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Securities and Exchange Commission v. Blaszczak

United States District Court, S.D. New York

January 3, 2018

Securities and Exchange Commission, Plaintiff,
v.
David B. Blaszczak et al., Defendants.

          MEMORANDUM OPINION & ORDER

          ALISON J. NATHAN, District Judge

         The Securities and Exchange Commission ("SEC") initiated this action against David B. Blaszczak, Christopher M. Worrall, and Theodore J. Huber alleging civil violations of the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act") on May 24, 2017.[1] See Complaint, Dkt. No. 1. Also on May 24, 2017, the U.S. Attorney's Office for the Southern District of New York filed a criminal indictment against Defendants Blaszczak, Worrall, and Huber.[2] See United States v. Blaszczak et al. ("Criminal Case"), No. 17-cr-0357, Dkt. No. 1. On August 22, 2017, the Government filed a motion to intervene in this civil case and partially stay the matter (by staying certain discovery) until the conclusion of the Criminal Case. See Motion, Dkt. No. 31. The parties consent to the Government's intervention and the staying of some discovery but oppose staying the production of the SEC's "witness materials" pending the resolution of the Criminal Case. See Joint Memorandum of Law in Opposition to the Motion ("Opp."), Dkt. No. 37, at 2-4. For the reasons articulated below, the Government's motion is granted in full.

         I. Motion to Intervene

         Under Federal Rule of Civil Procedure 24(a)(2), the court must allow a party to intervene if it "claims an interest relating to the . .. transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest." Fed.R.Civ.P. 24(a)(2). In this case, all parties consent to the Government's intervention, see Memo, in Support of Motion ("Support"), Dkt. No. 32, at 2, and the Court concludes that it must grant the motion because the Government has "a discernible interest in intervening in order to prevent discovery in the civil case from being used to circumvent the more limited scope of discovery in the criminal matter, " SEC v. Chestman, 861 F.2d 49, 50 (2d Cir. 1998); see also SEC v. Downe, No. 92-cv-4092 (PKL), 1993 WL 22126, at *11 (S.D.N.Y. Jan. 26, 1993) ("It is well-established that the United States Attorney may intervene in a federal civil action to seek a stay of discovery when there is a parallel criminal proceeding, which is anticipated or already underway, that involves common questions of law or fact.").

         II. Motion to Partially Stay Discovery

         A. Legal Standard

         "A district court may stay civil proceedings when related criminal proceedings are imminent or pending, and it will sometimes be prudential to do so." Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 98 (2d Cir. 2012). The district court's power to do so "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." Id. at 96 (quoting Landis v. N. Am. Co., 299 U.S. 248, 254 (1936)). When deciding whether to stay civil proceedings pending imminent criminal proceedings, courts of this Circuit consider 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 and burden on the defendants; 5) the interests of the courts; and 6) the public interest.

Id. at 99 (quoting Trs. of Plumbers & Pipefitters Nat'l Pension Fund v. Transworld Mech, Inc., 886 F.Supp. 1134, 1139 (S.D.N.Y. 1995)). The Second Circuit has recognized, however, that this multifactor test, "no matter how carefully refined, can do no more than act as a rough guide for the district court as it exercises its discretion." Id. The party seeking a stay "bears the burden of establishing its need." Id. at 97 (quoting Clinton v. Jones, 520 U.S. 681, 708 (1997)).

         B. Discussion

         The Court concludes that the Government has met its burden of establishing the need to partially stay discovery in this civil matter pending resolution of the Criminal Case.

         The first factor - the overlap of issues between the criminal and civil cases - counsels in favor of a partial stay. As both parties recognize, the civil and criminal cases arise from the same facts and involve nearly identical issues. Support at 11-12; Opp. at 2-3. Because there is "a substantial overlap between the civil and criminal proceedings, " this factor "weighs in favor of a stay." Transcript of Nov. 1, 2016 Proceedings ("Block Order"), SEC v. Block, No. 16-cv-7003 (LGS), Dkt. No. 41, at 8.

         The second factor - the status of the criminal case - also weighs in favor of a partial stay. "A stay of a civil case is most appropriate where a party to the civil case has already been indicted" in the criminal case because "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." Trs. of Plumbers & Pipefitters Nat'l Pension Fund, 886 F.Supp. at 1139. Here, the Defendants were indicted on May 24, 2017 - the same day on which the civil complaint was filed by the SEC. Moreover, trial in the Criminal Case is scheduled to begin on April 9, 2018. Support at 8; Transcript of June 12, 2017 Proceeding, Criminal Case Dkt. No. 58, at 15. As a result, the civil case will not be prolonged an unreasonable amount of time. See Trs. of Plumbers & Pipefitters Nat'l Pension Fund, 886 F.Supp. at 1140 (holding in May of 1995 that "the Criminal Case should be completed by the end of this year, which would not unreasonably prolong this case").

         The third factor - the burden to the Plaintiff- does not weigh for or against a partial stay. This factor "is neutral if the SEC does not oppose the government's motion." Block Order at 9; see also SEC v. Treadway, No. 04-cv-3464 (VM) (JCF), 2005 WL 713826, at *3 (S.D.N.Y. Mar. 30, 2005) (stating that where the SEC does not take a position on a Government motion for a stay, it "has not articulated an interest that requires consideration"). The SEC has taken no position on the Government's ...


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