Parallel Proceedings
| Publication year | 2020 |
| Pages | 0020 |
The Legal
Multiple proceedings can hobble the efforts of counsel to formulate a coherent strategy. A thorough understanding of various laws, legal doctrines and agency policies is required. This article discusses just some of the many relevant considerations.
BY DON SAMUEL AND SCOTT GRUBMAN
Litigation has experienced its version of globalization, though perhaps Whac-A-Mole is a better metaphor. Various components of a controversy erupt in numerous venues, all of which need to be addressed and coordinated. The hurdles facing litigants in what are often referred to as "parallel proceedings" are escalating dramatically. Consider, for example, these scenarios:
• A doctor faces allegations of improper opioid prescription practices.
• She faces a license revocation by the Georgia Composite Medical Board;
• She faces losing her DEA license;
• She faces a loss of hospital privileges;
• She faces criminal prosecution for illegal drug distribution;
• She is sued by the family of a patient who died from an overdose of oxycodone;
• The state has filed a lawsuit seeking damages for the cost to the state resulting from the injuries and deaths of patients.
• A successful businessman is accused of filing false quarterly statements about the company's assets and income.
• The SEC has filed suit and is seeking to put the company in receivership;
• The DOJ has presented evidence to a grand jury and has executed a search warrant;
• The company files bankruptcy and the bankruptcy court has scheduled hearings that require the businessman's attendance and testimony.
Multiple proceedings can hobble the efforts of counsel to formulate a coherent strategy. A thorough understanding of various laws, legal doctrines and agency policies is required. This article discusses just some of the many relevant considerations.
Initiation of Civil and Criminal Cases Addressing the Same Misconduct
The phenomenon of litigating the same controversy in multiple venues is hardly new, and the resulting challenges culminated in the 1970 Supreme Court decision, United States v. Kordel.[1] In Kordel, the government alleged that a corporation had transported misbranded drugs in violation of the Food, Drug and Cosmetic Act. The government filed a condemnation action to seize the drugs and filed interrogatories seeking information from the corporation later used to assist the government in a criminal case against the corporation's president and vice-president. The case was complicated because the interrogatories were served on the corporation (which has no Fifth Amendment privilege), but the criminal prosecution focused on the individual officers. Putting that aside, the Court answered the more fundamental question: can the government exploit its ability to wage a two-front assault to acquire information in the civil proceeding that it would not be able to obtain in the criminal investigation? And the answer was unequivocally "yes."
It would stultify enforcement of federal law to require a governmental agency such as the FDA invariably to choose either to forgo recommendation of a criminal prosecution once it seeks civil relief, or to defer civil proceedings pending the ultimate outcome of a criminal trial.[2]
But the Court did enumerate factors that might affect the Due Process calculus in other cases:
We do not deal here with a case where the government has brought a civil action solely to obtain evidence for its criminal prosecution or has failed to advise the defendant in its civil proceeding that it contemplates his criminal prosecution; nor with a case where the defendant is without counsel or reasonably fears prejudice from adverse pretrial publicity or other unfair injury; nor with any other special circumstances that might suggest the unconstitutionality or even the impropriety of this criminal prosecution.[3]
One of the first decisions denouncing the improper use of a civil case to gain evidence in a criminal case arose in the former Fifth Circuit. In United States v. Tweel,[4] the court held that the civil division of the IRS used unconscionable deceit to convince the defendant taxpayer to consent to a disclosure of certain records that were then used by the DOJ to obtain an indictment. The Fifth Circuit held that this violated the defendant's Fourth Amendment rights: that is, the consent that resulted in the production of records was involuntary. The court cautioned that it is not necessary for the government to affirmatively advise the defendant of the existence of a criminal investigation, but deceit will not be tolerated.
We conclude that the mere failure of a revenue agent . . . to warn the taxpayer that the investigation may result in criminal charges, absent any acts by the agent which materially misrepresent the nature of the inquiry, do not constitute fraud, deceit and trickery. Therefore, the record here must disclose some affirmative misrepresentation to establish the existence of fraud, and the showing must be clear and convincing.
The court then quoted from a prior Fifth Circuit decision:
Silence can only be equated with fraud where there is a legal or moral duty to speak or where an inquiry left unanswered would be intentionally misleading.
From the facts we find that the agent's failure to apprise the appellant of the obvious criminal nature of this investigation was a sneaky deliberate deception by the agent under the above standard and a flagrant disregard for appellant's rights. The silent misrepresentation was both intentionally misleading and material.[5]
Tweel remains binding precedent in the Eleventh Circuit condemning affirmative misrepresentations about the existence of a related criminal case to induce a waiver of Fourth Amendment rights.[6] United States v. Scrushy[7] criticized the same kind of governmental deception and held that this conduct violated the defendant's Fifth Amendment right to remain silent, because the stealth practice led the defendant to believe there was no criminal case on the horizon. As a result of this deception, the defendant did not seek a stay of the civil case or invoke his Fifth Amendment right.
Scrushy was under investigation by the DOJ in Alabama, and during the investigation, the SEC scheduled his deposition in an investigation focusing on the same conduct. Scrushy did not know that criminal charges were imminent. The DOJ prosecutor urged the SEC lawyers to take Scrushy's deposition in Birmingham in order to ensure that if he made any false statements, venue would be in the same jurisdiction as the planned indictment. The prosecutor also provided guidance to the SEC lawyers about the topics that should (and should not) be covered during the deposition.[8] The purpose of avoiding certain topics during the deposition was to avoid alerting Scrushy to the existence of the criminal investigation.[9] Scrushy was eventually indicted and charged, inter alia, with perjury committed during the deposition. The district court dismissed the perjury charges and found the manipulative measures used by the government to secure the defendant's testimony violated due process.[10]
While Tweel and Scrushy put the brakes on the government's effort to secure evidence in a criminal case through a related civil case, the Ninth Circuit put the pedal to the metal in United States v. Stringer.[11] Two weeks after the SEC initiated an investigation of the defendants' company, the SEC held the first of several meetings with the U.S. Attorney's Office to discuss opening a criminal investigation.[12] The DOJ opened a criminal investigation shortly thereafter, and the SEC provided its investigative materials to the prosecutors, including documents received from the defendants' company.
The DOJ decided to let the SEC continue its investigation without the prosecutors "surfacing" to enhance the possibility of a false statement or perjury case against the targets, by scheduling the targets' depositions in the jurisdiction where venue lay for the criminal case.[13] The Ninth Circuit found that while these coordination efforts were designed to maximize the strength of the criminal case, the SEC did not "hide" the possibility, or "even likelihood," of a criminal investigation.[14] In fact, the SEC sent Form 1662 to the defendants, advising them that the SEC often shares information with other agencies, including federal and state prosecutors. The form also explicitly advised the defendants of their Fifth Amendment rights.[15] At no time did the SEC provide any false information to the defendants or their lawyers. The district court dismissed the ensuing criminal charges and also ordered that if a criminal trial were to be held, the defendants' statements to the SEC would be suppressed.[16]
On appeal the Ninth Circuit reversed. Relying on Kordel, the appellate court held that there was no overt deception that deprived the defendants...
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