Don't Fight a Two Front War
See the original publication of Mr. Kelly's article in the Fall 2017 volume of Primerus' Paradigm magazine here, which has been reproduced below for ease of reference.
So you’ve been sued in a business dispute, and there are claims of fraud, conversion or embezzlement. Your civil suit has possible criminal implications.
If no criminal action has been commenced, the defendant must be mindful of the risk of future criminal exposure. That could mean asserting the Fifth Amendment Privilege.
If a criminal action has been commenced, don’t fight a two-front war. A defendant must consider filing a motion to stay the civil action. In California, the Ninth Circuit’s opinion in Keating sets forth the factors courts will examine in considering a Motion to Stay. If granted, a motion to stay could profoundly improve your chances of success in both actions.
Potential criminal exposure can be crippling to the defense of a civil case. If you invoke your Fifth Amendment privilege, you cannot tell your version of the disputed events. On the other hand, if you don’t invoke the privilege, you expose yourself to potential criminal prosecution and the possibility of being sentenced to jail. The solution is to seek a stay of the civil action until the criminal case is concluded.
In the western U.S., the seminal case on the stay issue is Keating v. Office of Thrift Supervision (9th Cir. 1995) 45 F.3d 322. In Keating, the Ninth Circuit established five factors that courts should consider when a stay is sought:
The interest of the plaintiff in proceeding expeditiously with the litigation or any particular aspect of it, and the potential prejudice to plaintiff of a delay;
The burden which any particular aspect of the proceedings may impose on defendants;
The convenience of the court in the management of its cases, and the efficient use of judicial resources;
The interests of persons not parties to the civil litigation; and,
The interest of the public in the pending civil and criminal litigation.
One factor is relatively easy to establish. The burden imposed on the defendants if a stay isn’t ordered is the reason to seek a stay in the first place. The moving defendant need only show that absent a stay, the defendant will be forced to choose between his Fifth Amendment privilege or defending himself in the civil case.
Although identified in Keating, some of the factors either aren’t an issue or are also easily established. The interests of persons not parties to the subject action are often absent from a case. So, too, is the interest of the public in the particular criminal and civil litigation.
Similarly, the “convenience of the court” is merely a reiteration of an accepted principal that trial courts have inherent power to stay a case in the interests of justice and to promote judicial efficiency. A party opposing a stay would be hard pressed to convince a trial judge that it would be more convenient to have two cases proceeding simultaneously, with all of the attendant problems it would pose for pre-trial discovery and trial.
The one Keating factor that is likely to prompt a strenuous opposition from the plaintiff is “the interest of the plaintiff in proceeding expeditiously.” It goes without saying that virtually every plaintiff wants his or her case to proceed expeditiously and will argue against the delay that would be caused by a stay.
There are, however, several arguments that the defendant can offer to blunt plaintiff’s opposition. First, the amount of delay caused by a stay is entirely a matter of conjecture. Many criminal cases are resolved without a trial and some are dismissed outright for one reason or another (key witness lost, statute of limitations, etc.). In those cases the delay could be minimal.
Moreover, such speculation about delay to the civil case while awaiting the outcome of the criminal case is contrary to the Sixth Amendment right to a speedy criminal trial in the U.S. Constitution.
In contrast, a plaintiff in a civil case does not have a “right” to a speedy trial. There are many factors which go into when a civil case is set for trial. That is why many courts have trial setting conferences and why the general rule is that setting the date for trial is left to the sound discretion of the court.
Beyond the Keating factors, it is important to recognize that a business entity (as opposed to an individual) does not possess a Fifth Amendment right against self-incrimination. Typically, one or more company officers or high-level employees have criminal exposure along with the company. There is case law allowing a stay to be expanded to include a company if certain circumstances warrant it. The individual facing criminal exposure must be the source of information that is important to the company’s defense. It must be shown that if that individual invokes his or her Fifth Amendment privilege, the company will be unable to adequately defend itself. In that situation, the fate of the company is so dependent upon the individual, courts will usually extend the stay to cover the company.
It is likely that a plaintiff will oppose extending the stay to include the company by arguing that there are other individuals with sufficient knowledge that aren’t facing criminal exposure who can testify and not invoke the Fifth Amendment privilege. In order to overcome this argument, you must show that regardless of the availability of other witnesses, the unavailability of a key witness due to the Fifth Amendment critically harms the company’s defense. In addition, there is a practical argument favoring extending the stay to the company. It makes little, if any, sense to issue a stay covering an individual defendant, yet allow the civil case to proceed against the company. How could that possibly work in practice?
The surrounding circumstances can impact the strength of a motion to stay a civil action. The motion’s chance of success is greater where a criminal action has been commenced as opposed to a situation where it hasn’t but is an obvious risk. Often times the plaintiff in the civil action is also the complaining party that caused the commencement of the criminal action. That fact bears mention in the stay motion, as it can be argued that the plaintiff caused the defendant’s dilemma.
A plaintiff may even go so far as to try to use the criminal case for an advantage in the civil case. For example, a plaintiff might try to extort a settlement arguing it would earn the defendant leniency in the criminal action for making “restitution.” Such conduct is improper per the California Rules of Professional Conduct, Rule 5-100. If that were to occur, it would certainly strengthen a motion to stay the civil action.
A motion to stay a civil action until the disposition of a parallel criminal action is well worth the effort. Each case can be dealt with separately and on its own merits. More importantly, if granted, a motion to stay allows for a full and complete defense of both cases.