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In Re 650 Fifth Avenue and Related Properties

August 16, 2011

IN RE 650 FIFTH AVENUE AND RELATED PROPERTIES


The opinion of the court was delivered by: Richard J. Holwell, District Judge:

MEMORANDUM OPINION AND ORDER

This a civil forfeiture action brought against certain real estate properties and bank accounts that the United States alleges are proceeds of, traceable to proceeds of, or involved in laundering proceeds of, services provided to the Islamic Republic of Iran in violation of the International Emergency Economic Powers Act ("IEEPA"). In several related actions, various victims of terrorism with default judgments against the Iranian Government seek attachment of the defendant properties. Before the Court are motions by claimants to the defendant properties, 650 Fifth Avenue Company, the Alavi Foundation (the "Foundation"), Assa Corp., and Assa Co. Ltd. (together, with Assa Corp., the "Assa Claimants", and collectively, "Claimants"), to stay interrogatories, depositions and summary judgment motion practice pending resolution of an ongoing federal criminal investigation or the running of the applicable statute of limitations. For the following reasons, the motions are denied.

BACKGROUND

The government filed the original complaint in its civil forfeiture action on December 17, 2008 against the Assa Claimants' interest in the defendant properties. At that time, the Court entered an order restraining any person from disposing of the defendant properties.

On the same day, the FBI served a grand jury subpoena on the Foundation "in connection with an official criminal investigation of a suspected felony. . . ." (Dec. of D. Ruzumna, June 3, 2011 ("Ruzumna Dec.") Exs. B, C.) Also on that day, the Department of the Treasury's Office of Foreign Asset Control ("OFAC") added the Assa Claimants to its list of Specially Designated Nationals whose property is blocked pursuant to OFAC regulations authorized by Executive Order.

On November 12, 2009, the government filed an amended complaint against the defendant properties, including the interests of 650 Fifth Avenue Company, the Foundation, and the Assa Claimants. On April 29, 2010, the Court entered a consent order appointing a monitor to oversee the defendant properties.

On March 1, 2010, Claimants moved [75, 78] to dismiss the amended complaint in the forfeiture action. The Court denied that motion in a Memorandum Opinion and Order [163] dated March 30, 2011.

Throughout the pendency of the forfeiture action, the government has continued pursuing its criminal investigation. The government served at least one grand jury subpoena and executed at least one search warrant in 2009. Moreover, in response to a Freedom of Information Act Request for materials related to the subject matter of the forfeiture action, the government has averred that "there is a pending or prospective law enforcement proceeding relevant to [such] records. . . ." (Ruzumna Dec. Exs. E, F.) The Alavi Foundation's former President, Farshid Jahedi, was indicted on May 5, 2009 and pled guilty on December 30, 2009 to obstructing justice and destroying documents responsive to a government subpoena in the criminal investigation. See United States v. Jahedi, 09 Cr. 460 (S.D.N.Y.). However, neither Claimants nor any other person has been indicted on any substantive charges arising from the conduct alleged in the forfeiture action.

In addition, during the pendency of the forfeiture action, various victims of terrorism who have secured default judgments against the Iranian Government have made claims to the defendant properties. Those plaintiffs have filed actions to attach those properties pursuant to the Terrorism Risk Insurance Act ("TRIA"), P.L. 107-297, § 201, which amended the Foreign Sovereign Immunities Act to permit attachment of assets of state sponsors of terrorism that have been blocked pursuant to OFAC regulations.

Following a conference on May 24, 2011, the Court entered a scheduling order providing for document discovery in the forfeiture and attachment actions. On June 3, 2011, Claimants moved [174, 177] to stay interrogatories, depositions and summary judgment motion practice pending resolution of the criminal investigation or the running of the applicable statute of limitations.

LEGAL STANDARD

"There is no question that parties who face both civil litigation and criminal investigation face difficult choices." Sterling Nat'l Bank v. A-1 Hotels Int'l, Inc., 175 F. Supp. 2d 573, 575 (S.D.N.Y. 2001) (Lynch, J.). The Fifth Amendment privilege against self-incrimination creates one such choice: "though a litigant in a civil action is entitled to avoid answering questions that might lead to self-incrimination, this entitlement often conflicts with the litigant's interest in testifying and obtaining whatever benefits such testimony might provide." United States v. Certain Real Prop. and Premises Known as: 4003-4005 5th Ave., Brooklyn, N.Y., 55 F.3d 78, 83 (2d Cir. 1995).

This Hobson's choice is not so acute that the Constitution prevents the courts from forcing a litigant to make it. "In the absence of substantial prejudice to the rights of the parties involved, [simultaneous] parallel [civil and criminal] proceedings are unobjectionable under our jurisprudence." Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995) (bracketed insertions in original) (quoting SEC v. Dresser Indus., 628 F.2d 1368, 1375 (D.C. Cir. 1980)). Indeed, "[n]othing in the Constitution forbids contemporaneous civil and criminal proceedings concerning the same subject matter." Nosik v. Singe, 40 F.3d 592, 596 (2d Cir. 1994); see also Kashi v. Gratsos, 790 F.2d 1050, 1057 (2d Cir. 1986) ("[T]he Constitution does not ordinarily require a stay of civil proceedings pending the outcome of criminal proceedings. . . .") (internal citation omitted). In fact, "the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify. . . ." Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). Thus "what is at risk is not [litigants'] constitutional rights . . . but their strategic position in the civil case." Sterling Nat'l Bank, 175 F. Supp. 2d at 578 n.4.

Nevertheless, that the Constitution does not prevent litigants from prosecuting civil and criminal actions does not mean that courts have no power to do so. Rather, it is equally well-established that "a court may decide in its discretion to say civil proceedings . . . when the interests of justice seem to require such action. . . ." Kashi, 790 F.2d at 1057; see also Am. Ex. Bus. Fin. Corp. v. RW Prof'l Leasing Servs. Corp., 225 F. Supp. 2d 263, 264 (E.D.N.Y. 2002). "Courts are afforded this discretion 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 the Plumbers and Pipefitters Nat'l Pension Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1138 (S.D.N.Y. 1995) (Chin, J.); see also SEC v. Boock, No. 09 Civ. 8261, 2010 WL 2398918, at *2 (S.D.N.Y. June 15, 2010) ("A stay may be entered to address the interests of a defendant who faces the choice of being prejudiced in the civil litigation if he asserts his Fifth Amendment rights or prejudiced in the criminal litigation if those rights are waived.").

In fact, "[t]he dilemma recurs with sufficient regularity that a consensus has developed on the principles to be applied by district judges in determining motions to stay civil actions while criminal litigation is conducted." Sterling Nat'l Bank, 175 F. Supp. 2d at 575. Under those principles, courts in this Circuit assessing requests to stay civil proceedings consider "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 and Pipefitters Nat'l Pension Fund, 886 F. Supp. at 1139. Nevertheless, "[a] stay of the civil case . . . is an extraordinary remedy." Id.

"The most important factor at the threshold is" the first factor: "the degree to which the civil issues overlap with the criminal issues." Volmar Distrib., Inc. v. New York Post Co., Inc., 152 F.R.D. 36, 39 (S.D.N.Y. 1993) (quoting Judge Milton Pollack, Parallel Civil and Criminal Proceedings, 129 F.R.D. 201, 203 (S.D.N.Y. 1989)). "If there is no overlap, there would be no danger of self-incrimination and accordingly no need for a stay." Trustees of the Plumbers and Pipefitters Nat'l Pension Fund, 886 F. Supp. at 1139. Hence "[t]he strongest case for granting a stay is where a party under criminal indictment is required to defend a civil proceeding involving the same matter." Volmar Distrib., Inc., 152 F.R.D. at 39.

With respect to the second factor, "the private interests of and burden on the defendants," Trustees of the Plumbers and Pipefitters National Pension Fund, 886 F. Supp. at 1139, "it is universally agreed that the mere pendency of a criminal investigation standing alone does not require a stay." Sterling Nat'l Bank, 175 F. Supp. 2d at 578. Rather, the key question is "whether the criminal proceedings have substantially progressed beyond the investigatory stage to the filing of formal charges against a particular defendant, so that there is an imminent likelihood that the defendant will be subject to a criminal proceeding, including a trial, in the very near future." Parker v. Dawson, Nos. 06-CV-6191, 06-CV-6627, 07-CV-1268, 2007 WL 2462677, at *4 (E.D.N.Y. Aug. 27, 2007). Thus "district courts in this Circuit 'generally grant the extraordinary remedy of a stay only after the defendant seeking a stay has been indicted.'" Sterling Nat'l Bank, 175 F. Supp. 2d at 576 (quoting Citibank, N.A. v. Hakim, No. 92 Civ. 6233, 1993 WL 481335, at *1 (S.D.N.Y. Nov. 18, 1993)); see also Am. Ex. Bus. Fin. Corp., 225 F. Supp. 2d at 265 ("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.").

"A stay of a civil case is most appropriate where a party to the civil case has already been indicted for the same conduct for two reasons": (1) "the likelihood that a defendant may make incriminating statements is greatest after an indictment has issued"; and (2) "the prejudice to the plaintiffs in the civil case is reduced since the criminal case will likely be quickly resolved due to Speedy Trial Act considerations." Trustees of the Plumbers and Pipefitters Nat'l Pension Fund, 886 F. Supp. at 1139; see also Sterling Nat'l Bank, 175 F. Supp. 2d at 577 (noting that an indicted defendant's "situation is particularly dangerous, and takes a certain priority" and that "the prejudice to the plaintiff of staying proceedings is somewhat reduced, since the criminal litigation has reached a crisis that will lead to a reasonably speedy resolution").

"Pre-indictment, these factors must be balanced significantly differently." Id. At that stage, "the dangers are at least somewhat more remote" and "the delay imposed on the plaintiff is potentially indefinite" since "[t]here is no telling how complicated the government's investigation may be" or "whether the allegations of the particular civil plaintiff are merely the tip of an iceberg that will result in a lengthy and open-ended investigation. . . ." Id. "Under these circumstances, the likelihood that a civil party can make the necessary showing to obtain the 'extraordinary' remedy of a stay is inevitably much reduced." Id. (internal citation omitted). Accordingly, "[c]courts in this district have generally refused to stay a civil proceeding where the defendant has not been indicted but is under criminal investigation." In re Wordlcom, Inc. Secs. Litig., Nos. 02 Civ. 3288, 02 Civ. 4816, 2002 WL 31729501, at *4 (S.D.N.Y. Dec. 5, 2002); see also CFTC v. A.S. Templeton Group, Inc., 297 F. Supp. 2d 531, 534 (E.D.N.Y. 2003) ("Pre-indictment requests for a stay of civil proceedings are generally denied."); In re Par Pharmaceutical, Inc., 133 F.R.D. 12, 13-14 (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 . . . but will deny a stay of the civil proceeding where no indictment has issued.").

Nevertheless, this is "not a hard-and-fast rule" and "[t]here is no question that a court has discretion to stay a civil litigation even in favor of a pending investigation that has not ripened into an ...


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