Deatley et al v. Allard et al

Filing 42

ORDER granting in part and denying in part 28 MOTION to Stay, staying all discovery in this action, and vacating the Scheduling Conference, by Magistrate Judge Kathleen M. Tafoya on 3/27/14. (dkals, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Magistrate Judge Kathleen M. Tafoya
Civil Action No. 14–cv–00100–RM–KMT

ALAN E. DEATLEY, an individual,
15 CORPORATIONS, INC., a Washington state corporation, and
SOLUTIONS INTERNATIONAL, LLC, an Oregon limited liability company,
Plaintiffs,
v.
KERMIT ALLARD, individual,
ROBERT KLICK, individual,
ALLARD & KLICK, LLC, a Colorado limited liability company,
DAVE ZAMZOW, individual, and
EHRHARDT KEEFE STEINER & HOTTMAN, a Colorado limited liability limited partnership,
Defendants.

ORDER

This matter is before the court on Plaintiff DeAtley’s “Motion for Stay.” (Doc. No. 28,
filed Feb. 21, 2014.) The following responses were filed on March 14, 2014:
The Allard Defendants’ Response in Opposition to Plaintiff DeAtley’s Motion for
Stay (Doc. No. 30 [Allard Defs. Resp.]);
Defendant Zamzow’s Response to Plaintiff DeAtley’s Motion for Stay (Doc. No.
31 [Zamzow Resp.]); and
Defendant EKS&H, LLLP’s Response in Opposition to Plaintiff DeAtley’s
Motion to Stay (Doc. No. 32 [EKS&H Response]).

Plaintiff DeAtley’s Reply to Defendants’ Response to Motion for Stay was filed on March 24,
2014. For the following reasons, Plaintiff DeAtley’s Motion to Stay is GRANTED in part and
DENIED in part.
In this action, Plaintiffs Alan DeAtley, 15 Corporations, Inc., and Solutions International,
LLC, assert claims for negligent misrepresentation, professional negligence, fraud, and
defamation. These claims arise out of Defendants’ provision of accounting and valuation
services to Plaintiffs with respect to conservation easement programs in both Yakima County,
Washington, and Jackson County, Colorado. (See Doc. No. 3, First Am. Compl.) The Colorado
Department of Revenue ultimately disallowed state tax credits associated with the conversation
easements in Jackson County, and Plaintiff DeAtley was indicted by the Denver District
Attorney on various criminal counts, including forgery, tax evasion, and double sale of credits.
The criminal charges against Plaintiff DeAtley remain pending. Plaintiff DeAtley
maintains that there is no practical way to proceed with this action while his criminal case is
pending because “any testimony or utterance” in this civil action “will likely be used to argue
that DeAtley has waived Fifth Amendment privilege.” (Mot. at 3.) As such, Plaintiff DeAtley
seeks a stay of all proceedings in this action until resolution of the criminal case against him.
The Federal Rules of Civil Procedure do not expressly provide for a stay of proceedings.
See String Cheese Incident, LLC v. Stylus Shows, Inc., No. 02-cv-01934-LTB-PA, 2006 WL
894955, at *2 (D. Colo. Mar. 30, 2006) (unpublished). Nevertheless,
[t]he power to stay proceedings is incidental to the power inherent in every court
to control the disposition of the causes on its docket with economy of time and
effort for itself, for counsel, and for litigants. How this can best be done calls for
the exercise of judgment, which must weigh competing interests and maintain an
even balance.
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Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936) (citing Kansas City S. Ry. Co. v. United
States, 282 U.S. 760, 763 (1931)). Thus, although generally disfavored in this District, see
Bustos v. United States, 257 F.R.D. 617, 623 (D. Colo. 2009), a stay of proceedings is an
appropriate exercise of the court’s discretion.
When considering a stay in a matter involving parallel criminal and civil proceedings, the
primary debate centers on the criminal defendant’s potential waiver or invocation of his Fifth
Amendment rights. “The Constitution [] does not ordinarily require a stay of civil proceedings
pending the outcome of criminal proceedings.” SEC v. Dresser Industries Inc., 628 F.2d 1368,
1375 (D.C. Cir. 1980) (citing Baxter v. Palmigiano, 425 U.S. 308, 317–19 (1976)).
Nevertheless, “a court may decide in its discretion to stay civil proceedings, postpone civil
discovery, or impose protective orders and conditions when the interests of justice seem to
require such action.” Id. at 1375 (internal quotation omitted). See also United States v. Kordel,
397 U.S. 1, 11-12 (1970) (parallel civil and criminal actions might, in “special circumstances,”
raise constitutional problems and a defendant might be able to argue that his due process and
self-incrimination rights require the stay of proceedings in the civil action).
In Cruz v. County of Dupage, No. 96 C 7170, 1997 WL 370194, at *1 (N.D. Ill. June 27,
1997), the court aptly observed the “ultimate question . . . is whether the court should exercise its
discretion in order to avoid placing the defendants in the position of having to choose between
risking a loss in their civil cases by invoking their Fifth Amendment rights, or risking conviction
in their criminal cases by waiving their Fifth Amendment rights and testifying in the civil
proceedings.” In the view of the Cruz court, the “severe burden” defendants would face in
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fighting both proceedings simultaneously outweighed the potential prejudice to the private
plaintiffs arising from a stay. Id.; see also Brumfield v. Shelton, 727 F.Supp. 282, 284 (E.D. La.
1989) (“In a case where there is a real and appreciable risk of self-incrimination, an appropriate
remedy would be a protective order postponing civil discovery until termination of the criminal
action.”); Brock v. Tolkow, 109 F.R.D. 116, 120 (E.D.N.Y. 1985) (“A stay of civil discovery
until after criminal proceedings are complete will enable [defendants] to defend the civil case
vigorously without fear of subsequent prosecution”).
At the outset, the court acknowledges that this case is not on all fours with the cases cited
above because, here, it is the plaintiff, rather than the defendant, who seeks a stay of
proceedings. Generally speaking, “a civil plaintiff has no absolute right to both his silence and
his lawsuit.” Wehling v. Columbia Broadcasting Sys., 608 F.2d 1084, 1088 (5th Cir. 1979); see
also Jones v. B.C. (“While it may be true that an individual should suffer no penalty for the
assertion of a constitutional right, neither should third parties sued by that individual who have
no apparent interest in the criminal prosecution, be placed at a disadvantage thereby.”).
However, in accord with the cases cited above, courts have recognized that a stay may be
appropriate to avoid requiring a plaintiff “to choose between his silence and his lawsuit,” so long
as it does not impose undue hardship on the defendants. Wehling, 608 F.2d at 1089. Thus, the
fact that Mr. DeAtley is a plaintiff, rather than a defendant, is of little import, assuming a stay is
otherwise warranted.
In determining whether to stay civil proceedings, courts balance the burden of proceeding
with both cases simultaneously against the harm to the civil opponent, in this case the
defendants, if a stay were granted. See Judge Milton Pollack, Presentation at the Transferee
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Judges’ Conference, PARALLEL CIVIL AND CRIMINAL PROCEEDINGS, 129 F.R.D. 201, 203 (1989).
A motion for a stay entails a case-by-case, fact-specific inquiry, with courts frequently citing
some combination of six factors in determining whether to enter a civil stay: (1) the extent to
which the issues in the criminal case overlap with those presented in the civil case; (2) the status
of the case, including whether the plaintiff has been indicted; (3) the interests of the defendants
in proceeding expeditiously weighed against the prejudice to plaintiff caused by the delay; (4)
the private interests of and burden on the defendants; (5) the interests of the courts; and (6) the
public interest. See Transworld, 886 F.Supp. at 1139; see also In Re Worldcom, Inc. Securities
Litigation, 2002 WL 31729501 (S.D.N.Y. Dec. 5, 2002); Cnty. of Dupage, 1997 WL 370194, at
*2; Digital Equip. Corp. v. Currie Enterprises, 142 F.R.D. 8, 12 (D. Mass. 1991); White v.
Mapco Gas Products Inc., 116 F.R.D. 498, 502 (E.D. Ark. 1987).)
A.

Overlap of Issues
The extent of overlap is the “most important factor in ruling on a motion to stay.” SEC v.

Nicholas, 569 F. Supp. 2d 1065, 1070 (C.D. Cal. 2008) (citing Pollack, PARALLEL CIVIL AND
CRIMINAL PROCEEDINGS, 129 F.R.D. at 203). Defendants do not dispute that the facts of this
case overlap with the criminal case. (Allard Defs. Resp. at 11-12; see generally Zamzow Resp.;
EKS&H Resp.) As such this factor weighs heavily in favor of a stay.
B.

Status of the Case
Defendants also do not dispute that Plaintiff was criminally indicted. “A stay of a civil

case is most appropriate where a party to the civil case has already been indicted for the same
conduct for two reasons: first, the likelihood that a defendant may make incriminating
statements is greatest after an indictment has issued, and second, the prejudice to the plaintiffs in
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the civil case is reduced since the criminal case will likely be quickly resolved due to Speedy
Trial Act considerations.” Transworld, 866 F.Supp. at 1139 (internal citations omitted). Indeed,
the fact that indictments have been returned is critical because it dictates both the degree of risk
of self-incrimination and the length of potential delay to the civil case.
The strongest case for a stay of discovery in the civil case occurs during a
criminal prosecution after an indictment is returned. The potential for selfincrimination is greatest during this stage, and the potential harm to civil litigants
arising from delaying them is reduced due to the promise of a fairly quick
resolution of the criminal case under the Speedy Trial Act.
Dresser, 628 F.2d at 1375-76.
Numerous courts, including the Southern District of New York in the Worldcom civil
litigation, have granted civil stays in the post-indictment context. In Re Worldcom, Inc., 2002
WL 31729501, at *9; Colmar Distributors Inc. v. New York Post Co. Inc., 152 F.R.D. 36
(S.D.N.Y. 1993); Midas Int’l Corp. v. CV & G Trans. Services, No. 87 C 2180, 1987 WL 18916
(N.D.Ill. Oct. 19, 1987); Fidelity Funding of California v. Reinhold, 190 F.R.D. 45, 48
(E.D.N.Y.1997) (staying the civil case against the defendant who was under indictment while
denying a stay as to his unindicted civil co-defendant); Gala Enterprise Inc. v. Hewlett Packard
Co., No. 96 Civ. 4864 (DC), 1996 WL 732636, at *2 (S.D.N.Y. Dec. 20, 1996) (“Pre-indictment
requests of a stay of civil proceedings are generally denied”).
The fact that Plaintiff was indicted several years ago, in October 2010, does not dissuade
the court of the importance of this factor. It is undisputed that a trial has not yet been held in
Plaintiff’s criminal case, primarily because the case is currently pending on appeal before the
Colorado Supreme Court regarding Plaintiff’s attorney’s attempt to withdraw as counsel. Under
these circumstances, it may well have been necessary for Plaintiff to file this case,
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notwithstanding the delays in his criminal case, to avoid his claims being time-barred by the
statute of limitations. Accordingly, the court finds that this factor also weighs heavily in favor of
a stay of discovery.
C.

Interests of the Parties
As to the third and fourth factor, Defendants argue that they would be prejudiced by an

indefinite stay because (1) as time passes, “‘witnesses will become unavailable, memories of
conversations will fade, and documents will be lost and destroyed,’” and (2) they have an interest
in clearing their names and being free of pending litigation. (Allard Defs. Resp. at 12.) While
these concerns are not insignificant, the court finds these they are outweighed by the potential
prejudice Plaintiff would suffer if this action were to proceed, notwithstanding the pending
criminal case. In addition, Defendants’ second concern will largely be alleviated because the
court declines to stay ruling on Defendants’ motions to dismiss, as discussed infra. Accordingly,
this factor also favors a stay.
D.

Interests of the Court
The fifth factor does not weigh strongly either for or against a stay. On the one hand,

“[t]he Court has a strong interest in keeping litigation moving to conclusion without unnecessary
delay.” In re CFS-Related Securities Fraud Litigation, 256 F.Supp.2d 1227, 1241 (N.D. Okla.
2003). On the other hand, resolution of the criminal case may (1) increase the possibility of
settlement of the civil case, and (2) “may reduce the scope of discovery in the civil case [as] the
evidence gathered during the criminal prosecution can later be used in the civil action.”
Transworld, 886 F.Supp. at 1140.

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E.

Public Interest
As to the final factor, Defendants point to two other cases filed by Plaintiff, where

Magistrate Judge Boyd N. Boland declined to stay proceedings because, inter alia, “the public
interest in preventing DeAtley from manipulating the judicial system . . . outweighs the potential
difficulties which may result from his assertion in this civil action, which he commenced, of his
Fifth Amendment right.” (Allard Defs. Resp. at 13 (citing Order, Doc. No. 67, DeAtley v.
Keybank Nat’l Ass’n, Case No. 12-cv-02973-PAB-BNB (D. Colo. Oct. 28, 2013) (hereinafter
“Keybank Order”)). (See also Order, Doc. No. 43, DeAtley v. Stuart, Case No. 13-cv-01140REB-BNB (D. Colo. Oct. 28, 2013) hereinafter “Stuart Order”)) (declining to grant a stay for
substantially the same reasons asserted in the Keybank Order).
The court finds that the circumstances presented here are distinguishable from those
before Judge Boland in Keybank and Stuart. More specifically, Plaintiff filed the Keybank action
after KeyBank had commenced a foreclosure action concerning his real property. Judge Boland
decline to grant a stay of proceedings because it was apparent that “Mr. DeAtley [was] engaged
in abusive litigation tactics for the improper purpose of manipulating the judicial system to delay
both Keybank’s attempts to pursue its foreclosure action and the state criminal prosecution.”
(Keybank Order at 6.)
Likewise, in the Stuart action, Plaintiff has alleged that his criminal defense counsel
engaged in malpractice in representing him in his criminal case. Judge Boland again found that
Plaintiff was engaged in abusive litigation strategy. More specifically, Judge Boland noted that
Plaintiff “refused in the state prosecution to proceed pro se or retain substitute counsel.” (Stuart
Order at 3.) Further, by filing claims of malpractice against his criminal counsel, Plaintiff made
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it “impossible for his current criminal counsel to represent him in the state prosecution.” (Stuart
Order at 3.) As such, Plaintiff was clearly using his malpractice claims to alter the course of the
criminal proceedings. Accordingly, Judge Boland declined “to facilitate Mr. DeAtley’s improper
manipulation of the judicial system” by granting a stay. (Id.)
Unlike in KeyBank and Stuart, Defendants have not shown that Plaintiff is using these
proceedings to stymy his criminal proceedings or any other case. Instead, Defendants essentially
point to Judge Boland’s orders in those cases and ask this court to follow suit. However, because
Defendants have failed to demonstrate that Plaintiff’s actions in this case amount to abusive
litigation tactics, Judge Boland’s orders in KeyBank and Stuart are distinguishable. Therefore, in
this case, the final factor is neutral.
Altogether, the court finds that a stay of discovery is warranted. The court finds that
requiring that Plaintiff submit to discovery on issues that will likely overlap with the criminal
case against him would assuredly force a Hobbesian choice of pursuing his claims in this case
and waiving his Fifth Amendment rights against self-incrimination, or forfeiting this case in
order to preserve his Fifth Amendment rights. Further, this prejudice to Plaintiff heavily
outweighs any prejudice Defendants would face from delaying this action until the completion of
the criminal proceedings.
Nevertheless, the court declines to stay briefing or ruling on Defendants’ motions to
dismiss. 1 Defendants’ motions to dismiss all argue that Plaintiff’s claims are properly dismissed

1

Currently pending are “Defendant Zamzow’s Motion to Dismiss Pursuant to Fed. R. Civ. P.
12(b)(6)” (Doc. No. 22, filed Feb. 11, 2014), “The Allard Defendants’ Motion to Dismiss
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under Fed. R. Civ. P. 12(b)(6)—either for failure to state a claim or because the claims are barred
by the statute of limitations. In resolving a motion to dismiss under Rule 12(b)(6), the court’s
review is limited to the four corners of the complaint. 2 See Oxendine, 241 F.3d 1272, 1276 (10th
Cir. 2001). Indeed, “the court’s function on a Rule 12(b)(6) motion is not to weigh potential
evidence that the parties might present at trial, but to assess whether the plaintiff's complaint
alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start,
Inc., 336 F.3d 1194, 1201 (10th Cir. 2003); see also Torres v. Eley, 378 F. App’x 770, 772 (10th
Cir. 2010) (statute of limitations questions may be resolved under Rule 12(b)(6) where the dates
given in the complaint make it clear that the right sued upon has been extinguished) (citation
omitted).
As such, by definition, Defendants’ motions to dismiss relate solely to the sufficiency of
Plaintiffs’ First Amended Complaint. In response, 3 Plaintiff DeAtley need only argue, through
his attorney, that First Amended Complaint’s allegations are sufficient to allow his claims to
proceed; it is unnecessary for Plaintiff DeAtley to submit any testimony or other utterance that

Pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b)” (Doc. No. 23, filed Feb. 11, 2014), and “EKS&H,
LLLP’s Motion to Dismiss” (Doc. No. 25, filed Feb. 11, 2014).
2

The court may also consider facts subject to judicial notice, such as court files and matters of
public record. Van Woundenberg v. Gibson, 211 F.3d 560,568 (10th Cir. 2000).
3

The Allard Defendants argue that Plaintiffs have waived their right to respond to the motions to
dismiss because their responses were due on March 4, 2014 and Plaintiffs did not move for, or
receive, an extension of time to respond. Any future motion for extension of time to respond to
the motions to dismiss would the province of District Judge Raymond P. Moore, as the motions
to dismiss are pending before him. As such, the court does not comment on whether Plaintiffs
have waived their right to respond to the motions to dismiss, other than to note the time
limitation under D.C.COLO.LCivR 7.1(d) for filing a response has expired.
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might implicate a waiver of his Fifth Amendment rights. Accordingly, the court finds it
unnecessary to stay briefing or ruling on Defendants’ motions to dismiss in order to protect
Plaintiff’s Fifth Amendment rights.
Therefore, for the foregoing reasons, it is
ORDERED that Plaintiff DeAtley’s “Motion for Stay” (Doc. No. 28) is GRANTED in
part and DENIED in part. All discovery in this action is STAYED until further order of the
court and the Scheduling Conference set for April 6, 2014 and all deadlines related thereto are
VACATED. This stay shall not affect the District Court’s ability to rule on Defendants’ motions
to dismiss at its discretion. It is further
ORDERED that, no later than 10 days after (1) the District Court’s ruling on Defendants’
motions to dismiss or (2) the conclusion of the criminal proceedings against Plaintiff, whichever
is earlier, the parties shall file a Joint Status Report addressing any continuing need for a stay on
discovery, as well as whether the Scheduling Conference should be reset.
Dated this 27th day of March, 2014.

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