Bell v. Taylor

Filing 93

ORDER Denying Defendant's Motion To Stay Civil Case (84) 1:17-cv-00530-LEK-RLP; (58) Motion to Stay in case 1:18-cv-00016-LEK-RLP. Signed by JUDGE LESLIE E. KOBAYASHI on 4/26/2019. Associated Cases: 1:17-cv-00530-LEK-RLP, 1:18-cv-00016-LEK-RLP(cib)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
IAN BELL, Derivatively on,
Behalf of ECO SCIENCE
SOLUTIONS, INC.,

)
)
)
)
Plaintiffs,
)
)
vs.
)
)
JEFFREY TAYLOR, DON LEE
)
TAYLOR, L. JOHN LEWIS, S.
)
RANDALL OVESON, and GANNON
)
GIGUIERE,
)
)
Defendants.
)
______________________________)

CIVIL 17-00530 LEK-RLP

ORDER DENYING DEFENDANT’S MOTION TO STAY CIVIL CASE
Before the Court is Defendants Jeffrey Taylor
(“J. Taylor”), Don Lee Taylor (“D. Taylor”), L. John Lewis
(“Lewis”), S. Randall Oveson (“Oveson”), Gannon Giguiere
(“Giguiere”), and Nominal Defendant Eco Science Solutions,
Inc.’s (“ESSI” and collectively “Defendants”) Motion to Stay
Civil Case (“Motion”), filed on January 29, 2019.
no. 84.]

[Dkt.

Plaintiffs Ian Bell (“Bell”) and Marc D’Annunzio

(“D’Annunzio,” collectively “Plaintiffs”) filed their memorandum
in opposition on February 22, 2019, and Defendants filed their
reply on March 1, 2019.

[Dkt. nos. 89, 91.]

The Court finds

this matter suitable for disposition without a hearing pursuant
to Rule LR7.2(d) of the Local Rules of Practice for the United

States District Court for the District of Hawaii (“Local
Rules”).

Defendants’ Motion is hereby denied because, after

weighing the particular circumstances and interests in this
case, the Court concludes not substantial prejudice will result
from proceeding with the parallel criminal and civil cases.
BACKGROUND
This case arises out of the business transactions
surrounding ESSI from December 2015 to January 2018.

Plaintiffs

allege that Giguiere was the mastermind of an elaborate “pumpand-dump” scheme where Defendants artificially inflated ESSI’s
stock price through false representations and manipulative
trading practices, then sold large quantities of the inflated
stock to other investors.

[Verified Amended Consolidated

Stockholder Derivative Complaint (“Amended Complaint”), filed
12/10/18 (dkt. no. 78), at ¶¶ 2-4.]
In December 2015, Defendants J. Taylor and D. Taylor
obtained the controlling shares of ESSI.

J. Taylor was named as

ESSI’s Chief Executive Officer (“CEO”) and D. Taylor as ESSI’s
Chief Financial Officer (“CFO”).
sole directors.

They were also named ESSI’s

[Id. at ¶¶ 61-62.]

In addition, J. Taylor is

ESSI’s President and Secretary, and D. Taylor is ESSI’s
Treasurer.

[Id. at ¶¶ 36-37.]

Throughout 2016 and 2017, ESSI

entered into numerous business deals, mainly with companies

2

owned or controlled by Giguiere or other Defendants.

[Id. at

¶¶ 9, 16, 18, 38-39.]
The first such business deal was an agreement to
purchase “technology licensing and marketing support” from
Separation Degrees – One, Inc. (“SDOI”), a company of which
Giguiere was “the founder, Chairman, CEO, Secretary, and
President.”

[Id. at ¶ 66.]

As payment for the services by

SDOI, ESSI transferred large quantities of its own stock to
SDOI, which “translated into millions of dollars for defendant
Giguiere.”

[Id. at ¶¶ 83-84.]

The “marketing support” of SDOI

took the form of two articles posted to TheMoneyStreet.com, a
stock promotion website also controlled by Giguiere.

The

articles encouraged readers to purchase ESSI stock, driving
prices up.

[Id. at ¶¶ 76-82.]

The “technology licensing” was a

software platform that ESSI used to build two mobile
applications, Herbo, a digital marketplace, and Fitrix, a
fitness tracker.

[Id. at ¶¶ 72-74.]

ESSI also entered into a financing agreement with
Phenix, another company controlled by Giguiere.

ESSI agreed to

sell ten million shares of its stock to Phenix at a discounted
price based on a formula contained in the agreement.

[Id. at

¶¶ 100-01.]
The last relevant transaction occurred in 2017, where
ESSI signed a letter of intent to acquire Ga-Du Bank, Inc. (“Ga3

Du”), an entity controlled by Lewis and Oveson.
39, 105.]

[Id. at ¶¶ 38-

A May 5, 2017 ESSI press release stated acquisition

of Ga-Du would allow it to “provid[e] payment processing, cash
management and financial services to its customers in the
cannabis industry.”

[Id. at ¶ 105.]

However, Plaintiffs allege

Ga-Du’s charter and formation were questionable.
¶ 106.]

[Id. at

As a result of the acquisition process, Ga-Du became a

wholly owned subsidiary of ESSI, Lewis became the Ga-Du CEO,
Oveson became the Ga-Du Chief Operating Officer (“COO”), each
was given a base salary of $120,000, and each was appointed as
an ESSI director.

[Id. at ¶¶ 115, 119.]

In total, the Amended Complaint alleges Defendants
caused a loss of market capitalization of over $137 million,
seeing the stock price of ESSI drop from a high of $4.58, on
January 20, 2017, to a low of $0.28, on June 12, 2017.
¶ 116.]

[Id. at

J. Taylor and D. Taylor each received three million

shares of ESSI stock, worth $8,190,000 each at the time of
issuance, as “stock-based compensation recorded as management
fees.”

[Id. at ¶ 117.]

J. Taylor and D. Taylor also received

$115,000 and $105,000 salaries, respectively, for 2016.

[Id.]

In addition to their salaries, Lewis and Oveson were given the
option to purchase 2.5 million shares and 1.5 million shares,
respectively, of ESSI stock at $2.00 per share.

[Id. at ¶ 118.]

Throughout the process, Giguiere sold over 6.6 million shares of
4

ESSI stock, resulting in proceeds of over $8.5 million, some of
which was funneled, through a third-party, back into ESSI
accounts to pay for salaries.

[Id. at ¶¶ 97-99.]

On June 29, 2018, Giguiere was indicted in a
California federal court on: two counts of conspiracy to commit
securities fraud, in violation of 18 U.S.C. § 371; and two
counts of securities fraud, in violation of 15 U.S.C. §§ 78j(b),
78ff and 17 C.F.R. § 240.10b-5.

[Amended Complaint, Exh. B

(Indictment in United States v. Giguiere, et al., Case No. 18 CR
3071 WQH (S.D. Cal.) (“California Indictment”)).]

The

California Indictment is based, in part, on the same events and
facts as the instant case with regard to ESSI and
TheMoneyStreet.com.

[Amended Complaint at ¶¶ 136-39.]

A jury

trial in the criminal case is currently scheduled to begin on
for August 20, 2019.

[Reply at 3.]

On July 6, 2018, following a parallel investigation,
the Securities and Exchange Commission (“SEC”) filed a civil
action based on Giguiere’s involvement with ESSI and other
corporations.

[Amended Complaint at ¶ 143 & Exh. A (Complaint

in S.E.C. v. Giguiere, et al., Case No. 18CV1530 BEN JLB (S.D.
Cal.) (“SEC Complaint”)).]

The SEC Complaint alleges Giguiere

violated § 78j(b) and § 240.10b-5(a) and (c).

The SEC action

was stayed pending resolution of Giguiere’s criminal charges.
[Amended Complaint at ¶¶ 143-48.]
5

Defendants’ Motion seeks a stay of the proceedings in
the instant case, pending resolution of the criminal case
against Giguiere.

The Motion argues Giguiere’s Fifth Amendment

rights will substantially interfere with the discovery process
as to all Defendants in this case.
STANDARD
The Constitution does not ordinarily require
a stay of civil proceedings pending the outcome
of criminal proceedings. Federal Sav. & Loan
Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th
Cir. 1989); Securities & Exchange Comm’n v.
Dresser Indus., 628 F.2d 1368, 1375 (D.C. Cir.),
cert. denied, 449 U.S. 993, 101 S. Ct. 529, 66 L.
Ed. 2d 289 (1980). “In the absence of
substantial prejudice to the rights of the
parties involved, [simultaneous] parallel [civil
and criminal] proceedings are unobjectionable
under our jurisprudence.” Dresser, 628 F.2d at
1374. “Nevertheless, a court may decide in its
discretion to stay civil proceedings . . . ‘when
the interests of justice seem [] to require such
action.’” Id. at 1375 (quoting United States v.
Kordel, 397 U.S. 1, 12 n.27, 90 S. Ct. 763, 769
n.27, 25 L. Ed. 2d 1 (1970)).
Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th
Cir. 1995) (alterations in Keating).

In determining whether a

stay is appropriate, the court should weigh the “particular
circumstances and competing interests involved in the case.”
Fed. Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th
Cir. 1989).

This analysis generally includes:

(1) the extent to which the defendant’s Fifth
Amendment rights are implicated, (2) the interest
of the plaintiffs in proceeding expeditiously,
(3) the burden the proceedings may impose on the
6

defendants, (4) the convenience of the court and
the efficient use of judicial resources, (5) the
interests of persons not parties to the civil
litigation, and (6) the interest of the public in
the pending civil and criminal litigation.
S.E.C. v. Glob. Express Capital Real Estate Inv. Fund, I, LLC,
289 F. App’x 183, 191 (9th Cir. 2008) (citing Keating, 45 F.3d
at 324-25).
DISCUSSION
I.

Defendants’ Fifth Amendment Rights
The Court acknowledges that Giguiere’s Fifth Amendment

rights are clearly implicated in the parallel civil and criminal
proceedings against him.

This is especially true as he has been

indicted in the criminal case and a trial date has already been
set.

Cf. id. at 191 (“The case for staying civil proceedings is

weak when no indictment has been returned.” (citing Fed. Sav. &
Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 903 (9th Cir.
1989))).

The facts and events that form the basis of the

Amended Complaint are substantially similar to, and in some
instances based on, the facts and events described in the
California Indictment.

Compare Amended Complaint at ¶¶ 66, 73,

and 97; with California Indictment at ¶ 35(c), (f), and (i).
However, Giguiere is only one of five individual
Defendants in this case.

The other four individual Defendants

are neither named nor charged in the California Indictment, and
as such face no risk of burdening their Fifth Amendment rights
7

by proceeding in the instant case.

Because the first Keating

factor weighs in favor of a stay with regard to Giguiere, but
against a stay as to the other Defendants, this factor weighs
only slightly in favor of a stay, when the case is considered as
a whole.
II.

Plaintiffs’ Interests
Plaintiffs have a general interest in proceeding

expeditiously with litigation, to preserve the integrity of
testimony and evidence and to achieve adequate redress.

See

U.S. E.E.O.C. v. Global Horizons, Inc., Cv. No. 11–00257 DAE–
RLP, 2011 WL 5325747, at *6 (D. Hawai`i Nov. 2, 2011).

Thus,

the second Keating factor weighs against a stay.
III. Burden on Defendants
Defendants argue the third Keating factor, the burden
placed on them by moving forward with the proceedings, weighs
heavily in favor of a stay, as the individual Defendants will be
unable to adequately prepare their defenses without access to
Giguiere’s unfettered testimony, which will be unavailable upon
his invocation of his Fifth Amendment rights.

This incorrectly

assumes that Defendants are entitled to Giguiere’s testimony in
disproving their own individual liabilities in this case.
Giguiere’s Fifth Amendment rights do not extend beyond himself.
See United States v. Nobles, 422 U.S. 225, 234 (1975) (“[T]he
Fifth Amendment privilege against compulsory self-incrimination,
8

being personal to the defendant, does not extend to the
testimony or statements of third parties . . . .”).

Aside from

Giguiere, Defendants are not facing parallel criminal charges,
and as such are not substantially hindered from participating in
discovery at this time.

Given that Giguiere is the only

Defendant with a cognizable burden on his Fifth Amendment
rights, the Court finds this factor only slightly in favor of a
stay.
The Court acknowledges Giguiere’s assertion that
litigating parallel proceedings can be burdensome on a defendant
with regard to the ability to prepare an adequate defense.
However, this argument is unpersuasive in this instance as
Giguiere previously argued against a stay in the SEC action,
indicating that proceeding with multiple litigations at the same
time is within his capacity.

See Mem. in Opp., Decl. of

Craig W. Smith (“Smith Decl.”), Exh. B (Giguiere’s Mem. of
Points and Authorities in Opp. to the United States’ Motion to
Stay Civil Proceedings, filed 9/10/18 in the SEC action).

To

the extent that Giguiere will suffer additional burden as a
defendant in both the instant case and the criminal action, the
Court finds no reason to stay the case in light of his previous
statements.

9

IV.

Interests of the Court
The fourth factor looks to “the convenience of the

court in the management of its cases, and the efficient use of
judicial resources.”

Keating, 45 F.3d at 325.

Defendants argue

proceeding with discovery at this time will be costly and unduly
complicated because the risk of duplicative proceedings is high,
and, like in the SEC action, the assertion of Defendants’ Fifth
Amendment rights will hamper the process.
However, the parties have not even begun discovery in
this case.

There is little risk of duplicative proceedings in

the parallel cases as a majority of the criminal proceedings
will likely conclude before the instant case completes
discovery.

As discussed above, the individual Defendants other

than Giguiere are able to proceed with discovery unhindered by
Fifth Amendment concerns.

In contrast, delaying all discovery

and other proceedings in the instant case until the resolution
of the criminal case will unnecessarily delay the instant case
would not be an “efficient use of judicial resources.”
Keating, 45 F.3d at 325.

See

The Court therefore finds the fourth

Keating factor weighs minimally in favor of a stay at this time.
V.

Interests of Third-Parties
The fifth Keating factor – the interests of third-

parties, here, mainly other shareholders of ESSI stock – weigh
against a stay.
10

VI.

The Public Interest
The interest of the public may be reasonably inferred

by the United States of America’s (“Government”) stance on the
parallel proceedings.

See In re CFS-Related Sec. Fraud Litig.,

256 F. Supp. 2d 1227, 1242 (N.D. Okla. 2003).

Here, the

Government has chosen not to intervene in the instant case,
whereas it did in the SEC action.

See Smith Decl., Exh. A

(Government’s Motions to (1) Intervene; and (2) Stay
Proceedings).

The Court construes this as acknowledgement by

the Government, on behalf of the public, that justice will best
be served by proceeding expeditiously with this litigation.

In

addition, the public has a general interest in the prompt
resolution of both civil and criminal cases.

CFS-Related Sec.

Fraud Litig., 256 F. Supp. 2d at 1242.
After weighing all of the relevant factors, the Court
concludes no substantial prejudice will result from proceeding
with the parallel criminal and civil cases.
F.3d at 324.

See Keating, 45

Giguiere’s Fifth Amendment rights may be

implicated by the parallel proceedings, but his assertions of
those rights are more efficiently dealt with as they arise,
rather than staying discovery as to all Defendants and
effectively halting the instant case for at least another five
months.

11

CONCLUSION
On the basis of the foregoing, Defendants’ Motion to
Stay Civil Case, filed January 29, 2019, is HEREBY DENIED.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAI`I, April 26, 2019.

IAN BELL, ETC., ET AL. VS. JEFFREY TAYLOR, ET AL; CV 17-00530
LEK-RLP; ORDER DENYING DEFENDANT'S MOTION TO STAY CIVIL CASE

12