Successfully Fighting A Multi-Front Litigation Battle

Defending clients against simultaneous federal or state suits is certainly not uncommon. One set of circumstances can give rise to overlapping suits involving the DOJ, SEC, other government regulators or private entities. Counsel must both ensure that each case is given the best opportunity to be litigated on its merits and contemplate the tensions between cases to preserve due process and limit the damage one case can impose on another. Clients facing criminal charges while engaged in civil litigation must tread carefully to protect their liberties and financial interests.

Securing a stay of civil proceedings is undoubtedly the first port-of-call for any multi-front battle. To decide a motion for a stay, California courts will consider whether: (1) the stay will promote the ends of justice; (2) the imminence of any trial or other proceeding might materially affect the action to be stayed; and (3) a final judgment in that action would have a res judicata or collateral estoppel effect regarding any common issue of the included actions. Cal. Rules of Court, rule 3.515(f); Code Civ. Proc., § 404-404.9

Federal courts consider the: (1) interest of the plaintiff in proceeding expeditiously with litigation or its related aspects, and the potential prejudice to plaintiff of a delay; (2) burden of the proceedings on defendants; (3) convenience of the court in managing its cases, and the efficient use of judicial resources; (4) interests of non-parties to the civil litigation; and (5) interest of the public in the civil and criminal litigation. Keating v. Office of Thrift Supervision (9th Cir. 1995) 45 F.3d 322, 325.

In weighing these factors, the court may disagree that there is cause to justify staying a civil suit. Moreover, "[t]here is nothing improper about the government undertaking simultaneous criminal and civil investigations." U.S. v. Stringer (9th Cir. 2008) 535 F.3d 929, 933. The government is permitted to conduct these investigations without infringing on due process if not done in bad faith (e.g., bringing a civil suit solely for collecting discovery to be used in a criminal prosecution). Ibid at 936 [citing U.S v. Kordel (1970) 397 U.S. 1, 11]. Additionally, DOJ policy states that government attorneys and agencies must confer and cooperate as much as it is legally possible to further the government interest. Filing simultaneous cases often supports that interest. See Organization And Functions Manual.

As is widely known, the scope of permissible civil discovery is broader than discovery in a criminal case. Therein lies a challenge. Defending civil and criminal actions simultaneously presents a number of evidentiary concerns. Evidence obtained through civil discovery such as interrogatories and depositions may be used in a criminal prosecution. Kordel at 1. Criminal defendants may therefore find themselves defending against evidence otherwise unavailable to prosecutors in an ordinary criminal case. Apart from this, parallel proceedings may grant the opposition a preview of the defense's strategy. While this advantage may also be leveraged by the defense, the risk of providing incriminating testimony likely weighs against the defendant in most cases.

To overcome this obstacle, one might suggest invoking the defendant's Fifth Amendment right against self-incrimination in the civil case." U.S. Const., amend. V. While this would not draw an adverse inference in a criminal trial, however, federal civil litigation is not so forgiving. The privilege of avoiding self-incrimination in federal civil proceedings may come at the cost of a permissible adverse inference.

Accordingly, the very act of withholding testimony in civil discovery in the interest of protecting the criminal defense plan may limit the ability to litigate the civil case on its merits. Without a stay, it may be difficult to provide a complete defense. A defendant is thus faced with an evidentiary dilemma: invoke the Fifth Amendment and risk an adverse inference which carries the potential of effectively forfeiting an entire federal civil case, or risk evidence obtained in civil discovery being introduced in the client's criminal case.

Litigation arising from the Theranos scandal puts this tension into focus and demonstrates the interplay of parallel litigation. In 2018, Elizabeth Holmes, the founder and former CEO of Theranos, was denied an application to stay a civil fraud lawsuit after criminal charges were brought by the DOJ. The judge held that the civil suit should proceed in the interest of defrauded investors, the court, and the public, and allowed a pre-scheduled deposition of Holmes to proceed. Holmes argued that the denial put her in the "untenable position" of forcing her to either participate in a deposition where incriminating testimony may be obtained and subsequently used against her in the criminal action or invoke the Fifth Amendment and risk an adverse inference in the civil suit.

Unsurprisingly, when Holmes later testified during her criminal trial, the government relied on her civil deposition testimony to constrain the narrative and question the defense's arguments. The defense's strategy of apportioning blame to Theranos board members was weakened when the government highlighted counter assertions Holmes made during her deposition about being the company's ultimate decision maker.

Seeking a stay, however, may not always be the best strategy. The criminal case involving Holmes's partner, Ramesh Balwani, illustrates how the pendulum swings both ways. Months before his indictment, the SEC brought a civil suit against Balwani for defrauding investors. There, it was the government that requested a stay, arguing that Balwani intended to leverage his participation in the civil case to obtain additional evidence and gain an advantage in the criminal trial. The government's nearly one year delay in bringing the motion ultimately proved fatal. Weighing this and Balwani's "procedural and discovery rights," the judge denied the stay and Balwani maintained his ability to utilize the broader scope of civil discovery.

The Theranos litigation demonstrates that before developing a comprehensive legal strategy, it is integral to determine the full scope of any pending or anticipated proceedings. Navigating the pitfalls of a multi-front litigation battle requires great care. Given this complexity, defense counsel must develop a global approach to litigation, examining the risks and benefits of each course of action.