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CUTTR Holdings, LLC v. Patinkin

October 24, 2006

RE: CUTTR HOLDINGS, LLC ET AL
v.
PATINKIN ET AL



The opinion of the court was delivered by: Ronald Hedges United States Magistrate Judge

CHAMBERS OF RONALD J. HEDGES UNITED STATES MAGISTRATE JUDGE

MARTIN LUTHER KING, JR. FEDERAL BUILDING AND COURTHOUSE 50 WALNUT STREET NEWARK, NJ 07101 973-645-3827

LETTER-OPINION AND ORDER ORIGINAL FILED WITH CLERK OF THE COURT

INTRODUCTION

This matter comes before me on the motion of defendants Seth S. Patinkin, Bella Prosper, LLC, and Hao Fang, LLC for an administrative stay. Plaintiffs CUTTR////Holdings, LLC and CUTTR, Inc. (collectively "CUTTR") oppose the motion. The motion was referred to me by Judge Martini. I have considered the papers submitted in support of and in opposition to the motion. There was no oral argument. Rule 78.

BACKGROUND

This dispute arises out of a business venture between Patinkin and Mark Graham. Sometime in 2003, Patinkin, a Princeton PhD candidate, met with Graham, an investment banker, to discuss forming a high-tech company to market hashing software that Patinkin had invented. They formed the company in 2004, naming it "CUTTR, Inc." Patinkin served as President/CEO of CUTTR and took charge of developing the software and other intellectual property. Graham served as Chairman of the Board and took charge of CUTTR's finances and management. In the summer of 2005, Patinkin and Graham had a dispute concerning the means by which the next capital round for CUTTR would be funded. As a result, Patinkin resigned.

Subsequently, CUTTR filed the Complaint subjudice against Patinkin and the two LLCs he had formed in connection with his work for CUTTR, alleging conversion, fraud and breach of fiduciary duty. The Complaint alleges that Patinkin diverted $165,575 from CUTTR's corporate funds to himself and the LLCs. CUTTR's management also referred these allegations to the United States Attorney for the Southern District of New York. Defendants allege that there is now a criminal investigation pending against them. Defendants seek an administrative stay pending the outcome of the criminal investigation.

DISCUSSION

A district court may issue a stay in a civil action pending the outcome of a parallel criminal investigation or proceeding. Walsh Securities, Inc. v. Cristo Property Management, LTD, 7 F. Supp.2d 523, 526 (D.N.J. 1998). A stay is an "extraordinary remedy." Walsh Securities, 7 F.Supp.2d at 526. The decision to grant or deny a stay requires the court to weigh the following factors:

1) the extent to which the issues in the criminal and civil cases overlap; 2) the status of the case, including whether the defendants have been indicted; 3) the plaintiff's interest in proceeding expeditiously weighed against the prejudice to plaintiff caused by a delay; 4) the private interests of and burden on defendants; 5) the interests of the court; and 6) the public interest. [Walsh Securities, 7 F.Supp.2d at 526-27]

Here, defendants' evidence of a pending criminal investigation is vague and insufficient to support a stay. The evidence is: First, a statement in their brief describing a telephone conversation between an Assistant United States Attorney and one of their attorneys. Defendants allege that the Assistant United States Attorney told their attorney that there is a pending criminal investigation. This alleged statement is not corroborated by affidavit or other evidence. Second, defendants state that plaintiffs admitted in their September 25, 2006, memorandum that "CUTTR is aware of a criminal investigation by the United States Attorney's Office into Patinkin's conduct."

The first factor of the Walsh Securities test directs the court to examine the similarity of issues in the civil and criminal proceedings to determine whether there is significant overlap. This is "'the most important issue at the threshold' in determining whether or not to grant a stay." 7 F.Supp.2d at 527. Defendants' only evidence that the alleged criminal investigation involves the same issues as this litigation is an ...


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