Opinion
01 CIV. 7927 (DLC), 01 CIV. 10695 (DLC).
May 2, 2002.
OPINION AND ORDER
Defendants Vanderbilt Group, LLC ("Vanderbilt"), Vanderbilt Construction Corp., Kenneth and Frank Stubbolo (the "Stubbolos"), and P.J. Mechanical Corp. ("PJ") have each moved for an order staying the proceedings in these two civil actions pending the resolution of a criminal proceeding against the Stubbolos. For the reasons stated, defendants' motions are denied.
Background
Vanderbilt is a New York limited liability company engaged in general contracting with its principal place of business in New York City. The Stubbolos are its principal and controlling members. PJ is a New York corporation engaged in mechanical contracting with an office in New York City.
Vanderbilt bid as a general contractor on a contract with the Dormitory Authority of the State of New York ("DASNY") for a design-build project to construct dormitories at the College at Old Westbury of the State University of New York located in Nassau County, New York (the "Project"). Vanderbilt asked PJ to complete the mechanical, electrical, and plumbing work on the Project ("MEP" work). DASNY awarded the Project to Vanderbilt and entered into a contract (the "Contract") with Vanderbilt for the performance of the Project work. As a condition precedent to the Contract, Vanderbilt posted a performance and payment bond for the Project in which Reliance Insurance Company ("Reliance") was the surety, DASNY was the obligee, and Vanderbilt and the Stubbolos were each jointly and severally liable for the full bond amount of $27,900,000 and PJ was liable for up to $15,000,000, the estimated cost of the MEP work on the Project.
In December 2000, DASNY terminated the Contract for Vanderbilt's submission of false records to DASNY to secure the Contract, including misrepresentations of Vanderbilt's financial history and past contracting experience, and for its default on various performance requirements under the Contract. DASNY asserted, inter alia, that Vanderbilt deviated from the design criteria of the Project, failed to obtain required permits before undertaking certain work, failed to comply with a stop work order issued by DASNY, breached its obligation to supply a comprehensive project schedule or quality control plan, and failed to perform work on the Project in workmanlike manner. As the alleged successor to Reliance, plaintiff Travelers Casualty and Surety Company ("Travelers") was called upon by DASNY to meet Vanderbilt's performance and payment obligations. Travelers and DASNY negotiated a settlement whereby another general contractor was found to complete the Project. Travelers also paid a number of payment bond claims submitted by unpaid suppliers and subcontractors.
In August 2001, Vanderbilt brought suit against DASNY in the State Supreme Court for New York County alleging the wrongful termination of the Contract. In the same month, Travelers brought suit in the Southern District of New York against Vanderbilt, Vanderbilt Construction Corp., the Stubbolos and PJ seeking indemnification for payments it made as Vanderbilt's surety. In September 2001, Vanderbilt, Vanderbilt Construction Corp. and the Stubbolos brought suit in the Eastern District of New York against Travelers alleging, inter alia, that Travelers breached its duty of good faith and fair dealing under the terms of its suretyship by failing to conduct an independent investigation of the validity of DASNY's termination of the Contract, by proceeding to settle with DASNY, by awarding the completion contract to a party other than the lowest bidder, and by settling payment bond claims for amounts greater than those which Vanderbilt reported as being due and owing. In November 2000, the federal Vanderbilt action was transferred and, in December, consolidated with Traveler's action in this Court.
On February 8, 2002, Vanderbilt and the Stubbolos were indicted by a New York County grand jury on two counts of grand larceny, four counts of offering a false instrument for filing, and insurance fraud. The indictment charges that Vanderbilt and the Stubbolos misrepresented their background, experience and financial condition and thereby fraudulently induced DASNY to award Vanderbilt the Contract. Relying on their privilege under the Fifth Amendment to the United States Constitution, the Stubbolos declined to testify before the grand jury. Pretrial motions in the criminal action are due in May 2002. No trial date has been set. The State has made no request for a stay of these civil proceedings.
Discussion
[T]he Constitution does not ordinarily require a stay of civil proceedings pending the outcome of criminal proceedings. Nevertheless, a court may decide in its discretion to stay civil proceedings when the interests of justice seem to require such action.
Kashi v. Gratsos, 790 F.2d 1050, 1057 (2d Cir. 1986) (internal quotations, citations and ellipses omitted). A stay is one of several procedures available to the district court to balance the interests of the other parties in moving forward with the litigation against the interests of a defendant asserting Fifth Amendment rights who faces the choice of being prejudiced in the civil litigation if those rights are asserted or prejudiced in the criminal litigation if those rights are waived. See United States v. Certain Real Property and Premises Known As: 4003-4005 5th Ave., 55 F.3d 78, 84 n. 6 (2d Cir. 1995). In deciding whether to enter a stay, courts in this district generally consider: the interests of the defendant, the interests of the plaintiffs in proceeding with the litigation, the public interest, and the interests of the court and third parties. See Sterling Nat. Bank v. A-1 Hotels Intern., Inc., 175 F. Supp.2d 573, 576 (S.D.N.Y. 2001); Jackson v. Johnson, 985 F. Supp. 422, 424 (S.D.N.Y. 1997); Trustees of the Plumbers and Piperfitters National Pension Fund v. Transworld Mechanical, Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995); Volmar Distributors, Inc. v. New York Post Co., 152 F.R.D. 36, 39 (S.D.N.Y. 1993); Arden Way Assoc. v. Boesky, 660 F. Supp. 1494, 1497 (S.D.N.Y. 1987).
Courts in this district have generally refused to stay a civil proceeding where the defendant has not been indicted but is under criminal investigation. See Sterling Nat. Bank, 175 F. Supp.2d at 576-77; United States v. District Council of New York City and Vicinity of the United Brotherhood of Carpenters and Joiners of America, 782 F. Supp. 920, 925 (S.D.N.Y. 1992) (collecting cases). Courts have been more divided on whether to impose stays after criminal indictments have been filed. Compare Arden Way Assoc., 660 F. Supp. at 1496-1500 (declining to stay civil proceedings where defendant facing sentencing) and Paine, Webber, Jackson Curtis Inc. v. Malon S. Andrus, Inc., 486 F. Supp. 1118, 1119 (S.D.N.Y. 1980) (declining to stay where civil defendant under indictment), with Trustees, 886 F. Supp. at 1141 (granting stay of civil case following indictment of individual defendants) and Volmar, 152 F.R.D. at 39 (same).
Travelers' interest in avoiding a stay is substantial. Vanderbilt and the Stubbolos have indicated that their contracting business has been severely disrupted by the criminal charges and civil claims pending against them. They have stated that they cannot afford their own litigation expenses, let alone their potential obligation to indemnify Travelers. Similarly, PJ has indicated that an adverse judgment in this action will likely bankrupt it. Given the possibility of the further depletion of defendants' assets, recovery by Travelers on any judgment from Vanderbilt, the Stubbolos, or PJ is put at substantial risk by a stay of the civil proceedings.
Defendants Vanderbilt, Vanderbilt Construction Corp., and the Stubbolos claim that the civil proceedings will impinge on the Stubbolos' Fifth Amendment right against self-incrimination. Defendant PJ claims that it will be unfairly prejudiced if a stay is denied because its co-defendants may choose to remain silent rather than give their version of events.
The Stubbolos' testimony is relevant to only a portion of the issues presented by these consolidated cases. In the first instance, only one of the two reasons DASNY gave for the termination of the Contract relates directly to the pending criminal charges. Much of the discovery in the consolidated civil actions will relate to a reason for the termination only indirectly implicated by the indictment, specifically, that Vanderbilt was in default on a number of performance requirements under the Contract. The pendency of the criminal proceedings will not impede document discovery on this issue, which is at the core of these proceedings. Furthermore, Vanderbilt's claim that Travelers breached its duty of fair dealing in its awarding the completion project and settling of payment bond obligations does not relate to the criminal charges against the Stubbolos and does not appear to require testimony from the Stubbolos. Indeed, Vanderbilt and the Stubbolos requested an opportunity to take approximately ten depositions in discovery and have been granted an opportunity to take six. PJ in turn has been granted an opportunity to take two depositions, neither of them of the Stubbolos. For its part, Travelers, which has been granted an opportunity to depose ten witnesses, indicated that it needed to depose four witnesses from Vanderbilt, only two of whom are the Stubbolos. From these deposition choices it is clear that many of the issues in this litigation have a life independent from the willingness of the Stubbolos to testify or the substance of any testimony they might give. Although the criminal proceedings may resolve or at least simplify some of the issues in these proceedings, many issues will remain, including issues that Vanderbilt, the Stubbolos and PJ are actively pursuing. Ultimately, while there will be some overlap between the criminal charges and the civil litigation of Vanderbilt's alleged misrepresentations concerning its financial history and contracting experience, "[i]f defendants choose to remain silent, the adverse inference that may be drawn will be only one of a number of factors the factfinder will consider and will be given no more evidentiary value than the facts of the case warrant." United States v. District Council of New York City and Vicinity of the United Brotherhood of Carpenters and Joiners of America, 782 F. Supp. 920, 925-26 (S.D.N.Y. 1992) (citation omitted). PJ in particular has not shown how the testimony of the Stubbolos is necessary to its defense.
Defendants also argue that these proceedings will unfairly distract Vanderbilt and the Stubbolos from the preparation of their defense in the criminal proceedings. As the Honorable Edward Weinfeld observed, however, in denying a stay sought by a defendant under indictment, "[t]hat defendant's conduct also resulted in a criminal charge against him should not be availed of by him as a shield against a civil suit and prevent plaintiff from expeditiously advancing its claim." Paine, Webber, 486 F. Supp. at 1119.
With respect to the remaining factors, the Court's interest in the expeditious resolution of cases before it weighs against granting a stay. Finally, as noted, the State has not asked for a stay.
Conclusion
For the reasons stated, the motion for a stay by defendants Vanderbilt Group LLC, Vanderbilt Construction Corp., Frank Stubbolo and Kenneth Stubbolo is denied. The motion for a stay by defendant P.J. Mechanical is also denied.
SO ORDERED: