  (ECF No. 
76, First Amended Complaint or “FAC”).  The funds were first fraudulently diverted to an account 
with former nominal defendant Bank of America (“BoA”). Upon Fidelity’s request, the Court 
entered a Temporary Restraining Order (“TRO”) freezing the account.  (ECF No.  14).  After 

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conducting limited discovery, Fidelity learned the majority of the funds had been further diverted 
to  other  accounts,  including  cryptocurrency  exchanges,  or  withdrawn.   (ECF  No.  39).   On 
Fidelity’s  consent  motion,  the  Court  entered  preliminary  injunctions  freezing  the  accounts 
allegedly containing portions of the diverted funds.  (ECF No. 35; 43; 79; 105).  However, Fidelity 
contends it has not yet traced all of the missing $2,258,274.00, and that it must conduct further 
investigation into the ownership of identified accounts.  (ECF No. 109). 
     In pursuit of these missing funds, Fidelity seeks to depose Mrs. Appelbaum.  Defendants 
objected to this discovery, based on Mrs. Appelbaum’s pending motion to dismiss.  (ECF No. 
106).  After a status conference with the parties, the Court denied the motion to stay and permitted 
Fidelity to take a limited deposition of Mrs. Appelbaum as to the transfer of the missing funds. 
(ECF No. 114).  The Court also permitted the parties to file expedited briefing on the applicability 
of the martial communication privilege and adverse testimonial privilege.  /d.  Defendants filed 
their brief in  support of the  application  of both  privileges  on  March  31,  2023,  and  Fidelity 
responded shortly thereafter.  (ECF No. 115, 116). 
Discussion 
     In federal court, Federal Rule of Evidence 501 governs evidentiary privileges.  See Rice v. 
St. Louis University, Case No. 4:19-cv-03166 SEP, 2020 WL 6158029, at *2 (E.D. Mo. Oct. 21, 
2020).  Rule 501 does not outline any specific privileges, but instead directs courts to examine the 
common law, “as interpreted by United States courts in the light of reason and experience[.]”  Fed. 
R. Evid. 501.  Nevertheless, federal common law recognizes a privilege only in “rare situations.” 
In re  Grand Jury Subpoena Duces  Tecum,  112  F.3d  910,  918  (8th Cir.  1997).  Testimonial 
exclusionary privileges “contravene the fundamental principle that the public has a right to every 
man’s evidence.”  Trammel v.  United States, 445 U.S. 40, 50 (1980) (internal citations omitted).

Thus, courts must strictly construe such privileges, and permit them only when the exercise of the 
privilege  has  a  “public  good”  outweighing  the  need  for  “ascertaining  truth.”   /d.  (internal 
quotations and marks omitted).  Courts must make this determination on a case-by-case basis.  See 
id at 47 (quoting 120 Cong. Rec. 40,891 (1974) and holding that the purpose of Rule 501 was to 
allow Courts the flexibility to develop privilege rules on a “case-by-case basis”); see also Rice, 
2020 WL 6158029, at *7 (finding that the need for truth outweighed the protection of marital 
communications). 
  L,     The Marital Communications Privilege 
     Defendants  argue that  Mrs.  Appelbaum  should  be  able to  raise two  different  spousal 
privileges during her deposition: the marital communication privilege and the adverse testimonial 
privilege. (ECF No.  115).  The martial communications privilege is well-established in the civil 
context,  and  it protects communications made within the confines of the marriage.  /d.  at 2. 
Fidelity does not dispute that the marital communications privilege is applicable to this civil case. 
(ECF  No.  116  at  6).   However,  it points  out  that  the joint participant  exception forbids  its 
application in criminal cases where both spouses participated in a crime.  /d.  Fidelity alleges that 
both Mr. and Mrs. Appelbaum participated in the fraudulent diversion of its funds.  /d.  Thus, 
Fidelity argues that the joint participant exception to the marital communications privilege should 
also apply.  /d. at 7. 
     The marital communications privilege protects a spouse from testifying as to “private intra- 
spousal communications.”  United States v.  Evans, 966 F.2d 398, 401  (8th Cir.  1992).  These 
communications are presumptively confidential.  See Blau v.  United States, 340 U.S. 332, 333 
(1951). To raise this privilege, the proponent must show (1) that  a communication occurred, by 
word or act; (ii) that the communication occurred between spouses currently in a lawful marriage;

and (111) that the communication was made in confidence.  Evans, 966 F.2d at 401.  The privilege 
applies in civil cases. See, e.g., Rice, 2020 WL 6158029, at *6 (considering whether the proponent 
had waived the privilege in a civil case).   The parties concede that Mrs. Appelbaum is validly 
married to Mr. Appelbaum, and she may raise the privilege during her deposition, subject to a 
determination as to whether the privilege applies to a particular question or answer given the facts 
of the case.'  The question remaining before the Court is whether such communications would fall 
within the joint participant exception to the marital communications privilege. 
     The  joint  participant  exception  to  the  marital  communications  privilege  is  “widely 
accepted.”  See Evans, 966 F.2d at 401  (internal quotations omitted).  The exception permits 
testimony regarding confidential marital communications “involving future or ongoing crimes in 
which spouses were joint participants at the time of the communications.”  /d.  Though the Eighth 
Circuit has found the rationale for the exception “compelling,” it has limited its application to 
“patently illegal activity.”  /d. (citing United States v. Sims, 755 F.2d 1239, 1243 (6th Cir.), cert. 
denied, 473 U.S. 907 (1985)).  The Eighth Circuit has narrowly constructed this rule, and as such, 
it applies only when the public’s interest in discovering the truth about criminal activity outweighs 
the public’s interest in protecting the privacy of marriage.  /d. (citing Sims, 755 F.2d at 1243; The 
Future  Crime  or  Tort Exception  to  Communications Privileges,  77 HARV. L. REV.  730,  734 
(1964)).  Although every Eighth Circuit case considering the exception has been criminal, the 
Eighth Circuit has not foreclosed the application of the joint participant exception in civil cases in 
which the balance of the interests meets this rationale.” Thus, the joint participant exception to the 

      Though private communications between spouses are generally presumed confidential, that presumption may 
be overcome by the non-confidential nature of the message or the circumstances under which the communication was 
made.  See United States v. Ellis, NO: 4:13CR001331-03, 04 SWW, 2015 WL 8967855, at *4 (E.D. Ark. Dec. 15, 
2015) (citing Fowler v. United States, 352 F.2d 100, 113 (8th Cir. 1965)). 
2      The  rationale  for the joint participant exception,  as  adopted by the  Eighth  Circuit  in  Evans,  is that 
“unambiguously illegal” activity is “outside the area of desired husband-wife intimacy.” The Future Crime or Tort

marital communications privilege may apply to a civil case, if the Court finds that the facts of that 
case* and the communications support finding that the public’s interest in marital privacy is less 
than its interest in ascertaining the truth of a crime. 
      Fidelity  alleges  that  Defendants  “directly  and  indirectly”  participated  in  a  pattern  of 
racketeering activity in violation of 18 U.S.C. §§ 1343, 1344, 1956, 2314, and 2315 (the “RICO 
violations”).   FAC  at  8-9.  As  Fidelity  alleges  that  all  Defendants  participated  in  the  RICO 
violations, it contends that Mr. and Mrs. Appelbaum jointly contributed to this illegal conduct. The 
Court therefore holds that Fidelity may  elicit testimony from Mrs. Appelbaum related to any 
patently illegal activity, as the public’s interest in ascertaining the truth of any potential crime 
outweighs its interest in marital privacy. 
   Il.     The Adverse Testimonial Privilege 
      A spouse may raise the adverse testimonial privilege to avoid testifying adversely to a 
spouse’s interests, and though most commonly raised in a criminal case, Defendants argue that it 
is also applicable in civil cases. /d. at 4.  Defendants concede that there is a circuit split on the 
issue, and that the Eighth Circuit has not decided the adverse testimonial privilege’s applicability 
to civil cases.  Jd. at 3.  Nevertheless, even if the privilege is not applicable to civil cases generally, 
Defendants argue Mrs. Appelbaum should be able to raise the privilege here because Fidelity has 
accused Defendants of criminal activity.  /d. at 5. Thus, according to Defendants, this civil case is 

Exception to Communications Privileges, at 734.  The balance of public interests that permits the joint participant 
exception is thus less that the public’s interest in ascertaining the truth of criminal activities is greater in criminal 
prosecutions, and more that the married couple’s interest in privacy is weakened when the spouses jointly participate 
in acrime. See, id. 
       Though the exception applies only to communications regarding “patently illegal” conduct, the party alleging 
the application of the exception does not need to establish with certainty that the spouses engaged in this activity. 
Instead, allegations of joint participation in a crime are sufficient, as further fact-specific inquiry into whether a crime 
was committed would “violate the providence of the jury.” United States v. Dowdy, 738 F.Supp.1283, 1285 n.3 (W.D. 
Mo. 1990).

sufficiently  connected to  a government criminal  proceeding  for Mrs.  Appelbaum to raise the 
adverse testimonial privilege.  /d. at 6. 
     Fidelity contends that the adverse testimonial privilege is inapplicable in civil proceedings. 
(ECF No. 116 at 3).  Fidelity argues that this case is not ancillary to a criminal case, as it does not 
seek to recover a penalty under any criminal forfeiture provision.  /d. at 5.  Additionally, Fidelity 
points out that the adverse testimonial privilege does not extend to “objective facts”, and argues 
that the whereabouts of the funds are objective facts which do not implicate criminal intent.  /d. at 
6.  In the alternative, Fidelity asserts that the joint participant exception also precludes application 
of the adverse testimonial privilege.  /d. 
     The adverse testimonial privilege protects one spouse from being compelled to testify 
adversely against the other spouse’s interests.  See  United States v.  Thornton, Nos.  13-mc-86 
(SRN/TNL), 13-mce-87 (SRN/TNL), 2014 WL 4210125, at *9 (D. Minn. Apr. 9, 2014) (internal 
citations omitted).  Though this privilege has its roots in civil law, see Stein v. Bowman, 38 U.S. 
209 (1839), modern court decisions have significantly limited the application of the privilege in 
non-criminal cases.  See, e.g., Funk v.  United States, 290 U.S. 371, 376 (1933) (finding that the 
privilege had been modified “partially  by  legislation and partially  by judicial  construction”); 
Hawkins v. United States, 358 U.S. 74, 77 (1958) (holding that the privilege is applicable only “in 
a trial where life or liberty is at stake”); Trammel, 445 U.S. at 51 (describing the need for probative 
evidence in the “administration of criminal justice” and the determination to protect the marital 
harmony of “an accused”).  Though the Supreme Court and Circuit Courts, including the Eighth 
Circuit, have not definitively stated that the adverse testimonial privilege is inapplicable to civil 
cases, it is “not necessary to fully defend the civil-criminal distinction in order to reject [application 
of the] privilege in a civil case.”  Ryan v. Commissioner of Internal Revenue, 568 F.2d 531, 544

(7th Cir. 1977); see also, United States v.  Yeardi, 192 F.3d 14, 19 (1st Cir. 1999) (noting that the 
“possible role” of the adverse testimonial privilege in civil cases is “unclear’’); Jn re Snoonian, 502 
F.2d 110, 112 (1st Cir. 1974) (holding that the adverse testimonial privilege applies in grand jury 
proceedings, even though the proceedings were not a criminal trial). The determining question for 
whether the adverse testimonial privilege applies to a case is not whether the case is criminal or 
civil, but whether the desired testimony in the particular case raises a threat to the spouse’s penal 
interests.“ See In re Martenson, 779 F.2d 461, 464 (8th Cir. 1985) (finding that a wife must testify 
against  her husband  in  a civil  wrongful  levy  action against the  United  States,  in  which the 
husband’s mother was the plaintiff, because the  case implicated only the husband’s property 
interests, rather than his penal interests); see also United States v. Cauwenberghe, 827 F.2d 424, 
431  (9th Cir.  1987) (refusing to recognize the adverse testimonial privilege where the witness 
failed to demonstrate the testimony was adverse to her spouse’s penal interests), cert denied, 484 
U.S. 1042 (1988); In re Grand Jury Proceedings, 664 F.2d 423, 429-430 (Sth Cir. 1981) (holding 
similarly), cert. denied, 455 U.S. 1000 (1982); In re Grand Jury (Malfitano), 633 F.2d 276, 280 
n.6 (3d Cir. 1980) (holding similarly). The testimony the proponent hopes to protect must therefore 
be “intimately connected” with a prospective criminal prosecution, even if the case is civil in 
nature.  See Thornton, 2014 WL 41210125, at *9 (citing In re Martenson, 779 F.2d at 463-464). 
     The  burden of demonstrating that a spouse’s  penal  interests  are  at risk  is high.  The 
privilege applies only where the non-witness spouse’s legal interests may be disfavored “in the 
very  case”  in which  the testimony  is to  be  offered.   United States Securities and Exchange 

A      The Supreme Court previously proposed that spousal privileges be restricted to criminal proceedings in 
Proposed Federal Rule of Evidence 505(a).  See Trammel, 445 U.S. at 47.  Though this rule was not adopted, it 
provides guidance for interpreting the scope of the adverse testimonial privilege.  Indeed, the notes of the Judiciary 
Committee to  Rule  501  explain  that “the action  of Congress  should  not be understood as  disapproving any 
recognition...of the enumerated privileges contained in the Supreme Court Rules.”  Fed. R. Evid. 501, Notes of 
Committee on the Judiciary, Senate Report No. 93-1277 (encouraging reading the rule as “reflecting the view that the 
recognition of a privilege based on a confidential relationship...should be determined on a case-by-case basis”).

Commission v. Collector’s Coffee, Inc., 19 Civ. 4355 (LGS), 2019 WL 8647777, at *2 (S.D.N.Y. 
Jun. 19, 2019) (rejecting the application of the privilege in a civil case in which the plaintiff wanted 
to elicit the testimony to locate and freeze assets pursuant toa TRO).  The limited exception to this 
rule arises when a  plaintiff is “manifestly seeking” to use a spouse’s testimony in one proceeding 
against them in a related proceeding.  Jd. (citing United States v. Premises Known as 281 Soysset 
Woodbury Rd., 71 F.3d 1067, 1071 (2d Cir. 1995)). 
     Fidelity raises allegations of criminal activity  in its FAC.  However, the allegation of 
criminal violations alone is insufficient for application of the privilege, as Mrs. Appelbaum must 
show that her testimony  would endanger Mr.  Appelbaum’s penal  interests  in this case.  See 
Collector’s Coffee, Inc., 2019 WL 8647777, at *2.  Defendants point out that Fidelity has referred 
this matter to the federal authorities, and that there is now an on-going grand jury investigation 
into the facts of this case.  (ECF No. 115 at 5).  Nevertheless, no party has presented evidence that 
Fidelity or the government is “manifestly seeking” to use Mrs. Appelbaum’s testimony in this 
proceeding against Mr. Appelbaum at the grand jury proceedings.  Without such evidence, or 
without  evidence  of a  threat  to  Mr.  Appelbaum’s  penal  interests  in  this  case,  the  adverse 
testimonial privilege is inapplicable. 
     Even  if the  adverse  testimonial  privilege  would  apply,  the  Court  finds  that the joint 
participant exception could also bear on this privilege.  Circuit courts are split on whether the joint 
participant exception applies to the adverse testimonial privilege.  The Second, Third, Ninth, and 
Tenth Circuits have refused to recognize the exception in this context. See United States v. Pineda- 
Mateo, 905 F.3d 13, 17 (10th Cir. 2018); United States v. Ramos-Oseguera, 120 F.3d 1028, 1042 
(9th Cir. 1997), overruled on other grounds by United States v. Nordby, 225 F.3d 1053 (9th Cir. 
2000); In re Grand Jury Subpoena, 755 F.2d at 1026-1028, (2d Cir. 1985), rev.d on other grounds

by United States v. Koecher, 475 U.S.  133 (1986); Appeal of Malfitano, 633 F.2d 276, 278-280 
(3d Cir.  1980).  In contrast, the Seventh Circuit recognizes the joint participant exception to the 
adverse testimonial privilege.  See United States v. Clark, 712 F.2d 299, 300-302 (7th Cir. 1983) 
(internal citations omitted);  United States v.  Van Drunen, 501  F.2d 1393,  1397 (7th Cir.  1974). 
Whereas the Circuit courts deciding against the exception reason that the decision to engage in 
criminal activity does not undermine the validity of a marriage, the Seventh Circuit points out that 
the privilege should be limited to “those cases where...a spouse who is neither a victim nor a 
participant observes evidence o the other spouse’s crime[.]”  Clark, 712 F.2d at 301  (internal 
quotations and marks omitted).  The  Seventh Circuit reasons that the underlying  goal  of the 
privilege, to preserve the sanctity of the marriage, does “not justify assuring a criminal that he or 
she could enlist the aid of a spouse in a criminal enterprise without fear that by recruiting an 
accomplice the criminal was creating another potential witness[.]” Jd. 
      The  Court finds the  Seventh  Circuit’s reasoning persuasive,’  and holds that the joint 
participant exception would apply to Mrs. Appelbaum’s testimony if her testimony as to the funds 
were protected by the adverse testimonial privilege.  The FAC implicates Mrs. Appelbaum in the 
alleged  diversion  of these  funds  in  concert with her husband.  As  such,  the joint participant 
exception applies, and, to the extent that Fidelity  inquires into this activity,  it may elicit this 
testimony through the joint participant exception to the adverse testimonial privilege. 
      Accordingly, 

      This reasoning is particularly persuasive in light of the public’s increased interest in ascertaining the truth in 
cases concerning organized crime.  See Pineda-Mateo, 905 F.3d 13, 22 (citing Callanan v. United States, 364 U.S. 
587, 593 (1961) and describing the government’s argument that a collective criminal agreement “presents a greater 
potential threat to the public than individual derelicts’”). See also HR Rep. No. 1030, 98th Cong. 2d Sess. at 206-207 
(1984) (giving the government the broad power to conduct discovery to locate assets in RICO cases, as organized 
crime figure have established a pattern of placing assets in the hands of family to avoid forfeiture).

     IT IS HEREBY ORDERED that Defendant Sarah Appelbaum may raise the marital 
communications privilege during her deposition, though its applicability shall be determined on a 
question-by-question basis. However, any application of the marital communications privilege is 
subject to the joint participant exception. 
     IT IS FURTHER ORDERED that Defendant Sarah Appelbaum may raise the adverse 
testimonial privilege with evidence that the testimony  she  seeks to protect is adverse to  Mr. 
Appelbaum’s  penal  interests,  in  accordance  with  this  order,  and  it’s  applicability  shall  be 
determined on a question-by-question basis. However, any application of the adverse testimonial 
privilege is subject to the joint participant exception. 

Dated this 11th day of April, 2023.               A
                                       OHN A. ROSS 
                                      UNITED STATES DISTRICT JUDGE 

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