United States District Court, S.D. New York
OPINION & ORDER
SIDNEY H. STEIN, District Judge.
Kevin Foster, Foster & Firm, Inc., and Project Twenty One, LLC (collectively, "defendants") have moved to stay these two related civil actions pending the resolution of a related criminal investigation and prosecution. For the reasons explained below, the Court denies that request.
Kevin Foster ("Foster") is an individual associated with the corporate defendants Foster & Firm, Inc. and Project Twenty One, LLC. Defendants' request for a stay stems from Foster's involvement-or potential involvement-in three different proceedings: these two related civil actions ( Citibank, 14-Cv-5841, and Smith, 14-Cv-5918) and United States v. Preston J. Harrison, Thomas E. Jackson, and Lovena E. Harrison, 14-Cr-106, a criminal case pending in the U.S. District Court for the Southern District of Ohio.
In Smith, plaintiff Shaffer Smith alleges that Kevin Foster, who was Smith's money manager and advisor, fraudulently induced Smith to invest $2.5 million in Imperial Integrated Health Research & Development, LLC ("Imperial"), a company that produced a sports beverage by the name of OXYwater. (2d Am. Compl. ¶¶ 1, 31, 33, 39, 53-54, 14-Cv-5918, Dkt. No. 24.) Specifically, Smith claims that Foster misrepresented the health benefits and financial prospects of OXYwater and that Foster never told Smith that he was an officer of, and had a financial interest in, Imperial. ( Id. ¶¶ 33-34, 36-39, 42.) Foster also allegedly directed an additional $1 million from Smith's accounts to Imperial without Smith's authorization. ( Id. ¶¶ 31, 41.) Finally, Smith alleges that Foster obtained loans from Citibank in Smith's name to replace funds that Foster had stolen from Smith. ( Id. ¶¶ 1, 26, 28.) The complaint sets forth claims of securities fraud, breach of fiduciary duty, negligence, conversion, unjust enrichment, fraud, and fraud in the inducement.
In Citibank, plaintiff Citibank N.A. seeks to recover on two business loans it made to Compound Touring, Inc. and Super Sayin' Publishing, LLC, entities affiliated with Shaffer Smith. (Compl. ¶¶ 1-2, 9, 14-Cv-5841, Dkt. No. 1.) Citibank alleges that the loan documents purport to bear Smith's signature and that he guaranteed the loans, but Smith has denied any involvement whatsoever in those loans. ( Id. ¶¶ 2-3, 16.) According to the complaint, Citibank records reflect that Kevin Foster transferred some of the loan proceeds from the debtors' accounts to bank accounts controlled by either Smith or Foster & Firm, Inc. ( Id. ¶¶ 3, 28, 37.) Citibank asserts claims of unjust enrichment, fraudulent conveyance, and foreclosure of security interest.
The criminal case in the Southern District of Ohio presently involves only three defendants, none of whom are parties in Smith or Citibank : Preston Harrison and Thomas Jackson-both officers of Imperial-and Lovena Harrison, Preston Harrison's wife. (Ex. B to Aff. of David T. Shivas ("Shivas Aff.") dated Nov. 14, 2014 ¶¶ 1, 4, 14-Cv-5841, Dkt. No. 26.) The indictment charges that the three indicted defendants, "together with others known and unknown, " engaged in a scheme to deceive Imperial's investors about the properties and sales of OXYwater, the financial status of Imperial, and the purposes for which the defendants planned to use investors' money. ( Id. ¶¶ 10-11.) The defendants are charged with conspiracy, wire fraud, money laundering, and tax fraud. Kevin Foster has not been indicted but his attorney states that he is a target of the ongoing investigation. (Shivas Aff. ¶ 4.) Foster asserts that Smith has provided information about Foster and Imperial to the government in connection with that investigation. (Shivas Aff. ¶ 9.)
Defendants urge the Court to stay the Smith and Citibank actions during the pendency of the criminal case on the grounds that because the three cases involve similar underlying facts, forcing the parties to participate in civil discovery would place Foster in the impossible situation of choosing whether to (1) exercise his Fifth Amendment right against self-incrimination and potentially face an adverse inference in the civil cases or (2) fully defend the civil actions and risk exposing evidence that could be used against him in the criminal investigation.
A. Legal Standard
"[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 96 (2d Cir. 2012) (quoting Landis v. N. Am. Co., 299 U.S. 248, 254 (1936)).
A defendant in a civil action who faces parallel criminal proceedings must confront the "difficult choice" of "being prejudiced in the civil litigation, if the defendant asserts his or her Fifth Amendment privilege, or from being prejudiced in the criminal litigation if he or she waives that privilege in the civil litigation." Louis Vuitton, 676 F.3d at 77. Nonetheless, the Constitution does not afford a defendant an "absolute right not to be forced" to make this choice. Id. at 98 (quoting Keating v. Office of Thrift Supervision, 45 F.3d 322, 326 (9th Cir. 1995)). In order to invoke the "extraordinary remedy" of staying a civil case until the conclusion of a related criminal proceeding, the defendant bears the burden of "showing undue prejudice... or interference with his constitutional rights, " id. at 97-98 (internal quotation marks and citation omitted).
In evaluating the appropriateness of a stay, district courts usually consider the following six factors:
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 ...