The opinion of the court was delivered by: Arthur D. Spatt, United States District Judge
Presently before the Court is a motion for a protective order by Barry
Drayer ("Drayer") and Rochelle Besser ("Besser") (collectively, the
"individual defendants") and RW Professional Leasing Services Corp. ("RW
Professional" or the "corporate defendant") (collectively, the
"defendants") pursuant to Rule 26(c) of the Federal Rules of Civil
Procedure to stay all discovery pending the resolution of a related
criminal matter against the defendants.
On May 13, 2002, American Express Business Finance Corporation,
successor to SierraCities.Com, Inc. ("SierraCities" or the "plaintiff")
filed a complaint in the United States District Court for the Southern
District of Texas against Drayer, Besser, and RW Professional alleging
causes of action for fraud, conversion, negligent misrepresentation,
breach of contract, and for an accounting of monies wrongfully received
and retained. The plaintiff essentially claims that the defendants
improperly administered equipment leases. Drayer is and was at all
relevant times the Chief Financial Officer and Vice President of RW
Professional, and Besser is and was at all relevant times the President
of RW Professional.
On June 17, 2002, RW Professional filed an answer with counterclaims.
At that time, Drayer and Besser filed a motion to dismiss for lack of
personal jurisdiction in Texas. On July 22, 2002, the United States
District Court for the Southern District of Texas granted the parties'
joint motion to transfer venue to this Court.
On June 27, 2002, while the civil case was proceeding, Drayer, Besser,
and RW Professional were indicted on criminal charges of bank fraud in
violation of 18 U.S.C. § 1344. The indictment also seeks forfeiture
of the assets of RW Professional pursuant to 18 U.S.C. § 982. The
criminal case is now pending before this Court and is entitled United
States v. RW Professional Leasing Services Corp., Rochelle Besser and
Barry Drayer, No. 02-CR-767.
As in the civil case, the Government's allegations arise from the
actions of Drayer and Besser at RW Professional with regard to certain
lease equipment. After the arrest of Drayer and Besser, virtually all
corporate employees of RW Professional have been discharged, and the
Government has seized substantially all of the defendants' documents and
records pertaining to RW Professional and the equipment leases. Neither
side disputes that the civil and criminal cases involve the same
On September 13, 2002, Drayer and Besser answered the complaint by
invoking their Fifth Amendment right against self-incrimination. In
addition, Drayer, Besser, and RW Professional have moved for a protective
order staying discovery until the resolution of the criminal proceeding
against the defendants. The plaintiff does not oppose this motion.
It is well established that district courts have discretionary
authority to stay a case when the interests of justice so require. See
United States v. Kordel, 397 U.S. 1, 12 n. 27, 90 S.Ct. 763, 770 n. 27
(1970); Kashi v. Gratsos, 790 F.2d 1050, 1057 (2d Cir. 1986) (citing SEC
v. Dresser Indus., Inc., 628 F.2d 1368, 1375 (D.C. Cir. 1980) (en banc),
cert. denied, 449 U.S. 993, 101 S.Ct. 529 (1980)). Courts may decide to
stay civil proceedings, postpone civil discovery, or impose protective
orders. Dresser, 628 F.2d at 1375.
In determining whether to stay a civil proceeding pending the outcome
of a related criminal case, courts consider a number of factors,
including (1) the extent to which the issues in the criminal case overlap
with those presented in the civil case; (2) the status of the criminal
case, including whether the defendants have been indicted; (3) the
private interests of the plaintiff
in proceeding expeditiously weighed
against the prejudice to the plaintiff 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. Gala Enterprises, Inc., v.
Hewlett Packard Co., No. CV-96-4864, 1996 U.S. Dist. LEXIS 18867, at *4
(S.D.N.Y. Dec. 16, 1996); Trustees of Plumbers Pen. Fund v. Transworld
Mech., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995) (footnotes omitted).
Granting a stay of discovery may be especially appropriate where a
party under criminal indictment is also required to defend a civil suit
involving the same matter. Kashi, 790 F.2d at 1057 (quoting Dresser, 628
F.2d at 1375); Arden Way Assocs.v. Boesky, 660 F. Supp. 1494, 1496
(S.D.N.Y. 1987). The Constitution does not require a stay of civil
proceedings in such circumstances. Volmar Distributors, Inc. v. The New
York Post Co., Inc., 152 F.R.D. 36, 39 (S.D.N.Y. 1993). Nevertheless,
denying a stay may undermine a party's Fifth Amendment privilege against
self-incrimination. See In re Par Pharmaceutical, Inc., 133 F.R.D. 12, 13
(S.D.N.Y. 1990) ("The weight of authority in this Court indicates that
courts will stay a civil proceeding when the criminal investigation has
ripened into an indictment") (citing cases); Brock v. Tolkow, 109 F.R.D.
116, 119 (E.D.N.Y. 1985). Further, failure to grant a stay may extend
discovery beyond the limits set forth in Federal Rule of Criminal
Procedure 16(b); may expose the defense's theory to the prosecution in
advance of trial; or may otherwise prejudice the criminal case. See In re
Pharmaceutical, Inc., 133 F.R.D. at 13 (citing Dresser, 628 F.2d at
1376); Brock, 109 F.R.D. at 119.
In the instant case, there are overlapping issues in the criminal and
civil cases. In addition, Drayer and Besser have already been indicted,
and both have invoked their Fifth Amendment privileges. Drayer and Besser
contend that proceeding with discovery would force them in the
uncomfortable position between choosing to waive their Fifth Amendment
privilege, risking self-incrimination, or to invoke it, not only
preventing them from adequately defending their position but subjecting
them to adverse inferences. Although it is not unconstitutional to force
a party to choose between invoking his Fifth Amendment rights and risking
adverse inferences in a civil action, see, e.g., Baxter v. Palmigiano,
425 U.S. 308, 318, 96 S.Ct. 1551, 1558 (1976); United States v.
Rubinson, 543 F.2d 951, 961 (2d Cir. 1976), cert. denied, 429 U.S. 850,
97 S.Ct. 139 (1976), the risk of impairing the party's Fifth Amendment
rights presents a stronger case for staying discovery, particularly when
there are similar issues between the civil and criminal cases, as in this
case. See Gala Enterprises, 1996 U.S. Dist. LEXIS 18867, at *8.
Accordingly, the Court finds that a stay of discovery as to Drayer and
Besser is appropriate to preserve their Fifth Amendment rights.
With respect to RW Professional, it is well established that
corporations do not have a Fifth Amendment privilege against
self-incrimination. Dreier v. United States, 221 U.S. 394, 399-400, 31
S.Ct. 550, 550 (1911); SEC v. First Jersey Securities, Inc., 843 F.2d 74,
76 (2d Cir. 1988). RW Professional claims that the only employees capable
of responding to discovery are the individual defendants. As a result, RW
Professional argues that it cannot defend itself in the instant action
without the assistance of Drayer and Besser and it will suffer prejudice
if the individual defendants invoke their Fifth Amendment privilege. In
addition, like Drayer and Besser, the indictment against RW Professional
is based on similar allegations as in the civil case.