Regions Bank v. Kaplan et al

Filing 481

ORDER granting in part and denying in part 458 Motion to Stay Proceedings and Extend Discovery pending resolution of related criminal proceedings; the Motion to Stay is denied; the Motion to Extend Discovery is granted to permit the deposition s of Regions' 30(b)(6) witnesses, Robert Shaw, Brandy Burnett, and Larry Starr, to be completed no later than October 15, 2015; the Supplement to Motion to Stay is denied as tothe depositions of Walter Schultz and Matthew Schultz.. Signed by Judge Elizabeth A. Kovachevich on 9/8/2015. (JM)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
REGIONS BANK, etc.,
Plaintiff,
v.

CASE NO. 8:12-CV-1837-T-17MAP

MARVIN I. KAPLAN, etc.,
etal.,
Defendants.
/
ORDER

This cause is before the Court on:
Dkt. 458
Dkt. 462
Dkt.
Dkt.
Dkt.
Dkt.

463
464
469
479

Motion to Stay Proceedings and Extend Discovery
Pending Resolution of Related Criminal Proceedings
(Kaplan and Kaplan Entities)
Response in Opposition (Regions Bank, Wells Fargo Bank,
Bridgeview Bank Group)
Joinder and Adoption (Bridgeview Bank Group)
Joinder and Adoption (Regions Bank)
Supplement to Motion to Stay (Kaplan and Kaplan Entities)
Response in Opposition to Supplement to Motion to
Stay (Regions Bank, Wells Fargo Bank, Bridgeview
Bank Group)

Defendants/Counter-Claimants/Cross-Claimants Marvin I. Kaplan, R1A Palms,
LLC, Triple Net Exchange, LLC, MK Investing, LLC and BNK Smith, LLC (Kaplan and
Kaplan Entities) move to stay discovery and proceedings in this civil case pending
resolution of related criminal proceedings, pursuant to Fed. R. Civ. P. 26(c).
The basis of the Motion to Stay is that Todd Smith and Gary T. Smith have been
indicted for wire fraud in connection with the Ponzi scheme, Case No. 8:14-MJ-1309-T-

Case No. 8:12-CV-1837-T-17MAP
AEP, and as a result the Smiths will not provide deposition testimony, and have stated
that they will assert their Fifth Amendment privilege against self-incrimination if they are
subpoenaed to testify. In addition, former Smith employees Dawn Jackson and Amber
Mathias, who have knowledge of the inner workings of the Ponzi scheme, have also
stated that they will not provide deposition testimony and will assert their Fifth
Amendment privilege against self-incrimination until such time as the criminal
proceedings have been concluded and they have been assured that criminal charges
will not be brought against them. Kaplan and the Kaplan Entities assert that the
testimony of the Smiths, Ms. Jackson and Ms. Mathias regarding their involvement in
the underlying scheme is central to the resolution of the claims and defenses of Kaplan
and the Kaplan Entities. Kaplan and the Kaplan Entities argue that if this civil case is
allowed to proceed without the testimony of these individuals, Kaplan and the Kaplan
Entities will be unable to prove their claims or defenses.

Kaplan and the Kaplan Entities seek a stay until the critical evidence becomes
available following the completion of the criminal prosecution against the Smiths; in
addition, Kaplan and the Kaplan Entities request that the stay be tailored to allow
discovery to continue beyond the September 15, 2015 scheduled deadline, due to the
complexity of the issues and the difficulty in setting a deposition date for Larry Starr, a
key witness to Kaplan’s claims and defenses. In the Supplement, Kaplan and the
Kaplan entities further assert that two critical witnesses, Walter and Matthew Schultz,
were subpoenaed to appear for deposition on September 4, 2015, but the depositions
cannot be completed prior to the September 15, 2015 discovery cut-off.
Regions Bank, Wells Fargo Bank and Bridgeview Bank Group respond that
the Motion to Stay should be denied, since Kaplan and the Kaplan Entities have not
established that a stay is required or appropriate at this time.
Regions Bank, Wells Fargo Bank and Bridgeview Bank Group have agreed,
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Case No. 8:12-CV-1837-T-17MAP
subject to court approval, to extend the discovery deadline for a short period to
accommodate depositions of Regions’ 30(b)(6) witnesses and additional witnesses,
Robert Shaw and Brandy Burnett. There is no objection to a short extension to depose
Larry Starr, but the Bank Parties request that the deadline not be extended beyond
October 15, 2015. The Bank Parties further argue that Kaplan and the Kaplan Entities
have not established good cause to extend the discovery deadline to depose Walter
and Matthew Schultz, where the involvement of these witnesses was known in 2010,
and no attempt was made to depose them until a short time before the agreed upon
last day reserved for depositions, September 4, 2015, and the discovery cut-off of
September 15, 2015.
I. Standard of Review
“A court must stay a civil proceeding pending resolution of a related criminal
prosecution only when ‘special circumstances’ so require in the ‘interest of justice.’”
S.E.C. v. Wriaht. 261 Fed. Appx. 259 (11th Cir. 2008)(citing United States v. Lot 5. Fox
Grove. Alachua Countv. Fla.. 23 F.3d 359, 364 (11th Cir. 1994)(civil forfeiture context).
“However, a blanket assertion of the privilege against self-incrimination is an
inadequate basis for the issuance of a stay.” id.

“Special circumstances” may include

record evidence that the civil case was brought solely to obtain evidence for the criminal
prosecution, or that the criminal case was unconstitutional or inappropriately instituted.
Wriaht. 261 Fed. Appx. at 263. “The very fact of a parallel criminal proceeding does not
alone constitute ‘special circumstances.’” In re Blankenship. 408 B.R. 854, 861 (Bankr.
N.D.AIa. June 8, 2009).
The Court may deny a stay so long as the privilege’s invocation does not compel
an adverse judgment against the claimant. United States v. Lot 5. Fox Grove. Alachua
County. Fla.. 23 F.3d 359 (11th Cir. 1994)(citing United States v. Premises Located at
Route 13. 946 F.2d 749, 756 (11th Cir. 1991)). The general rule provides “that the Fifth
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Case No. 8:12-CV-1837-T-17MAP
Amendment does not forbid adverse inferences against parties to civil actions when
they refuse to testify in response to probative evidence offered against them.” United
States v. A Single Family Residence & Real Property. 803 F.2d 625, 629 n.4 (11th Cir.
1986). The Fifth Amendment is violated when a person, who is a defendant in both a
civil and criminal case, is forced to choose between waiving his privilege against self­
incrimination or losing the civil case on summary judgment. See Pervis v. State Farm
Fire & Casualty Co.. 901 F.2d 944 (11th Cir.), cert, denied. 498 U.S. 899 (1990). Where
the invocation of the Fifth Amendment privilege merely results in the loss of a
defendant’s most effective defense, not the automatic entry of summary judgment, the
exception to the general rule does not apply.
In determining whether the invocation of the Fifth Amendment privilege would
result in an adverse judgment, the Court considers: 1) the extent to which issues in the
criminal case overlap with those presented in the civil case; 2) the status of the case,
including whether the defendants have been indicted; 3) the private interests of the
plaintiffs in proceeding expeditiously against the prejudice to the plaintiffs caused by the
delay; 4) the private interests and burden on the defendants; 5) the interest of the
courts; and 6) the public interest. Coauina Investments v. Rothstein. 2011 WL 2530945
at*1 (S.D. Fla. 2011).

II. Analysis
A. Request for Stay
Kaplan and the Kaplan Entities have provided the affidavits of Gary Truman
Smith, Gary “Todd” Smith, Amber Mathias and Dawn Jackson, which attest that these
witnesses each will assert his/her Fifth Amendment privilege against self-incrimination
in response to any and all lines of questioning taken by any party in this case.

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Case No. 8:12-CV-1837-T-17MAP
The above affidavits are inadequate to support the request for a mandatory stay,
in that the affidavits are a blanket assertion of the Fifth Amendment privilege of each
witness.

Kaplan and the Kaplan Entities have not identified special circumstances that
require that a stay be granted in the interest of justice. The Government is not involved
in the prosecution of this civil case. The Court is not aware of record evidence that the
civil case was brought solely to obtain evidence for the criminal prosecution, or that the
criminal case is unconstitutional or inappropriately instituted.

Kaplan and Kaplan Entities have argued that, if a stay is not granted, the
assertion of the Fifth Amendment privilege against self-incrimination by the Smiths,
Mathias and Jackson will result in the entry of summary judgment against Kaplan and
the Kaplan Entities. The Court has considered whether the exception to the general
rule permitting a party to draw an adverse inference from the assertion of the Fifth
Amendment privilege against self-incrimination has been triggered.
The Court notes, and the Bank Parties recognize, that there is some overlap
between the issues in this case and the criminal indictment of the Smiths. The Court
does not know how and when the criminal proceedings against the Smiths will be
resolved. In addition, Amber Mathias, Dawn Jackson and Marcia Caulder (another
witness set for deposition) have not been indicted. The Court does not know when, if
ever, these witnesses will be indicted.
This case was commenced in 2012, and Kaplan and the Kaplan Entities chose
to assert various counterclaims and crossclaims. The related criminal proceedings
involving the Smiths commenced in May, 2014; the related criminal proceedings did not
prevent Kaplan and the Kaplan Entities from proceeding to a final default judgment
against the Smiths and Smith Advertising & Associates, Inc. (Dkts. 346, 349).

Case No. 8:12-CV-1837-T-17MAP
The Court further notes that Kaplan and the Kaplan Entities have not identified
specific questions to which each witness will assert his/her Fifth Amendment privilege,
and have not explained why each specific claim and defense cannot be proven and
substantiated through other testimony or evidence. See United States v. Lot 5. Fox
Grove. Alachua Countv. Fla.. 23 F.3d 359, 364 (11th Cir. 1994).

The Court further notes that the discovery deadline is looming, as well as the
date for filing dispositive motions, and public policy favors the timely resolution of this
civil case.

After consideration, the Court finds that Kaplan and the Kaplan Entities have not
met their burden of showing that invocation of the Fifth Amendment privilege against
self-incrimination by the specified witnesses will compel an adverse judgment against
Kaplan and the Kaplan Entities, such that a stay would be appropriate. The possibility
that the assertion of the Fifth Amendment privilege may impact the claims and defenses
of Kaplan and the Kaplan Parties is not sufficient to justify an indefinite stay. The
Court therefore denies the Motion for Stay.
B. Extension of Discovery Deadline
The Court grants the Motion for Extension of Discovery Deadline in part as to the
depositions of Regions’ 30(b)(6) witnesses, Robert Shaw, Brandy Burnett and Larry
Starr, to be completed no later than October 15, 2015.
As to the depositions of Walter Schultz and Matthew Schultz, Kaplan and the
Kaplan Entities have not established good cause to extend the discovery deadline, and
the Court therefore denies the Motion for Extension of Discovery Deadline as to those
two depositions. Accordingly, it is

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Case No. 8:12-CV-1837-T-17MAP
ORDERED that the Motion to Stay Proceedings and Extend Discovery Pending
Resolution of Related Criminal Proceedings (Dkt. 458) is granted in part and denied
in part. The Motion to Stay is denied. The Motion to Extend Discovery is granted to
permit the depositions of Regions’ 30(b)(6) witnesses, Robert Shaw, Brandy Burnett
and Larry Starr, to be completed no later than October 15, 2015. The Supplement to
Motion to Stay (Dkt. 469) is denied as to the depositions of Walter Schultz and
Matthew Schultz.

DONE and ORDERED in Chambers in Tampa, Florida on this 8th day of
September, 2015.

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