Opinion
02 CV 1792 (WHP) (THK)
March 6, 2003
MEMORANDUM OPINION AND ORDER
This action, for breach of contract and fraud, was referred to this Court for general pretrial supervision. Presently before the Court is Defendant David Weinreb's ("Weinreb") motion to stay his deposition pending the resolution of a related criminal matter. Plaintiff Karimona Investments, LLC ("Karimona") opposes the stay. For the reasons that follow, Defendant's motion is denied.
BACKGROUND
This action arises from two sets of loan agreements under which Weinreb was to extend loans to Karimona and a related entity, Conamics, LLC, in the amount of $12.705 million and $6.545 million, respectively. Weinreb failed to fund the loans. Plaintiff alleges, inter alia, that Weinreb falsely represented himself to be a high level trader employed by Bloomberg, L.P.; that he had no real ability to fund the loans; and that he executed guarantees of the loan payments on behalf of Bloomberg, without its knowledge or authorization.
Earler in this action, a stay on pretrial discovery was imposed by The Court (Rauley, J.), because Weinreb was a defendant in a criminal action in The United States District Court for New Jersey, arising out of the same transactions as those in this action. Weinreb initially pled guilty to the criminal information in that case. On November 8, 2002, Weinreb's motion to withdraw his guilty plea was granted, and the criminal case was dismissed without prejudice to the government to convene a grand jury and seek to reassert any criminal charges by indictment. On November 11, 2002, Weinreb's attorney, George Bochetto, wrote to the Court notifying it of the dismissal of the criminal action and requesting that the stay on discovery be lifted. The stay was lifted on November 14, 2002, and the Court set a February 14, 2003 deadline for completion of all pretrial discovery. Mr. Bochetto then requested an extension of the discovery period because of the complexity of the action and the need to take numerous depositions. The Court denied the request.
The parties then commenced discovery. In response to Weinreb's discovery requests, Karimona produced voluminous documentary discovery, responded to interrogatories, and produced witnesses for deposition. By contrast, Weinreb objected to many of Plaintiff's interrogatories, refused to answer most of them, and failed to verify under oath the answers that he did provide. He also failed to produce certain relevant documents.
At a hearing on February 13, 2003, the Court ordered responses to many of Plaintiff's requests and interrogatories.
Weinreb's deposition was scheduled for February 8, 2003. Although, prior to that date, Plaintiff's counsel had inquired as to whether Weinreb intended to invoke his Fifth Amendment rights at the deposition, he received no response to his query. Nevertheless, at the deposition Weinreb declined to answer any substantive questions, on instruction of his attorney, on the ground that responding to the questions "may put him in jeopardy of waiving his Fifth Amendment rights." See, e.g., Deposition Transcript at 19. Weinreb did not, however, actually invoke the Fifth Amendment. In an attempt to justify Weinreb's conduct at his deposition, his attorney initially claimed that it was only on February 5, three days before the deposition, that his office had a conversation with the Assistant United States Attorney who had prosecuted the criminal case, which led him to believe "that the United States is, in fact, further investigating Weinreb for a possible presentation to a grand jury." Letter from George Bochetto to the Court, dated February 13, 2003. Mr. Bochetto now acknowledges that the conversation occurred on January 30, 2003, and that in response to a question from an attorney in his office regarding the status of prosecutorial activity involving Weinreb, the AUSA responded: "We're still looking at your case and we're also looking at a lot off other things." Letter of George Bochetto to the Court, dated February 21, 2003 ("Bochetto Feb. 21 Ltr.") at 2.
At a hearing on February 13, 2003, the Court determined that Weinreb's deposition conduct was sanctionable, inasmuch as he had neither secured a protective order from the Court nor advised Plaintiff's counsel in advance of the deposition that he would not be providing substantive responses at his deposition, despite the fact that he did not intend to invoke his Fifth Amendment rights.
DISCUSSION
Weinreb seeks to stay his deposition on the ground that he is the subject of a criminal investigation in the District off New Jersey. He contends that when he asked the Court to lift the earlier stay which had been imposed in November 2002, he believed that, upon the withdrawal of his guilty plea a criminal prosecution was "not being, and would not be, pursued." Bochetto Feb. 21 Ltr. at 3. He now thinks otherwise and argues that "he cannot be sure whether he should testify and risk jeopardizing his position in the criminal case, which could result in a loss of liberty, or take the Fifth, which could be used for a negative inference in this case." Id. at 4.While not required to do so, a Court has the discretion to stay a civil proceeding pending the outcome of a criminal proceeding when the interests of justice so require. See Kashi v. Gratos, 790 F.2d 1050, 1057 (2d Cir. 1986). The following factors are generally considered in deciding whether to impose a stay: (1) the extent to which the issues in the criminal case overlain with those presented in the civil case; (2) the status of the case, including whether the defendant has been indicted; (3) the private interests of the plaintiff in proceeding expeditiously, weighed against the prejudice to plaintiff caused by the delay; (4) the private interests of and burden on the defendant; (5) the public interest; and (6) the interest of the Court in the efficient management of cases. See In re Worldcom, Inc. Secs. Lit., Nos. 02 Civ. 3288 (DLC), 02 Civ. 4816 (DLC), 2002 WL 31729501, at *4 (S.D.N.Y. Dec. 5, 2002); Sterling Nat'l Bank v. A-1 Hotels Int'l, Inc., 175 F. Supp.2d 573, 576 (S.D.N.Y. 2001); Trustees of the Plumbers and Pipefitters Nat'l Pension Fund v. Transworld Mechanical, Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995); Volmar Distribs., Inc. v. New York Post Co., 152 F.R.D. 36, 39 (S.D.N.Y. 1993). A stay is an extraordinary remedy which is generally disfavored where a defendant has not been indicted. See Worldcom, 2002 WL 31729501, at *4;Sterling Nat'l Bank, 175 F. Supp.2d at 576; Trustees of the Plumbers and Pipefitters Nat'l Pension Fund, 886 F. Supp. at 1139.
An examination of the relevant factors leads the Court to conclude that a stay is not appropriate in this action.
Overlap of Issues
Because there has been no indictment, and the scope of the purported criminal investigation is unknown, it is difficult to determine with precision the extent of overlap between this case and a potential criminal case. Nevertheless, Weinreb has already been the subject of criminal charges and it is likely that if there is any further criminal prosecution those charges will be reinstated. The criminal charges that were dismissed without prejudice arose out of the transactions in issue in this litigation. Accordingly, it is likely that if there is a criminal prosecution there will be an overlap of issues with this action. Thus, this factor tips slightly in Weinreb's favor.
Status of the Criminal Case
As discussed, Weinreb has not been indicted and it is unclear whether there is even an ongoing grand jury investigation. His attorney relies on the vague statement of the AUSA that the Government "is looking into the case." In fact, Defendant's counsel has been attempting to monitor the status of the criminal investigation and concedes that he is unaware of the issuance of any subpoenas by a grand jury. Therefore, this factor, which is most significant, tips strongly in Plaintiff's favor and provides sufficient grounds, standing alone, to deny the request for a stay. See Trustees of the Plumbers and Pipefitters Nat'l Pension Fund, 886 F. Supp. at 1139 ("[S]tays will generally not be granted before an indictment is issued."); Citibank v. Hakim, No. 92 Civ. 6233 (MBM), 1993 WL 481335, at *1 (S.D.N.Y. Nov. 18, 1993) ("Although defendant Hakim allegedly is a target of a continuing grand jury investigation, he does not claim to have been indicted. Accordingly, Hakim's pre-indictment motion to stay can be denied on this ground alone."); Volmar Distribs., 152 F.R.D. at 39 ("The strongest case for granting a stay is where a party under criminal indictment is required to defend a civil proceeding involving the same matter."); In re Par Pharmaceutical, Inc. Securities Litig., 133 F.R.D. 12, 14 (S.D.N.Y. 1990) ("No indictments, however, have yet issued as a result of these investigations. The weight of authority thus counsels against granting a stay as to these defendants."); United States v. District Council of New York City, 782 F. Supp. 920, 924 (S.D.N.Y. 1992).
Interests of the Plaintiff
Plaintiff has an interest in the expeditious resolution of this action and legitimately fears that its entire case will be indefinitely delayed. No criminal case has been filed and it is unclear if a criminal investigation is even under way. Plaintiff has legitimate concerns that further delay may prejudice its ability to recover against Weinreb. Weinreb is a defendant in a lawsuit pending in California, involving allegations similar to those in this action. An earlier recovery in that action may reduce Weinreb's assets and impair Karimona's ability to recover in this action. Moreover, the expense of defending a possible criminal action also threatens Plaintiff's ability to collect on any judgment it may secure in this action. See Sterling Nat'l Bank, 175 E. Supp.2d at 579 ("It is unclear whether defendants have sufficient assets to permit any meaningful recovery, and permitting a further delay during which assets can be dispersed or hidden-or called upon for the expensive business of defending a grand jury investigation and potential criminal litigation — will increase the risks that plaintiff could succeed in the litigation, without being able to collect on any judgment.")
Moreover, there has already been one stay in this action, occasioned by the now-dismissed criminal proceeding. As a result, although this action was filed approximately one year ago, Plaintiff has received virtually no discovery from Weinreb. By contrast, Weinreb has received all of the discovery he requested from Plaintiff, as well as discovery from third parties. The record suggests that Weinreb is attempting to utilize a stay to gain a tactical advantage. Discovery that he has secured in this action has been forwarded to the United States Attorney's Office in New Jersey, in an attempt to influence the outcome of its investigation. See Certification of AUSA Alain Leibman, dated February 18, 2003, ¶¶ 9-11. Additionally, just this week, while his motion for a stay was pending, Weinreb filed a motion for summary judgment seeking the dismissal of Plaintiff's claims; the motion relies heavily on the discovery obtained in this action.
The harm to Plaintiff from an indefinite delay, and the prejudice to Plaintiff resulting from the one-sided discovery in this action, weighs heavily in Plaintiff's favor with respect to this factor.
Interests of the Defendant
Weinreb has an obvious interest in avoiding the choice between compromising his Fifth Amendment rights and presenting a defense in this action through his testimony. See United States v. Certain Real Property and Premises Known as: 4003-4005 5th Avenue Brooklyn, 55 F.3d 78, 82-83 (2d Cir. 1995). However, such a predicament alone does not entitle him to a stay of discovery. See Sterling Nat'l Bank, 175 F. Supp.2d at 576; Citibank, 1993 WL 481335, at *2; United States v. District Council of New York City and Vicinity, 782 F. Supp. 920, 925 (S.D.N.Y. 1992). Indeed, Weinreb's dilemma is not as serious as it could be. As noted, he is not under indictment and it is far from clear whether he is even the subject of a grand jury investigation. Moreover, this is not a case where the government is in control of both proceedings — a situation which poses a heightened threat of harm to a defendant. See Sterling Nat'l Bank, 175 F. Supp.2d at 578-79 ("[T]his is not a case in which the government itself has an opportunity to escalate the pressure on defendants by manipulating simultaneous civil and criminal proceedings, both of which it controls."); SEC v. Thrasher, No. 92 Civ. 6987 (JFK), 1995 WL 456402, at *15 (S.D.N.Y. Aug. 2, 1995); Citibank, 1993 WL 481335, at *2 ("Although the risk of prejudice to a civil defendant is heightened when the subject matter of the civil action parallels a pending criminal action . . . the potential for prejudice is diminished where, such as here, a private party, not the government, is the plaintiff in the civil action; it is less likely in such cases that the civil discovery process will be used as a cloak to conduct criminal discovery.") (citation omitted). In fact, it appears that Weinreo himself is using this litigation to affect the outcome of the criminal proceeding, not the government.
In sum, while Weinreb does face some potential harm by being required to proceed with his deposition, the harm at this point is speculative and not nearly as substantial as in the typical case where a criminal indictment has already issued.
The Court's Interests
The Court has an obvious interest in managing its cases and efficiently resolving litigation. See Sterling Nat'l Bank, 175 F. Supp.2d at 580;Citibank, 1993 WL 481335, at *2 ("The convenience of the court weighs against a stay because it is unrealistic to postpone indefinitely the pending action until criminal charges are brought or the statute of limitations has run . . ."). The Court has already stayed this action for a number of months. The stay was lifted and the Court set a February 14, 2003 deadline for the completion of pretrial discovery. That deadline has not been met, largely because of Plaintiff's refusal to proceed with his deposition, either by providing responses to questions or invoking his Fifth Amendment privilege. A further stay would indefinitely delay the resolution of this action.
This factor therefore weighs against a stay.
The Public Interest
Because this action involves a private contract dispute, the public interest is not seriously implicated.
CONCLUSION
It is clear that the balance of factors tips decidedly against staying Defendant's deposition. There is no indictment pending against Weinreb. He benefited from an earlier stay, and when that was lifted he secured discovery from Plaintiff and third parties, to his advantage, while resisting the production of relevant discovery himself. There can be no certainty as to when, if ever, an indictment will issue and criminal charges will be resolved. Additionally, Plaintiff and the Court have an interest in the expeditious resolution of this action. Finally, any harm to Defendant that would follow from proceeding with his deposition at this time is purely speculative. For all of the reasons set forth above, Defendant Weinreb's motion to stay his deposition is denied.
So ordered.