Mosing et al v. Boston et al

Filing 174

MEMORANDUM RULING re 148 Motion to Stay. Considering the evidence, the law, and the arguments of the parties, and for the reasons fully explained below, the motion is GRANTED and this matter is STAYED pending the resolution of the criminal proceeding. Signed by Magistrate Judge Patrick J Hanna on 9/22/2017. (crt,Alexander, E)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
LAFAYETTE DIVISION
KENDALL GARRETT MOSING,
ET AL.

CIVIL ACTION NO. 6:14-cv-02608

VERSUS

JUDGE HICKS

ROBERT BOSTON, ET AL.

MAGISTRATE JUDGE HANNA

MEMORANDUM RULING
Currently pending is the motion for stay, which was filed by defendants Robert
Boston and Robert LaBarge. (Rec. Doc. 148). The motion is opposed. Considering
the evidence, the law, and the arguments of the parties, and for the reasons fully
explained below, the motion is GRANTED and this matter is STAYED pending the
resolution of the criminal proceeding.
FACTUAL BACKGROUND
This is an action originally brought by Zloop LA, LLC and its sole owner
Kendall G. Mosing against Robert Boston, Robert LaBarge, and their company
Zloop, LLC (which was succeeded by Zloop, Inc.). In the complaint, the plaintiffs
alleged that the defendants violated various state and federal securities laws, violated
the Louisiana Business Opportunity Law, La. R.S. 51:1821 et seq., and violated the
Louisiana Unfair Trade Practices Act, La. R.S. 51:1401. The plaintiffs also alleged
that the defendants are liable for fraud, conversion, breach of contract, negligent

misrepresentation, and detrimental reliance. The plaintiffs’ complaint detailed a long
and complicated chronology of events allegedly including fraud, deception,
misrepresentation, forgery, and other dishonest acts by the defendants that were
allegedly used in an effort to induce Mosing to invest in Zloop franchises that recycle
electronic waste for profit, to loan money to Zloop, and to establish lines of credit for
Zloop that were secured by Mosing's money. The plaintiffs alleged that the
defendants began making overtures to Mosing regarding prospects for Zloop
franchises in September 2012. Shortly thereafter, Mosing signed franchise disclosure
documents related to the possible purchase of three Louisiana Zloop franchises as
well as franchise agreements for the purchase of Louisiana franchises by three limited
liability companies, Zloop LA-T1, LLC; Zloop LA-T2, LLC; and Zloop LA-T3, LLC,
which the plaintiffs assert were not then in existence and ultimately were not formed.
Zloop, LLC and two other related entities, Zloop Nevada, LLC, and Zloop
Knitting Mill, LLC, sought bankruptcy protection in Delaware. The bankruptcy court
confirmed a Chapter 11 Liquidation Plan in which Mosing was awarded a $40 million
unsecured claim and control over the prosecution of Zloop, Inc.’s claims against third
parties including Boston and LaBarge. The effect of the plan is that Zloop, Inc.
became a plaintiff in this lawsuit.

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In April 2017, Boston and LaBarge were indicted in the United States District
Court, Western District of North Carolina, Charlotte Division. (Rec. Doc. 148-2 at
7-17; 148-3 at 9-20). The factual bases of the crimes charged in the indictments
mirror the allegations of the complaint filed in this lawsuit.
In May 2017, an adversary proceeding pending in the United States Bankruptcy
Court for the District of Delaware, in which Zloop, Inc. asserted claims against
LaBarge, Robyn L. Diamond, and LaBarge-Diamond Family Trust, LLC, was
transferred to this forum and incorporated in this lawsuit.
In the instant motion, Boston and LaBarge seek to have this action stayed
pending the resolution of the criminal charges against them.
LAW AND ANALYSIS
A district court has inherent power to control the disposition of the cases on its
docket,1 and this includes wide discretion to grant a stay in a pending matter.2 “The
district court has a general discretionary power to stay proceedings before it. . . in the
interests of justice.”3 The United States Supreme Court has confirmed the district
courts’ power to stay “any. . . claim related to rulings that will likely be made in a

1

Landis v. N. Am. Co., 299 U.S. 248, 254 (1936).

2

In re Ramu Corp., 903 F.2d 312, 318 (5th Cir. 1990).

3

McKnight v. Blanchard, 667 F.2d 477, 479 (5th Cir. 1982).
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pending or anticipated criminal trial.”4 Therefore, although it is not required to do so,
a district court may stay a civil proceeding during the pendency of a parallel criminal
proceeding5 or “until the criminal case or the likelihood of a criminal case is ended.”6
Granting such a stay contemplates special circumstances and the need to avoid
substantial and irreparable prejudice.7 The burden to show that a stay is warranted
rests on the movant,8 and “the granting of a stay of civil proceedings due to pending
criminal investigation is an extraordinary remedy, not to be granted lightly.”9 Thus,
although “[t]he simultaneous prosecution of civil and criminal actions is generally
unobjectionable,”10 the stay of a pending civil action may be appropriate “when there
is a real and appreciable risk of self-incrimination.”11

4

Wallace v. Kato, 549 U.S. 384, 393 (2007).

5

United States v. Little Al, 712 F.2d 133, 136 (5th Cir. 1983); S.E.C. v. First Fin. Grp.
of Tex., Inc., 659 F.2d 660, 668 (5th Cir. 1981).
6

DeLeon v. City of Corpus Christi, 488 F.3d 649, 655 (5th Cir. 2007) (quoting Wallace
v. Kato, 549 U.S. 384, 394 (2007)).
7

United States v. Little Al, 712 F.2d at 136, citing S.E.C. v. First Fin. Grp. of Tex., Inc.,
659 F.2d at 668.
8

Ruiz v. Estelle, 666 F.2d 854, 856 (5th Cir. 1982).

9

United States v. Simcho, 326 Fed. App’x 791, 792-793 (5th Cir. 2009) (quoting In re
Who's Who Worldwide Registry, Inc., 197 B.R. 193, 195 (Bankr. E.D. N.Y. 1996)).
10

S.E.C. v. First Fin. Grp. of Tex., Inc., 659 F.2d at 667.

11

Brumfield v. Shelton, 727 F.Supp. 282, 284 (E.D. La. 1989) (citing United States v.
Kordel, 391 U.S. 1, 8-9 (1970)).
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The Fifth Circuit has provided the following guidance for deciding whether a
civil case should be stayed pending the resolution of related criminal proceedings:
Judicial discretion and procedural flexibility should be
utilized to harmonize the conflicting rules and to prevent
the rules and policies applicable to one suit from doing
violence to those pertaining to the other. In some
situations it may be appropriate to stay the civil
proceeding. In others it may be preferable for the civil suit
to proceed – unstayed. In the proper case the trial judge
should use his discretion to narrow the range of
discovery.12
Furthermore, “before granting a stay pending resolution of another case, the court
must carefully consider the time reasonably expected for resolution of the other case,
in light of the principle that stay orders will be reversed when they are found to be
immoderate or of an indefinite duration.”13
Incorporating this guidance, courts in the Fifth Circuit consider six factors in
determining whether a civil action should be stayed due to the existence of a related
criminal matter, including (1) the extent to which the issues in the criminal case
overlap those presented in the civil case; (2) the status of the criminal case (including
whether the defendant has been indicted); (3) the plaintiff’s interest in proceeding
expeditiously weighed against the prejudice to the plaintiff that might result from
12

Campbell v. Eastland, 307 F.2d 478, 487 (5th Cir. 1962) (internal citations omitted).

13

Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 545 (5th Cir. 1983) (quoting
McKnight v. Blanchard, 667 F.2d 477, 479 (5th Cir.1982)).
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delay; (4) the private interests of and burden on the defendants; (5) the court’s
interests; and (6) any public interest issues.14 Each factor will be reviewed in turn.
1.

Overlapping issues in the criminal and civil cases.

When the issues presented in the civil and criminal proceedings overlap, courts
often feel compelled to grant a stay.15 Many courts have found that “the similarity of
the issues in the underlying civil and criminal actions is considered the most
important threshold issue in determining whether to grant a stay.”16 After comparing
the factual allegations made in this case with the criminal indictment, this Court finds
that the subject matter of this suit is virtually identical to that of the criminal
indictment. Therefore, this factor weighs in favor of issuing a stay.
2.

The status of the criminal proceeding.

Boston and LaBarge have both been criminally indicted, and criminal charges
against them are pending. “Generally, a stay of a civil case is ‘most appropriate’
14

Alcala v. Texas Webb County, 625 F.Supp.2d 391, 399 (S.D. Tex. 2009) (collecting
district court cases within the Fifth Circuit applying this test).
15

See, e.g., Lee v. Ackal, No. 15-00754, 2016 WL 1690319, at *2 (W.D. La. Apr. 15,
2016); Kelly Marie Villani v. Adellatif E. Devol, No. 15-852-JWD-EWD, 2016 WL 1383498, at *3
(M.D. La. Apr. 7, 2016); Waste Management of Louisiana, LLC v. River Birch, Inc., No. 11-2405,
2012 WL 520660, at *4 (E.D. La. Feb. 15, 2012) (“[T]he extent of the overlap between the suits
weighs heavily in favor of granting a stay.”); Doe v. Morris, No. 11-1532, 2012 WL 359315, at *1
(E.D. La. Feb. 2, 2012) (“The significant overlap of issues in both actions counsels in favor of a
stay.”).
16

State Farm Lloyds v. Wood, No. H-06-503, 2006 WL 3691115, at *2 (S.D. Tex. Dec.

12, 2006).
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when a party to the civil action has already been indicted for the same conduct.”17
The status of the criminal case “is largely linked with the fourth factor, the potential
burden on Defendant in not granting the stay” because the issuance of a criminal
indictment creates a greater risk of self-incrimination.”18 As explained by one court,
a “primary goal of a stay, when a stay is indeed warranted, is to preserve a defendant's
Fifth Amendment right against self-incrimination and to resolve the conflict he would
face between asserting this right and defending the civil action.”19 In this case, the
parties dispute whether Boston and LaBarge have waived their Fifth Amendment
rights against self-incrimination, but the defendants argue that they have not waived
those rights. The fact that both of them have already been indicted creates a
significant risk of self-incrimination, and this Court is unable to conclude that the
defendants have waived their Fifth Amendment rights. Therefore, this Court finds
that this factor weighs in favor of a stay.

17

Modern American Recycling Serv. v. Dunavant, No. 10-3153, 2012 WL 1357720, at
* 3 (E.D. La. Apr. 19, 2012).
18

LeBouef v. Global X-Ray, No. 07-5755, 2008 WL 239752, at *2 (E.D. La. Jan. 29,

19

Alcala v. Texas Webb County, 625 F.Supp.2d at 397.

2008).

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3. The plaintiffs’ interests.
The plaintiffs contend that moving forward with this case is necessary for them
to obtain the discovery necessary to present their claims at trial. They are particularly
“concerned with being able to conduct third party discovery.” (Rec. Doc. 157 at 5).
They also argue that they are entitled to have the trial fixed on a date that is sooner
rather than later, noting that the case has been pending since 2014 and is based on
events that occurred as early as 2012. These are legitimate concerns, and this factor
weighs in favor of denying the motion for stay. However, the defendants’ concerns
are at least partially ameliorated by the fact that the defendants have already been
indicted, and this matter would be stayed only long enough for the criminal
proceeding to be concluded.
4. The defendants' interests.
The defendants contend that they “cannot defend themselves in this action
without prejudicing their ability to defend themselves in the criminal proceeding.”
(Rec. Doc. 148-1 at 12). Despite the plaintiffs’ contention to the contrary, they argue
vociferously that they have not waived their Fifth Amendment rights. Thus, there is
a conflict between the defendants’ ability to assert those rights and still defend against
the claims asserted in this lawsuit. This conflict favors a stay of this action, which

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would allow the defendants to properly address any criminal culpability first, prior
to addressing their potential civil liability.
5. The court's interest.
Both involved courts are interested in judicial economy and expediency.20
Granting a stay of the civil case would serve those interests because “conducting the
criminal proceedings first advances judicial economy.”21 The “conviction of a civil
defendant as a result of the entry of a plea or following a trial can contribute
significantly to the narrowing of issues in dispute in the overlapping civil cases and
promote settlement of civil litigation not only by that defendant but also by
co-defendants who do not face criminal charges.”22 Because of the overlapping issues
and factual basis for the two lawsuit, it is almost certain that duplicative legal findings
will be issued by the two courts if this matter is not stayed. Furthermore, allowing
the criminal suit to proceed first may streamline this matter since there is a possibility
that collateral estoppel or res judicata will affect some or all of the overlapping issues

20

Doe v. Morris, 2012 WL 359315, at *2; Alcala v. Texas Webb County, 625
F.Supp.2d at 407.
21

S.E.C. v. Offill, No. 3:07-CV-1643-D, 2008 WL 958072, at *3 (N.D. Tex. Apr. 9,

2008).
22

Alcala v. Texas Webb County, 625 F.Supp.2d at 406 (quoting Worldcomm, Inc.
Securities Litigation, Nos. 02 Civ. 3288 (DLC) and 02 Civ. 4816 (DLC), 2002 WL 31729501 at *8
(S.D. New York Dec. 5, 2002).
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since “[i]t is well established that a prior criminal conviction may work as estoppel.”23
On balance, this factor weighs in favor of granting a stay.
6. The public interest.
The Fifth Circuit has recognized that the public has a substantial interest in law
enforcement efforts through criminal investigation and prosecution.
The very fact that there is clear distinction between civil
and criminal actions requires a government policy
determination of priority: which case should be tried first.
Administrative policy gives priority to the public interest
in law enforcement. This seems so necessary and wise that
a trial judge should give substantial weight to it in
balancing the policy against the right of a civil litigant to
a reasonably prompt determination of his civil claims or
liabilities.24
One of the plaintiffs' main contentions is that a stay would delay discovery and
the ultimate resolution of this case. While this is a valid concern, “Fifth Circuit
precedent advises that this interest is subservient to law enforcement's prerogative in
this situation as an indictment has been issued.”25
Based on the foregoing evaluation of the competing interests, this Court finds
that all but one of the relevant factors favors the granting of the motion for stay, and
23

United States v. Acadiana Cardiology, LLC, 2014 WL 1320157, at *3 (W.D.
La.,2014) (quoting Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558, 568 (1951)).
24

Campbell v. Eastland, 307 F.2d at 487.

25

Lee v. Ackal, 2016 WL 1690319, at *4.
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this Court further finds that a stay pending the completion of the criminal proceedings
would not substantially harm the plaintiffs’ interests. Therefore, this Court, in its
discretion, decides that a stay should be granted.
When a suit is stayed during the pendency of a criminal proceeding, an
administrative closure is appropriate.26 An administrative closure is a postponement
of proceedings, rather than a dismissal or a termination of proceedings,27 and a case
that is administratively closed “may be reopened upon request of the parties or on the
court's own motion.”28 Accordingly,
IT IS ORDERED that the motion for stay (Rec. Doc. 148) is GRANTED, and
the Clerk of Court is to administratively close this action in his records, without
prejudice to the right of the parties to file a joint motion to reopen this proceeding not
more than ten days after the date of resolution (i.e., when a verdict of not guilty has
been returned or sentencing has been completed) of the criminal case currently
pending against Boston and LaBarge in the United States District Court, Western
District of North Carolina, Charlotte Division. This order shall not be considered a

26

Bean v. Alcorta, 220 F.Supp.3d 772, 778 (W.D. Tex. 2016) (citing Mire v. Full
Spectrum Lending Inc., 389 F.3d 163, 167 (5th Cir. 2004)).
27

Bean v. Alcorta, 220 F.Supp.3d at 778 (citing S. La. Cement, Inc. v. Van Aalst Bulk
Handling, B.V., 383 F.3d 297, 302 (5th Cir. 2004)).
28

Mire v. Full Spectrum Lending Inc., 389 F.3d at 167.
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dismissal or disposition of this matter, and should further proceedings become
necessary or desirable, any party may initiate such proceedings by motion as if this
order had not been entered. Further, to the extent the plaintiffs perceive a need for
discovery on matters that would not impact or otherwise affect the pending
prosecution of Boston and LaBarge, those matters should be brought to this Court’s
attention for consideration.
Signed at Lafayette, Louisiana this 22nd day of September 2017.

____________________________________
PATRICK J. HANNA
UNITED STATES MAGISTRATE JUDGE

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