Opinion
No. 02-4066-CV-C-NKL
August 22, 2002
ORDER
Pending before the Court is Defendant's Motion for Stay of Proceedings [Doc. #6]. For the reasons stated below, the Motion will be granted in part and denied in part.
I. Factual Background
In 1999, Plaintiff Theresa J. Turley began doing business as AA Cleaning and, in May of 2000, she formed Plaintiff Labor Resources, L.L.C., for the purposes of finding and providing workers for temporary staffing needs in the hotel industry. (Compl. at ¶ 4). On or about September 20, 2001, Plaintiffs were visited by Internal Revenue Service ("IRS") Special Agent Robert Jackson and another agent, who advised Plaintiffs that they were the subject of a criminal investigation. (Compl. at ¶ 8). On April 17, 2002, Plaintiffs filed a Complaint pursuant to 26 U.S.C. § 7431 seeking to recover actual and punitive damages and attorneys fees as the result of alleged wrongful disclosures of their tax return information and other wrongful conduct by agents of the IRS. In particular, the Complaint alleges that IRS Special Agent Jackson made two hundred thirty-one disclosures of confidential return information in violation of 26 U.S.C. § 6103 during the course of a pending criminal tax investigation of Plaintiffs. (Compl. at ¶ 9). Plaintiffs allege that Special Agent Jackson's disclosures included statements to third-parties that Plaintiffs and other individuals were criminals, money launderers, involved in a grand conspiracy, employing "illegals," using fraudulent social security numbers, filling out I-9 forms improperly, not paying taxes on their workers, running a scam, etc., and that those statements caused clients to terminate their contracts with Plaintiffs and have damaged their business. (Compl. at ¶¶ 9, 11). In addition, Plaintiffs assert that Special Agent Jackson attempted to influence witnesses through trickery and deceitful tactics such as appearing at witness interviews unannounced and threatening witnesses with criminal sanctions. (Compl. at ¶ 10). The United States filed its Answer to the Complaint on June 14, 2002, and is currently required to make its initial Fed.R.Civ.P. 26(a)(1) disclosures no later than September 6, 2002. The information that must be disclosed under that rule includes the name, address, and telephone number of those individuals likely to possess discoverable information, as well as a copy of, or description by category and location of, all documents that the Government may use to support its defenses.
II. Discussion
The Government argues that to permit Plaintiffs' civil case to proceed during the pendency of the IRS' s criminal investigation and any resulting prosecution would give Plaintiffs earlier and greater access to the evidence gathered during that investigation than they would otherwise be entitled to under the Federal Rules of Criminal Procedure. As a result, Plaintiffs would be able to construct defenses, tamper with potential evidence, intimidate potential witnesses, and otherwise interfere with both the investigation and any future prosecution. ( See Decl. of Special Agent Jackson at ¶¶ 67). Plaintiffs respond that the Government's arguments are merely speculation and conjecture because they focus upon the release of information anticipated to be sought by Plaintiffs and Special Agent Jackson's conclusory and defamatory assertions as to the consequences of releasing such information to the Plaintiffs. Plaintiffs further contend that the Government's concerns can be adequately addressed through an appropriate protective order under Fed.R.Civ.P. 26(c), if and when it becomes necessary, and that pretrial discovery limited to the illegal disclosures of return information will not impose an impermissible burden on the IRS's criminal tax investigation.
Under certain circumstances, a court may, in its discretion, grant a stay of a pending civil action in order to avoid interfering in a pending criminal prosecution or grand jury investigation. The rationale behind such a stay is that a litigant should not be allowed to use the liberal discovery procedures applicable to a civil suit to avoid restrictions on criminal discovery and obtain documents he would not otherwise be entitled to for use in his criminal suit. Campbell v. Eastland, 307 F.2d 478, 488 (5th Cir. 1962), cert. denied, 371 U.S. 955 (1963). In addition, courts will grant a stay of a civil case in order to preserve a defendant's ability to assert his Fifth Amendment privilege in a criminal proceeding that involves the same subject matter. See U.S. v. Certain Real Property and Premises Known as 1344 Ridge Road, Laurel Hollow, Syosset, N.Y., 751 F. Supp. 1060, 1062 (E.D.N.Y. 1989) (stating "[t]he noncriminal proceeding, if not deferred, might undermine the party's Fifth Amendment privilege against self-incrimination, expand rights of criminal discovery beyond the limits of Federal Rule of Criminal Procedure 16(b), expose the basis of the defense to the prosecution in advance of criminal trial, or otherwise prejudice the case.").
Courts make the determination to stay proceedings "in the light of the particular circumstances of the case." Securities and Exchange Commission v. Dresser Industries, Inc., 628 F.2d 1368, 1375 (D.C. Cir. 1980), cent denied, 449 U.S. 993 (1980). "In the absence of substantial prejudice to the rights of the parties involved, such parallel [civil and criminal] proceedings are unobjectionable under our jurisprudence." Id. at 1374. In deciding whether or not to grant a stay, courts must balance the right of the civil litigant to a reasonably prompt determination of his claims with the public interest in law enforcement. Campbell, 307 F.2d at 487. In making this determination, courts generally weigh several factors, including: (1) the interest of the plaintiffs in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to plaintiffs of a delay; (2) the burden which any particular aspect of the proceedings may impose on defendants; (3) the convenience of the court in the management of its cases, and the efficient use of judicial resources; (4) the interests of persons not parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation. Keating v. Office of Thrift Supervision, 45 F.3d 322, 325 (9th Cir. 1995), cert denied, 516 U.S. 827 (1995); Nowaczyk v. Matingas, 146 F.R.D. 169, 175 (N.D. Ill. 1993); White v. Mapco Gas Products, Inc., 116 F.R.D. 498, 502 (E.D. Ark. 1987). The Court will consider each of these factors in the context of this case below.
A. Plaintiffs' Interest in Proceeding Expeditiously
Plaintiffs argue that the IRS agents' improper activities have negatively impacted their business and financial interests, and they seek a money judgment against the United States for damages suffered as a result of the IRS agents' conduct. The Government responds that Plaintiffs will not be harmed by a stay of the civil litigation, because the remedy of money damages will survive any criminal proceedings that might result from the current investigation and the Plaintiffs may resume this civil action at the conclusion of any criminal proceedings. In fact, "plaintiffs may actually benefit from a stay since the completion of the . . . investigation and the resolution of any criminal cases might reduce the scope of discovery in the civil case or simplify the issues." White, 116 F.R.D. at 502. In addition, the Plaintiffs will then be able to conduct discovery "unaffected by the complicating factor of a parallel criminal proceeding." Campbell, 307 F.2d at 492. Although Plaintiffs will have an opportunity to proceed with their civil action after any criminal proceedings are resolved, the Plaintiffs have demonstrated that the IRS agents' disclosures have damaged and may continue to damage the Plaintiffs' business and reputation, and this factor weighs against staying the civil litigation.
B. Burden Imposed on Defendants
Plaintiffs contend that the Government would be not be impermissibly burdened by allowing this civil case to proceed because the civil action relates only to the illegal disclosures of return information, other unacceptable conduct by Special Agent Jackson, and damages, and not to the IRS's criminal tax investigation. Plaintiffs assert that they will confine the scope of their discovery to these issues, and the Government's concerns can be addressed through an appropriate protective order, if necessary. While Plaintiffs have not yet initiated formal discovery or demonstrated an intention to use civil discovery to gain access to witnesses or information gathered during the course of the IRS's criminal investigation, the mandatory disclosure rules applicable to civil cases require the Government to voluntarily disclose to Plaintiffs the names of actual and potential witnesses, as well as a copy of, or description by category and location of, all documents that the Government may use to support its defenses. See Fed.R.Civ.P. 26(a)(1). As the Government points out, giving Plaintiffs access to that information at this point in the proceedings may frustrate both the ongoing investigation and any future prosecution. At the same time, it is unlikely that the Government can discover the full depth of Plaintiff Turley's knowledge of the relevant facts as the pendency of any criminal prosecution will enable her to assert her Fifth Amendment right against self incrimination in response to the Government's discovery requests in the civil case. See United States v. Kordel, 397 U.S. 1, 7-8 (1970).
Even if Plaintiffs did not initiate this suit in an effort to circumvent the Federal Rules of Criminal Procedure, Plaintiffs' good faith is irrelevant. As the Fifth Circuit noted in Campbell:
[T]he trial judge held that the suit for refund was a bona fide suit, and as such, it was completely `independent' of the criminal case. If a taxpayer files suit in bad faith, it is an abuse of process; but his good faith on a suit for refund does not sanctify the motion for discovery. We take the view that whether or not the suit, as distinguished from the motion, was bona fide, the effect of granting the motion was to give pre-trial discovery of documents denied the taxpayer in the criminal case.Campbell, 307 F.2d at 488. Therefore, regardless of Plaintiffs' motives in filing their civil case, the Government has demonstrated that its criminal investigation will be impaired if discovery in Plaintiffs' civil case is allowed to proceed, and this factor weighs heavily in favor of staying the civil proceedings.
C. Burden on the Court
As courts in similar cases have recognized, the Court has competing concerns in deciding whether to stay a case. First, the Court has "an interest in moving the cases on its docket to an expeditious conclusion." Nowaczyk, 146 F.R.D. at 175. However, the "[r]esolution of the related criminal matter may eliminate much of the Court's work in the civil action" by simplifying the issues or eliminating the conflict concerning Plaintiffs' potential assertion of the Fifth Amendment privilege, which should allow civil discovery to proceed more smoothly. White, 116 F.R.D. at 502. In a case such as this, where the Government's criminal investigation has not yet proceeded to the point of indictment, the Court is reluctant to grant a stay because it is uncertain how long the stay will persist. Nevertheless, the Court believes that a stay of limited duration will promote judicial economy and efficiency in this case.
D. Public Interest and Interests of Non-Parties
The public would appear to have an interest in the denial of the stay, because if IRS agents continue to make improper disclosures of return information, other individuals may be subjected to similar abuses. However, the public also has an interest in the fair and effective enforcement of internal revenue laws. As the Fifth Circuit stated, "[a]dministrative policy gives priority to the public interest in law enforcement. This seems so necessary and wise that a trial judge should give substantial weight to it in balancing the policy against the right of a civil litigant to a reasonably prompt determination of his civil claims." Campbell, 307 F.2d at 487. In a case such as this, where there is no class action lawsuit or imminent threat of harm to the public at large, the Court finds that the public interest in the enforcement of internal revenue laws outweighs the right of two plaintiffs to promptly proceed with their civil litigation.
After a consideration of the competing interests listed above, the Court finds that allowing Plaintiffs to proceed with civil discovery will impose an impermissible burden on the Government's criminal investigation. However, the Court also recognizes Plaintiffs' important interest in proceeding with their civil litigation. Therefore, the Court will grant a six-month stay of Plaintiffs' civil case. If an indictment, if any, is issued in the criminal case, it should be issued within that six-month period. Otherwise, the Court will reconsider the stay of the civil case in six months.
III. Conclusion
Accordingly, it is hereby
ORDERED that Defendant's Motion for Stay of Proceedings [Doc. #6] is GRANTED IN PART and DENIED IN PART. Plaintiffs' civil case is stayed for six months from the date of this Order.