Chao v. Fleming

• Decision Date: 06 July 2007
• Docket Number: No. 4:06-CV-117.,4:06-CV-117.
• Citation: 498 F.Supp.2d 1034
• Parties: Elaine L. CHAO, Secretary of Labor, United States Department of Labor, Plaintiff, v. M. Jack FLEMING and Carol Fleming, individually and as trustees of the Merchants Publishing Co., Inc. 401(k) Profit Sharing Plan, and Merchants Publishing Co., Inc., d/b/a Universal Litho, and the Merchants Publishing Co., Inc. 401(k) Profit Sharing Plan, Defendants.
• Court: U.S. District Court — Western District of Michigan

498 F.Supp.2d 1034

Elaine L. CHAO, Secretary of Labor, United States Department of Labor, Plaintiff, v. M. Jack FLEMING and Carol Fleming, individually and as trustees of the Merchants Publishing Co., Inc. 401(k) Profit Sharing Plan, and Merchants Publishing Co., Inc., d/b/a Universal Litho, and the Merchants Publishing Co., Inc. 401(k) Profit Sharing Plan, Defendants.

No. 4:06-CV-117.

United States District Court, W.D. Michigan, Southern Division.

July 6, 2007.

COPYRIGHT MATERIAL OMITTED

Maureen M. Cafferkey, U.S. Department of Labor, Office of the Solicitor, Cleveland, OH, W. Francesca Ferguson, U.S. Attorney, Grand Rapids, MI, for Plaintiff.

Dwight K. Hamilton, James S. Brady, Miller, Johnson, Snell & Cummiskey PLC, Grand Rapids, MI, for Defendants.

OPINION

QUIST, District Judge.

In this action, Plaintiff, Elaine L. Chao, the Secretary of Labor ("Secretary"), has sued Defendants, M. Jack Fleming and Carol Fleming, individually and as trustees of the Merchants Publishing Co., Inc. 401(k) Profit Sharing Plan (the "Plan"), Merchants Publishing Co., Inc. ("MPC") d/b/a Universal Litho, and the Merchants Publishing Co., Inc. 401(k) Profit Sharing Plan, alleging that they have violated various sections of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Now before the Court is Defendants' motion to stay this civil action in light of impending criminal charges also based upon violations of ERISA.

The Secretary filed her complaint in this case on September 27, 2006, alleging that Defendants violated ERISA by, among other things, failing to segregate employee contributions to the Plan from MPC's general assets and allowing those funds to be used for MPC's general operating expenses. The Employee Benefits Security Administration ("EBSA") initiated a civil investigation of alleged ERISA violations in June 2005, which led to the filing of the complaint. EBSA subsequently opened a criminal investigation in March 2006. Since that time, the criminal investigator has been working with Assistant United States Attorney Michael MacDonald of the United States Attorney's Office for this district. On March 22, 2007, AUSA MacDonald, orally and in writing, notified Defendants' counsel that the Government was conducting an investigation of Defendants' alleged retirement benefits fraud and bank fraud. AUSA MacDonald wrote that "[t]he United States believes that it has sufficient evidence to bring criminal charges against [Defendants] for multiple acts of embezzlement/conversion of retirement benefits, contrary to 18 U.S.C. § 1344." Defendants filed the instant motion to stay on April 19, 2007. Defendants have yet to be indicted.

While nothing in the Constitution requires a civil action to be stayed in the face of a pending or impending criminal indictment, a court still has broad discretion in determining whether to stay a civil action while a criminal action is pending or impending. See Landis v. No. Am. Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 166, 81 L.Ed. 153 (1936); Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir.1995) (citing Fed. Say. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir.1989)). See also Sec. & Exch. Comm'n v. Dresser Indus., 628 F.2d 1368, 1375 (D.C.Cir.1980) ("In the absence of substantial prejudice to the rights of the parties involved, [] parallel [criminal and civil] proceedings are unobjectionable under our jurisprudence."). However, simultaneous criminal and civil cases involving the same or closely related facts may give rise to Fifth Amendment concerns sufficient to warrant a stay of the civil proceedings. "Courts are afforded th[e] discretion [to grant a stay] because the denial of a stay could impair a party's Fifth Amendment privilege against self-incrimination, extend criminal discovery beyond the limits set forth in Federal Rule of Criminal Procedure 16(b), expose the defense's theory to the prosecution in advance of trial, or otherwise prejudice the criminal case." Trustees of Plumbers & Pipefitters Nat'l Pension Fund v. Transworld Mech., Inc., 886 F.Supp. 1134, 1138 (S.D.N.Y.1995). A stay of a civil case is an extraordinary remedy that should be granted only when justice so requires. See Pelzer v. City of Pa., No. 07-0038, 2007 WL 1377662, at *2 (E.D.Pa. May 7, 2007); Crawford & Sons, Ltd. v. Besser, 298 F.Supp.2d 317, 319 (E.D.N.Y. 2004).

The decision to stay a case requires an examination of the specific circumstances, taking into account the competing interests involved. See Sterling Nat'l Bank v. A-1 Hotels Int'l, Inc., 175 F.Supp.2d 573, 576 (S.D.N.Y.2001) (quoting Molinaro, 889 F.2d at 902). One court has observed that "the strongest case for deferring civil proceedings until after completion of criminal proceedings is where a party under indictment for a serious offense is required to defend a civil or administrative action involving the same matter." Dresser Indus., Inc., 628 F.2d at 1375-76. Some of the factors that a court should consider and balance in determining whether to grant a stay include:

1) the extent to which the issues in the criminal case overlap with those presented in the civil case; 2) the status of the case, including whether the defendants have been indicted; 3) the private interests of the plaintiffs in proceeding expeditiously weighed against the prejudice to plaintiffs caused by the delay; 4) the private interests of and burden on the defendants; 5) the interests of the courts; and 6) the public interest.

Trustees of the Plumbers & Pipefitters Nat'l Pension Fund, 886 F.Supp. at 1139 (footnotes and citations omitted).

The Court begins its analysis with the status of the criminal case. As Defendants concede, and to this Court's knowledge, Defendants have not yet been indicted. In general, courts recognize that the case for a stay is strongest where the defendant has already been indicted, whereas pre-indictment requests for a stay, as in this case, are usually denied. See In re Par Pharm., Inc. Sec. Litig., 133 F.R.D. 12, 13-14 (S.D.N.Y. Oct. 31, 1990) (noting that courts in the Second Circuit "will deny a stay of the civil proceeding where no indictment has issued"); United States ex rel. Shank v. Lewis Enters., Inc., No. 04-cv-4105-JPG, 2006 WL 1064072, at *4 (S.D.Ill., Apr. 21, 2006) (noting that the fact that the defendants had not been indicted strongly supported denial of a stay); State Farm Mut. Auto. Ins. Co. v. Beckham-Easley, No. Civ. A. 01-5530, at * (E.D.Pa. Sept. 18, 2002) (noting that "[a] court is most likely to grant a stay of civil proceedings where an indictment has been returned" but that "pre-indictment requests for a stay are typically denied" because "of the uncertainty surrounding when, if ever, indictments will be issued, as well as the effect of the delay on the civil trial"). On the other hand, a stay should not be categorically denied solely because the defendant has not yet been indicted. See Walsh Secs., Inc. v. Cristo Prop. Mgmt., Ltd., 7 F.Supp.2d 523, 527 (D.N.J. 1998) ("It is `still possible' to obtain a stay, even though an indictment or information has not yet been returned, if the Government is conducting an active parallel criminal investigation.") (citing Milton Pollack, Parallel Civil and Criminal Proceedings, 129 F.R.D. 201, 203 (1989)). In Brock v. Tolkow, 109 F.R.D. 116 (E.D.N.Y.1985), one of the few cases that this Court has found in which a court granted a pre-indictment stay, the Secretary of Labor sued the defendants, trustees of a welfare fund governed by ERISA, alleging that they violated ERISA. The trustee defendants sought a stay of the civil proceedings upon the ground that they had previously been served with grand jury subpoenas which indicated that the government was preparing to prosecute them for ERISA violations. The court cited a number of considerations supporting its decision to grant a stay. First, it noted that a stay "is most likely to be granted where the civil and criminal actions involve the same subject matter and is even more appropriate when both actions are brought by the government." Id. at 119 (citing Dresser Indus., 628 F.2d at 1376). Second, it found that a stay would not cause serious damage to the public interest because there were no allegations that plan beneficiaries were not receiving benefits, nor were there allegations of continuing or threatened injury that might result from the stay.¹ See id. at 120. Third, the government did not cite any evidence that might be lost if civil discovery was stayed, and the court observed that "the resolution of the criminal case might reduce the scope of discovery in the civil case or otherwise simplify the issues." Id. Fourth, the court found that the public interests balanced against the defendants' Fifth Amendment protections weighed in favor of a stay because their decision to invoke their Fifth Amendment rights could greatly increase the chance that they would be found liable in the civil action. See id. Finally, the court observed that while criminal prosecutions can take some time to complete, a stay would not necessarily delay enforcement of the public interests "because a criminal prosecution serves to enforce those same interests." Id. at 121. See also S.E.C. v. Healthsouth Corp., 261 F.Supp.2d 1298, 1326 (N.D.Ala.2003) (granting a pre-indictment stay where the indictment was "an eventuality" and "the harm to defendant Scrushy from blindly pushing ahead with this matter [would] greatly outweigh the prejudice to the SEC from a stay of this civil proceeding").

While the fact that a defendant has not been indicted generally weighs against a stay and may, by itself, provide a sufficient basis for denying a stay, see United States v. Private Sanitation Indus. Ass'n of Nassau/Suffolk, Inc., 811 F.Supp. 802, 805 (E.D.N.Y.1992) ("As a preliminary matter, since Avellino has yet to be indicted by any grand jury, his motion to stay may be denied on that ground alone."), ...