United States District Court, D. Maine
ORDER ON DEFENDANTS' FOURTH MOTION TO STAY CIVIL
LEVY CHIEF U.S. DISTRICT JUDGE.
the Defendants, except for Defendant George Marcus, have
jointly moved for a fourth stay of this civil litigation
which would stay the case until the conclusion of the pending
criminal proceedings against Defendants Michael A. Liberty
and Paul Hess. ECF Nos. 53, 54, 71. Plaintiff Securities and
Exchange Commission (the “SEC”) opposes the
Motion. ECF No. 55. For the reasons that follow, the Motion
filed its complaint in March 2018, asserting claims arising
out of an alleged fraudulent securities scheme. See
ECF No. 1. The named Defendants are Michael A. Liberty,
Mozido Invesco, LLC, Family Mobile, LLC, BRTMDO, LLC,
Brentwood Financial, LLC, TL Holdings Group, LLC, Brittany
Liberty, Paul Hess, Richard Liberty, George Marcus, and
Xanadu Partners, LLC. The complaint alleges that the
Defendants tricked investors into believing that they were
funding startup technology companies, including a company
named Mozido, when the investors were in fact investing in
shell companies without active business operations.
Id. ¶¶ 1-4. The complaint alleges that the
Defendants enriched themselves with their investors'
money. Id. ¶ 1.
2018, the Defendants moved for a stay of the case pending an
ongoing grand jury investigation into conduct related to the
SEC's allegations and targeting certain of the
Defendants. See ECF No. 38. The Court granted the
motion and ordered the case stayed until October 16, 2018,
finding that the ongoing grand jury investigation could
implicate the Fifth Amendment rights of at least some of the
Defendants. See ECF No. 40. The stay was later
extended to December 10, 2018, see ECF No. 44, and
then again to February 28, 2019, see ECF No. 50,
upon subsequent requests by the Defendants that were not
opposed by the SEC. See ECF Nos. 43, 47. The two
orders continuing the initial stay authorized the parties to
conduct third-party documentary discovery so long as all
discovery requests were served on all parties. ECF Nos. 44,
February 27, 2019, a criminal indictment was returned against
Defendants Michael Liberty and Paul Hess containing
allegations of wire fraud and securities fraud that overlap
with the SEC's civil allegations. See United States
v. Liberty, et al., No. 2:19-cr-00030-GZS, ECF No. 1.
The indictment alleges that Liberty and Hess, “with the
help of others, solicited individuals to invest in various
shell companies that [Liberty] controlled . . . on the basis
that their investments would be passed on to fund the
business operations of a company named Mozido.”
Id. ¶¶ 1-2, 7. All of the Defendants in
this civil action-except for Defendant George Marcus,
see ECF No. 71-have moved for the Court to again
extend the stay of this proceeding until the criminal case
against Liberty and Hess is concluded. See ECF Nos.
power to stay proceedings 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.” Hewlett-Packard Co. v.
Berg, 61 F.3d 101, 105 (1st Cir. 1995) (quoting
Landis v. North Amer. Co., 299 U.S. 248, 254
(1936)). The “power to stay civil proceedings in
deference to parallel criminal proceedings should be invoked
when the interests of justice counsel in favor of such a
course.” Microfinancial, Inc. v. Premier Holidays
Int'l, Inc., 385 F.3d 72, 78 (1st Cir. 2004). This
determination is “situation-specific” and
requires the balancing of “competing interests.”
Id. The First Circuit has identified seven factors
that typically bear on the analysis:
(i) the interests of the civil plaintiff in proceeding
expeditiously with the civil litigation, including the
avoidance of any prejudice to the plaintiff should a delay
transpire; (ii) the hardship to the defendant, including the
burden placed upon him should the cases go forward in tandem;
(iii) the convenience of both the civil and criminal courts;
(iv) the interests of third parties; . . . (v) the public
interest[;] . . . (vi) the good faith of the litigants (or
the absence of it) and (vii) the status of the cases.
is “charged with the function of protecting the
investing public, ” S.E.C. v. Am. Trailer Rentals
Co., 379 U.S. 594, 604 (1965), and therefore has a
“substantial interest in the timely resolution of this
proceeding.” S.E.C. v. Telex Free, Inc., 52
F.Supp.3d 349, 353 (D. Mass. 2014). However, “[t]he
strongest case for granting a stay is where a party under
criminal indictment is required to defend a civil proceeding
involving the same matter.” Volmar Distribs., Inc.
v. N.Y. Post Co., 152 F.R.D. 36, 39 (S.D.N.Y. 1993).
Such is the case here.
subjects of the civil and criminal matters are sufficiently
similar to risk prejudice to Liberty and Hess, as criminal
defendants, should the two proceedings proceed
simultaneously. The stay of a civil proceeding pending the
completion of a closely connected criminal case is necessary
where there is “substantial overlap between the subject
matter of the two proceedings.” See S.E.C. v.
Desai, 672 Fed.Appx. 201, 205 (3d Cir. 2016). In such a
situation, “[a] stay can protect a civil defendant from
facing the difficult choice between being prejudiced in the
civil litigation, if the defendant asserts his or her Fifth
Amendment privilege, or from being prejudiced in the criminal
litigation if he or she waives that privilege in the civil
litigation.” Louis Vuitton Malletier S.A. v. LY
USA, Inc., 676 F.3d 83, 97 (2d Cir. 2012).
the criminal proceeding against Liberty and Hess is moving
apace and is currently scheduled to be ready for trial in May
of 2020. See Liberty et al., No. 2:19-cr-00030-GZS,
ECF No. 80. Thus, it is likely that a stay of this proceeding
tied to the conclusion of the criminal trial will not exceed
12 months and, therefore, will not substantially prejudice
the SEC and the interests it asserts. See Trs. of
Plumbers & Pipefitters Nat'l Pension Fund v.
Transworld Mech., Inc., 886 F.Supp. 1134, 1139 (S.D.N.Y.
1995) (“A stay of a civil case is most appropriate
where a party to the civil case has already been indicted for
the same conduct . . . [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
will also promote the public interest and conserve judicial
resources. See Marquis v. F.D.I.C., 965 F.2d 1148,
1154 (1st Cir. 1992) (“[F]ederal district courts
possess the inherent power to stay pending litigation when
the efficacious management of court dockets reasonably
requires such intervention.”). “The conviction of
a civil defendant as a result of the entry of a plea or
following a trial can contribute significantly to the
narrowing of issues in dispute in the overlapping civil cases
and promote settlement of civil litigation not only by that
defendant but also by co-defendants who do not face criminal
charges.” In re Worldcom, Inc. Sec. Litig.,
No. 02 Civ. 3288 (DLC), 2002 WL 31729501, at *8 (S.D.N.Y.
Dec. 5, 2002); see also Javier H. v. Garcia-Botello,
218 F.R.D. 72, 75 (W.D.N.Y. 2003) (“By proceeding first
with the criminal ...