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Square 1 Bank v. Lo

United States District Court, Northern District of California

December 17, 2014

SQUARE 1 BANK, Plaintiff,
HENRY LO, Defendant.



Defendant Henry Lo is the defendant and cross-claimant in the instant civil action initiated by Plaintiff Square 1 Bank and is the defendant in a related criminal proceeding, both related to his role in a scheme to defraud his company of funds that led to Plaintiffs loss of income. In this civil action, the parties have been engaged in mediation efforts, and though they have exchanged initial disclosures, formal discovery has not yet begun. (See Dkt. No. 97 at 6.). In the criminal proceeding, Lo recently entered a guilty plea and is set for sentencing on February 26, 2015. See United States v. Lo, No. 3:14-cr-00442-WHO-1, Dkt. No. 17. Lo now moves to stay the civil proceeding pending resolution of his criminal case. (Dkt. No. 99.) Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument. Having carefully considered the parties' arguments and the relevant legal authorities, the Court GRANTS Defendant's motion to stay discovery in this civil matter pending sentencing in the related criminal case.


The Constitution does not ordinarily require a stay of civil proceedings pending the outcome of related criminal proceedings. Fed. Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989). "In the absence of substantial prejudice to the rights of the parties involved, such parallel [or related] proceedings are unobjectionable[.]" SEC v. Dresser Inds., Inc., 628 F.2d 368, 1374 (D.C. Cir. 1980). Nonetheless, courts may exercise discretion to stay civil proceedings when the interest of justice so requires. Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995).

In determining whether to stay civil proceedings in the face of a related criminal action, courts consider "the particular circumstances and competing interests involved in the case." Molinaro, 889 F.2d at 902. Courts first must consider "the extent to which the defendant's [F]ifth [A]mendment rights are implicated." Keating, 45 F.3d at 324 (citation omitted). In addition, courts consider the following five factors:

(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."

Id. at 325.

I. Implication of Lo's Fifth Amendment Privilege

Lo's motion to stay turns primarily on the extent to which his Fifth Amendment rights are implicated in this civil action. "A defendant has no absolute right not to be forced to choose between testifying in a civil matter and asserting his Fifth Amendment privilege." Keating, 45 F.3d at 326. As a result, "while the extent to which a defendant's Fifth Amendment rights are implicated is a significant factor to be considered, it is only one consideration to be weighed against others." SEC v. Alexander, No. 10-CV-4535, 2010 WL 5388000, at *3 (N.D. Cal. Dec. 22, 2010) (internal quotation marks and citation omitted); see also Keating, 45 F.3d at 326. "When simultaneous civil and criminal proceedings involve the same or closely related facts, the Fifth Amendment concerns may be sufficient to warrant a stay." McCormick v. Rexroth, No. C 09-4188 JF, 2010 WL 934242, at *2 (N.D. Cal. Mar. 15, 2010) (internal quotation marks and citation omitted). "[T]he strongest case for deferral of proceedings until after completion of criminal proceedings is where a party under indictment for a serious offense is required to defend a civil or administrative action involving the same matter." SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1375-76 (D.C. Cir. 1980). In such cases, there is a concern that allowing the civil action to proceed may undermine the defendant's Fifth Amendment privilege against self-incrimination, result in discovery beyond the scope of what the Federal Rules of Criminal Procedure allow, expose the defense strategy, or otherwise cause prejudice. Id. at 1376. Thus, where civil and criminal proceedings "wholly or substantially overlap[ ] . . . a court may be justified in staying the civil case, deferring civil discovery, or taking other protective measures." Alexander, 2010 WL 5388000, at *3 (citation omitted).

Here, there appears to be no dispute that both actions implicate the "same nucleus of facts" pertaining to Lo's use of his former company's funds; as a result, Lo's Fifth Amendment rights may well be at risk if he fulfills his civil discovery obligations while the criminal proceeding is pending. See McCormick, 2010 WL 934242, at *2. Specifically, at this point of both proceedings it is possible that any information that Lo produces to fulfill his civil discovery obligations—in particular, requests for admissions and deposition testimony—may be used against him in his criminal case in the context of sentencing. Of course, Lo has already entered a guilty plea in the criminal matter, so the risk that the civil proceeding will disclose a defense strategy to be used at trial is not implicated here. Cf. Taylor, Bean & Whitaker Mortg. Corp. v. Triduanum, No. 2:09-cv-954 FCD, EFB, 2009 WL 2136986, at *6 (CD. Cal. July 15, 2009) (imposing a six-month stay in a civil case because discovery could "expose defendants' strategy or theories with respect to the criminal case"). And while an action brought by a private plaintiff, as here, presents less of a risk of prejudice to a defendant than if the government were involved in both cases, the risk of potential collaboration between the private plaintiff in this civil action and the government in the criminal action remains. See eBay, Inc. v. Digital Point Solutions, Inc., No. C-08-4052 (PVT), 2010 WL 702463, at *3 (N.D. Cal. Feb. 25, 2010). Although these factors lessen the risk to Lo, the government still could use deposition testimony or other documents adduced in this civil case at Defendant's criminal sentencing in a variety of ways—e.g., to request a sentencing enhancement, to argue that the higher end of the guidelines range is appropriate, or to advocate for consecutive sentences for each of Defendant's charges. Thus, given the pending sentencing in a related matter stemming from the same facts as this case, the Court concludes that Lo's Fifth Amendment privileges are implicated.

While conceding that the two cases require testimony regarding similar issues that might ordinarily implicate a defendant's Fifth Amendment rights, Plaintiff argues that discovery—and all related matters—in this civil action should continue for two main reasons: first, because there is no more Fifth Amendment risk of self-incrimination given that Lo has already entered a guilty plea in the related criminal matter; and second, because Lo waived any such right by submitting a declaration in support of his opposition to Plaintiffs application for attachment in this case.

Plaintiffs first argument is without merit. It is well established that an individual's Fifth Amendment privilege against self-incrimination does not expire upon entry of a guilty plea or guilty verdict, but rather extends through sentencing. Mitchell v. United States, 526 U.S. 314, 324 (1999); Bridgeport Harbour Place I, LLC v. Ganim, 269 F.Supp.2d 6, 9 (D. Conn. 2002) ("[T]he Fifth Amendment privilege applies through sentencing."). Indeed, calling the predicament a "Hobson's choice, " courts have stayed discovery where a civil defendant has already pleaded guilty to a criminal indictment and awaits sentencing on the grounds that "[i]f the defendants zealously litigate the civil case and provide discovery, the government may use the information to the defendants' detriment at sentencing." Bridgeport Harbour Place I, 269 F.Supp.2d at 9. However, rather than there being a bright line rule about whether to impose a stay because the defendant's Fifth Amendment rights are actually implicated, it is clear that such decisions are left to the court's discretion depending on the facts of the particular case. See Molinaro, 889 F.2d at 902 (noting that the determination of whether to impose a stay is a fact-specific inquiry); compare Bridgeport Harbour Place I, 269 F.Supp.2d at 9-10 (staying civil discovery pending sentencing), with Arden Way Assocs. v. Boesky, 660 F.Supp. 1494, 1496-1500 (S.D.N.Y.1987) (declining to stay civil proceedings pending the defendant's sentencing in a related criminal case). Here, given the substantive overlap between the civil complaint and the criminal charges against Lo, the Court concludes that Defendant's Fifth Amendment rights are implicated and that this factor supports a stay.

Plaintiff insists that a stay is not warranted because even if Lo had a Fifth Amendment right against self-incrimination during the pendency of this case, he waived that right by filing a sworn declaration in support of his opposition to Plaintiffs motion for a writ attachment. But Plaintiff does not cite to any case in this District in which the court actually found a waiver under such circumstances. To the contrary, the Ninth Circuit has made clear that a statement submitted in one aspect of proceedings does not waive the right to refuse to give potentially self-incriminating testimony in later stages of the same proceedings. United States v. Trejo-Zambrano, 582 F.2d 460, 464 (9th Cir. 1978) ("A waiver of the Fifth Amendment privilege at one stage of a proceeding is not a waiver of that right for other stages."); see, e.g., Universal Trading & Inv. Co. v. Kiritchenko, No. C-99-3073 MMC (EDL), 2006 WL 3798157, at *4 (N.D. Cal. Dec. 22, 2006) (citations omitted). Thus, while Lo may well have waived his Fifth Amendment privilege in the context of his challenge to Plaintiffs attachment motion, that does not implicate a blanket waiver for the purposes of discovery.

Indeed, when a defendant seeks to assert his Fifth Amendment privilege against self-incrimination after he has already made some statement earlier in the context of litigation, courts in this District tend to focus on the scope of the defendant's initial statements, finding a waiver where the defendant has engaged in substantial discovery but no waiver where the defendant has not. See, e.g., Multiven, Inc. v. Cisco Sys., Inc., 725 F.Supp.2d 887, 897 (N.D. Cal. 2010); Jones v. Conte, No. C 045312SI, 2005 WL 1287017, at *1 (N.D. Cal. Apr. 19, 2005). For example, in Multiven the court denied the plaintiff/counter-defendant's motion to stay civil case until parallel criminal proceedings against him were resolved. The court focused on the "extensive" nature of the counter-defendant's testimony in the civil matter, which included fourteen hours of deposition testimony and the submission of multiple declarations in support of the parties' cross-motions for summary judgment. 725 F.Supp.2d at 897. Although declining to decide whether the counter-defendant's testimony actually effected a waiver of his Fifth Amendment rights, based on the "extensive" nature of that testimony, the Multiven court concluded that "continuing the [civil] litigation will only minimally implicate [the counter-defendant's] Fifth Amendment rights[.]" Id. (citation omitted); see also FTC v. JK Publ'ns, Inc., 99 F.Supp.2d 1176, 1199 (CD. Cal. 2000) ("Where a defendant already has provided deposition testimony on substantive issues of the civil case, any burden on that defendant's Fifth Amendment privilege is 'negligible.'"). By contrast, in Jones v. Conte, the court granted the ...

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