IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA
November 10, 2010
FOUR IN ONE COMPANY, INC., ET AL., PLAINTIFFS,
SK FOODS, L.P., ET AL., DEFENDANTS.
On September 15, 2010, the court heard intervenor United States Department of Justice's motion for a limited stay of discovery. Dckt. No. 159. Plaintiffs oppose the motion, Dckt. No. 164; and defendants Ingomar Packing Company, Los Gatos Tomato Products, Stuart Woolf, and Scott Salyer each filed statements of non-opposition to the motion and expressed their support for intervenor's requested stay, Dckt. Nos. 160, 161, 163. At the hearing, attorney Barbara Nelson appeared on behalf of the intervenor; attorneys Michael Lehmann and A. William Urquhart appeared on behalf of plaintiffs; attorney Stephen Zovickian appeared on behalf of defendant Ingomar Packing Company; attorney George Nicoud appeared on behalf of defendants Los Gatos Tomato Products and Woolf; and attorney James Mayo appeared on behalf of defendant Salyer.*fn1 For the reasons stated at the hearing and for the additional reasons stated herein, intervenor's request for a limited discovery stay of six months is granted.
This is a purported class action lawsuit alleging that defendants violated antitrust law by engaging in anticompetitive conduct in the processed tomato products market. Originally, the plaintiffs herein filed four separate actions against defendants,*fn2 but on March 12, 2009, the assigned district judge consolidated the cases, noting that the actions all arose from the same Department of Justice ("DOJ") investigation into anticompetitive conduct within the processed tomato industry*fn3 and were all purported class actions instituted on behalf of purchasers of tomato products and therefore involve similar questions of fact and of law.*fn4 Dckt. No. 88.
On November 9, 2009, plaintiffs Four in One, Diversified Foods, Bruce Foods, and Cliffstar filed a consolidated amended class action complaint against defendants SK Foods, Ingomar Packing Company, Los Gatos Tomato Products, Scott Salyer, Stuart Woolf, and Greg Pruett. Dckt. No. 113. The amended complaint alleges that defendants are in the business of manufacturing processed tomato products, including but not limited to, tomato sauces, tomato paste and diced tomatoes ("Processed Tomato Products") and that defendants engaged in illegal anticompetitive conduct in the United States market for the sale of those Processed Tomato Products. Id. ¶ 1. Specifically, the complaint alleges, among other things, that defendants conspired together with unnamed co-conspirators to suppress and restrain competition for and to fix, raise, maintain, and/or stabilize the price of Processed Tomato Products sold in the United States, and that as a direct and proximate result of the anticompetitive conduct, defendants restrained competition in the United States market for the sale of Processed Tomato Products and injured Plaintiffs and the purported class in their business and property. Id. ¶ 2, 3. The complaint alleges that defendants' conduct violated Section 1 of the Sherman Act (15 U.S.C. § 1) and Section 4 of the Clayton Act (15 U.S.C. § 15).
Defendants Ingomar Packing Company, Greg Pruett, and Los Gatos Tomato Products deny the allegations in plaintiffs' amended complaint. See Dckt. Nos. 127, 130, 131. Defendants Stuart Woolf and Scott Salyer deny some of the allegations in plaintiffs' amended complaint and have asserted their constitutional right to decline to admit or deny the remaining allegations. See Dckt. Nos. 126, 131.
On April 28, 2009, the parties stipulated to permit the United States, through the Antitrust Division of the Department of Justice ("DOJ") and the U.S. Attorney's Office for the Eastern District of California, to intervene in the action for the purpose of seeking to limit discovery temporarily. Dckt. No. 96. The parties also stipulated to a limited stay of discovery in the consolidated actions for six months because of the ongoing DOJ criminal investigation.*fn5
Dckt. No. 97. On May 8, 2009, the assigned district judge permitted the United States to intervene in the action (pursuant to the stipulation between the parties) for the purpose of seeking to limit discovery temporarily. Dckt. No. 100.
Upon expiration of the stipulated stay, plaintiffs and defendants Ingomar Packing Company, Pruett, Los Gatos Tomato Products, and Woolf reached an agreement in principle with the United States for a further limited stay of discovery until April 30, 2010, and since that stay expired, plaintiffs voluntarily have not pursued any of the types of discovery covered by the expired stay. Dckt. No. 164 at 6.
The United States did not oppose the production of documents during the stipulated stays. Id. at 8. Plaintiffs, however, have not yet served document requests because Ingomar Packing Company, Pruett, Los Gatos Tomato Products, and Woolf agreed to produce any documents previously produced to the United States as part of its investigation. On April 12, 2010, Ingomar Packing Company produced approximately 155,000 pages of documents, and on March 29, 2010, Los Gatos Tomato Products produced approximately 12,000 pages of documents.
In late May 2010, the United States requested a further stay from plaintiffs. Dckt. No. 164 at 8-9. After several conferences between the United States and plaintiffs, plaintiffs agreed to an additional six month stay, but only on the condition that the United States would not seek any further discovery stays in this action. Id. at 9. The United States, however, was not willing to agree to those conditions. Id.
II. SUMMARY OF DISPUTE
On August 5, 2010, after being unable to reach an agreement with plaintiffs, the United
States filed the instant motion for a limited stay of discovery. Dckt. No. 159. The United States argues that, in light of the parallel criminal action, a six month limited stay of interrogatories, depositions, and requests for admissions on the substantive allegations of the criminal case or communications with the United States, as specified in the government's proposed order, is warranted. Id. The United States also requests that the court authorize the United States to extend the stay if warranted, and the United States proposes that it provide to the court, sometime before the expiration of the stay, a status report on the progress of the criminal action.
The government argues that during the six month stay, the case will not be idle since the plaintiffs have received, and continue to receive, unlimited production of documents, and would be entitled to seek discovery on non-substantive issues. The government also notes that prior to filing its motion, it met and conferred with plaintiffs and plaintiffs were willing to agree to a six month stay, but were just unwilling to agree to a possible extension of the stay beyond six months. The government argues that permitting unrestricted discovery in this civil action at this time could lead to unnecessary consumption of the court's time and the parties' resources concerning matters that may be largely resolved by the outcome of the criminal case and interfere with a closely related, ongoing criminal proceeding in this district. Specifically, the government contends that a review of the complaint reveals that plaintiffs' case is inseparable from the criminal charges, alleges many of the exact same facts as stated in the criminal indictment, and is derivative of the criminal investigation. See Dckt. No. 159-1 at 6-7. The government contends that a limited stay of discovery is necessary to ensure the integrity of the criminal proceeding and protect the rights of the defendant, the United States, and others. Id. at 7-9.
Defendant Ingomar Packing Company supports the limited discovery stay sought by the government for the reasons stated by the government, and for two additional reasons: (1) Ingomar Packing Company has already produced 155,000 pages of documents to plaintiffs, and (2) the additional time represented by the limited stay imposes no undue prejudice on plaintiffs since any alleged "conspiracy" has terminated and there is therefore nothing to enjoin in this action. Dckt. No. 160.
Defendants Los Gatos Tomato Products and Woolf also support the limited discovery stay because of the pending criminal proceedings against defendant Salyer. They contend that they would be materially prejudiced by allowing depositions to proceed at this juncture in the civil action since many of the probable deponents will likely invoke their Fifth Amendment privilege not to testify and because waiting for the criminal case against Salyer to proceed may narrow the scope of discovery that will take place in this action. They argue that testimony at the criminal trial will show that they had nothing to do with the bribery, racketeering, and adulteration in which Salyer and others are alleged to have engaged. Dckt. No. 161.
Defendant Salyer also supports the limited discovery stay and states that because of the pending indictment against him, which substantially overlaps with the allegations in this case, he reserves the right to assert his Fifth Amendment privilege as to the limited discovery suggested by the government and reserves the right to seek a stay of all discovery should such a motion become necessary to protect his constitutional rights to a fair trial in the criminal case. Dckt. No. 162.
Plaintiffs oppose the government's requested stay, dckt. No. 164, arguing that Fifth Amendment rights will be minimally implicated in the civil case and that plaintiffs have a significant interest in proceeding with this action expeditiously. Plaintiffs also argue that discovery has already been significantly delayed by previous stays; that the loss or destruction of evidence during further stays would irreversibly prejudice plaintiffs; that further stays may preclude plaintiffs form advancing meritorious claims if statutes of limitation run; and that any benefits from the Salyer criminal trial will be minimal and do not outweigh the potential prejudice continued stays would have on plaintiffs' case. Id. at 10-19. Therefore, plaintiffs contend, instead of imposing a blanket stay the court should issue a ruling as to particular discovery disputes as they arise. Id. at 20. Finally, plaintiffs contend that if the court does impose a blanket stay on discovery, it should specify that it is the last stay the DOJ will receive in this case. Id. at 21.
Plaintiffs also argue that, while they are sensitive to the substantial public interest in the criminal action against Salyer, "where discovery has already been stayed for well over a year, the balance is shifting, so that it is now the interests of the plaintiffs in this civil litigation to obtain justice that is being undermined by an open-ended situation without any firm end-date for the discovery stays." Dckt. No. 164 at 7.
"While a district court may stay civil proceedings pending the outcome of parallel criminal proceedings, such action is not required by the Constitution." Federal Sav. and Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989) (citing Securities & Exchange Comm'n v. Dresser Indus., 628 F.2d 1368, 1375 (D.C. Cir.), cert. denied, 449 U.S. 993 (1980) and United States v. Kordel, 397 U.S. 1 (1970)). "Nevertheless, a court may decide in its discretion to stay civil proceedings . . . 'when the interests of justice seem [ ] to require such action.'" Keating v. Office of Thrift Supervision, 45 F.3d 322, 325 (9th Cir. 1995) (quoting Dresser, 628 F.2d at 1375 and Kordel, 397 U.S. at 12 n. 27).
"A court must decide whether to stay civil proceedings in the face of parallel criminal proceedings in light of the particular circumstances and competing interests involved in the case." Molinaro, 889 F.2d at 902 (citing Dresser, 628 F.2d at 1375). "Obviously a court should consider the extent to which the defendant's fifth amendment rights are implicated." Molinaro, 889 F.2d at 902 (citing Dresser, 628 F.2d at 1375-76). Other factors a court should consider will vary according to the case itself, but generally will include:
(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.
Molinaro, 889 F.2d at 902-03 (citing Golden Quality Ice Cream v. Deerfield Specialty Papers, Inc., 87 F.R.D. 53, 56 (E.D. Pa. 1980); Kordel, 397 U.S. at 11-12; Dresser, 628 F.2d at 1374-76).
On April 19, 2010, another magistrate judge in this district stayed all discovery in a civil matter charging defendant Salyer with alleged illegal hiring practices and violations of RICO for a period of six months. Brewer v. Salyer, 2010 WL 1558454, 1:06cv1324-AWI-DLB (E.D. Cal. Apr. 19, 2010) (Beck, J.) (finding that a stay of discovery was warranted in light of the criminal indictment against Salyer, due to Salyer's limited ability to defend both the civil and criminal action and the potential Fifth Amendment issues that might arise in the civil action). Also, on June 18, 2010, a district judge in this district issued an order stating that "all discovery [in SK Foods' bankruptcy action] pertaining to discovery directed to defendant's criminal counsel and any deposition of defendant himself is stayed pending further order of this court." United States v. Salyer, 10cr061-LKK, Dckt. Nos. 115, 183; see also Dckt. No. 159-1 at 9, n.1.
The court acknowledges that discovery has already been delayed in this case due to the parties' stipulated stays,*fn6 and the court is cognizant that a trial in defendant Salyer's criminal action does not appear imminent.*fn7 Nonetheless, the court finds that Fifth Amendment considerations and the Molinaro factors weigh in favor of granting the sixth month limited stay sought by the United States.*fn8 However, the government's request for an optional extension of the sixth month stay will be denied. Instead, if the United States determines that a further stay is warranted, it shall file a new motion for a stay in accordance with this court's Local Rules, and the court will then re-weigh the Fifth Amendment considerations and the Molinaro factors as they exist at that time.
A. Fifth Amendment Considerations
Here, there is significant overlap between the civil and criminal actions, and any attempt by plaintiffs to depose Salyer in the civil action will implicate his Fifth Amendment rights. "[I]f discovery moves forward, [Salyer] will be faced with the difficult choice between asserting his right against self-incrimination, thereby inviting prejudice in the civil case, or waiving those rights, thereby courting liability in the civil case." Jones v. Conte, 2005 WL 1287017, at *1 (N.D. Cal. Apr.19, 2005) (quoting Javier H. v. Garcia-Botello, 218 F.R.D. 72, 75 (W.D.N.Y. 2003)). Here, since the simultaneous civil and criminal proceedings involve the same or closely related facts, Fifth Amendment concerns weigh in favor of granting a stay. See United States v. Booth, 2010 WL 315543 (E.D. Cal. Jan. 19, 2010) (Ishii, J.) (staying a civil case completely until resolution of the parallel criminal case); Taylor, Bean & Whitaker Mortg. Corp. v. Triduanum Financial, Inc., 2009 WL 2136986, at *2 (E.D. Cal. Jul. 15, 2009) (Damrell, J.) (granting a six month stay of all proceedings in a civil fraud case when a parallel criminal case was ongoing because "[b]oth the civil and criminal cases arise from the alleged scheme to defraud . . . [, and as] such, the pending civil litigation may substantially implicate defendants' Fifth Amendment rights against self-incrimination, create unnecessary complexities with respect to discovery, expose defendants' strategy or theories with respect to the criminal case, or otherwise prejudice the pending criminal proceedings."); Acacia Corporate Management, LLC v. United States, 2009 WL 1531099 (E.D. Cal. May 28, 2009) (Ishii, J.) (granting stay of civil action until the resolution of the parallel criminal case); S.E.C. v. Schroeder, 2008 WL 152227 (N.D. Cal. Jan. 15, 2008) (postponing the deposition of the defendant in a civil action for four months because there was an ongoing criminal investigation that might implicate him, even though no criminal charges had even been brought against him); Rodriguez v. Summit Mortg. Realty, Inc., 2007 WL 2029323 (N.D. Cal. July 11, 2007) (continuing a stay of civil proceedings for seven months or until the criminal trial was complete, whichever came first, because of Fifth Amendment concerns, and stating that "[w]hile the court and the public generally have an interest in the expeditious resolution of litigation, under the circumstances presented here, the court concludes that, on balance, the interests of justice require an extension of the stay of these proceedings); see also McCormick v. Rexroth, 2010 WL 934242 (N.D. Cal. Mar. 15, 2010); S.E.C. v. Nicholas, 569 F. Supp.2d 1065 (C.D. Cal. 2008); Souza v. Schiltgen, 1996 WL 241824 (N.D. Cal. May 6, 1996); Bureerong v. Uvawas, 167 F.R.D. 83 (C.D. Cal. 1996).
B. Interests of the Plaintiffs
Although plaintiffs have a strong interest in proceeding expeditiously with this litigation, especially since the case has been pending for almost two years and plaintiffs have yet to file a motion for class certification, the stay at issue is for six months and does not limit plaintiffs' ability to conduct discovery altogether. Plaintiffs can still conduct investigations and engage in document discovery. In fact, plaintiffs have already received over 167,000 pages of documents in this action.
C. Burden on Defendants
Denying a stay at this time presents a significant burden on defendant Salyer in defending the criminal case as well as the numerous civil cases pending against him. See Brewer v. Salyer, 1:06cv1324-AWI-DLB. Further, allowing depositions to proceed in the civil case creates concern that some witnesses under investigation will potentially invoke their Fifth Amendment rights, frustrating the discovery process.
D. Convenience of the Court and Judicial Efficiency
There is significant judicial efficiency in granting the United States' request for a limited stay of discovery. The allegations in the two cases are substantially the same, it is likely that the proceedings will rely on much of the same evidence and many of the same witnesses. Moreover, the cases will raise similar, if not identical, issues. Permitting unrestricted discovery in this civil action at this time could lead to unnecessary consumption of the court's time and the parties' resources concerning matters that may be largely resolved by the outcome of the criminal case.
Plaintiffs argue that the different burdens of proof render the actions "fundamentally different," and that in the event of guilty pleas or verdicts, even after all such pleas are entered or criminal convictions obtained, plaintiffs will still need to conduct further discovery to learn the full scope of defendants' alleged conspiracy. The point is taken. Nonetheless, it is apparent here that "the criminal case may later streamline discovery in the civil case," and this factor weighs in favor of a stay. Bridgeport Harbour Place I, LLC, 269 F. Supp.2d. 6, 9 (D. Conn. 2002).
E. Interests of Third Persons
The government argues that any interests of non-parties will be minimally affected by the proposed stay. The court agrees. Non-party victims would be materially aided by any criminal convictions, and any non-party potential defendants would avoid the prospect of having to choose between responding to questions at deposition or asserting their Fifth Amendment rights. Thus, this factor weighs in favor of the requested stay.
F. Interests of the Public
Proceeding with unfettered civil discovery at this point risks undermining the public's right to fair and efficient prosecution of the criminal case and would distract both the defendants and the government from fully preparing their respective cases in the criminal matter. Permitting unfettered civil discovery at this time would also allow the defendant to obtain discovery that would otherwise not be permitted under the more restrictive criminal rules. Degen v. United States, 517 U.S. 820, 825-26 (1996) ("A criminal defendant is entitled to rather limited discovery, with no general right to obtain the statements of the Government's witnesses before they have testified. In a civil case, by contrast, a party is entitled as a general matter to discovery of any information sought if it appears reasonably calculated to lead to the discovery of admissible evidence. The government contends Degen might use the rules of civil discovery in the forfeiture suit to gain an improper advantage in the criminal matter, prying into the prosecution's case in a manner not otherwise permitted. These problems are not uncommon when criminal and civil forfeiture suits are pending at the same time . . . the risk of compromising the criminal case could be avoided by staying the civil suit until the prosecution is over.").
For the reasons stated above and at the hearing, the court finds that the Fifth Amendment considerations and the Molinaro factors weigh in favor of granting the sixth month limited stay sought by the United States. However, the government's request for an optional extension of the sixth month stay will be denied.
Accordingly, IT IS HEREBY ORDERED that:
1. The government's motion for a limited discovery stay, Dckt. No. 159, is granted.
2. As provided herein, certain discovery shall be stayed in these consolidated cases for six months from the date this order is filed.
3. During the limited discovery stay, no interrogatories, requests to admit, or depositions will be taken that reflect, refer to, or relate to any understandings, agreements, contacts, meetings, or communications, between or among any processors of tomato products and/or agents of tomato processors, relating to the sale, terms of sale, pricing, production, volume, market share, customers, capacity, or distribution of processed tomato products.
4. During the limited discovery stay, no interrogatories, requests to admit, or depositions will be taken that reflect, refer to, or relate to grand jury proceedings concerning the processed tomato products industry, including any party's or witness' communications with the United States, or with the grand jury investigating the processed tomato products industry, except by order of the Court upon good cause shown and consistent with governing law.
5. During the limited discovery stay, no interrogatories, requests to admit, or depositions will be taken that reflect, refer to, or relate to any fraudulent activity including, but not limited to, embezzlement, theft of trade secrets, commercial bribery, honest services fraud, adulterated food, mislabeling of food, wire fraud, and mail fraud.
6. To the extent consistent with the above, the following discovery is permitted during the limited discovery stay:
a. The Parties are entitled to seek document discovery;
b. The Parties are entitled to seek written answers disclosing the identities of persons in positions of management or control of defendants' and other's respective tomato operations, including any directors, officers, managing agents, and employees; defendants' and other's organizational structures and related entities; financial information about defendants and others and their related entities; and the storage, location, retention, destruction, or identity of relevant corporate records.
7. This order does not prohibit the service of interrogatories, requests for admissions, requests for production of documents, or third party document subpoenas, as set forth in paragraph 6(a) above, except to the extent that it requires the production of discovery which is stayed hereunder.
8. All formal discovery requests shall be served on the United States at least three weeks before the discovery is due to be produced. Any party and/or the United States may object to discovery on the basis that the requested discovery seeks information or discovery prohibited under this order.
9. Nothing in this order is intended to foreclose any objection to discovery that is otherwise permitted by law.
10. Nothing in this order prevents the parties from negotiating discovery preservation and protective orders except to the extent that they would violate this order.
11. Any party and/or the United States can request a modification of this order upon a showing of good cause and any party and/or the United States is entitled to oppose such a request.
12. If the United States seeks a further stay of discovery beyond the expiration of the stay provided for herein, it shall file a motion for such a further stay in accordance with the Eastern District of California Local Rules.