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Erus Builders LLC v. Volt Solar Systems Inc.

United States District Court, D. Arizona

April 27, 2017

Erus Builders LLC, Plaintiff,
Volt Solar Systems Incorporated, et al., Defendants.


         Pending before the Court is Plaintiff's Motion to Stay Proceedings Pending the Securities and Exchange Commission's Criminal Investigation. (Doc. 254.) For the reasons below, the Court will deny Plaintiff's Motion.[1]

         I. Background

         This matter has been pending in this Court since December 15, 2014. (Doc. 1.) The initial February 5, 2016 discovery deadline was first extended to April 5, 2016, subsequently extended to October 28, 2016, and finally extended to February 24, 2017. (Docs. 36, 49, 114, 207.) During his initial deposition, Malcom Adler, at that time a named Defendant in this matter, asserted a blanket refusal to answer questions based on his Fifth Amendment rights in light of an SEC subpoena he received related to his business dealings with the Volt entities and other parties. (Docs. 69, 69-6, 69-8.) Consequently, on December 3, 2015, Plaintiff filed a Motion to Compel Mr. Adler's deposition. (Id.) After briefing, the Court granted Plaintiff's Motion and required Mr. Adler to appear for a second properly noticed deposition, during which he may not assert a blanket claim of privilege to all potential questions posed by Plaintiff, but, instead, may refuse on Fifth Amendment grounds to answer any “questions which present a ‘real and appreciable danger of self-incrimination.'” (Doc. 114 at 6.)

         After disputes arose over scheduling Mr. Adler's second deposition, and whether Mr. Adler would respond to any questions posed, the parties had two telephone conferences with the Court regarding the deposition. (Docs. 117, 137.)

         Mr. Adler sat for his deposition on July 18 and 19, 2016. (Docs. 168 at 15, 168-3 at 3.) During that time, it appears he asserted the Fifth Amendment privilege in response to almost every question posed. (Docs. 168, 168-2, 168-3.) On September 19, 2016, Plaintiff filed a second Motion to Compel Defendant Adler's deposition, arguing Mr. Adler's invocation of his Fifth Amendment rights to every question posed was improper. (Doc. 167.) However, on December 7, 2016, before the Court held oral argument and ruled on the Motion to Compel, the parties filed a Stipulation for Entry of Judgment with regard to Plaintiff's claims against Mr. Adler based on a settlement reached between the parties. (Doc. 224.) The parties contacted the Court and indicated that the oral argument on Plaintiff's Motion to Compel could be cancelled. The Court issued an Order advising the parties that it would deny Plaintiff's Motion to Compel as moot unless it received an objection within ten days of the date of the Order. (Doc. 225.) Neither party filed an objection. Therefore, on December 19, 2016, the Court denied the Motion to Compel as moot. (Doc. 232.) The Court entered judgment against Mr. Adler on February 8, 2017, and he is no longer a party to this case. (Doc. 248.) Other than a subpoena issued by Plaintiff to the Volt entities' former counsel for documents protected from disclosure by the attorney-client and/or work product privileges, which the Court quashed by granting Defendant Sharon Altman and Jerome Wenger's Motion for Protective Order, Plaintiff has not notified the Court of any other discovery disputes in this case in accordance with the Court's Scheduling Order. (Docs. 36, 208, 233.)

         On March 30, 2017, the day before the dispositive motion deadline, Plaintiff filed its pending Motion to Stay. (Doc. 254.) Plaintiff requests the Court stay this matter pending the outcome of the SEC proceedings against Mr. Adler.

         II. Legal Standard

         “A district court has discretionary power to stay proceedings in its own court.” Lockyer v. Mirant Corp., 398 F.3d 1098, 1109 (9th Cir. 2005) (citing Landis v. North American Co., 299 U.S. 248, 254, (1936)). The Constitution does not ordinarily require a stay of civil proceedings pending the outcome of criminal proceedings. Federal Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989). Thus, it is permissible to conduct a civil proceeding at the same time as a related criminal proceeding, even if that necessitates the invocation of the Fifth Amendment privilege. Baxter v. Palmigiano, 425 U.S. 308, 318 (1976).

         In deciding whether to stay civil proceedings pending parallel criminal proceedings, a district court must consider “‘the particular circumstances and competing interests involved in the case.'” Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995) (quoting Federal Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989)). Courts should consider the following six factors: (1) “the extent to which the defendant's fifth amendment rights are implicated;” (2) “the interest of the plaintiff[] in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to plaintiff[] of a delay;” (3) “the burden which any particular aspect of the proceedings may impose on defendants;” (4) “the convenience of the court in the management of its cases, and the efficient use of judicial resources;” (5) “the interests of persons not parties to the civil litigation;” and (6) “the interest of the public in the pending civil and criminal litigation.” Keating, 45 F.3d at 325 (citing Molinaro, 889 F.2d at 903).

         “The strongest case for deferring civil proceedings until after completion of criminal proceedings is where a party under indictment for a serious offense is required to defend a civil or administrative action involving the same matter.” Sec. & Exch. Comm'n v. Dresser Indus., Inc., 628 F.2d 1368, 1375-76 (D.C. Cir. 1980). “The case for staying civil proceedings is ‘a far weaker one' when ‘[n]o indictment has been returned[, and] no Fifth Amendment privilege is threatened.'” Molinaro, 889 F.2d at 903 (quoting Dresser Indus., 628 F.2d at 1376). See also S.E.C. v. Global Express Capital Real Estate Inv. Fund, I, LLC, 289 F. App'x 183, 191 (9th Cir. 2008) (unpublished) (“The case for staying civil proceedings is weak when no indictment has been returned.”).

         III. Analysis

         In this case, it is Plaintiff, not any of the Defendants, that requests a stay. Plaintiff argues that a stay in this case pending the SEC's investigation is appropriate because (1) “Plaintiff has attempted on numerous occasions to obtain discovery related to the wiring of the funds at issue . . . . However, to date, it appears that Mr. Adler is the only person that has knowledge of the events that occurred with the Volt Entities, ” but Mr. Adler has asserted the Fifth Amendment privilege against self-incrimination, and, therefore, there is a substantial prejudice to Plaintiff if a stay is not ordered; (2) evidence generally suggests, contrary to their assertions otherwise, Defendants Altman and Wenger had control over, or involvement in, Volt's financial affairs; (3) this case overlaps with the underlying SEC investigation; (4) Defendants would not be burdened by a stay; and (5) a stay is in the Court's and the public's interests because Defendants “have veiled themselves from discovery at every step, including but not limited to administratively dissolving the entities of which they were members and/or executives and failing to provide any documents related to this matter.” (Doc. 254.)

         Defendants Altman and Wenger do not oppose a stay with regard to Wenger, but assert that a stay of the case with regard to Altman is not appropriate.[2] (Doc. 262.) More specifically, Defendants argue that while there is an issue of fact for trial as to Defendant Wenger's liability, no issues remain as to Defendant Altman and she is entitled to summary judgment as a matter of law.

         In Reply, Plaintiff attaches additional discovery obtained, including emails and copies of checks, which Plaintiff asserts show that some of the money paid to Volt by Plaintiff was disbursed to Defendants Altman and an entity owned by Defendant Wenger, and contrary to their testimony otherwise, those Defendants ...

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