State v. Kobrin Securities, Inc.

• Decision Date: 04 August 1988
• Citation: 544 A.2d 833,111 N.J. 307
• Parties: , 57 USLW 2148 The STATE of New Jersey and James McLelland Smith, Chief, New Jersey Bureau of Securities, Plaintiffs-Appellants, v. KOBRIN SECURITIES, INC., a corporation organized under the laws of the State of New Jersey, Robert T. Fitzsimmons, individually and as agent of Kobrin Securities, Inc.; Lawrence S. Repace, individually as agent for Kobrin Securities, Inc.; and Leonard Berman, individually and as Compliance Officer and Financial Principal of Kobrin Securities, Inc., Defendants, and Barrett R. Kobrin, Individually and as President, Director, and Chief Executive Officer of Kobrin Securities, Inc.; Richard L. Kobrin, individually and as Secretary of Kobrin Securities, Inc.; Warren Sandy, individually and as Chief Financial Officer of Kobrin Securities, Inc.; Armand DeAngelis, individually and as Vice President and agent of Kobrin Securities, Inc.; Arden Brown, individually and as Vice President, Secretary and shareholder of Kobrin Securities, Inc.; and Peter Calcutta, individually and as agent of Kobrin Securities, Inc., Defendants-Respondents.
• Court: New Jersey Supreme Court

Page 307

111 N.J. 307

544 A.2d 833, 57 USLW 2148

The STATE of New Jersey and James McLelland Smith, Chief New Jersey Bureau of Securities, Plaintiffs-Appellants, v. KOBRIN SECURITIES, INC., a corporation organized under the laws of the State of New Jersey, Robert T. Fitzsimmons individually and as agent of Kobrin Securities, Inc. Lawrence S. Repace, individually as agent for Kobrin Securities, Inc.; and Leonard Berman, individually and as Compliance Officer and Financial Principal of Kobrin Securities, Inc., Defendants and Barrett R. Kobrin, Individually and as President, Director, and Chief Executive Officer of Kobrin Securities, Inc.; Richard L. Kobrin, individually and as Secretary of Kobrin Securities, Inc.; Warren Sandy, individually and as Chief Financial Officer of Kobrin Securities, Inc.; Armand DeAngelis, individually and as Vice President and agent of Kobrin Securities, Inc.; Arden Brown, individually and as Vice President, Secretary and shareholder of Kobrin Securities, Inc.; and Peter Calcutta, individually and as agent of Kobrin Securities, Inc., Defendants-Respondents.

Supreme Court of New Jersey.

Argued May 2, 1988.

Decided Aug. 4, 1988.

Andrea M. Silkowitz, Asst. Atty. Gen., for plaintiffs-appellants (Cary Edwards, Atty. Gen., attorney; Nancy Costello Miller, Deputy Atty. Gen., on the brief).

Steven S. Radin, Newark, for defendant-respondent Barrett R. Kobrin, etc., (Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, attorneys; Trent S. Dickey, on the brief).

Thomas J. Spies, Roseland, for defendant-respondent Armand DeAngelis, etc. (Walder, Sondak, Berkeley & Brogan, attorneys).

Jay D. Fischer, Clifton, for defendant-respondent Arden Brown, etc. (Fischer, Kagan, Zaretsky & Scarinci, attorneys).

Mark H. Sobel, Iselin, for defendant-respondent Richard L. Kobrin, etc. (Greenbaum, Rowe, Smith, Ravin, Davis & Bergstein, attorneys).

Stuart Gold, Roseland, submitted a letter in lieu of brief, for defendant-respondent Warren Sandy, etc. (Orloff, Lowenbach, Stifelman & Siegel, attorneys).

Nicholas E. Caprio, West Orange, submitted a letter in lieu of brief, defendant-respondent Peter Calcutta, etc. (Harkavy, Goldman, Goldman & Caprio, attorneys).

The opinion of the Court was delivered by

O'HERN, J.

The question in this case is whether the State may proceed with a civil fraud action against associated securities dealers while certain of them are subject to pending criminal actions arising out of the same transactions. (We refer thus to the defendants generally. Some were officers of the firm, some were the firm's traders, and some were sales representatives.) The parties to the criminal actions have in the civil proceedings asserted their privilege against self-incrimination and have refused to provide discovery to the State. This is their right. It is not their right to bar the State from proceeding to obtain civil relief for securities fraud either in the form of damages or an injunction. Nor may their unindicted associates refuse to give discovery or otherwise restrain the civil litigation against them while the criminally accused dealers continue to invoke the right to remain silent; like the indicted defendants, however, they may exercise their privilege against self-incrimination, but may not indefinitely stay the civil proceedings. Hence, we reverse the judgment below, which had the effect of staying the civil securities fraud actions until the conclusion of the criminal proceedings.

I

The reported decisions below, 221 N.J.Super. 169, 534 A.2d 55 (App.Div.1987), and 213 N.J.Super. 161, 516 A.2d 1130 (App.Div.1986), set forth the background for this appeal. This civil matter began on July 2, 1985, when the State of New Jersey filed a complaint for securities fraud seeking relief pursuant to N.J.S.A. 49:3-47 to [544 A.2d 835] -76 against various defendants, including Kobrin Securities, Inc., as well as nine individuals. A State grand jury was also investigating these activities for possible criminal violations and on April 16, 1987, returned a criminal indictment against Kobrin Securities, Inc., as well as against two of the individual defendants in the civil action: Barrett R. Kobrin and Armand DeAngelis.

The civil complaint sought the appointment of a receiver, preliminary and permanent restraints, recission of the sale of certain securities, and award of damages for investors. (The State withdrew its demand for a receiver for Kobrin Securities after a trustee in bankruptcy was appointed to liquidate that corporation.)

On August 1, 1985, a trial court granted the State's application for preliminary restraints and enjoined the defendants Kobrin, DeAngelis, and Kobrin Securities from engaging in virtually any aspect of the securities business in New Jersey. This preliminary injunction is still in force. The State also sought and obtained restraints against the disposition of assets by certain of the individual civil defendants.

Prior to any indictment, plaintiffs and defendants had undertaken discovery in the civil action. Counsel for certain defendants deposed Richard Barry, investigator for the State Bureau of Securities (the Bureau). As of January 1986, Barry had appeared for depositions approximately six times. Counsel for DeAngelis deposed several witnesses who had provided the affidavits and certifications filed with the State's complaint. Counsel for certain defendants reviewed the Bureau's files concerning this matter; those files were made available for inspection and copying.

However, defendants opposed the State's efforts to depose them. DeAngelis and Kobrin, having learned of State and federal criminal investigations into their affairs, declined to answer questions or to produce documents concerning the merits of the civil lawsuit. Notwithstanding this failure of discovery, the State amended its complaint to add more than ninety certifications from investors alleging losses in excess of $750,000.

On April 16, 1987, a State grand jury returned an indictment charging defendants DeAngelis, Kobrin, and Kobrin Securities, Inc. with securities fraud, misapplication of entrusted property, and engaging in practices that constituted the unlawful offer, sale, or purchase of securities.

Citing the return of the indictments against Kobrin and DeAngelis, the trial court, on its own motion, stayed the State's civil action with regard to the two individual defendants and placed the case on the "inactive list" on May 1, 1987. The court had previously informed the Attorney General by letter dated January 28, 1987, that "I really consider this case as paralyzed by the Fifth Amendment issue and by the failure of the Attorney General's office either to indict or declare that they are not going to indict the parties involved." The court had stated in this letter that it contemplated placing the case on the inactive list.

The State moved for reconsideration. At the same time several of the other civil defendants moved to stay the pending civil actions against them. On the combined return date, the court noted: "It's really all one package. All right. It's all one." In essence, the court declined to reactivate the civil cases but found that the State was free to proceed with civil actions against individual defendants if it chose to. On appeal, the Appellate Division affirmed the trial court's ruling.

We granted leave to appeal, 110 N.J. 161, 540 A.2d 163 (1988), to consider whether such a civil case is "paralyzed by the Fifth Amendment issue."

II

The conflict of interest resulting from the interrelationship of criminal and civil actions against the same defendant is a familiar one. In DeVita v. Sills, 422 F.2d 1172 (3d Cir.1970), Judge Gibbons explored the tensions inherent in such proceedings and noted that whatever the difficulties of invoking the fifth-amendment privilege, there is no constitutional inhibition that a defendant in a criminal case not "be put to the difficult choice of having to assert the privilege in a related civil case * * *." Id. at 1178 (citing United States v. Kordel, 397 U.S. 1, 90 S.Ct. 763, 25 L.Ed.2d 1 (1970)).

Thus, in United States v. Simon, 373 F.2d 649 (2d Cir.), cert. granted sub nom. Simon v. Wharton, 386 U.S. 1030, 87 S.Ct. 1485, 18 L.Ed.2d 591, vacated as moot, 389 U.S. 425, 88 S.Ct. 577, 19 L.Ed.2d 653 (1967), accountants who had been indicted for stock sale violations objected to depositions being taken by the trustee in bankruptcy of the company to which the charges in the indictment referred. The accountants sought to stay their depositions, contending that they should not be required to plead the privilege against self-incrimination in the civil case. The court held that these defendants could, if they wished, assert the privilege in the securities proceedings, but that they had no constitutional right to be relieved of the burden of that choice.

That the exercise of the privilege may pose difficult choices for litigants poses no obstacle, then, to the continuation of the civil litigation. "Rather, the alleviation of tension between constitutional rights has been treated as within the province of a court's discretion in seeking to assure the sound administration of justice." People v. Coleman, 13 Cal.3d 867, 885, 533 P.2d 1024, 1039, 120 Cal.Rptr. 384, 399 (1975). The Coleman court noted that while

[s]ome courts have been sympathetic to [defendants in] such a situation and have stayed the civil proceedings until disposition of the related criminal prosecution * * * ([s]ee, e.g., National Discount Corp. v. Holzbaugh, (E.D.Mich.1952), 13 F.R.D. 236, 237[,] * * * [o]ther courts have refused to go beyond allowing civil defendants to refuse to answer particular questions propounded in the course of discovery by expressly invoking their privilege against self-incrimination. (See, e.g., In re Penn Central Securities Litigation, (E.D.Pa.1972), 347 F.Supp. 1347, 1348.)

[Coleman, supra, 13 Cal.3d at 885, 533 P.2d at 1039, 120...