United States Securities and Exchange Commission v. Woodard et al

Filing 49

MEMORANDUM ORDER: In summary, as the previous basis for staying this case(the then ongoing criminal prosecution of Defendants Woodard and Fields) no longer justifies a stay, and because Defendant Sabol has failed to demonstrate that another lengthy stay of this year-old case is appropriate, the Court GRANTS Plaintiff's motion to lift the stay and reopen the case (ECF. No. 38), and DENIES Defendant Sabol's motion to continue the stay (ECF No. 34). As to the several pending motions to s eal, each is DENIED as no adequate legal basis for sealing has been presented to the Court (ECF. Nos. 35, 39, and 43). The Clerk is DIRECTED to send a copy of this Memorandum Order to all counsel of record. Additionally, the Clerk is DIRECTED to pl ace this case back on the Court's active docket, and to remove the "SEALED" tag on the filings associated with the motions to stay (ECF Nos. 36, 37, 42, 46 and 47). IT IS SO ORDERED. Signed by District Judge Mark S. Davis and filed on 1/6/14. Copies distributed to all parties 1/7/14.(ldab, )

UNITED

STATES

DISTRICT COURT

EASTERN DISTRICT OF VIRGINIA

Norfolk Division

UNITED
AND

STATES

SECURITIES

EXCHANGE COMMISSION

Plaintiff,
Civil No.

v.

EDWARD J.

WOODARD,

CYNTHIA A.

SABOL,

STEPHEN G.

2:13cvl6

JR.,

and

FIELDS,

Defendants,

MEMORANDUM ORDER

This

matter

is

before

stay previously imposed

the

Court

on

in this case

a

motion

(ECF No.

to

lift

the

38) , filed by

United States Securities and Exchange Commission1 ("Plaintiff"),
and motion to continue the stay (ECF No.

Cynthia

A.

Sabol

("Defendant

34),

Sabol").

filed by defendant

Additionally,

three

motions to seal the pleadings associated with the

stay motions

are currently pending

As discussed

below,

Plaintiff's

Defendant's
motions

motion

(ECF Nos.
motion

to

to

continue

35,

39,

lift

the

and 43).
the

stay

stay

is

is

DENIED,

GRANTED,

and

the

to seal are DENIED.

On March 8,
motion to

2013,

stay this

this Court granted Plaintiff's unopposed

civil case based on the concurrent ongoing

1 The Securities and Exchange Commission will also be abbreviated
herein as "SEC," although such general references are not necessarily
a reference to the SEC as a litigant in this case.

prosecution and impending criminal trial of defendants Edward J.
Woodard,

Jr.

Fields").
parties

and

The
to

Stephen

Court

this

G.

Fields

received

case

as

("Defendants

several

the

status

criminal

Woodard

updates

case

and

from

the

continued,

and

Defendants Woodard and Fields have now been found guilty by a
jury and sentenced in the criminal action.

not

indicted

Woodard

and

in

the

criminal

Fields,

and

it

case

Defendant Sabol was

brought

remains

against

unclear

Defendants

whether

criminal

charges will be pursued against Sabol in the future.2
Subsequent

to

the

sentencing

of

Defendants

Woodard

and

Fields, Defendant Sabol moved to continue the stay of this case

and Plaintiff moved to lift the stay.3
continuing
federal

the

grand

indictment

stay
jury

against
received

is
may

her.

at

a

the

later

Sabol's

date

argument

relies

on

criminal

the

fact

case

to proceed would provide Plaintiff an unfair advantage in

that

federal

a

a

than a

contends

from

issue

that

more

and

letter

possibility

she

ago,

"target"

in

that

year

a

grounded

Sabol's argument for

allowing

prosecutors
the

instant

2 According to the civil complaint in this case, all three Defendants
were "senior executives of Commonwealth Bankshares, Inc."

Compl. f 1,

ECF No. 1.
Defendants Woodard and Fields were criminally prosecuted
by the United States in Criminal Docket No.
2:l2crl05 based on
violations of federal securities laws.
See Pi's. Stay Memo 3, ECF No.
21.

3 The filings before the Court also suggest that Defendant Fields'
counsel informed Plaintiff's counsel that Fields opposes lifting the
stay until his criminal appeal process has been completed.
However,
Defendant Fields has not filed a motion seeking such relief nor filed
a brief in response to Plaintiff's motion to lift the stay.

the instant litigation because Plaintiff
beneficiary

assertion

of

of

an

adverse

her

incrimination."

Fifth

inference

Amendment

"anticipates being the
caused

by

privilege

Ms.

Sabol's

against

self-

Def. Sabol Reply 2, ECF No. 47.
A. Motions Regarding the Stay

As recognized by several circuits,
by the United States Court of Appeals

and recently recognized
for

the

Fourth Circuit,

" [b]ecause of the frequency with which civil and regulatory laws
overlap with criminal laws, American jurisprudence contemplates
the

possibility

parallel

of

simultaneous

proceedings

and

the

or

virtually

Constitution does

simultaneous

not

mandate

the

stay of civil proceedings in the face of criminal proceedings."
Maryland v. Universal Elections,

Cir.

2013)

(emphasis

(internal
added).

Inc.,

quotation

"Rather,

729 F.3d 370,

marks

it

is

within

discretion whether to

stay civil cases

Phillips,

Hall,

1995).

in

Beckwith

&

896

F.

citations
[district]

553,

558

(4th

omitted)
courts'

on this basis."

Supp.

In re

(E.D.

Va.

As discussed in the briefs currently before this Court,

exercising

such

discretion,

district

consider the following five factors:
in

and

379-80

proceeding

plaintiff

expeditiously

caused

by

delay,

frequently

"(1) interest of plaintiff

balanced
(2)

courts

against

burden

on

prejudice
defendant,

to
(3)

convenience to the court,

(4)

interests of persons not party to

the

(5)

the

civil

litigation and

public

interest."

Avalonbay

Communities,
I:07cv306,

Inc.

v.

San

Jose

2007 WL 2481291,

considering these factors,

Water

at *2

(E.D.

Louis

is

(2d Cir.

Aug.

or imminent,

generally viewed as

Vuitton Malletier

Va.

Corp.,

27,

No.

2007).

In

it is important to note that staying

a civil case based on a pending,

prosecution

Conservation

S.A.

v.

LY

"an

related criminal

extraordinary remedy."

USA,

Inc.,

676

F.3d

83,

98

2012).

Having conducted a case-specific consideration of the above

factors,

the Court finds that the stay should be lifted in this

case.

Importantly,

criminal

and civil

potential

for

Defendant

this

case

does

proceedings,

the

future

Sabol.

The

but

filing

Fourth

not

involve

instead

of

involves

criminal

Circuit

concurrent

only

charges

recently

the

against

affirmed

the

denial of a motion to stay civil proceedings in a case where the

civil

defendants

criminal

that

that

are

stays

there

was

criminal

purportedly

investigation

recognizing

issued."

were

"the

bulk of

generally

Universal

not

Elections,

previously
prosecution

by

an
of

"targets"

state

granted

active,

authority
before

729

and

Defendants

an

authorities,

judicial

Inc.,

of

expressly
.

.

. holds

indictments

F.3d at

not

ongoing

380.

Because

speculative,

Woodard

and

formal

Fields,

civil matter has already been stayed for nearly ten months

has been pending for almost a year.
an

additional

stay

will

have

this
and

It goes without saying that

substantially

prejudice

Plaintiff's

interest
cause

in

proceeding

witnesses'

public

expeditiously

memories

to

fade,

interest in the SEC's

securities regulations,
ability

to

recover

Int'l,

will

delays

will

negatively impact

the

and could negatively impact Plaintiff's

any

Inc.,

further

timely and effective policing of

judgment

Defendants Sabol and Fields.4
Hotels

as

175

F.

it

may

obtain

against

See Sterling Nat.

Supp.

2d

573,

579

both

Bank v.

(S.D.N.Y.

A-l

2001)

(noting that "in contrast to the speculative and uncertain risks
to

[the]

yet

defendants'

issued,

"the

expeditiously

interests,"

interest

with

th[e]

because

of

the

an

indictment

plaintiffs

litigation"

was

in

had

not

proceeding

"pronounced"

as

the

case had already been pending for eight months and discovery was
still incomplete).
consideration is
case

to

avoid

Defendant

As for convenience of the Court, the primary
for this civil matter to proceed as

duplication

Sabol's

case

was

of

efforts

severed

that

from

would

Defendant

a unified
result

Fields'

if
case

based on their differing status vis-a-vis criminal charges.
Sabol's best argument for a stay stems from the

invocation

prejudice

of

her

advanced by a

her

Fifth

defense

Amendment

of

government

privilege

this

civil

agency.

See

matter

may

that

Microfinancial,

fact that

serve

is

to

being

Inc.

v.

4 Defendant Woodard has purportedly indicated an intent to settle this
civil

matter

with

Plaintiff.

Defendant

Fields,

however,

like

Defendant Sabol, has indicated a desire to further delay resumption of
civil proceedings.

Premier Holidays Intern.,

Inc.,

385 F.3d 72,

79

(1st Cir.

2004)

(discussing the fact that a stay "can protect a civil defendant
from facing the difficult choice between being prejudiced in the
civil

litigation,

Amendment

privilege,

litigation

if

he

litigation").

provide

if

the

imminent."

the

or

or

from being

she

However,

court
Id.

defendant

waives

Rather,

of an investigation,

his

prejudiced

that

Sabol's

with any

asserts

or

in

the

privilege

motion

indication

to

that

her

in

stay

Fifth

criminal

the

civil

"fail[s]

an indictment

to

[i]s

it only states that she is the "target"

a status that she has apparently maintained

for more than a year.

"Although
defendant[]
precarious,

the

[in

possibility

Sabol's]

an

an

position

indictment

in

civil

may

make

litigation

a

more

the difficulty is less acute than it would be if an

indictment actually existed."
of

of

indictment

necessary in

the

helps
civil

Id.

delineate

case,

Furthermore,
the

whereas

length

here,

the existence
of

Sabol

the

delay

would

likely

continue seeking a stay of this case as long as the specter for

criminal charges remained.

See id. ("While pre-indictment stays

of parallel civil proceedings occasionally have been granted,

an

unindicted defendant who argues that going forward with a civil
proceeding will jeopardize h[er]

Fifth Amendment rights usually

presents a much less robust case for such extraordinary relief."
(citing S.E.C.

v. Dresser Industries,

Inc.,

628

F.2d 1368,

1376

(D.C.

Cir.

Bank,

1980))

(internal

175 F. Supp.

inherently

2d at 577

unclear

to

the

citation

omitted);

Sterling

(noting that pre-indictment,
Court

just

how

much

the

Nat.

"it is

unindicted

defendant really has to fear," whereas "the delay imposed on the

plaintiff
failed

is potentially indefinite").

to

demonstrate

any

special

Accordingly,
circumstances

Sabol
that

has

would

entitle her to the extraordinary relief of a second lengthy stay
of

SEC

this

case.

cannot

See

always

Dresser

wait

Industries,

for

Justice

628

to

F.2d

at

complete

1375

the

("The

criminal

proceedings if it is to obtain the necessary prompt civil remedy
Thus

we

should not

these

agencies

in

the

which

the

nature

substantial

rights

government.");

*4

(D.

action

Minn.

indictment

premature").

of

"target
had

by

circumstances"

in

demonstrably
party

06-1213,

even

though

the

or

of

the
at

stay a civil

defendants

had

from federal prosecutors because no
motion

Defendant Sabol's motion to

continue

rendering

and Plaintiff's

reopen the case is GRANTED.

prejudices

2007 WL 4192000,

the

therefore DENIED,

issued,

No.

investigations

(denying a motion to

SEC

letter"

"special

investigated

Brown,

2007)

the

of

proceedings

the

v.

July 16,
by

absence
the

S.E.C.

brought

received a

of

block parallel

motion

to

lift

"at

best,

the stay is

the

stay and

B.

Turning to

Motions

to Seal

the pending motions

to

seal,

all

three motions

are predicated on Defendant Sabol's contention that sealing is
appropriate
"target"

to shield from the public

the

fact

of a federal criminal investigation.

however,

fails

suggesting

to

that

investigation,

identify

her

which

any

status

has

case

as

been

a

law

that

or

for

is a

Defendant Sabol,

other

"target"

pending

she

of

over

authority

a

criminal

a year,

is a

private matter sufficient to override the public's interest in
open

proceedings

Magazine,

Inc.,

in

this

Court.

846 F.2d 249,

See

253

Rushford

(4th Cir.

v.

New

1988)

Yorker

(discussing

the presumption of public access to judicial records and noting
that such presumption can only

be rebutted if

interests

public

Although

.

.

.

outweigh

matters

investigations,

the

associated

such

as

the

"countervailing

interests

with

application

in

access").

federal

for

a

criminal

search warrant,

are often initially filed as sealed to avoid risk to the police,
flight

of

existence

a

of

suspect,

such

or

destruction

matters

is

known

of

evidence,

once

the

to

their

targets,

the

justification for sealing is eviscerated.
Here,

Defendant

Sabol

investigation

for

notice

larger criminal

of

other bank

the

over

officers

who

a

has

year

been

and

aware

the

of

public

the

is

criminal

plainly

on

investigation and prosecution of

worked alongside

8

Defendant

Sabol.

In

light

of

the

publicity surrounding

the

individuals,

the

fact

was

"target"

such

criminal

of

unremarkable.

More

that

Sabol

criminal
also

investigation

compelling

to

on

the

trial

of

identified

its

face

resolution

such
as

a

appears

of

these

motions, however, is the fact that Sabol has failed to offer any
explanation whatsoever as
such

importance

accessing

seal.5

the

that

many

to why concealment of such fact is of

it

Court

outweighs
filings

the

public

interest

in

implicated by her motions

to

Should this case proceed to a jury trial, and assuming

that the target letter has no relevance to the triable issues in

this
the

case,
voir

Sabol's
dire

counsel

process

to

will

have

ensure

every opportunity

an

impartial

jury

to

use

with

no

knowledge of the target letter.

Similar to the above,
argument for permitting the

a stay due
matters.
Sabol

to

to the

Court's

Permitting
seek

unnecessarily

relief

shield

such
in

from

Defendant Sabol offers no compelling
"withdrawal"

denial

of her motions

withdrawal
this

the

of her filings seeking

Court

public

would
in

in

to seal
essence

secret,

this

denying the request for another lengthy stay.

Court's

and

such
allow
would

analysis

Accordingly,

each

of the three pending motions to seal is DENIED.

5 Defendant Sabol has simply advanced the bald
a legitimate right to keep the existence, and
letter non-public."
Def. Sabol Seal Mem.
conclusory statement plainly fails to meet
sealing mandated by the Fourth Circuit.

assertion that she "has
contents of, the target
2, ECF No. 37.
Such
the high standard for

C.

In

summary,

as

the

Conclusion

previous

basis

for

staying

this

case

(the then ongoing criminal prosecution of Defendants Woodard and
Fields)

has

no longer justifies a stay,

failed

year-old

to

demonstrate

case

is

that

and because Defendant Sabol

another

appropriate,

the

lengthy

Court

stay

GRANTS

motion to lift the stay and reopen the case

(ECF.

DENIES

the

34).

Defendant

Sabol's

motion

to

continue

this

Plaintiff's
No.

38),

and

stay

to the several pending motions to seal,

As

of

(ECF

No.

each is DENIED

as no adequate legal basis for sealing has been presented to the
Court

(ECF.

The
Order

and

Clerk

to

DIRECTED
to

Nos.

all

35,

is

the

and 43).

DIRECTED

counsel

to place

remove

39,

of

IS

SO

send

record.

this case back on
"SEALED"

the motions to stay (ECF Nos.
IT

to

tag

on

a

copy

of

this

Additionally,
the
the

36, 37, 42,

Court's
filings

the

Memorandum
Clerk

is

active docket,
associated

with

46 and 47).

ORDERED.

/S/1UW
Mark

S.

Davis

United States District Judge
Norfolk, Virginia
January

to

2 014

10