Brock v. Tolkow

109 F.R.D. 116, 54 U.S.L.W. 2420, 6 Employee Benefits Cas. (BNA) 2673, 1985 U.S. Dist. LEXIS 12413
CourtDistrict Court, E.D. New York
DecidedDecember 23, 1985
DocketNo. 85 CV 1276
StatusPublished
Cited by58 cases

This text of 109 F.R.D. 116 (Brock v. Tolkow) is published on Counsel Stack Legal Research, covering District Court, E.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Brock v. Tolkow, 109 F.R.D. 116, 54 U.S.L.W. 2420, 6 Employee Benefits Cas. (BNA) 2673, 1985 U.S. Dist. LEXIS 12413 (E.D.N.Y. 1985).

Opinion

MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

This is an action brought for violation of fiduciary obligations under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. This motion is made by the “Trustee Defendants” — that is, all the defendants except Tolkow, Gamp, Gallo, and Amalgamated Local Union 355 (“the Local”). The Trustee Defendants seek a protective order pursuant to Fed.R.Civ.P. 26(c) staying all discovery in this case pending the outcome of any criminal actions that may be brought as a result of an investigation currently being conducted by the United States Department of Justice. For the reasons stated below, the motion is granted.

Facts

The Trustee Defendants are trustees of the United Welfare Fund (“the Fund”), an employee benefit plan that covers the members of Amalgamated Local Union 355. [118]*118The complaint in this action was filed on April 4, 1985 and alleges, among other things, that the Trustee Defendants breached their fiduciary duties to the Fund and the Local in violation of various sections of ERISA.

In September 1985, grand jury subpoenas were served on the Fund and the Local by the Brooklyn Field Office of the United States Department of Justice Organized Crime and Racketeering Section. The subpoenas demanded the production of a variety of documents, including payroll records, lease agreements, correspondence, telephone records, investment agreements, and expense vouchers. The Trustee Defendants contend that the subpoenas reveal that the government is preparing to prosecute some or all of them under ERISA section 501, which authorizes criminal penalties for violations of ERISA.

Because the nature of the subpoena requests indicates that the criminal prosecution may be based on the same facts as the complaint in the instant case, the Trustee Defendants fear that any deposition testimony they give in this proceeding will be used against them in a criminal case. At the same time, they argue, repeated invocation of the fifth amendment right against self-incrimination will hamper their ability to defend the civil suit. They thus seek a protective order . staying all discovery in this action until the completion of criminal proceedings against all Trustee Defendants who may be indicted as a result of the current investigation by the Organized Crime and Racketeering Section.

Discussion

Any discussion of the implications of simultaneous civil and criminal proceedings must begin with United States v. Kordel, 397 U.S. 1, 90 S.Ct. 763, 25 L.Ed.2d 1 (1970). In that case a company and some of its officers were investigated by the Food and Drug Administration (“FDA”). Following the FDA’s recommendation, the United States Attorney brought an in rem action seeking the civil seizure of certain products. Before the company had answered interrogatories in connection with that suit, the FDA notified the company that it was contemplating a criminal proceeding against it for the same violations. The company’s request for a stay of the civil case, or at least the civil discovery, was denied. The answers to the interrogatories were available to the government when it sought an indictment, and the officers were subsequently convicted.

The case reached the Supreme Court on appeal from the criminal convictions. The officers argued that the use of civil discovery to obtain information useful to the government in the criminal case violated the fifth amendment. The Court disagreed. It began by noting that the corporation, to which the interrogatories were addressed, had itself no self-incrimination privilege, and that it was obliged to appoint an agent who could answer the interrogatories without fear of self-incrimination. Id. at 8, 90 S.Ct. at 767. To allow the corporation to avoid responding to the interrogato.ries by invoking the self-incrimination privilege of the individual officers would “ ‘secure for the corporation the benefits of a privilege it does not have.’ ” 1 Id. at 8, 90 S.Ct. at 767 (quoting United States v. 3963 Bottles ... of ... “Enerjol Double Strength”, 265 F.2d 332, 335-36 (7th Cir.), cert. denied, 360 U.S. 931, 79 S.Ct. 1448, 3 L.Ed.2d 1544 (1959)).

Nor was the Court persuaded that the course pursued by the government violated due process. There was no indication of bad motive on the part of the government, and in the absence of special circumstances — such as lack of notice of the possible criminal prosecution — there was nothing “that might suggest that unconstitutionality or even the impropriety” of the govern[119]*119ment’s conduct. Id. at 12, 90 S.Ct. at 770. Any other result would mean that whenever the government took discovery of a corporation during the course of civil proceedings, its officers would be immunized from subsequent criminal prosecution. Id. at 12-13, 90 S.Ct. at 769-70. This would be particularly unfortunate in light of the important public interests protected by the Food, Drug, and Cosmetic Act and the fact that often the government cannot make a rational decision to pursue a criminal action until after the offending products have been seized civilly. Id. at 11, 90 S.Ct. at 769. “It would stultify enforcement of federal law to require a governmental agency ... invariably to choose either to forgo recommendation of a criminal prosecution once it seeks civil relief, or to defer civil proceedings pending the ultimate outcome of a criminal trial.” Id. (footnote omitted). Accordingly, the Supreme Court refused to overturn the convictions.

Kordel thus holds that criminal convictions that may have been based on evidence obtained by the government in a civil proceeding are not constitutionally infirm. Subsequent cases have made even clearer that it is not unconstitutional to force a litigant to choose between invoking the fifth amendment in a civil case, thus risking a loss there, or answering the questions in the civil context, thus risking subsequent criminal prosecution. See, e.g., Baxter v. Palmigiano, 425 U.S. 308, 318-19, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976); United States v. White, 589 F.2d 1283, 1286-87 (5th Cir.1979); Arthurs v. Stern, 560 F.2d 477, 478-79 (1st Cir.1977), cert. denied, 434 U.S. 1034, 98 S.Ct. 768, 54 L.Ed.2d 782 (1978); United States v. Rubinson, 543 F.2d 951, 961 (2d Cir.), cert. denied, 429 U.S. 850, 97 S.Ct. 139, 50 L.Ed.2d 124 (1976).

Plaintiff here is, therefore, quite right that defendants’ constitutional rights will not be impaired by the denial of a stay.

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Cite This Page — Counsel Stack

Bluebook (online)
109 F.R.D. 116, 54 U.S.L.W. 2420, 6 Employee Benefits Cas. (BNA) 2673, 1985 U.S. Dist. LEXIS 12413, Counsel Stack Legal Research, https://law.counselstack.com/opinion/brock-v-tolkow-nyed-1985.