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SECURITIES AND EXCHANGE COMMISSION v. KOZLOWSKI

United States District Court, Southern District of New York


April 15, 2003

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
L. DENNIS KOZLOWSKI, MARK H. SWARTZ, AND MARK A. BELNICK, DEFENDANTS.

The opinion of the court was delivered by: Robert W. Sweet, United States District Judge

MEMORANDUM OPINION

The Honorable Robert M. Morgenthau, District Attorney, New York County, State of New York (the "District Attorney"), has moved pursuant to Rule 24(b) of the Federal Rules of Civil Procedure, for limited intervention in this civil proceeding, and for an order, pursuant to this Court's inherent power to stay proceedings, staying discovery in this action pending completion of the criminal charges against L. Dennis Kozlowski ("Kozlowski") and Mark H. Swartz ("Swartz") in New York County Indictment Number 5259/2002, the criminal charges against Mark A. Belnick ("Belnick") in New York County Indictment Number 5258/2002, and the continuing grand jury investigation. For the reasons set forth below, the motion is granted, and this action is stayed with leave granted to lift the stay upon twenty (20) days notice.

This action, brought by the Securities and Exchange Commission ("SEC"), alleges misconduct by Kozlowski and Swartz in failing to disclose hundreds of millions of dollars in low interest and interest-free loans, and having improperly "borrowed" over $300 million from Tyco International Ltd. ("Tyco") through the misuse of various loan programs, using the funds for personal purposes such as art, real estate, and investments, and failing to disclose the loans to shareholders. Similarly, the SEC accuses Belnick of similar misconduct in connection with millions of dollars in loans from Tyco.

New York County Indictment Number 5259/2002, has charged Kozlowski and Swartz, respectively, with one count of Enterprise Corruption, under New York Penal Law section 460.20(1)(a), one count of Conspiracy in the Fourth Degree, under New York Penal Law section 105.10(1), and one count of a violation of New York General Business Law section 352-c(5). In addition, under that indictment, Kozlowski is charged with 14 counts of Grand Larceny in the First Degree under New York Penal Law section 155.42 (theft of greater than one million dollars) and 14 counts of Falsifying Business Records in the First Degree. Under the same indictment, Swartz is charged with 13 counts of Grand Larceny in the First Degree and 13 counts of Falsifying Business Records in the First Degree. By New York County Indictment Number 5258/2002, has charged Belnick with six counts of Falsifying Business Records in the First Degree, under New York Penal Law section 175.10.

The criminal proceedings are pending before the Honorable Michael J. Obus, Justice of the Supreme Court of the State of New York, New York County. The defendants have been arraigned, and bail conditions have been set. The criminal proceedings have reached the stage of pretrial motion scheduling, and the People have requested a spring 2003 trial date in connection with Indictment Number 5259/2002. As to indictment 5258/2002, the defendant has filed pretrial motions and seeks an earlier trial date than the People seek for Kozlowski and Swartz. The underlying allegations of misconduct in this action assert the same type of wrongdoing in substantial respects that forms material portions of the criminal charges against the three defendants.

The SEC has taken no position with respect to the District Attorney's motion. In response to the motion, Kozlowski has requested a stay of this action, and Swartz and Belnick have not opposed a stay of discovery.

Federal courts have discretionary authority to stay all or part of a civil proceeding if the interests of justice so require. United States v. Kordel, 397 U.S. 1, 12 n. 27 (1970); see also Landis v. N. American Co., 299 U.S. 248, 255 (1936).

As recognized in Deegen v. United States, 517 U.S. 820, 827 (1996), federal courts have the power to manage civil litigation "to avoid interference with" criminal prosecutions. See also Twenty First Century Corp. v. LaBianca, 801 F. Supp. 1007, 1009 (E.D.N.Y. 1992).

Under these circumstances, it is appropriate to stay this action. Leave is granted to seek to lift the stay upon motion of any party upon twenty (20) days notice.

It is so ordered.

20030415

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