Securities and Exchange Commission v. Braslau et al

Filing 67

ORDER DENYING DEFENDANT SAMUEL BRASLAU'S MOTION TO STAY THE CASE 59 by Judge Otis D. Wright, II., the Court concludes that a stay is neither necessary nor appropriate. Accordingly, the Court DENIES Braslau's Motion to Stay the present cas e. (ECF No. 59.) In recognition of Braslaus assertion that he did not receive the SEC's Motion for Summary Judgment, the Court extends the deadline for filing an opposition to January 7, 2015. The SEC must then file any reply papers by January 1 4, 2016. According to the SEC, it again served the Motion for Summary Judgment on Braslau, using the address indicated in Braslau's Motion to Stay. The Court orders the SEC to promptly serve this Order on Braslau at 3705 West Farm Road, Lompoc, CA 93436. (jp)

O

1
2
3
4
5
6
7

United States District Court
Central District of California

8
9
10
11

SECURITIES AND EXCHANGE

12

Case № CV 14-01290-ODW (AJWx)

COMMISSION,
Plaintiff,

13
14

ORDER DENYING DEFENDANT

v.

SAMUEL BRASLAU’S MOTION TO

15

SAMUEL BRASLAU; RAND J.

16

CHORTKOFF; and STUART E.

17

RAWITT,

18
19

STAY THE CASE [59]

Defendants.
I.

INTRODUCTION

20

Plaintiff Securities and Exchange Commission (“SEC”) filed the present civil

21

case against Defendants Samuel Braslau, Rand Chortkoff, and Stuart Rawitt in

22

parallel with a criminal case brought against the same Defendants by the Department

23

of Justice. The jury in the criminal case against Braslau returned a guilty verdict,

24

which Braslau is currently appealing. After Braslau’s criminal conviction, the SEC

25

filed a Motion for Summary Judgment in the present civil case based on collateral

26

estoppel. (ECF No. 48) In response, Braslau requested that the Court stay the civil

27

case entirely until his criminal appeal resolves. (ECF No. 59.) The Court construes

28

1

Braslau’s request as a Motion to Stay the Case and DENIES the Motion for the

2

reasons discussed below. (Id.) 1

3

II.

FACTUAL BACKGROUND

4

This case arises from an investment scheme based around a movie called,

5

ironically enough, The Smuggler. (Mot. for Summary Judgment [“MSJ”] 1.) The

6

SEC alleges that Braslau, an attorney, raised over $1.8 million from more than sixty

7

investors through the fraudulent sale of securities in two companies he controlled—

8

Mutual Entertainment, LLC and Film Shoot, LLC. (Compl. ¶¶ 4–5.) Co-defendants

9

Rand Chortkoff and Stuart Rawitt recruited investors through a boiler room call

10

center, promising high returns on passive investments in The Smuggler. (MSJ 1–2.)

11

Braslau drafted the documents used in these solicitations, which included statements

12

that he allegedly knew were false. (Id. 2.) For example, Braslau knew that the

13

amounts paid to sales agents exceeded the amounts represented to investors in the

14

private placement memorandum that he drafted. (Id.)

15

On February 20, 2014, the SEC filed the present Complaint against Braslau,

16

Chortkoff, and Rawitt. (ECF No. 1.) In it, the SEC alleges that Braslau committed

17

fraud in the offer of sale of securities in violation of Section 17(a) of the Securities

18

Act, and fraud in connection with the purchase or sale of securities in violation of

19

Section 10(b) and Rule 10b-5 of the Securities Exchange Act. (Compl. ¶ 9.)

20

SEC seeks a permanent injunction against any future violations of these rules and

21

statutes.

22

indictment charging Braslau with federal wire fraud, mail fraud, and violation of false

23

statement statutes was unsealed. (MSJ 3; see also United States v. Braslau, CR. No.

24

14-00044-RGK-1 (C.D. Cal.).)

2

The

(Compl. 18–19.) On the same day the Complaint was filed, a criminal

The facts underlying the indictment are almost

25
26
27
28

1

After carefully considered the papers filed in support of and in opposition to the Motion, the Court
deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.
2
Although the SEC initial sought civil penalties and disgorgement of all ill-gotten gains from
Braslau, it has since dismissed those forms of relief because Braslau is serving an eighty-seven
month prison sentence and was ordered to pay $1,618,697 in restitution. (MSJ 1.)

2

1

identical to those underlying the present civil claim. (MSJ 3–4.) On May 20, 2014,

2

the Court stayed the civil case pending completion of the criminal proceedings against

3

Braslau. (ECF No. 14.) On November 14, 2014, a jury convicted Braslau of eleven

4

counts of mail fraud, five counts of wire fraud, and one count of making a false

5

statement. (CR ECF No. 123.) Braslau filed a Notice of Appeal on May 7, 2015.

6

(Id., ECF No. 175.)

7

On August 10, 2015, this Court received notice of the jury verdict in Braslau’s

8

criminal case. (ECF No. 44.) On August 27, 2015, the SEC filed a Motion for

9

Summary Judgment as to all claims against Braslau. (ECF No. 48.) Braslau, by then

10

incarcerated at the United States Penitentiary, Lompoc, did not oppose the motion.

11

On November 3, 2015, the Court issued an Order to Show Cause as to why it should

12

not grant the SEC’s motion for summary judgment in full. (ECF No. 54.) The SEC

13

filed proof of service, showing that it delivered the Order to Show Cause to Braslau in

14

prison. (ECF No. 55.) On November 18, 2015, Braslau timely responded to the

15

Court’s order, stating that he did not receive a copy of the Motion for Summary

16

Judgment and further requesting a stay on the Motion until the completion of his

17

appeal. (ECF No. 59.) In this reply, Braslau used a different address than the one

18

used by the SEC to serve the Motion for Summary Judgment. (See Mot. Not. of

19

Service.) The SEC immediately filed a reply, opposing the request for a stay, and

20

reiterating its position that it properly served the Motion for Summary Judgment on

21

Braslau. (ECF No. 60.) However, in an abundance of caution, the SEC again served

22

the Motion for Summary Judgment on Braslau using the new address. (ECF No. 60 at

23

2.)

24

III.

LEGAL STANDARD

25

While a district court may stay civil proceedings pending completion of a

26

parallel criminal case, it is not required to do so by the Constitution. Fed. Sav. &

27

Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989). While a stay is an

28

extraordinary remedy, a court may decide to do so in its discretion when the interests

3

1

of justice require it. Id. at 899. In deciding whether to issue a stay, the court should

2

consider six factors: (1) the extent to which a defendant’s Fifth Amendment rights are

3

implicated; (2) the plaintiff’s interest in proceeding expeditiously with the litigation

4

and whether a delay causes any potential prejudice to the plaintiff; (3) whether the

5

proceedings impose any burden on the defendant; (4) judicial efficiency; (5) nonparty

6

interests; and (6) the public’s interest in the pending civil and criminal litigation. Id.

7

at 902–03.

8

IV.

DISCUSSION

9

Braslau contends that the Court should stay the civil proceedings against him

10

until his criminal appeal is completed. (Mot. at 1–2.) Specifically, he argues that any

11

response to the SEC’s Motion for Summary Judgment would violate his Fifth

12

Amendment right against self-incrimination, as any statement he makes could be used

13

against him in the criminal appeal or during a new trial. (Id. at 2.)

14

A.

Implication of Fifth Amendment Rights

15

When deciding whether to grant a stay of civil proceedings, the Court first

16

considers the extent to which the defendant’s Fifth Amendment rights are implicated.

17

See Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995).

18

Braslau’s arguments in support of the requested stay strongly emphasize this factor.

19

“A defendant has no absolute right not to be forced to choose between testifying

20

in a civil matter and asserting his Fifth Amendment privilege.” Keating, 45 F.3d at

21

326. While a defendant’s Fifth Amendment right is an important consideration, “it is

22

only one consideration to be weighed against others.”

23

recognize that the Fifth Amendment factor weighs heavily when a party under

24

indictment for a serious offense is required to simultaneously defend a civil action

25

involving the same matter. Id.

Id.

However, courts do

26

Braslau’s privilege against self-incrimination does not necessarily mandate a

27

halt in the civil proceedings. Where the trial in the parallel criminal proceeding has

28

concluded, and a conviction is challenged on appeal, courts are generally more

4

1

reluctant to stay parallel civil proceedings. See Milton Pollack, Parallel Civil and

2

Criminal Proceedings, 129 F.R.D. 201, 204 (1989) (“[T]he appeal process is an

3

uncertain, potentially long-ranging, process. Only unusual circumstances would

4

justify an order staying a post-conviction civil proceeding.”); see also Gen. Dynamics

5

Corp. v. Selb Mfg. Co., 481 F.2d 1204, 1215 (8th Cir. 1973) (upholding the denial of

6

an indefinite stay of civil proceedings sought after conviction but during appeal); Doe

7

v. City of San Diego, No. 12-CV-689-MMA-DHB, 2012 WL 6115663, at *2 (S.D.

8

Cal. Dec. 10, 2012)(denying an indefinite stay of civil proceedings sought during a

9

criminal appeal because the defendant failed to establish the necessity of the stay).

10

Here, there is no question that Braslau’s Fifth Amendment rights are implicated

11

by allowing this case to proceed while his criminal conviction is being appealed, as

12

both cases involve almost identical facts. The Motion, though, turns upon the extent

13

to which his Fifth Amendment rights are implicated.

14

Braslau is appealing his conviction, and therefore it is possible that statements he

15

makes in the course of the civil proceeding could be used against him in a possible

16

retrial of the criminal case. (See ECF No. 48.) However, the possibility of a retrial

17

appears remote. The Court presiding over Braslau’s criminal trial noted that his

18

appeal does not raise any “substantial question of law or fact likely to result in

19

reversal [or] an order for a new trial.” (CR ECF No. 198.)

Keating, 45 F.3d at 324.

20

Additionally, there are remedies short of an indefinite stay that could serve to

21

protect Braslau even if he is retried. See O. Thronas, Inc. v. Blake, 2010 WL 931924,

22

at *3 (D. Hawai'i Mar.10, 2010)(stay unnecessary, as defendants' fifth amendment

23

rights could be protected through less drastic means such as asserting the privilege on

24

a question by question basis and implementing protective orders). Braslau has already

25

testified during his criminal trial, and likely addressed many of the issues that he will

26

be dealing with in the civil case. He can therefore protect his Fifth Amendment rights

27

through other, less drastic measures, like those discussed in O. Thronas. See Doe,

28

5

1

2012 WL 6115663, at *2. The Court therefore finds that this factor does not weigh

2

heavily in favor of granting the requested stay.

3

B.

Prejudice to the SEC

4

The Court next considers whether a stay might result in any prejudice to the

5

plaintiff. See Keating, 45 F.3d at 325. Braslau contends that this factor weighs in his

6

favor because all of the SEC’s rights “would be reserved and held in abeyance until

7

the conclusion” of the criminal appeal. (Mot. at 2.) The SEC failed to address this

8

factor in its response.

9

The events underlying this case began in April 2011 and continued through

10

August 2013. (See ECF No. 48-1 at 1.) The SEC filed its Complaint on February 20,

11

2014, and the case was stayed until the conclusion of Braslau’s criminal trial. (ECF

12

No. 14.) On November 14, 2014, the jury reached a verdict, and on May 07, 2015,

13

Braslau filed a Notice of Appeal. (CR ECF Nos. 123, 175.)

14

The Court recognizes that as the agency responsible for enforcement of the

15

securities laws, the SEC must be able to respond quickly to securities violations and

16

seek prompt judicial redress. See S.E.C. v. Loomis, No. 2:10–CV–00458–KJM–KJN,

17

2013 WL 4543939, at *2 (E.D. Cal. Aug. 27, 2013). The Court also recognizes that a

18

stay would increase the odds that key witnesses may become unavailable, that their

19

memories will fade, and that documents in their possession may be lost. Braslau

20

requests that the Court stay the case until the completion of his appeals process.

21

Given the lengthy appeals process, the stay already previously ordered in the civil

22

action, and the amount of time that has passed since the events at issue took place, the

23

Court finds that the SEC will suffer prejudice if the stay is extended until the

24

resolution of the appeal. See S.E.C. v. Dresser Indus., Inc., 628 F.2d 1368, 1374

25

(D.C. Cir. 1980) (noting that the SEC has a strong interest in proceeding expeditiously

26

with litigation). Accordingly, this factor weighs in favor of denying a stay.

27
28

6

1

C.

Burden on Braslau

2

The next factor considered is the burden that any aspect of the civil proceedings

3

might impose on the defendant. See Keating, 45 F.3d at 325. Braslau argues that he

4

would be greatly burdened if the present case proceeds because he intends to assert his

5

Fifth Amendment privilege, and therefore will not be able to present any viable

6

defense. (Mot. at 2.)

7

As discussed above, Braslau has no constitutional right to a stay of this civil

8

proceeding pending completion of his criminal appeal. See Keating, 45 F.3d at 326.

9

Furthermore, Braslau may assert his Fifth Amendment privilege on an issue-by-issue

10

basis throughout the proceedings, giving him the opportunity to defend himself even

11

while asserting the privilege.

12

Braslau’s criminal trial noted that his appeal does not raise any “substantial question

13

of law or fact likely to result in reversal [or] an order for a new trial.” (CR ECF No.

14

198.) Therefore, though Braslau may be slightly prejudiced by not granting a stay, the

15

degree of prejudice is not great enough to outweigh the other factors.

16

D.

Lastly, as noted above, the Court presiding over

Judicial Efficiency

17

This factor usually weighs against granting a stay because “the court has an

18

interest in clearing its docket.” Molinaro, 889 F.2d at 903. Here, Braslau requests an

19

indefinite stay to this civil case, which will directly and negatively impact the Court’s

20

interest in efficiently managing its docket. Accordingly, this factor weighs against

21

granting a stay.

22

E.

Nonparty Interests

23

Courts next consider whether the interests of nonparties will be impacted by the

24

issuance of the stay. See Keating, 45 F.3d at 325. Neither Braslau nor the SEC have

25

argued that any nonparties would be implicated by the issuance of a stay in the present

26

case. This factor therefore does not weigh in either party’s favor.

27
28

7

1

F.

Public Interest

2

The final factor to be considered is the public’s interest in the pending criminal

3

and civil litigation. See Keating, 45 F.3d at 325. Braslau argues that granting a stay

4

furthers the public interest by “assuring all citizens and all defendants [that] their legal

5

rights will not be terminated and curtailed by any zealous and hurried” government

6

investigation.

7

granting a stay to this case will not impugn that interest. See City of San Diego, 2012

8

WL 6115663, at *5. This factor therefore does not weigh in favor or either granting or

9

denying a stay.

Although the public certainly has an interest in fair proceedings,

10

After analyzing the six factors laid out by the Ninth Circuit, the Court

11

determines that Braslau has failed to establish the necessity of staying the present

12

case. Braslau’s Fifth Amendment rights are not sufficiently implicated to warrant a

13

lengthy stay, and the Court has determined that such a stay would prejudice the SEC

14

and harm the Court’s attempt to manage its docket efficiently.

15

V.

CONCLUSION

16

For the reasons discussed above, the Court concludes that a stay is neither

17

necessary nor appropriate. Accordingly, the Court DENIES Braslau’s Motion to Stay

18

the present case. (ECF No. 59.)

19

///

20

///

21

///

22
23
24
25
26
27
28

8

1

In recognition of Braslau’s assertion that he did not receive the SEC’s Motion

2

for Summary Judgment, the Court extends the deadline for filing an opposition to

3

January 7, 2015. The SEC must then file any reply papers by January 14, 2016.

4

According to the SEC, it again served the Motion for Summary Judgment on Braslau,

5

using the address indicated in Braslau’s Motion to Stay. The Court orders the SEC to

6

promptly serve this Order on Braslau at 3705 West Farm Road, Lompoc, CA 93436.

7

IT IS SO ORDERED.

8
9

December 29, 2015

10
11
12
13

____________________________________
OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

9