Thomas E Perez v. National Consolidated Couriers, Inc. et al

Filing 17

ORDER DENYING 9 MOTION FOR PRELIMINARY INJUNCTION.(whalc2, COURT STAFF) (Filed on 11/23/2015)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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Plaintiff,
v.
ORDER DENYING MOTION
FOR PRELIMINARY
INJUNCTION

NATIONAL CONSOLIDATED
COURIERS, INC., AND TANWEER
AHMED,
Defendants.
/

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No. C 15-03224 WHA

THOMAS E PEREZ, Secretary of Labor,

INTRODUCTION
In this Fair Labor Standards Act action, defendants move for a preliminary injunction

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enjoining the United States from conducting a criminal investigation. For the reasons stated

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below, defendants’ motion is DENIED.

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STATEMENT
In 2014, the Labor Department began investigating defendant National Consolidated

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Couriers, Inc. for wage and overtime violations. The instant case began when plaintiff Thomas

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Perez, the Secretary of Labor, filed a motion for a temporary restraining order after discovering

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that defendant Tanweer Ahmed, an employee of defendant NCCI, had attempted to destroy

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documents in the middle of a deposition. The Labor Department’s complaint alleged four civil

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violations of the Fair Labor Standards Act, relating to minimum wage, overtime, record

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keeping, and retaliatory violations. After several hearings, the parties settled the case and

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“resolve[d] all allegations of the Secretary’s Complaint” (Dkt. No. 6 at 2).

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One day after defendants fully performed under the parties’ settlement agreement, and

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made the final settlement payment, defendants received a document preservation letter from the

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Office of the Inspector General (an investigatory arm of the Labor Department). Several days

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later, the United States Attorney’s Office sought a search warrant for defendants’ computer files

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as part of a criminal investigation into defendants’ destruction of documents, which Magistrate

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Judge Nandor Vadas issued. One day before the search warrant was to be executed, defendants
filed a motion for a TRO to enjoin the OIG and U.S. Attorney’s investigation because it

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For the Northern District of California

United States District Court

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allegedly violated defendants’ settlement agreement with the Labor Department. An order

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denied defendants’ TRO and set a hearing on the motion for a preliminary injunction (Dkt. No.

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12). This order follows full briefing and oral argument.

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ANALYSIS

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Defendants’ argument is that the ongoing criminal investigation by the OIG and the U.S.

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Attorney’s Office is barred by res judicata, based on defendants’ civil settlement with the Labor

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Department. “Three elements constitute a successful res judicata defense. Res judicata is

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applicable whenever there is (1) an identity of claims, (2) a final judgment on the merits, and (3)

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privity between parties.” Tahoe–Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency,

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322 F.3d 1064, 1077 (9th Cir. 2003) (footnote and internal quotation marks omitted). As an

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initial matter, res judicata is an affirmative defense against claims that were or could have been

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brought up in prior proceedings. Here, there is no second claim or set of claims. There is

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merely an investigation and thus any res judicata defense is premature.

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Second, nothing in the parties’ settlement bars any future criminal investigation or

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action by the U.S. Attorney. The agreement explicitly resolved the four FLSA claims made in

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the Secretary’s complaint. The settlement agreement makes no mention of any potential

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criminal action and says nothing that would prohibit the U.S. Attorney from pursuing such an

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action. Our court of appeals’ decision in United States v. Hickey, 367 F.3d 888 (9th Cir. 2004),
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is on point. There, the defendant argued that the United States had been estopped from

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pursuing criminal charges against him based on a previous SEC action that had resulted in a

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final judgment. In rejecting this argument, our court of appeals stated: “[T]he SEC, the adverse

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party in the first proceeding, and the United States are not the same party. The SEC brought its

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action pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934. It was

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not acting as the federal sovereign vindicating the criminal law of the United States.” Id. at

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893. So too here. Defendants’ agreement with the Labor Department in regards to their civil

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claims was in no way binding on the U.S. Attorney’s prerogative to pursue a criminal

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investigation.
At oral argument, defendants asserted that their settlement agreement with the Labor

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For the Northern District of California

United States District Court

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Department conclusively barred any future criminal investigation. This argument, however,

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finds no grounding in reality. The agreement with the Labor Department said absolutely

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nothing about future criminal actions (which the Labor Department has no authority to bring).

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In defendants’ briefing — but not in any sworn declaration — they asserted that the Labor

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Department and the magistrate judge conducting the settlement conference, Judge Elizabeth

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Laporte, made some vague promises regarding future criminal action. This assertion, however,

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is not in the sworn record and the Labor Department’s briefing, which contained sworn

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declarations from representatives who attended the settlement conference, said no such

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promises were made. It is too late to go back and fix this glaring gap in the record (even

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assuming it would make a difference).

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Also at oral argument, defendants asserted that the criminal investigation should be

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barred by our court of appeals’ decision in United States v. Liquidators of European Federal

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Credit Bank, 630 F.3d 1139 (9th Cir. 2011), which defendants did not cite in their brief. There,

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the United States sought civil forfeiture against the defendants, but the district court dismissed

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the action as untimely and entered final judgment against the United States. Then, the United

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States sought criminal forfeiture of the same property. Our court of appeals held that res

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judicata barred the subsequent criminal forfeiture action. That decision, however, dealt

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specifically with criminal and civil forfeiture (where the United States had been a party in both
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actions). Moreover, Liquidators concluded that the privity between the parties factor had been

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“clearly met.” Id. at 1151. In our case, defendants and the Labor Department agreed to settle

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claims regarding defendants’ FLSA violations. Now defendants argue that the settlement bars a

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criminal investigation by the U.S. Attorney on behalf of the United States (a different party)

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regarding destruction of documents (a different claim). Our situation is thus completely

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distinguishable from the facts in Liquidators.

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For the reasons stated above, defendants’ motion for a preliminary injunction enjoining
the United States from conducting a criminal investigation is DENIED.
Defense counsel stated at the hearing that some of the files seized pursuant to the search

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For the Northern District of California

United States District Court

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CONCLUSION

warrant contain privileged information. This order reaffirms that counsel for the Labor

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Department shall advise the U.S. Attorney’s Office and the OIG that proper steps should be

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taken to protect this privilege, as counsel promised to do at the hearing. As far as the Court is

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concerned, there will be no further discovery, briefing, or proceedings related to the present

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motion. Defendants are free to take an appeal.

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IT IS SO ORDERED.

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Dated: November 23, 2015.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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