As highlighted in this prior post, in early 2019 former Cognizant executives Gordon Coburn and Steven Schwartz were criminally and civilly charged by the DOJ / SEC in a Foreign Corrupt Practices Act enforcement action focused on obtaining planning permits in India. The prior post noted that if the defendants choose to put the DOJ/SEC to its burden of proof, disputed issues will likely focus on corrupt intent, obtain or retain business and the facilitating payments exception.
Coburn and Schwartz are indeed putting the government to its burden of proof and recently a Magistrate Judge in the U.S. District Court – District of New Jersey granted the DOJ’s motion to intervene in the SEC matter and to stay discovery in the civil case while the criminal case proceeds. (See 2019 WL 6013139).
As stated in the court’s opinion (internal citations omitted):
“The United States has moved for leave to intervene into this action under Federal Rule of Civil Procedure 24, and requests this Court stay all proceedings until the conclusion of the parallel Criminal Case. Defendants oppose the United States’ request for a blanket stay of the civil action, and argue in the alternative that the Government is entitled to, at most, a partial stay. For the reasons that follow, the Court holds that a complete stay of discovery is warranted.
The most important threshold issue in determining whether to grant the stay stems from the degree to which the issues in the parallel civil and criminal proceedings overlap.
This Court finds the first factor weighs in favor of a stay because the two proceedings involve the same overall scheme and putative violations of the same statutes. Indeed, the parties do not dispute the overlap between the two proceedings.
Defendants contend that, notwithstanding the overlap, the United States has failed to meet its burden for establishing the necessity of a stay, i.e. actual hardship beyond the need to engage in discovery in parallel proceedings. Defendants rely on several out-of-district cases finding that that the Government’s exposure to broader discovery in a parallel civil action is insufficient to warrant a stay.
According to Mr. Schwartz, because of the “tactical decision to coordinate with the SEC and to bring the Criminal and SEC Cases against [Defendants] simultaneously, the government should not be permitted to avoid the consequences of the actions now proceeding simultaneously, including with respect to civil discovery.”
The Court respectfully disagrees. The SEC has an independent duty to enforce securities laws separate from the Government’s interest in a criminal prosecution. This Court declines to subscribe to the view that the Government’s decision to seek civil remedies in addition to obtaining a criminal conviction should be subject to heightened scrutiny. Nor does the Court find that the coordinated enforcement of civil and criminal laws obviates any independent justification to stay the civil proceeding in favor of the criminal proceeding.
The Court’s primary concerns at the threshold when faced with parallel civil and criminal cases are to correctly forecast whether the parties will be engaging in duplicative discovery and motion practice; whether the constitutional overlay to the criminal prosecutions will impede civil discovery; and whether the resolution of the Criminal Case will substantially moot, clarify, or be dispositive of issues in the civil matter.
Hence, where there is substantial overlap between the core allegations in the civil and criminal complaints, courts in this district are inclined to stay discovery to preserve judicial resources and to avoid enmeshing the Court in discovery disputes that are significantly complicated by the dual litigation tracks.
Both Defendants emphasize the significant reputational harm inflicted by the Government’s allegations, as well as the risk that relevant evidence will disappear pending the resolution of the criminal matter. Although the Court understands Defendants’ concerns, this Court is unpersuaded that the putative prejudice suffered by Defendants outweighs the other Walsh factors. First, the Court agrees with the United States that “the discovery process, motion practice and, ultimately, the trial in the Criminal Case all will likely preserve the time and resources of the parties and the Court in the SEC Case.” Having reviewed and tested the parties’ respective proofs in the Criminal Case, this Court envisions that streamlined and targeted discovery will follow in the SEC’s civil action. For example, the Government has produced “hundreds of thousands of pages of documents” in the Criminal Case. Accordingly, the parties certainly will not be starting from scratch, or find themselves at a significant disadvantage, in the civil action.
Second, the Court finds the risk that evidence will disappear, or memories will fade, to be speculative at best. The Defendants have raised this as a generic concern, without providing any specific risk. To the extent that Defendants are concerned about lost documentation for the civil case, there are two reasons why the Court struggles to attach much weight to this risk. First, as noted above, the United States already has made a substantial document production in the criminal case. Second, all parties in the civil case are subject to Federal Rule of Civil Procedure 37 and Third Circuit precedent regarding preservation of relevant documents. Finally, to the extent that Defendants are concerned with witnesses’ memories fading over time, that risk is ameliorated by the fact that the stay is of limited duration, in that it is coextensive with resolution of the criminal charges and subject to the parties’ status report due on May 14, 2020. Moreover, Defendants already possess witness statements by virtue of the Government’s discovery obligations in the Criminal Case.
The Court has a strong interest in judicial efficiency through the management of its caseload. The Court finds judicial economy favors a stay because the Criminal Case may clarify, moot, and refine some issues common to both cases. Although this Court presides over both the Criminal and Civil cases, the strong potential for duplicative efforts and potential for conflicting rulings weighs in favor of a stay. Therefore, in the interest of judicial efficiency and fairness, this factor weighs in favor of a stay.
Generally speaking, “[t]here is no harm to the public interest in granting a stay of the civil case.” On the other hand, a stay benefits the public when the Government is allowed to conduct a complete and unimpeded investigation into alleged criminal activity. Defendants do not raise any arguments to distinguish their case from those principles. This factor thus weighs in favor of a stay.”
