October 21, 2011
MOSHE MEISELS, CHANIE MEISELS, RIGHT MATCH, LTD., MONROE ESTATES, LTD., CITY POINT PROPERTIES, LTD., GILDA ESTATES, LTD., SIMON TOV PROPERTIES, LTD., AND PREMIER ESTATES NY, INC., PLAINTIFFS-APPELLANTS,
ELI WEINSTEIN, SIMCHA SHAIN, SANDRA BROWN, PINE PROJECTS, LLC, PINE PROJECTS MANAGEMENT, LLC, BENJAMIN HAGER, ESQ., MALLOW, KONSTAM & HAGER, P.C., HDW 2005, LLC, VLADIMIR SIFOROV, SIF TRANSPORTATION, INC., YOSEF KROHN, MEIR TAOUZER, MICHAEL I. BERSTEIN, ESQ., MICHAEL I. BERNSTEIN, P.S., ISREAL POLLAK A/K/A YISROEL POLLAK, ALAN POLLAK A/K/A YEHUDA POLLAK, GOLDSTEIN CHARITY FUND, INC., AND NEW HEMPSTEAD TERRACE LLC, DEFENDANTS-RESPONDENTS. ELI WEINSTEIN AND PINE PROJECTS, LLC, THIRD-PARTY PLAINTIFFS,
BERISH MEISELS, THIRD-PARTY DEFENDANT.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 19, 2011
Before Judges Parrillo and Grall.
By leave granted, plaintiffs*fn1 appeal from a December 17, 2010 order of the General Equity Part staying their civil fraud action against defendant Eli Weinstein and co-defendants Benjamin Hager and Mallow, Konstam & Hager, P.C. (sometimes collectively the Hager defendants) pending disposition of federal criminal charges against Weinstein. For the following reasons, we reverse.
By way of background, on January 23, 2009, plaintiffs filed a complaint against Weinstein, the Hager defendants, and others alleging that commencing in May 2007, they engaged in an investment fraud scheme and defrauded plaintiffs of at least $25 million. Specifically, plaintiffs claim that they transferred $24,726,594.10 to the attorney trust account of Mallow, Konstam & Hager, P.C. pursuant to agreements with Weinstein that the money would be used to purchase certain properties. Rather than purchase those properties, plaintiffs allege Hager and Weinstein conspired to misappropriate the money for other purposes and falsely represented to plaintiffs that they received an ownership interest therein.
Defendants answered and in addition Weinstein filed a counterclaim against plaintiffs and a third-party complaint against Berish Meisels,*fn2 son of plaintiff Moshe Meisels. Weinstein's affirmative claims are based on the allegations that he provided plaintiffs and third-party defendant with certain replacement assets, valued at about $25 million, to sell with the understanding that once sold, any proceeds of sale in excess of the amount of money that plaintiffs provided to Weinstein for the original properties would be returned to Weinstein; however, plaintiffs never sold these assets and instead allowed their value to dissipate.
On March 20, 2009, the General Equity judge ordered that Weinstein and the Hager defendants provide an accounting of the disposition of the money that was sent by plaintiffs to the attorney trust account of the defendant law firm. The accounting subsequently revealed that the law firm was still holding in its escrow account $53,094.73 of the funds it had received from plaintiffs to purchase the original properties. Plaintiffs thereafter filed a motion for return of the money, which Weinstein opposed, arguing that his counterclaim gave him an interest in the escrowed funds. The judge denied plaintiffs' motion but ordered the funds transferred to a separate interest bearing account.
On August 12, 2010, Weinstein was arrested on a federal criminal complaint charging him with two counts of fraud related to a real estate investment scheme commenced in September 2005, in which Weinstein falsely represented to certain members of the Orthodox Jewish community, of which he is a part, that he either owns, controls or could purchase a particular parcel of real property in Brooklyn. He thereafter exploited his victims, a Chicago based financial institution and a real estate investor from England identified as M.F., to acquire art, jewelry and Judaica. To date, no indictment has been returned against Weinstein.
On November 27, 2010, Weinstein moved to stay the civil action pending resolution of the criminal charges against him.
The Hager defendants joined in this motion. Following argument, the judge stayed the civil action, reasoning:
Here's the way I see it. I do believe that a fair amount of the allegations that are raised against Mr. Weinstein are duplicated in the allegations that are raised against him in the criminal proceedings and there is an enormous problem with the issue of coming forward and testifying and the like regarding the matter.
Without further explication, and acknowledging that there is no constitutional right to a stay in a civil matter, the judge concluded: "I have a very difficult time forcing this to go forward on discovery because of the Fifth Amendment right which is paramount to our judicial system and the right of an accused under the circumstances."
We granted plaintiffs leave to appeal and now reverse.
The decision whether to stay a civil action during a tandem criminal case is not constitutionally required but rather rests in the sound discretion of the trial court. State v. Kobrin Sec., Inc., 111 N.J. 307, 314 (1988). See also United States v. Kordel, 397 U.S. 1, 12 n.27, 90 S. Ct. 763, 770, 25 L. Ed. 2d 1, 10-11 (1970); People v. Coleman, 533 P.2d 1024, 1039 (Cal. 1975). It is not a violation of the Fifth Amendment or Due Process to require a defendant to make the choice to testify, even though giving testimony at a civil proceeding may help criminal prosecutors, as opposed to invoking his Fifth Amendment rights and suffering any adverse civil consequences which flow therefrom. Kobrin, supra, 111 N.J. at 312-13. "[W]hatever the difficulties of invoking the fifth-amendment privilege, there is no constitutional inhibition that a defendant in a criminal case not 'be put to the difficult choice of having to assert the privilege in a related civil case . . . .'" Id. at 313 (quoting DeVita v. Sills, 422 F.2d 1172, 1178 (3d Cir. 1970)). See also Ott v. Bd. of Educ., 160 N.J. Super. 333, 337-38 (App. Div. 1978). In other words, as long as a defendant has the right to invoke his Fifth Amendment privilege in the civil proceeding, there is no constitutional right to be relieved of the burden of that choice. United States v. Simon 373 F.2d 649 (2d Cir.), cert. granted sub nom. Simon v. Wharton, 386 U.S. 1030, 87 S. Ct. 1485, 18 L. Ed. 2d 591, vacated as moot, 389 U.S. 425, 88 S. Ct. 577, 19 L. Ed. 2d 653 (1967).
Of course, "[t]here may be cases where the requirement that a criminal defendant participate in a civil action . . . [may] violate concepts of elementary fairness in view of the defendant's position in an inter-related criminal prosecution." Kobrin, supra, 111 N.J. at 314 (internal quotations omitted). "On the other hand, the fact that a man is indicted cannot give him a blank check to block all civil litigation on the same or related underlying subject matter." Ibid.
Rather, in the exercise of its discretionary judgment, a trial court "must weigh competing interests and maintain an even balance." Landis v. N. Am. Co., 299 U.S. 248, 254-55, 57 S. Ct. 163, 166, 81 L. Ed. 2d 153, 158 (1936). "The court, in its sound discretion, must assess and balance the nature and substantiality of the injustices claimed on either side[,]" Kobrin, supra, 111 N.J. at 314 (quoting Gordon v. Fed. Deposit Ins. Corp., 427 F.2d 578, 580 (D.C. App. 1970)), with the understanding that justice is meted out in both civil and criminal litigation. Where the risk of exposing a defendant exercising the constitutional privilege to adverse consequences is slight, then "[t]he overall interest of the courts that justice be done may very well require that the compensation and remedy due a civil plaintiff should not be delayed (and possibly denied)." Kobrin, supra, 111 N.J. at 315-16 (quoting Gordon, supra, 427 F.2d at 580).
Several considerations guide a court in resolving the question of a stay. One such factor, of course, is the status of the criminal case, including whether the defendant has been indicted. Nat'l Freight, Inc. v. Ostroff, 133 N.J. Super. 554, 558-59 (Law Div. 1975). In National Freight, the court reasoned that a stay was against the interests of justice because a criminal trial may never occur at all, noting that
"[i]ndictments have not yet been found and nor is there any certainty that any will be." Id. at 558. In denying the defendant's application to place the civil action, based on the same facts giving rise to criminal complaints against him, on the inactive list, the court concluded: to say that the civil suit must remain in statu[s] quo indefinitely is to import to the courts an impotency unworthy of them.
To compel other parties to sit supinely by while their rights or possibility of recovery are eroded is to invite contempt for the law as well as permit any guilty party to secrete or dissipate the fruits of his wrongdoing.
[Id. at 559.]
Here, as in National Freight, no indictment has been returned against Weinstein and criminal charges have not even been filed against the Hager defendants. Thus, the practical effect of the trial court's stay in this matter is to have the civil action remain in limbo for an indefinite period of time, with the very real prospect of civil justice being denied to plaintiffs.
Another, more significant, consideration is the extent to which the facts and issues in the criminal and civil cases overlap, namely, whether the two actions are nearly identical in scope. Kobrin, supra, 111 N.J. at 314; Walsh Sec., Inc. v. Cristo Prop. Mgmt., 7 F. Supp. 2d 523, 527 (D.N.J. 1998). Here, we discern no meaningful overlap of allegations between the civil and criminal actions other than perhaps a certain commonality of scheme. The alleged victims in the criminal and civil complaints are different and share no mutual identity whatsoever. Moreover, the "res" or properties involved in the alleged fraudulent real estate investment schemes are each unique to the civil and criminal actions. The properties involved in the civil complaint are located in New Jersey, Ohio, Pennsylvania, Florida, New Hampshire and Arizona, whereas the realty in the criminal matter is situated in Brooklyn. Moreover, the criminal scheme is charged to have commenced far earlier in time - February 2006 - than the civil fraud, which allegedly began one year later, in March 2007 and endured until January 2009, well beyond the criminal venture. To be sure, there is some similarity in the modus operandi with which the alleged civil and criminal fraudulent schemes were executed, including use of the same strawman. Nevertheless, the absolute lack of any common identity of victims and res demonstrates that plaintiffs' civil action is separate and distinct from the criminal matter and neither arises from nor is based upon those charges. Thus, in allowing the civil matter to proceed, there is no danger of duplicative litigation, Grunwald v. Bronkesh, 131 N.J. 483, 499 (1993), and no meaningful risk to defendant of losing the civil case or facing criminal prosecution.
Another, closely-related consideration is the burden on defendant of moving forward with the civil action. Here, there is no real risk that the government might try to get ammunition for its criminal prosecution in the civil discovery process. Kobrin, supra, 111 N.J. at 317. Moreover, defendant's exposure to adverse consequences from exercising his constitutional privilege appears to be slight given the substantial differences between the civil and criminal matters and the fact that he has affirmatively counterclaimed against plaintiffs for fraud. Fid. Union Bank v. Hyman, 214 N.J. Super. 177, 182 n.4 (App. Div. 1986); Whippany Paper Bd. Co. v. Alfano, 176 N.J. Super. 363, 374 (App. Div. 1980).
In contrast to this mere possibility is plaintiffs' interest in proceeding expeditiously and the potential prejudice to them caused by the indefinite delay envisioned by the trial court's stay order. In this regard, we note that as a result of defendant Weinstein's counterclaims, the trial court imposed restraints on monies claimed by plaintiffs to be theirs. Moreover, facing counterclaims seeking $25 million in damages, plaintiffs have asserted the very real prospect that prospective lenders and partners might well be disinclined to conduct business with them. And plaintiffs present sufficient reason to believe that further delay will dissipate defendants' funds, rendering any civil judgment virtually unenforceable. Indeed, it appears that a $33 million judgment has already been entered against Weinstein in another matter.
Application of all these considerations to the facts of this case leads us to conclude that the motion judge erred in staying plaintiffs' civil action against defendants. We appreciate that a sound measure of discretion must be reposed in the trial courts to effectuate a proper balance. However, in striking that balance in this case, the motion judge did not consider the full range of applicable factors and placed undue weight on the few he deemed relevant, including the supposed hardship on defendants from proceeding on parallel paths. Once again, we do not view the proceedings as sufficiently parallel to give rise to any unnecessary burden on defendants, as perhaps no more strongly evidenced than Weinstein's very own decision not to participate in this appeal. On the other hand, plaintiffs' interest in continuing to pursue a civil remedy and defending against Weinstein's counterclaims is very real, the denial of which would visit a substantially greater injustice upon them than upon defendants if the stay were lifted.
Reversed and remanded for further proceedings consistent with this opinion.