Opinion
CIVIL ACTION No. 11-2965
06-29-2011
HERAEUS MATERIALS TECHNOLOGY LLC v. TUNG PHAM
ORDER
AND NOW, this 29th day of June, 2011, it is ORDERED Defendant Tung Pham's Motion to Stay the Civil Proceedings (Document 17) is GRANTED in part. The motion is granted insofar as all pending and future discovery requests directed to Pham shall be suspended. The motion is denied insofar as third party subpoenas and third party discovery may proceed.
Pham is a former employee of Heraeus Materials Technology, LLC (HMT), a company that manufactures metallization paste products used on solar panels. From 2008 until April 2011, Pham was employed as a senior scientist at HMT, working to develop a new lead-free paste product which, if invented, would constitute the cutting edge in solar panel paste technology. In April, after Pham attended a HMT global technology meeting which included sensitive information about HMT's product development, customers, and future business plans, Pham abruptly resigned. Thereafter, HMT learned that Pham had downloaded dozens of highly confidential HMT files. HMT believes Pham also took HMT's most recent sample of its latest lead-free paste, removed hard copy documents with information on how to replicate the sample, and altered electronically stored back-up copies of the same data. On April 12, 2011, Pham notified HMT by email that he had signed a contract with an investor to develop a metallization paste factory in China.
HMT reported Pham's alleged theft to the Federal Bureau of Investigation (FBI). On May 3, 2011, the FBI executed a search warrant of Pham's residence, seized his computer and certain other possessions, and interviewed Pham. The following day, HMT filed the instant civil complaint, claiming Pham is liable to HMT for breach of fiduciary duty, misappropriation of trade secrets, breach of contract, conversion, and unjust enrichment. HMT also sought immediate injunctive relief. On May 5, 2011, following an ex parte hearing which Pham had notice of but which he did not attend, this Court granted HMT's motion for a temporary restraining order (TRO) and expedited discovery. Pursuant to the terms of the TRO, Pham was required to, inter alia, identify and immediately return all HMT documents, property, and information in his possession and cease and desist all activities on behalf of any HMT competitor. On May 23, 2011, a representative from the United States Attorney's Office in this district confirmed to Pham's criminal attorney that Pham is the "target" of an ongoing criminal investigation regarding his alleged theft of trade secrets, in violation of 18 U.S.C. § 1832.
Pham now asks this Court to stay the above-captioned action until the conclusion of the Government's criminal investigation into Pham's alleged theft. Although Pham has not been indicted for theft of trade secrets, he asserts that, because the criminal investigation is based on the same subject-matter as the civil complaint, requiring him to proceed with both cases simultaneously would harm his ability to defend his civil case and potentially interfere with his assertion of his Fifth Amendment rights.
When a defendant in a civil matter faces criminal charges, a district court has the discretion to stay discovery in whole or in part until the disposition of the criminal matter. RAD Servs., Inc. v. Aetna Cas. & Sur. Co., 808 F.2d 271, 279 n.3 (3d Cir. 1986). In deciding whether to grant such a stay, many courts first determine (1) the extent to which the issues in the criminal and civil cases overlap, and (2) the status of the criminal case, including whether the defendant has been indicted. Volmar Distrib., Inc. v. New York Post Co., Inc., 152 F.R.D. 36, 39 (S.D.N.Y. 1993) (citing Judge Milton Pollack, Parallel Civil and Criminal Proceedings, 129 F.R.D. 201, 203 (S.D.N.Y 1989) ("The most important factor at the threshold is the degree to which the civil issues overlap with the criminal issues.")). Although the case for a stay is strongest when a civil defendant has been indicted, "[i]t is still possible to obtain a stay even though an indictment or information has not yet been returned if the Government is conducting an active parallel investigation." Walsh Sec., Inc. v. Cristo Prop. Mgmt., Ltd., 7 Supp. 2d 523, 527 (D.N.J. 1998) (internal quotation marks and citation omitted).
Although Pham has not yet been indicted, his home and vehicle have been searched by the FBI, with numerous items seized, and his criminal defense attorney was informed that Pham is the target of a Government investigation into his alleged theft of trade secrets. The conduct underlying this potential criminal charge is the same conduct that gives rise to HMT's claim for misappropriation of trade secrets. Additionally, the discovery requests related to a civil prosecution of theft of trade secrets claim will be similar, if not identical to, the subject matter of a criminal investigation into the same conduct. Although HMT asserts that misappropriation of trade secrets is only one of its civil claims, it has also characterized this case as "classic theft of trade secrets case", Compl. 1, thereby making Pham's alleged theft central to the civil case. Because there is substantial overlap of the issues involved in the civil and criminal proceedings, there is an increased risk Pham's Fifth Amendment rights may be impaired, and this factor weighs in favor of granting the stay.
A court must not only consider the similarity of civil and criminal cases and the stage of the criminal proceedings, but must also balance the interests of the litigants, the court, and the public. In making this determination, relevant factors to consider are:
(1) the interest of the plaintiff[] in proceeding expeditiously with [the litigation], and the potential prejudice to plaintiff[] of a delay; (2) the burden which any particular aspect of the proceedings may impose on [the defendant]; (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.Golden Quality Ice Cream Co. v. Deerfield Specialty Papers, Inc., 87 F.R.D. 53, 56 (E.D. Pa. 1980).
As to the first factor, courts may insist the plaintiff establish more than simply a delay in his right to expeditiously pursue his claim. Id. HMT asserts it would be prejudiced by a stay because it is the victim of a "continuing and ongoing harm," Pl.'s Resp. to Mot. to Stay 8, namely, HMT's inability to quickly develop lead-free paste in the absence of Pham's misappropriated research and research materials. This Court is unpersuaded, however, that HMT is truly exposed to such an ongoing harm because this Court has granted HMT's motion for a TRO and has ordered Pham to cease cooperation with HMT's competitors and return all HMT research materials that are in his possession. Pham has no objection to the bulk of the TRO remaining in place during the stay, and the prejudice to HMT, if any, is therefore minimal.
Pham faces a significant burden if the civil case is allowed to proceed. A civil defendant targeted in a criminal investigation may be forced to choose between waiving his Fifth Amendment rights during civil discovery, or asserting his Fifth Amendment and losing the civil case. Walsh Securities, 7 F. Supp. 2d at 528. While it is not unconstitutional to place a defendant in this position, Baxter v. Palmigiano, 425 U.S. 308, 318-19 (1976), courts may consider these conflicts when deciding whether to stay a civil case. Dresser Indus., 628 F.2d at 1375. Refusing to grant a stay might also allow criminal discovery to expand beyond the limits of Federal Rule of Criminal Procedure 16(b), expose the basis of the defense to the prosecution in advance of trial, or otherwise prejudice the criminal case. Volmar Distributors, 152 F.R.D. at 39. All of these issues weigh in favor of granting a stay.
Next, granting a stay serves the interest of judicial economy. HMT asserts civil discovery in this case could go forward, and insofar as Pham asserts his Fifth Amendment rights, the parties could litigate whether such right applies to particular interrogatories, deposition questions, or discovery requests. It does not serve the interest of judicial economy for this Court to become mired in managing motion practice regarding the applicability of the Fifth Amendment privilege. Moreover, if Pham is indicted in this district, "the pendency before two judges . . . of cases which overlap in a significant way presents the likelihood of at least some duplicative judicial effort." Golden Quality, 87 F.R.D. at 57. On the other hand, "if the Government succeeds in prosecution of the criminal case, the parties and this court will very likely be relieved of the burden attendant upon [HMT's] need to prove [theft of trade secrets]." Id. Because the efficient administration of justice is best served by granting a stay, this factor also weighs in favor of granting Pham's request.
Regarding the fourth and fifth prongs, there is an important public interest in preventing the theft of American companies' trade secrets and illegal export of such secrets to other countries. This public interest, however, is served by granting a stay because such a stay will allow the Government's investigation into, and possible indictment of, such activity to proceed without interruption.
Because all of the factors weigh in favor of granting a stay in this case, Pham's request is granted.
It is further ORDERED the above-captioned action shall be STAYED for 90 days. The parties are DIRECTED to submit a report outlining the status of the criminal proceedings no later than September 23, 2011.
BY THE COURT:
/s/ Juan R. Sánchez
Juan R. Sánchez, J.