Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_05-cv-01056/USCOURTS-cand-4_05-cv-01056-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:6532 IRS: Refund of Tax Penalty

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-1- Stipulation for

Stay of Proceedings

GODDARD LLP

BRADLEY A. PATTERSON, Esq. (State Bar No. 155482)

18500 Von Karman Ave., Ste. 400

Irvine CA 92612

Telephone: (949) 253-0500

Facsimile: (949) 253-0505

Attorney for Plaintiffs

KEVIN V. RYAN (CSBN 118321)

United States Attorney

JAY R. WEILL (CSBN 75434)

Assistant United States Attorney

Chief, Tax Division

10th Floor Federal Building

450 Golden Gate Avenue, Box 36055

San Francisco, California 94102

Telephone: (415) 436-7017

Facsimile: (415) 436-6748

ROBERT J. HIGGINS (D.C. Bar No. 242966)

Trial Attorney, U.S. Department of Justice

IVAN C. DALE (MS Bar No. 53974)

Trial Attorney, U.S. Department of Justice

BART D. JEFFRESS (CT Juris No. 419184)

Trial Attorney, U.S. Department of Justice

555 4th St., N.W.

Room 8816

Washington, D.C. 20001

Telephone: (202) 307-6580

Facsimile: (202) 514-9440

Email: robert.j.higgins@usdoj.gov 

Attorneys for Defendant

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA, OAKLAND DIVISION

AWS MANAGEMENT, LLC, by and

through MARY CHANDLER PETTY, a

Partner Other than the Tax Matters

Partner,

Plaintiff,

v.

UNITED STATES OF AMERICA, by and

through its Agent, the INTERNAL

REVENUE SERVICE,

Defendant.

__________________________________

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Case No. 05-1056 CW

Consolidated with Case No. 05-1058 CW

ORDER GRANTING AS MODIFIED

STIPULATION FOR STAY OF

PROCEEDINGS

 

 

Case 4:05-cv-01056-CW Document 22 Filed 03/29/06 Page 1 of 7
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1/ See Compls.

2/ See Compls. Exs. A.

3/ See Compls. Exs. A (Explanation of Adjustments).

-2- Stipulation for

Stay of Proceedings

AWS ACQUISITIONS, LLC, by and

through MARY CHANDLER PETTY, a

Partner Other than the Tax Matters

Partner,

Plaintiff,

v.

UNITED STATES OF AMERICA, by and

through its Agent, the INTERNAL

REVENUE SERVICE,

Defendant. __________________________________

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Pursuant to Civil L. R. 7-1(5) and 7-12, the parties hereby stipulate and agree

that all proceedings in the above-captioned consolidated action shall be stayed pending

completion of all matters in a related criminal prosecution, United States v. Stein, et. al.

(No. S1 05 Cr 888, S.D.N.Y.).

REASONS FOR STIPULATION

1. Relevant Facts

Plaintiffs filed the present actions on March 14, 2005, seeking redetermination of

adjustments that the Internal Revenue Service made to the partnership income tax

returns that AWS Acquisitions, LLC (Acquisitions) and AWS Management, LLC

(Management) filed for the taxable year ended December 31, 2000.1

 Acquisitions and

Management ask the Court to overturn the IRS’s determinations set forth in Notices of

Final Partnership Administrative Adjustment (FPAA).2

 In the FPAAs the IRS

determined, inter alia, that Acquisitions and Management and their transactions lacked

economic substance, had no bona fide business purpose, and were shams.3

 / / /

Case 4:05-cv-01056-CW Document 22 Filed 03/29/06 Page 2 of 7
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28 4/ See KPMG Deferred Prosecution Agreement (Ex. 1); KPMG Information (Ex. 

2); KPMG Statement of Facts (Ex. 3.).

-3- Stipulation for

Stay of Proceedings

This proceeding is related to a criminal proceeding brought by the Office of the

United States Attorney for the Southern District of New York – United States v. Stein, et.

al. (No. S1 05 Cr 888, S.D.N.Y.). Although the particular transaction at issue in this

case is not described in the criminal indictment, an alleged promoter of this transaction

was David Greenberg, a former KPMG partner who was indicted on October 17, 2005,

and who is presently a criminal defendant in the Stein case. The trial in Stein is

currently set to begin on September 11, 2006. The Stein case is the largest criminal tax

case ever filed by the United States and involves criminal charges against accountants

and lawyers, including former leadership of KPMG, one of the largest accounting firms

in the world. On August 29, 2005, KPMG admitted and accepted responsibility for

violations of law with respect to its involvement in developing, promoting, selling, and

implementing illegal tax shelters during the period from 1996 through 2002 and has

agreed to pay $456,000,000 to the United States as a punitive fine, restitution, and

penalties to the IRS stemming from its involvement with the illegal tax shelters.4

Greenberg would be an important witness in this case. He has remained in

custody since his arrest in October 2005 following his indictment. On March 8, 2006,

his renewed motion for bail was granted. It requires a personal recognizance bond of

$25 million, secured by, inter alia, $20 million of real estate equity. United States v.

Stein, et. al. (Order of March 8, 2006, No. S1 05 Cr 888, S.D.N.Y.) At the time of the

filing of this stipulation, Greenberg nevertheless remains in custody.

Another likely witness in this proceeding is William Goddard, the name partner of

plaintiffs’ counsel. Goddard was involved with plaintiffs and Greenberg with respect to

this transaction. It is believed by counsel for the Government that the “Orange County

Law Firm” referenced in paragraph 58 of the superseding indictment in Stein refers to

Goddard’s previous law firm, Lee, Goddard & Duffy. 

/ / /

Case 4:05-cv-01056-CW Document 22 Filed 03/29/06 Page 3 of 7
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5/ See Landis v. North Am. Co., 299 U.S. 248, 254 (1936).

6/ See United States v. Kordel, 397 U.S. 1, 12 n.27 (1970)(citing cases); Keating 

v. OTS, 45 F.3d 322, 325 (9th Cir. 1995); Afro-Lecon v. United States, 820 F.2d 

1198, 1202-04 (Fed. Cir. 1987); Campbell v. Eastland, 307 F.2d 478, 487 (5th

Cir. 1962).

7/ See Keating, 45 F.3d at 324-25 (citing Federal Sav. & Loan Ins. Corp. v. 

Molinaro, 899 F.2d 899, 903 (9th Cir. 1989)).

-4- Stipulation for

Stay of Proceedings

2. Legal Authority for Staying Proceedings

It is well-settled that a court has authority to stay civil proceedings,5

 and that a

proper circumstance in which to exercise such authority is when a civil action threatens

to interfere with a related criminal case.6

 When deciding whether to stay a civil

proceeding pending the outcome of a related criminal case, the United States Court of

Appeals for the Ninth Circuit directs a case by case inquiry that includes consideration

of the following factors: (1) the extent to which defendant’s Fifth Amendment rights are

implicated; (2) the plaintiff’s interest in proceeding expeditiously and the potential

prejudice associated with a delay; (3) the burdens that proceeding will impose upon

defendant; (4) the convenience of the court in managing its docket and efficient use of

resources; (5) the interest of persons not parties to the civil litigation; and (6) the

interests of the public in the pending civil and criminal litigation.7 

In this case, at least four factors weigh in favor of a stay, the interests of the

public, the Government, and non-party witnesses, and efficient use of Court resources. 

No factor weighs against a stay, as plaintiffs join the Government in this stipulation.

The interest of the public in a stay is strong. The Stein prosecution is the largest

criminal tax fraud case ever prosecuted and it is alleged that the fraud generated over

$11 billion in fraudulent phony tax losses. The taxpaying public has an interest in

seeing these criminal charges litigated free from any interference, including from a civil

case.

The Government has a significant interest in a stay. Where a civil and criminal

proceeding overlap in subject matter, there is a concern that the broad scope of civil

Case 4:05-cv-01056-CW Document 22 Filed 03/29/06 Page 4 of 7
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8/ See Campbell, 307 F.2d at 487-90.

-5- Stipulation for

Stay of Proceedings

discovery may be used as an end run around the stricter rules of criminal procedure to

permit an otherwise impermissible preview of the Government’s criminal case.8

Although Greenberg is not likely to participate in this civil action pending the resolution

of the criminal proceedings on Fifth Amendment grounds, the Government would be

concerned that if Greenberg decided to participate in this case, his purpose would be to

preview the Government’s criminal case. The Government contends that similar

concerns also exist with respect to William Goddard. Though not indicted, the related

criminal investigation continues and any criminal case the Government might decide to

bring could be placed at risk if these civil actions proceed. 

If these civil proceedings continue, the Government will not be able to take the

discovery required to mount an effective and vigorous defense of the present action

until the criminal proceeding is completed. This is because Greenberg will likely rely on

his Fifth Amendment rights to refuse to answer any questions in civil discovery. The

Stein grand jury indicted Greenberg for, among other things, his alleged role in devising,

marketing, and implementing allegedly illegal tax shelters. While the shelter under

review in this case is not specifically mentioned in the Stein superceding indictment,

Greenberg is believed by the United States to be the author and promoter of the tax

shelter at issue here and Greenberg is on trial in Stein for his involvement with tax

shelters that KPMG has admitted were illegal. It is likely, therefore, that Greenberg will

desire to invoke his Fifth Amendment privilege against self-incrimination. In addition,

Rule 6(e) of the Federal Rules of Criminal Procedure prevents Government counsel in

this matter from reviewing the evidence obtained and considered by the Stein grand

jury. Thus, the United States would not have an opportunity to develop its evidence

through discovery of this key witness. Similarly, Goddard, who had involvement in the

transactions at issue here, and whose old law firm the Government believes is

mentioned in the superceding indictment, may invoke his Fifth Amendment rights to

thwart the Government’s civil discovery efforts out of fear of indictment by the continuing

Case 4:05-cv-01056-CW Document 22 Filed 03/29/06 Page 5 of 7
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9/ See Afro-Lecon, 820 F.2d at 1202-04.

-6- Stipulation for

Stay of Proceedings

grand jury investigation. In sum, the Government would be deprived of meaningful

access to the most critical fact witnesses and thereby undermined in its ability to

present a defense.

The interests of non-party witnesses Greenberg and Goddard favor a stay. 

Where a civil and criminal proceeding overlap in subject matter, there is a concern that

the broader scope of civil discovery may be used by the Government to advantage a

criminal prosecution, including by undermining a criminal defendant’s Fifth Amendment

privileges or exposing the grounds of a criminal defendant’s defense to the prosecution

in advance of trial.9

 As discussed in the preceding paragraph, it is likely that Greenberg

will desire to invoke his Fifth Amendment privilege against self-incrimination. Civil

discovery should not impinge upon the Fifth Amendment rights of this key witness or

force him prematurely to disclose any part of the defense he intends to raise at the Stein

trial. Moreover, attempts to force such discovery will likely impose additional burdens

on Greenberg, such as increasing the stress already attendant to facing criminal

prosecution. Similarly, civil discovery should not do likewise to Goddard, should he

desire to invoke his Fifth Amendment privileges for fear of disclosing matters that would

be of interest to the continuing grand jury investigation.

A stay will also serve the interests of judicial economy. Given the related nature

of the criminal case and this case, the resolution of the criminal case may narrow the

issues in this case and streamline discovery with respect to Greenberg. For example,

waiting until the criminal case and ongoing investigation are resolved would enable the

United States’ counsel here to obtain access to information developed by the grand jury,

either by showing a particularized need sufficient to obtain an order of disclosure under

Fed. R. Crim. P. 6(e), or by obtaining access to information which may be made public

after the prosecution of the criminal case is complete. In addition, if Greenberg is

convicted, the conviction may lead to a more efficient resolution of the present case.

/ / /

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-7- Stipulation for

Stay of Proceedings

Finally, plaintiffs here agree to a stay. Thus, no weight is to be given to plaintiffs’

interest in proceeding expeditiously and any prejudice associated with delay.

THEREFORE, it is stipulated and agreed by the undersigned that all proceedings

in these actions be STAYED pending the resolution of the criminal proceedings in

United States v. Stein, et. al. (No. S1 05 Cr 888, S.D.N.Y.).

FOR THE PLAINTIFFS

GODDARD LLP

 Bradley A. Patterson, Esq.

 Date: March 27, 2006 By /s/ Bradley A. Patterson

 Bradley A. Patterson

 Attorney for Plaintiffs

FOR THE UNITED STATES

UNITED STATES ATTORNEY

 Kevin V. Ryan, Esq.

 Jay R. Weill, Esq.

 Robert J. Higgins, Esq.

 Ivan C. Dale, Esq.

 Bart D. Jeffress, Esq.

Date: March 27, 2006 By /s/ Robert J. Higgins 

 Robert J. Higgins

 Attorneys for Defendant

PURSUANT TO STIPULATION, IT IS SO ORDERED; HOWEVER, THE

MOTION CUT-OFF, PRETRIAL AND TRIAL DATES WILL REMAIN ON CALENDAR

UNTIL SUCH TIME AS IT IS CLEAR THEY CANNOT BE MAINTAINED. 

3/29/06

Date: ___________ _______________________

CLAUDIA WILKEN

United States District Judge

Case 4:05-cv-01056-CW Document 22 Filed 03/29/06 Page 7 of 7