Universitas Education, LLC v. Nova Group, Inc.

Filing 591

ORDER granting (553) Motion to Take Deposition; denying (559) Motion for Protective Order in case 1:11-cv-01590-LTS-HBP; granting (354) Motion to Take Deposition in case 1:11-cv-08726-LTS-HBP. Accordingly, for all the foregoing reasons, Universitas' motion to take the deposition of Mr. Carpenter (D.I. 553 in 11 Civ. 1590 and D.I. 354 in 11 Civ. 8726) is granted and Mr. Carpenter's motion for a protective order (D.I. 559 in 11 Civ. 1590) is denied. Universitas may take Carpenter's video deposition on a mutually convenient date, said date to be no later than April 13, 2016. Carpenter may raise any Fifth Amendment objections on a question-by-question basis at the deposition. (As further set forth in this order) (Signed by Magistrate Judge Henry B. Pitman on 3/23/2016) Filed In Associated Cases: 1:11-cv-01590-LTS-HBP, 1:11-cv-08726-LTS-HBP Copies Transmitted By Chambers. (lmb) Modified on 3/23/2016 (lmb).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
UNIVERSITAS EDUCATION, LLC,
Petitioner,
-against-

:
:

11 Civ. 1590 (LTS)(HBP)

:
ORDER

NOVA GROUP, INC., as trustee,
named fiduciary, plan sponsor
and administrator of the
Charter Oak Trust Welfare
Benefit Plan,
Respondent.

:
:
:
:

-----------------------------------X
NOVA GROUP, INC., as trustee,
sponsor and named fiduciary
of the Charter Oak Trust
Welfare Benefit Plan,

:
:
:

Petitioner,

11 Civ. 8726 (LTS)(HBP)
:

-against-

ORDER
:

UNIVERSITAS EDUCATION, LLC,
:
Respondent.
:
-----------------------------------X

PITMAN, United States Magistrate Judge:

I.

Introduction

Petitioner/respondent Universitas Education, LLC
("Universitas") has filed a motion for leave to take the video
deposition of judgment debtor Daniel Carpenter in prison pursuant

to Fed.R.Civ.P. 30(a)(2)(B) in connection with Universitas'
efforts to collect a judgment in the amount of $30,600,000.00
entered against Carpenter by the Honorable Laura T. Swain, United
States District Judge, on August 12, 2014.1

Carpenter, who is

currently incarcerated as a result of mail and wire fraud conviction, see generally United States v. Carpenter, 781 F.3d 599 (1st
Cir. 2015), cert. denied, 136 S. Ct. 196 (2015), opposes the
motion and has cross moved for a protective order precluding or
staying the deposition at least until the final resolution of an
indictment filed against him in the United States District Court
for the District of Connecticut charging him with additional
counts of wire fraud, mail fraud, conspiracy and other offenses.

1

Universitas obtained a judgment against Nova Group, Inc.
and subsequently moved pursuant to New York C.P.L.R. § 5225(b)
and Fed.R.Civ.P. 69 for the turnover of assets by respondent
Daniel Carpenter and his affiliated entities. Judge Swain found
that "Mr. Carpenter caused Nova, the Charter Oak Trust, and other
affiliated entities, directly or indirectly, to transfer the
Insurance Proceeds, to which [Universitas] is entitled, to and
through entities that he controlled, either directly or
indirectly, all for the personal benefit of Mr. Carpenter and his
affiliates and without consideration." See Universitas Educ.,
LLC v. Nova Group, Inc., Nos. 11 Civ. 1590, 11 Civ. 8726
(LTS)(HBP), 2014 WL 3883371 at *5 (S.D.N.Y. Aug. 07, 2014).
Judge Swain granted Universitas' turnover motion and entered
Universitas' money judgments against Carpenter and his affiliated
entities. See Judgment, dated Aug. 12, 2014 (Docket Item
("D.I.") 475 in 11 Civ. 1590, D.I. 304 in 11 Civ. 8726);
Universitas Educ., LLC v. Nova Group, Inc., supra, 2014 WL
3883371 at *13.
2

See generally United States v. Carpenter, Case No. 3:13-CR-226
(RNC), 2015 WL 9480449 (D. Conn. Dec. 29, 2015).
For the reasons set forth below, Universitas' motion to
compel Carpenter's deposition is granted, and Carpenter's motion
for a protective order is denied.

II.

Facts

This action arises out of the fraudulent transfer of
the proceeds of two life insurance policies between and among
various entities controlled by Carpenter.

See Universitas Educ.,

LLC v. Nova Group, Inc., 11 Civ. 1590 (LTS)(HBP), 11 Civ. 8726
(LTS)(HBP), 2014 WL 3883371 at *1-*3 (S.D.N.Y. Aug. 7, 2014);
Universitas Educ., LLC v. Nova Group, Inc., 11 Civ. 1590
(LTS)(HBP), 11 Civ. 8726 (LTS)(HBP), 2013 WL 6123104 at *1-*3
(S.D.N.Y. Nov. 20, 2013).

The proposed deposition concerns,

among other things, the identity and location of assets belonging
to Carpenter and other judgment debtors -- a network of limited
liability companies that Carpenter created (Universitas' Opposition to Motion for Protective Order and in Further Reply in
Support of Motion to Take the Deposition of Daniel Carpenter,
dated May 18, 2015 (D.I. 561 in 11 Civ. 1590, D.I. 359 in 11 Civ.
8726) ("Universitas Reply") at 1, 4).

3

The criminal charges against Carpenter pending in
Connecticut relate to an insurance fraud, and Carpenter asserts
that these charges are "directly related to his assets, the
assets of the other judgment debtors [in this action], and any
financial transactions that may have occurred between the various
judgment debtors" (Motion for Protective Order and Objection to
Motion for Leave Concerning Deposition of Daniel Carpenter, dated
May 11, 2015 (D.I. 559 in 11 Civ. 1590) ("Carpenter Mem.") at 2).
Carpenter claims that the Connecticut indictment charges him
with, among other things, conspiracy to commit money laundering
and illegal monetary transactions with respect to the insurance
proceeds at issue in this case (Carpenter Mem. at 2-3).

Carpen-

ter argues that any relevant questions propounded at the deposition will necessary implicate his Fifth Amendment privilege and
any testimony that he may give may be used against him in the
pending criminal action "or may furnish a link in the chain of
evidence that could lead to further prosecution against him"
(Carpenter Mem. at 2-3).

III.

Analysis

The "Constitution 'rarely, if ever, requires' trial
courts to grant stays of civil proceedings" due to the burden on
the exercise of the Fifth Amendment.
4

See Ironbridge Corp. v.

C.I.R., 528 F. App'x 43, 46 (2d Cir. 2013) (summary order),
quoting Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d
83, 97-98 (2d Cir. 2012) (emphasis in original).

An application

to stay civil proceedings pending the outcome of parallel criminal proceedings is addressed to the discretion of the district
court and requires a "particularized inquiry into the circumstances of, and the competing interests of the case;" a district
court's decision on an application for a stay will not be disturbed unless it results in "prejudice so great that, as a matter
of law, it vitiates a defendant's constitutional rights or
otherwise gravely and unnecessarily prejudices the defendant's
ability to defend his or her rights."

Louis Vuitton Malletier

S.A. v. LY USA, Inc., supra, 676 F.3d at 97, 99, 100 (citations
omitted); see also Ironbridge Corp. v. C.I.R., supra, 528 F.
App'x at 46 n. 1 ("'as long as a trial court considers the
relevant factors and acts with moderation to accommodate both a
litigant's valid Fifth Amendment interests and the opposing
parties' needs in having the litigation conducted fairly, we will
not disturb the measures used by that court in the exercise of
its discretion'"), quoting United States v. Certain Real Prop. &
Premises Known as 4003–4005 5th Ave., Brooklyn, N.Y., 55 F.3d 78,
85 (2d Cir. 1995).

5

Several factors serve as a "rough guide" to the resolution of a motion to stay civil proceedings pending the outcome of
parallel criminal proceedings:
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 defendants
have been indicted; 3) the private interests of the
plaintiffs in proceeding expeditiously weighed against
the prejudice to plaintiffs 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.

Louis Vuitton Malletier S.A. v. LY USA, Inc., supra, 676 F.3d at
99, quoting Trs. of Plumbers & Pipefitters Nat'l Pension Fund v.
Transworld Mech., Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995)
(Chin, D.J.).

The requesting party has the burden to establish a

need for the stay.

Clinton v. Jones, 520 U.S. 681, 708 (1997).

"[A]bsent a showing of undue prejudice upon defendant
or interference with his constitutional rights, there is no
reason why plaintiff should be delayed in its efforts to diligently proceed to sustain its claim."

Louis Vuitton Malletier

S.A. v. LY USA, Inc., supra, 676 F.3d at 98 (internal quotation
marks and citation omitted).

The defendant's prior discovery

misconduct and the age of the litigation are relevant to the
determination of whether to grant a stay.

See Guggenheim Capi-

tal, LLC v. Birnbaum, 722 F.3d 444, 454 (2d Cir. 2013) (defen6

dant's repeated failures to comply with the district court's
discovery orders weighed against a stay); Fendi Adele, S.R.L. v.
Ashley Reed Trading, Inc., 507 F. App'x 26, 32 (2d Cir. 2013)
(summary order) (affirming denial of stay of deposition until
termination of federal criminal proceedings where district court
"considered the possible prejudice to [the defendant]" but found
that the stay was not necessary to protect defendant's rights and
"would further delay a discovery process that had already been
significantly delayed"); Louis Vuitton Malletier S.A. v. LY USA,
Inc., supra, 676 F.3d at 102 (defendants' request for a complete
stay of the proceedings "r[ung] hollow in light of defendants'
plainly dilatory tactics in tendering discovery even prior to
their indictments").

A stay may also be denied in favor of an

alternative remedy, such as leaving the party in question to
invoke the Fifth Amendment.

See Fendi Adele S.R.L. v. Ashley

Reed Trading, Inc., 06 Civ. 0243 (JES)(MHD), 2006 WL 2585612 at
*2 (S.D.N.Y. Sept. 8, 2006)(Dolinger, M.J.), aff'd, 507 F. App'x
26, 32 (2d Cir. 2013).
A review of the six factors identified by the Court of
Appeals in Louis Vuitton Malletier S.A. v. LY USA, Inc., supra,
676 F.3d at 99, and the interests of justice demonstrate that a
stay of Carpenter's deposition is not warranted.

7

The first two factors discussed by the Court of Appeals
-- the extent to which the issues in the criminal case overlap
with those presented in the civil case and the status of the
criminal case -- weigh in Carpenter's favor but are not sufficient to justify a stay.

There is at least some overlap between

the proposed subjects of Carpenter's deposition and the issues in
the criminal case.

Universitas states that the purpose of the

deposition is to identify and locate assets to satisfy
Universitas' judgment, including identification of the assets,
cash flows, and bank accounts of Carpenter's numerous limited
liability companies (Universitas Reply, at 2).

Carpenter points

out that Counts Thirty-Four through Fifty-Seven of the Superseding Indictment in the Connecticut case allege that the movement
of funds between and among the various judgment debtors in this
case constitutes mail fraud and/or wire fraud (Carpenter Mem. at
2-3).

Thus, Carpenter argues that his testimony concerning the

location of the assets in the possession of the judgment debtors
could tend to prove the allegations in the criminal case.
The status of the criminal case also weighs in Carpenter's favor because the criminal trial is imminent.

See Louis

Vuitton Malletier S.A. v. LY USA, Inc., supra, 676 F.3d at 101
("a stay is most justified where a movant . . . is already under
indictment for a serious criminal offense and is required at the
8

same time to defend a civil action involving the same subject
matter").

Carpenter, however, is not currently defending this

action; a judgment has already been entered against him and the
purpose of the deposition is to aid in collecting that judgment.
Thus, while the first two factors weigh in Carpenter's favor,
they do not weigh heavily in his favor.
The third factor, Universitas' interest in proceeding
expeditiously and the prejudice to Universitas caused by a delay,
weighs heavily against a stay because Carpenter's obstructionist
conduct in discovery has already frustrated and delayed
Universitas' collection of its judgment.

In particular, Carpen-

ter's dilatory tactics and his inconsistent use of the Fifth
Amendment privilege in this case to date demonstrate that a stay
would be unfair to Universitas, which has been diligently trying
to collect its judgment.

Carpenter does not dispute that he has

been aware of the criminal investigation in the District of
Connecticut since at least May of 2011.2

2

Judge Swain has noted

In May 2011, the United States Attorney's Office for the
District of Connecticut and attorneys for Carpenter signed a
stipulation identifying Mr. Carpenter as a "target" of a grand
jury investigation in the Connecticut proceedings; the parties
entered into a stipulation in connection with the government's
raid of Carpenter's offices in Connecticut. See Ex. 14 to
Declaration of Paula K. Colbath, dated Dec. 4, 2014 (D.I. 518 in
11 Civ. 1590, D.I. 330 in 11 Civ. 8726; Mem. Of Daniel Carpenter
In Opposition to Motion for Civil Contempt, dated Jan. 4, 2013
(continued...)
9

that during discovery, Carpenter "resisted all discovery efforts
to determine the whereabouts of the Insurance Proceeds after the
transfers, and such secrecy further indicates a fraudulent
intent."

Universitas Educ., LLC v. Nova Group, Inc., supra, 2014

WL 3883371 at *3.

Judge Swain also noted that in October 2012,

Carpenter invoked the Fifth Amendment in response to all substantive questions concerning the whereabouts of the life insurance
proceeds, but, despite his knowledge of the criminal charges
against him, subsequently affirmatively offered testimony "regarding the location of the Life Insurance Proceeds, in an
apparent attempt to assert fabricated defenses to the paper trail
that [Universitas] had uncovered."

Universitas Educ., LLC v.

Nova Group, Inc., supra, 2013 WL 6123104 at *2 n.1.

After Judge

Swain's November 2013 finding that Carpenter had fabricated
testimony regarding the location of the insurance proceeds,
Carpenter testified again on these issues and Judge Swain again
found that his testimony was not credible.

Universitas Educ.,

LLC v. Nova Group, Inc., supra, 2014 WL 3883371 at *4.

Carpen-

ter's effort to switch tactics again and now make a blanket
assertion of his Fifth Amendment privilege appears to be of a
piece with this previous pattern and is not a basis for a stay.

2

(...continued)
(D.I. 199 in 11 Civ. 1590) at 2-3).
10

It would not be in the "interests of justice" to hamper and delay
Universitas' effort to collect its multi-million dollar judgment
further by providing Carpenter with a blanket stay of the proceedings until the conclusion of the criminal action against him.
See Louis Vuitton Malletier S.A. v. LY USA, Inc., supra, 676 F.3d
at 104.
The fourth factor, the private interests of and the
burden on Carpenter, does not weigh in favor of a stay because
Carpenter has not identified any "private interests" or "burden"
that would be imposed on him if he is deposed.

His liability for

the judgment in this action is not in dispute -- this deposition
is being taken to aid in the collection of that judgment.
Carpenter has no legitimate interest in evading collection of the
judgment.

Moreover, as discussed above, Carpenter's previous

testimony in this action demonstrates that he does not consider
the criminal proceedings to be relevant to whether or not he will
testify or invoke the Fifth Amendment on the subject of the
location of his assets -- thus his current concern about proceeding with the post-judgment deposition while the criminal proceedings are pending rings hollow.

See Microfinancial, Inc. v.

Premier Holidays Intern., Inc., 385 F.3d 72, 78-79 (1st Cir.
2004) ("A party who chooses to testify in a civil case in spite
of the risk that a prosecutor later might seek to use his state11

ments against him in a criminal prosecution involving the same
subject matter is hard put to complain about the subsequent
denial of a stay."), citing Milton Pollack, Parallel Civil and
Criminal Proceedings, 129 F.R.D. 201, 205–06 (1989).

And, as

discussed further below, an order that Carpenter's deposition
proceed is not an order that Carpenter has to answer any particular question or that he cannot invoke his Fifth Amendment privilege at the deposition.
The fifth factor, the interest of the courts, also
weighs against a stay because there is a judicial interest in the
resolution of this action, which has been pending since 2011.
After the court entered judgment against Nova Group, Inc. on June
5, 2012, Carpenter vigorously opposed Universitas' discovery
efforts to aid in execution of the judgment, requiring repeated
judicial intervention and wasting scarce judicial resources.
Universitas Educ., LLC v. Nova Group, Inc., supra, 2014 WL
3883371 at *3, *9; Universitas Educ., LLC v. Nova Group, Inc.,
supra, 2013 WL 6123104 at *2.

See Microfinancial, Inc. v.

Premier Holidays Intern., Inc., supra, 385 F.3d at 79 ("court's
convenience" favored denial of a stay where case had been pending
for over three years and because defendants had engaged in "footdragging" in discovery); Williams v. Swack, 13-CV-00974 (S)(M),
2015 WL 2237216 at *3 (W.D.N.Y. May 12, 2015) ("[t]he Court has a
12

strong interest in keeping litigation moving to conclusion
without unnecessary delay . . . " (citation omitted)); Citibank,
N.A. v. Super Sayin' Pub., LLC, 86 F. Supp. 3d 244, 248 (S.D.N.Y.
2015) (Stein, D.J.) ("The Court has an interest in advancing its
docket . . . "); Parlin Funds LLC v. Gilliams, 11 Civ. 2534
(ALC)(MHD), 2012 WL 76134 at *3 (S.D.N.Y. Jan. 9, 2012)
(Dolinger, M.J.) ("The interest of the court in the efficient
management of its docket would be manifestly undercut if a stay
were granted" where defendant had been uncooperative in discovery).
As to the final factor, the public interest would not
be served by an indefinite stay of Carpenter's deposition until
the resolution of the criminal proceedings.

The public has an

interest in "the efficient functioning of the judicial system
which is undermined by the indefinite suspension of civil proceedings."

See S.E.C. v. Constantin, 11 Civ. 4642 (MHD), 2012 WL

1195700 at *4 (S.D.N.Y. Apr. 9, 2012) (Dolinger, M.J.) (internal
quotation marks and citation omitted); see also United States v.
Devin, 918 F.2d 280, 291 (1st Cir. 1990) ("There is an important
public interest in the efficient operation of the judicial system
and in the orderly management of crowded dockets.").

Further,

the public's interest in preservation of constitutional rights is
unaffected by directing that Carpenter's deposition proceed
13

because, as discussed below, Carpenter's right to invoke the
Fifth Amendment is unaffected by this Order.
Thus, the balance of factors demonstrates that Carpenter is not entitled to a stay of his deposition until the conclusion of the criminal proceedings against him.
Carpenter's alternative argument -- that he should not
be required to appear for his deposition at all because any
question asked will implicate his Fifth Amendment privilege -fails because he may not rely on a blanket assertion of the Fifth
Amendment.

The Fifth Amendment protects a witness in a civil

case from being compelled to provide testimony that would furnish
"a link in the chain of evidence needed to prosecute" the witness
for a crime.

Malloy v. Hogan, 378 U.S. 1, 11 (1964) (internal

quotation marks and citation omitted).

However, "the general

reasonableness of a fear of potential self-incrimination does not
justify a refusal to answer any and all questions.

The appropri-

ateness of assertions of privilege must be determined on a
question-by-question basis."

Sterling Nat'l Bank v. A–1 Hotels

Int'l, Inc., 00 Civ. 7532 (GEL), 2004 WL 1418201 at *2 (S.D.N.Y.
June 23, 2004) (Lynch then D.J., now Cir. J.); see also United
States v. Arias, 404 F. App'x 554, 556 (2d Cir. 2011) (summary
order) (district court must undertake "particularized inquiry" to
determine if invocation of Fifth Amendment "was founded on a
14

reasonable fear of prosecution as to each of the posed questions"
(internal quotation marks and citations omitted)) (summary
order); United States v. Zappola, 646 F.2d 48, 53 (2d Cir. 1981)
(holding that district court erred in accepting witness' blanket
assertion of Fifth Amendment privilege rather than undertaking
particularized inquiry of each question); Moll v. U.S. Life Title
Ins. Co. Of New York, 113 F.R.D. 625, 628-29 (S.D.N.Y. 1987)
(Francis, M.J.) ("The proper procedure is for the deponent to
attend the deposition, to be sworn under oath, and to answer
those questions he can without risking self-incrimination.").
Carpenter has failed to demonstrate that the Fifth Amendment
privilege would apply to any specific question posed by
Universitas; indeed, he could not do so because no question has
yet been asked.3

3

Citing a 1989 Florida state court decision, Carpenter
argues that where "the nature of the proceeding has narrowed the
scope of inquiry to matters germane to a pending criminal
prosecution, the Court is able to determine whether the fifth
amendment is founded upon a reasonable fear of prosecution [sic]
without the benefit of individual questions" (Carpenter Mem. at
3, citing Rainerman v. Eagle Nat. Bank of Miami, 541 So.2d 740,
741 (Fla. Dist. Ct. App. 1989)). Rainerman is not persuasive.
Rainerman is contrary to the case law in the Second Circuit cited
in the text. Rainerman is also distinguishable because the
criminal proceedings in that case arose out of same fraudulent
banking relationship that was at issue in the civil case, and the
plaintiff admitted that the proposed deposition questions could
incriminate the defendant. Rainerman v. Eagle Nat. Bank of
Miami, 541 So.2d at 741. Here, while there may be some overlap
(continued...)
15

IV.

Conclusion

Accordingly, for all the foregoing reasons,
Universitas' motion to take the deposition of Mr. Carpenter (D.I.
553 in 11 Civ. 1590 and D.I. 354 in 11 Civ. 8726) is granted and
Mr. Carpenter's motion for a protective order (D.I. 559 in 11
Civ. 1590) is denied.

Universitas may take Carpenter's video

deposition on a mutually convenient date, said date to be no
later than April 13, 2016.

Carpenter may raise any Fifth Amend-

ment objections on a question-by-question basis at the deposition.
Dated:

New York, New York
March 23, 2016
SO ORDERED

I
/~
HEN~

United States Magistrate Judge
Copies transmitted to:
All Counsel

3

( • • • continued)
between Universitas' deposition questions and the criminal
proceedings, Carpenter has failed to show (and Universitas does
not concede) that the criminal proceedings arise out of the same
facts that will be the focus of the deposition or that the
deposition is limited to the transactions alleged to be
fraudulent in the criminal case.

16