First Bank Business Capital, Inc. v. Agriprocessors, Inc. et al

Filing 78

ORDER denying 68 Motion to Intervene. Signed by Magistrate Judge Jon S Scoles on 8/18/09. (Stigler, Karo)

IN THE UNITED STATES DISTRICT COURT F O R THE NORTHERN DISTRICT OF IOWA E A S T E R N DIVISION

F IR S T BANK BUSINESS CAPITAL, I N C ., a Missouri corporation, P l a in t if f , vs. A G R IP R O C E S S O R S , INC., an Iowa c o r p o ra tio n ; LOCAL PRIDE, LLC, an I o w a limited liability company; A B R A H A M AARON RUBASHKIN; a n d `SHOLOM RUBASHKIN, D e f e n d a n t s. ____________________ T A B L E OF CONTENTS I. II. IN T R O D U C T IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 R E L E V A N T FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. T h e Civil Case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 B. T h e Criminal Case.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 I S S U E PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 D IS C U S S IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. I n te r v e n tio n as a Matter of Right. . . . . . . . . . . . . . . . . . . . . . . 1. I s the Motion Timely?. . . . . . . . . . . . . . . . . . . . . . . . . . 2. D o e s the Government Have a Recognized Interest Which May b e Impaired by the Disposition of this Case?. . . . . . . . . . . B. P e r m is s iv e Intervention.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4 .. 4 .. 5 .. 6 . 10 N o . C08-1035 O R D E R DENYING MOTION TO IN T E R V E N E

III. IV .

V.

O R D E R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

I . INTRODUCTION T h is matter comes before the Court on the Motion to Intervene Pursuant to Rule 24 ( d o c k e t number 68) filed by the United States of America on July 10, 2009; the Response (d o c k e t number 69) filed by First Bank on July 15, 2009; the Resistance (docket number 7 3 ) filed by Sholom Rubashkin on August 6, 2009, and the Joinder (docket number 75) file d by Agriprocessors, Inc., on August 8, 2009. Pursuant to Local Rule 7.c, the motion w ill be decided without oral argument. I I . RELEVANT FACTS A . The Civil Case O n October 30, 2008, Plaintiff First Bank Business Capital, Inc. ("First Bank") in itia te d this action by the filing of a Complaint (docket number 1) against Defendants A g rip ro c e ss o rs , Inc., Local Pride, LLC, Abraham Aaron Rubashkin, and Sholom R u b a s h k in . First Bank asked that judgment enter against Agriprocessors and Local Pride o n an Exchange Revolving Note executed by them. First Bank also asked that judgment e n te r against Aaron Rubashkin and Sholom Rubashkin, based on guarantees executed by th e m . On November 3, 2008, Agriprocessors filed a voluntary petition for Chapter 11 b a n k ru p tc y protection. Defendant Sholom Rubashkin filed an Answer (docket number 46) o n December 23, 2008. Following denial of their motions to dismiss, Defendants Local P r id e and Abraham Aaron Rubashkin filed Answers (docket numbers 55 and 56) on March 5 , 2009. O n April 3, 2009, the Court adopted a proposed scheduling order and discovery p la n submitted by the parties. Among other things, the Court established a September 30, 2 0 0 9 deadline for completion of discovery, and a dispositive motions deadline of October 1 5 , 2009. See docket number 57. Trial has been scheduled before Chief Judge Linda R. R ea d e on February 16, 2010, with a final pretrial conference on January 21, 2010. See d o c k e t number 58. O n June 16, 2009, First Bank filed a First Amended and Supplemental Complaint (d o c k e t number 64), adding an additional count, claiming actual and exemplary damages 2

a g a in st Sholom Rubashkin for fraud. Answers to the amended complaint were filed by A b ra h a m Aaron Rubashkin, Sholom Rubashkin, and Local Pride on June 23 and 24, 2009. S e e docket numbers 65, 66, and 67. B . The Criminal Case M e a n w h i le , on November 20, 2008, Agriprocessors, Sholom Rubashkin, and others w e re charged with multiple criminal offenses in a Second Superseding Indictment returned in United States of America v. Agriprocessors, Inc. et al., No. 2:08-cr-01324-LRR (N.D. Io w a).
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In addition to charges associated with harboring undocumented aliens,

A g rip ro c e ss o rs and Sholom Rubashkin were charged with two counts of bank fraud (C o u n ts 11 and 12). The alleged activity giving rise to the bank fraud charges is the same a s that alleged by First Bank in the instant civil action. T h e criminal charges have been amended repeatedly, most recently with a Seventh S u p e r s e d in g Indictment filed on July 16, 2009. There are 72 counts associated with h a rb o rin g illegal aliens and 71 counts associated with bank fraud. There are also 20 counts a lle g in g a violation of an order of the Secretary of Agriculture. The trial of the

" im m ig r a tio n counts" has been severed from trial on the "financial counts," with the trial o n the financial counts scheduled to begin on September 15, 2009. I I I . ISSUE PRESENTED In its motion to intervene, the Government asks that it be permitted to intervene in th is civil action "for the limited purpose of seeking a stay of discovery in this proceeding p e n d in g the outcome of a parallel criminal case in the Northern District of Iowa against D e fe n d a n ts Agriprocessors, Inc., and Sholom Rubashkin." A copy of its proposed motion to stay discovery is attached to the instant motion to intervene. The Government argues

The criminal case was initiated with the return of an Indictment against Karina P ila r Freund on September 17, 2008, but Agriprocessors, Sholom Rubashkin, and the o th e r defendants were not added until the Second Superseding Indictment was returned on N o v e m b er 20, 2008. 3

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th a t failing to stay discovery in the civil case "would severely prejudice the parallel cr im ina l prosecution." In its response, First Bank states that it does not object to the Government's motion, b u t only if "the filing of dispositive motions is not stayed," and the trial date "is not v a c a te d ." Sholom Rubashkin resists the Government's motion to intervene, and argues th a t he (and First Bank) will be prejudiced by any stay of discovery in the civil proceeding. I V . DISCUSSION T h e Government asks that it be permitted to intervene in this civil action for the lim ite d purpose of seeking a stay of discovery. The Government argues that it is entitled to intervene as a matter of right, or alternatively, that the Court should grant permissive in te rv e n tio n . A . Intervention as a Matter of Right F EDERAL RULE OF CIVIL PROCEDURE 24(a) provides that on timely motion, the C o u rt must permit anyone to intervene who is given an unconditional right to intervene by fe d e ra l statute, or who c la im s an interest relating to the property or transaction that is th e subject of the action, and is so situated that disposing of the ac tio n may as a practical matter impair or impede the movant's a b ility to protect its interest, unless existing parties adequately re p re se n t that interest. F ED. R. CIV. P. 24(a)(2). Accordingly, to intervene as a matter of right, the Government (1 ) must file a timely motion establishing (2) that it has a "recognized interest" in this a c t io n , which (3) might be impaired "by the disposition" of this case, and (4) its interest w ill not be adequately protected by First Bank. South Dakota v. United States Dept. of In te rio r, 317 F.3d 783, 785 (8th Cir. 2003).

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1.

I s the Motion Timely?

T h e Court first addresses the issue of whether the motion is timely. "The timeliness o f a motion to intervene is determined from the totality of the circumstances." Winbush v . Iowa, 66 F.3d 1471, 1479 (8th Cir. 1995). Factors to be considered by the Court in d e te r m in in g whether a motion is timely include "the progress of the litigation at the time in te rv e n tio n is sought, the length of the delay, the reason for the delay, and the prejudice o th e r parties would suffer if the intervention were permitted." EEOC v. Westinghouse E l e c . Corp., 675 F.2d 164, 165 (8th Cir. 1992). There are, however, "no ironclad rules" w h ich govern a determination of timeliness. Mille Lacs Band of Chippewa Indians v. M in n e so ta , 989 F.2d 994, 998 (8th Cir. 1993). T h e first factor identified in Westinghouse is "the progress of the litigation at the tim e intervention is sought." 675 F.2d at 165. This case has been pending for nearly ten m o n th s. The Court-imposed deadline for completion of discovery is September 30. The d e a d lin e for filing dispositive motions is October 15. A trial date has been established. T h is case is well beyond its early stages. Accordingly, the Court finds that the first factor id e n tifie d in Westinghouse weighs against a finding that the motion is timely filed. T h e Court must next consider the length of the delay in filing the motion to in te rv e n e , and the reason for the delay. The Government did not file its motion to in t e r v e n e until July 10, 2009, nearly eight months after it initiated criminal charges against A g rip ro c e ss o rs and Sholom Rubashkin. The Government argues that the motion is timely b e c a u se First Bank did not file its amended complaint, adding a fraud count, until June 16, 2 0 0 9 . The Court finds the Government's argument unconvincing. While First Bank only re c e n tly added a count alleging fraud to its claims in this civil action, the basic facts u n d e rly in g First Bank's claims remain unchanged, and have been known to the G o v e r n m e n t since at least the filing of the Second Superseding Indictment. That is, the p o te n tia l for Rubashkin using discovery obtained in the civil action to defend against the c rim in a l charges has existed since November 20, 2008.

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F in a lly , the Court is required to consider whether the parties will be prejudiced by th e Government's intervention. If the Government is permitted to intervene, it would seek a stay of discovery until after the financial counts in the criminal case "are resolved by a ju ry verdict or other disposition." Trial in the criminal case is scheduled to begin on S ep tem b er 14 and is expected to last at least three weeks. Accordingly, the Government's p ro p o s e d stay would extend beyond the current deadline for completion of discovery. In its response to the motion to intervene, First Bank states that it does not object, p ro v id e d the deadline for filing of dispositive motions (October 15) and the trial date (F e b ru a r y 16, 2010) are unaffected. Defendants have not asked for any extension of the d e a d lin e s in this case, and it appears that First Bank would resist any such extension. T h e re fo re , if the Government is permitted to intervene, and if the Court ordered a stay of d is c o v e r y , then the parties may be required to proceed with dispositive motions and trial w ith o u t any further discovery. After considering the totality of the circumstances,

in c lu d in g the factors identified by the Court in Westinghouse, the Court concludes that the G o v er n m en t's motion to intervene was not timely filed. Compare, SEC v. Fraser, 2009 W L 1531854 (D. Ariz.) at *1 ("The Government's motion was timely because it was filed e a rly on in the case, there has been no delay in filing the motion, and no prejudice or delay is apparent from permitting intervention."); SEC v. Gerhardt, 2007 WL 1452236 (E.D. M o .) at *1 ("This action has not been pending long enough so that the government's inter v en tio n will prejudice the parties."). 2. D o e s the Government Have a Recognized Interest Which May be Impaired b y the Disposition of this Case?

T h e Court has concluded that the Government's motion to intervene is not timely a n d , therefore, may be denied for that reason. The Court also concludes, however, that th e Government's stated interest in this civil case does not meet the requirements for inter v en tio n as a matter of right, as found in Rule 24(a). FEDERAL RULE OF CIVIL

P ROCEDURE 24(a) establishes a right to intervene under two circumstances: First, the court m u st permit anyone to intervene who "is given an unconditional right to intervene by

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fe d e ra l statute." Rule 24(a)(1). The Government does not claim that there is any federal s ta t u te which gives it an unconditional right to intervene in this case. Second, the court m u st permit anyone to intervene who "claims an interest relating to the property or tr a n s a c tio n that is the subject of the action, and is so situated that disposing of the action m ay as a practical matter impair or impede the movant's ability to protect its interest." R u le 24(a)(2). T h e Government argues that it "has a legally protected interest which is directly and im m in e n tly imperiled by the pending civil action."
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Specifically, the Government asserts

th a t it has a "discernible interest in intervening in order to prevent discovery in the civil a c tio n from being used to circumvent the more limited scope of discovery in the criminal m a tte r," citing SEC v. Chestman, 861 F.2d 49, 50 (2d Cir. 1988).
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Other district court

c a se s cite Chestman for the same proposition. See, e.g., Ashworth v. Albers Medical, In c ., 229 F.R.D. 527, 529-530 (S.D.W.V. 2005); SEC v. Downe, 1993 WL 22126 (S .D .N .Y .) at *11. In Chestman, the Government sought intervention into a civil case solely for the p u rp o se of seeking a stay of discovery pending completion of a criminal investigation c o n c e rn in g the same underlying facts. The district court denied intervention as of right u n d e r Rule 24(a), but granted permissive intervention under Rule 24(b). It then stayed d is c o v e r y . Defendant appealed from the grant of intervention, and alternatively, sought a writ of mandamus to vacate the order granting intervention. After concluding that an o r d e r granting intervention could not be challenged by interlocutory appeal, the Court also d en ied the petition for writ of mandamus. In a brief per curiam opinion, the Second C ir c u it Court of Appeals found that a writ of mandamus would only issue when an

See Government's Memorandum in Support of Motion to Intervene at 5 (docket n u m b er 68-4 at 5). The Eighth Circuit Court of Appeals has not addressed the issue of whether the G o v er n m en t may intervene in a civil case for the sole purpose of staying discovery. In fac t, Chestman appears to be the only Circuit case to address the issue. 7
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" e x tr e m e need for reversal" existed following a "clear abuse of discretion" by the district c o u r t . 861 F.2d at 50. In finding that the defendant was not prejudiced, the Court c o n c lu d e d that "appropriate opportunities for discovery can be allowed when the stay is lifte d ." Id. In concluding that there was no "clear abuse of discretion," the Court stated: T h e government had a discernible interest in intervening in o rd e r to prevent discovery in the civil case from being used to c ir c u m v e n t the more limited scope of discovery in the criminal m a tte r. Allowing intervention under either Rule 24(a) or (b) w as therefore not a "clear abuse of discretion." Id . T h e Court in Chestman does not discuss the language in Rule 24(a)(2), which r e q u ir e s the movant's interest to relate "to the property or transaction that is the subject o f the action." While the government may have an interest in intervening to prevent d is c o v e r y in a civil case from being used in a related criminal action, Rule 24(a)(2) does n o t recognize that interest. Rather, the interest which authorizes intervention as a matter o f right must relate to the "transaction" that is the subject of the action. United States v. M e tro p o lita n St. Louis Sewer Dist., 569 F.3d 829, 840 (8th Cir. 2009) ("A court must c a r e fu lly analyze whether the proposed intervenor's asserted interest really is bound up w ith the subject matter of the litigation."). In this case, the "transaction" which is the s u b je c t matter of the action are the parties' notes, guarantees, and related activities. The G o v e r n m e n t claims no interest in those matters. The Government's interest here is in the litig a tio n process, not in the subject matter of the litigation. Accordingly, the Court c o n c lu d e s that the Government's interest in limiting discovery is not one that is recognized b y Rule 24(a)(2). Id. at 839 (a proposed intervenor must demonstrate that "the subject m a tte r of the action affects its interests in a direct rather than tangential way") (emphasis ad d ed ). F u rth e rm o re , even if the Government has an interest in this case which is r e c o g n iz e d by the rule, the Government must be "so situated that disposing of the action m a y as a practical matter impair or impede" its claimed interest. Rule 24(a)(2). Here, the

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G o v e r n m e n t's stated interest is to prevent Defendants from using the more liberal d isc o v e ry permitted in civil cases from being used in the criminal case. That interest is n o t affected, however, by the disposition of this action, as required by Rule 24(a)(2) to a u th o riz e intervention as a matter of right. That is, whether or not First Bank ultimately p r ev ails in the disposition of this action will not "impair or impede" the Government's d i s c o v e r y concerns. T h e Court recognizes that in finding that Rule 24(a)(2) does not authorize the G o v e r n m e n t to intervene as a matter of right to protect its discovery interest, it has found c o n tr a ry to a long line of cases. It is clear that district courts have regularly allowed the g o v e rn m e n t to intervene in civil cases for the sole purpose of staying discovery. Most of th o se cases find their genesis in Chestman. For example, in SEC v. Shanahan, 2007 WL 3 2 3 2 2 4 8 (E.D. Mo.), a case cited by the Government in its memorandum, the Court c o n c lu d e d that the government "clearly has an interest in the subject matter of the present a c tio n , `because it has a recognizable interest in preventing discovery in the civil case from b e in g used to circumvent the more limited scope of discovery in the related criminal c a s e .'" Id. at *1 (quoting SEC v. Mutuals.com, Inc., 2004 WL 1629929 (N.D. Tex.), w h i c h in turn cites Chestman). As additional authority, the Court in Mutuals.com cites B u r ee r o n g v. Uvawas, 167 F.R.D. 83 (C.D. Cal. 1996), which states that "[i]t is well e s ta b lis h e d that the United States Attorney may intervene in a federal civil action to seek a stay of discovery when there is a parallel criminal proceeding, which is anticipated or a lr e a d y underway that involves common questions of law or fact." Id. at 86 (quoting SEC v . Mersky, 994 WL 22305 (E.D. Pa.), which in turn cites Chestman). In noting that courts h a v e "almost universally permitted" the government to intervene in these circumstances, th e Court in Mersky quoted SEC v. Downe, 1993 WL 22126 (S.D.N.Y.) which in turn c i te s Chestman. The Government's memorandum includes a long list of cases in which th e Government has been allowed to intervene and obtain a stay of discovery. T h e Court in Chestman addressed a "clear abuse of discretion" standard in the c o n te x t of a petition for writ of mandamus, however, and did not discuss the language 9

fo u n d in Rule 24(a). The clear language of Rule 24(a)(2) states that a movant seeking to in te rv e n e as a matter of right must claim an interest "relating to the property or transaction th a t is the subject of the action," and that the disposition of the action may "impair or im p e d e the movant's ability to protect its interest." The Court concludes that the

G o v e r n m e n t's interest in limiting discovery prior to the trial of a related criminal action d o es not meet the requirements for intervention as a matter of right found in Rule 24(a)(2). S im p ly put, just because the Government has an interest in limiting the discovery which m a y be obtained for use in the criminal case, doesn't mean it has an interest in the " tran sa ction that is the subject of the action," as required by Rule 24(a)(2). B . Permissive Intervention F EDERAL RULE OF CIVIL PROCEDURE 24(b) provides that on timely motion, the court m a y permit anyone to intervene who is given a conditional right to intervene by a federal s ta tu te , or who h a s a claim or defense that shares with the main action a c o m m o n question of law or fact. F ED. R. CIV. P. 24(b)(1)(B). The Government does not claim that it is given a conditional r ig h t to intervene by a federal statute. Accordingly, to prevail on its request for permissive in te rv e n tio n , the Government must (1) file a timely motion, (2) establishing "a claim or d e fe n s e " that shares a common question of law or fact with this case. The Government a r g u e s that "[b]oth the criminal and civil actions are based, in large part, upon the same alleg ation s of fraud."
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A s set forth above, the Court concludes that Defendant's motion to intervene was n o t timely filed. Accordingly, it fails for that reason. Even if the motion were otherwise tim e ly filed, however, the Court concludes that the Government's request to intervene and s ta y discovery should be denied.

See Government's Memorandum in Support of Motion to Intervene at 11 (docket n u m b er 68-4 at 11). 10

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T h e Court may authorize a party to intervene permissively if it has a claim which s h a r e s a common question of law or fact with a pending action. Here, the Government a r g u e s that its "claims" in the criminal action share common questions of fact with those in the instant civil case. "The existence of a `common question' is liberally construed." B u r ee ro n g , 167 F.R.D. at 85. However, "[i]f there is no right to intervene under Rule 2 4 (a ), it is wholly discretionary with the court whether to allow intervention under Rule 2 4 (b ) and even though there is a common question of law or fact, or the requirements of R u le 24(b) are otherwise satisfied, the Court may refuse to allow intervention." 7 C Wright, Miller & Kane, Federal Practice and Procedure, § 1913, at 376-77 (cited with a p p ro v a l in South Dakota ex rel Barnett v. U.S, Dept. of Interior, 317 F.3d 783, 787 (8th C ir. 2003)). A stay of discovery in this case will prejudice the parties. First Bank states that it d o e s not object to the Government's request, provided the dispositive motions deadline and tria l date are unaffected. That is, First Bank has an interest in the timely disposition of this c a s e and does not want its interests prejudiced by the Government's concerns regarding th e use of discovery. Similarly, Rubashkin would be prejudiced by being unable to c o n d u c t discovery which may be necessary for dispositive motions or trial. It cannot be a ss u m e d --a s the Government would apparently have it-- that the deadlines or the trial date in the civil case will be extended. F u r t h e r m o r e , the Government fails to allege with specificity how the criminal case w ill be "severely prejudiced" by failing to stay discovery in the civil action. Conclusory a l le g a t io n s that a criminal case might be harmed simply because civil discovery rules are m o r e broad than criminal discovery rules are not sufficient to establish the "substantial p re jud ice " necessary to warrant granting a stay. Fraser, 2009 WL 1531854 at *2 (citing K e a tin g v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 1995)).
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See also

In Fraser, the government moved to intervene in the case and to stay the civil a c tio n pending resolution of two criminal cases, while in the instant action the Government ( c o n t in u e d . . . ) 11

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U n ite d States v. All Funds on Deposit, 767 F. Supp. 36, 42 (E.D.N.Y. 1991) ("mere co n clu so ry allegations of potential abuse or simply the opportunity by the claimant to im p ro p e r ly exploit civil discovery will not avail on a motion for a stay") (quoting United S tates v. Leasehold Interests in 118 Ave. D, 754 F. Supp. 282, 287 (E.D.N.Y. 1990)). E v e n if the Government's motion had been timely filed in this case, the Court c o n c lu d e s that it should be denied permissive intervention for the sole purpose of staying d i s c o v e r y . As set forth above, to allow the Government to intervene for that purpose w o u ld prejudice the parties. V . ORDER IT IS THEREFORE ORDERED that the Motion to Intervene (docket number 68) file d by the United States on July 10, 2009 is hereby DENIED. D A T E D this 18th day of August, 2009.

JON STUART SCOLES UNITED STATES MAGISTRATE JUDGE NORTHERN DISTRICT OF IOWA

(...continued) s e e k s only to stay discovery. Given the late stage of the civil case, however, a stay of d is c o v e r y has the practical effect of prejudicing the parties or extending the dispositive m o tio n s deadline and trial. 12

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