Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_12-cv-00177/USCOURTS-almd-2_12-cv-00177-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

---

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, EASTERN DIVISION

JOHN A. ABRAMS, et al., )

)

Plaintiffs, )

) CIVIL ACTION NO.

v. ) 3:12cv177-MHT

) (WO) 

THOMAS H. TUBERVILLE, ) 

et al., )

)

Defendants. )

OPINION AND ORDER

Plaintiffs John A. Abrams, Priscilla W. Abrams, Debra

Clark, Baron J. Lowe, Melanie D. Lowe, Fredrick Glen

Williams, Kristy A. Williams, and Flynn R. DuBose, Jr.,

all investors, brought this action naming as defendants

several investment companies (TS Capital Partners; TS

Capital Partners, LLC; TS Capital Management, LLC; TS

Capital Fund LP; and TS Capital GP, LLC) and the two

individuals who co-founded and controlled those companies

(Thomas H. Tuberville and John David Stroud). Plaintiffs

claim violations of federal and state securities and

commodities exchange laws, breaches of fiduciary duties,

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unjust enrichment, negligence and wantonness, fraud, and

conversion. Subject-matter jurisdiction is proper under

28 U.S.C. § 1331 (federal question), 7 U.S.C. § 25(c)

(Commodities Exchange Act), and 28 U.S.C. § 1367

(supplemental). The case is now before this court on

Stroud’s motions to stay the litigation. For the reasons

that follow, the motions will be denied.

I. BACKGROUND

A.

The allegations in this case are as follows.

Plaintiffs, all of whom sought to grow their savings for

retirement, entrusted Tuberville and Stroud with

investing their money; they came to regret that decision.

Savvy investors (which plaintiffs allegedly were not) may

have seen warning signs that plaintiffs overlooked. For

example, plaintiffs allege that, while Tuberville and

Stroud purportedly did business as agents of various

entities, at least one of those entities was nonexistent

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(it was never actually organized under the laws of any

State); that plaintiffs were solicited through various

documents that were purported to be exempt from

regulatory requirements, but the claimed exemption was a

falsehood; and that plaintiffs were assured that

everything was in order with their accounts, the books

were regularly audited by a certified public-accounting

firm, all the necessary legal matters were handled by a

law firm, and the funds were administered by responsible

third parties. Plaintiffs now believe that was all

untrue.

Plaintiffs further contend that, in fact, less than

half of their funds were ever invested; that Tuberville

and Stroud used the majority of their cash for personal

purposes; that, when plaintiffs’ accounts dried up under

Tuberville and Stroud’s mismanagement, the two sought to

conceal that fact, sending plaintiffs doctored bank

statements and making misrepresentations over the

telephone; and that, as of today, plaintiffs cannot say

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where their funds have gone, although they believe that

it has been misappropriated, converted, and otherwise

squandered for the benefit of Tuberville and Stroud.

Tuberville has generally denied all of plaintiffs’

allegations. Stroud has not filed an answer with the

court and has not otherwise provided any indication of

whether he contests the claims brought against him.

Shortly after plaintiffs started this lawsuit, the

U.S. Commodity Futures Trading Commission instituted its

own case against Stroud (but not Tuberville) and his

companies in this court. The commission alleged similar

facts as plaintiffs in this case. Shortly after that,

Stroud (and not Tuberville) was criminally indicted by an

Alabama grand jury. The indictment charged Stroud with

committing various sorts of fraud, misusing investors’

money for personal purposes, and failing to register with

the Alabama Securities Commission when he was legally

required to do so.

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B.

After the grand jury indicted Stroud, Tuberville

filed a motion with this court asking to have discovery

in this case stayed pending resolution of the criminal

charges brought against Stroud. Tuberville stated that,

in a deposition taken of Stroud in connection with the

commission case, Stroud refused to answer substantively

all questions asked, instead invoking his Fifth Amendment

right against self-incrimination; Tuberville argued that

Stroud’s testimony was critical to his ability to defend

himself, and, until the criminal matter against Stroud

was resolved, Stroud would likely continue invoking his

right to remain silent when questioned; and, as such, if

this litigation were not stayed, Tuberville argues, he

would be unfairly prejudiced. The court denied

Tuberville’s motion without issuing a written opinion.

The day immediately after this court denied

Tuberville’s motion, Stroud filed with the court his own

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1. Although docketed after the court’s denial of

Tuberville’s motion, Stroud’s first motion was likely

created before the court’s order was issued.

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motion to stay.1

 He submitted the motion pro se (on his

own behalf, rather than through an attorney). The motion

was an almost identical reproduction of Tuberville’s

previously denied motion; Stroud replaced a handful of

words in places throughout the document (mostly replacing

Tuberville’s name with his own), but largely reproduced

the prior motion’s text in its entirety. As such, Stroud

argued that, because he would likely continue to invoke

the Fifth Amendment, Tuberville would be unable to

develop evidence critical to his defense and that the

court should stay this litigation to protect Tuberville’s

interests. A couple weeks later, Stroud filed with the

court a second motion that was identical to the first

submission. Both motions are now before the court.

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C.

The court must now decide for the second time whether

to stay this civil lawsuit pending resolution of the

criminal case against Stroud.

II. STANDARD

This court “has broad discretion to stay proceedings

as an incident to its power to control its own docket.”

Clinton v. Jones, 520 U.S. 681, 706 (1997). “[T]he power

to stay proceedings is incidental to the power inherent

in every court to control the disposition of the causes

on its docket with economy of time and effort for itself,

for counsel, and for litigants. How this can be done

calls for the exercise of judgment, which must weigh

competing interests and maintain an even balance.”

Landis v. North American Co., 299 U.S. 248, 265-66

(1936). “[T]he court, in its sound discretion, must

assess and balance the nature and substantiality of the

injustices claimed on either side.” Feld Entertainment,

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Inc. v. A.S.P.C.A., 523 F. Supp. 2d 1, 3 (D.D.C. 2007)

(Sullivan, J.) (citation omitted).

Courts are often faced with circumstances similar to

this one, where a defendant in a civil action asks to

have the case stayed pending a criminal prosecution

brought against him. In such cases, “[i]t is the rule,

rather than the exception that [the] civil and criminal

cases proceed together.” U.S. ex rel. Gonzalez v.

Fresenius Medical Care North America, 571 F. Supp. 2d

758, 761 (W.D. Tex. 2008) (Martinez, J.) (quotation marks

and citation omitted). “A court must stay a civil

proceeding pending resolution of a criminal prosecution

only when special circumstances so require in the

interests of justice.” S.E.C. v. Wright, 261 F. App’x

259, 263 (11th Cir. 2008) (quoting United States v. Lot

5, Fox Grove, Alachua County, Fla., 23 F.3d 359, 364

(11th Cir. 1994)); see also S.E.C. v. Dresser Indus., 628

F.2d 1368, 1374 (D.C. Cir. 1980), cert. denied, 449 U.S.

993 (1980) (“In the absence of substantial prejudice to

the rights of the parties, such parallel proceedings are

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unobjectionable.”). Absent a showing of special

circumstances, staying the litigation is unwarranted.

Courts have turned to a number of factors in these

cases to determine whether special circumstances are

present. Commonly cited considerations include: “(1) the

extent to which the issues in the criminal case overlap

with those presented in the civil case; (2) the status of

the case, including whether the defendants have been

indicted; (3) the private interests of the plaintiffs in

proceeding expeditiously weighed against the prejudice to

plaintiffs caused by the delay; (4) the private interests

of and burden on the defendants; (5) the interests of the

courts; and (6) the public interest.” Yeomans v. Forster

& Howell, Inc., 2009 WL 2960387, at *1 (M.D. Ala. Sept.

10, 2009) (Albritton, J.) (citation omitted). Those

factors cannot be mechanically applied; how the court

balances competing considerations must ultimately be an

individual inquiry, tailored to the unique circumstances

of the case at hand. See Volmar Distributors, Inc. v.

New York Post Co., Inc., 152 F.R.D. 36, 39 (S.D.N.Y.

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1993) (Conner, J.) (“Balancing these factors is a

case-by-case determination, with the basic goal being to

avoid prejudice.”).

III. DISCUSSION

The court first disposes of the argument that

Stroud’s invocation of the Fifth Amendment is, without

more, sufficient to constitute special circumstances.

There is no question that “the blanket assertion of the

privilege against self-incrimination is an inadequate

basis for the issuance of a stay.” Wright, 261 F. App’x

at 263; see also Alcala v. Texas Webb County, 625 F.

Supp. 2d 391, 401 (S.D. Tex. 2009) (“[T]o warrant a stay,

a defendant must make a strong showing that the two

proceedings will so overlap that either (1) he cannot

protect himself in the civil proceeding by selectively

invoking his Fifth Amendment privilege, or (2) effective

defense of both [the criminal and civil cases] is

impossible.”) (citing Koester v. American Republic

Investments, Inc., 11 F.3d 818, 823 (8th Cir. 1993)). By

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2. The court finds it questionable whether Stroud

has standing to assert Tuberville’s interests since a

party “generally must assert his own legal rights and

interests, and cannot rest his claim to relief on the

legal rights or interests of third parties.” Ward v.

Seldin, 422 U.S. 490, 499 (1975) (quoting Tileston v.

Ullman, 318 U.S. 44 (1943)). But, that aspect of the

standing doctrine is prudential, rather than mandated by

Article III’s case-or-controversy requirement. Kowalski

v. Tesmer, 543 U.S. 125, 129 (2004). Given the

circumstances of this case, the court finds it prudent to

put aside the standing issue and reach the merits of

Stroud’s motion.

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indicating that he will continue to invoke the Fifth

Amendment and by showing nothing more than that “blanket

assertion,” Stroud has plainly failed to meet his burden.

Moreover, in asserting his invocation of the Fifth

Amendment as a basis for staying this litigation, Stroud

expressly does so to protect the interests of his codefendant; he does not purport to protect his own

interests.2

 The court did not previously find

Tuberville’s private interests sufficiently compelling to

warrant staying this case, and, with Tuberville’s private

interests now asserted by a person other than Tuberville

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himself, the court finds the argument for a stay less

persuasive.

Indeed, the record does not establish that, should

the criminal prosecution against Stroud end with a

conviction, he will not proceed with an appeal or

collateral attack on the judgment, and, as such, that the

likelihood of his invoking the Fifth Amendment and

refusing to testify will be obviated. The record also

does not establish that, if the state prosecution ends

with an acquittal, Stroud cannot nevertheless be

prosecuted in federal court, under federal law, and that

thus he has no reasonable grounds to fear as much,

especially given that federal officials are investigating

his past conduct; or even that he will not be subject to

subsequent prosecution in the state courts under a

different criminal statute than was used in the first

prosecution. Given those possibilities, Stroud would

surely continue exercising his right to remain silent.

Finally and admittedly, there is the possibility of

Stroud’s pleading guilty, but there is nothing in the

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record to suggest that he is likely to do so. In short,

there is no reason to think that Stroud will stop

invoking his Fifth-Amendment privilege any time in the

near future.

Another consideration the court finds highly relevant

in this case is the nature of Tuberville and Stroud’s

alleged wrongdoing. Both are civilly accused of

sophisticated financial fraud, and Stroud is criminally

accused of the same. “[T]here are many reasons why it

may be particularly undesirable to stay civil cases

against defendants accused” of such wrongs. Int’l

Business Machines Corp. v. Brown, 857 F. Supp. 1384, 1391

(C.D. Cal. 1994) (Letts, J.). Generally speaking, in the

case of pending civil and criminal proceedings, “[i]t is

hard to see why the indirect societal interest in

bringing to justice the perpetrators of crimes should

ever take precedence over the direct interest of the

victims of crimes to obtain redress for their losses.”

Id. But in the particular case of fraud--where “[i]t is

to be expected that as soon as the defrauder learns that

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he is under suspicion, he will undertake to abscond with,

spend or hide the fraud proceeds”–-the victims’ interests

in having their rights expeditiously declared are

especially strong. Id.

The concern is illustrated well in this case. After

the indictment against Stroud was issued, plaintiffs

state that he left his residence in Auburn, Alabama and

moved to an undisclosed location. Since then, plaintiffs

have had difficulty serving documents on Stroud (although

plaintiffs’ process server eventually located him in

Uriah, Alabama and personally served an amended version

of the complaint on him). As noted above, Stroud has not

yet filed an answer to plaintiffs’ complaint in this

case; his sole participation in the lawsuit has been the

two motions to stay that are now before the court. With

those motions, Stroud flagrantly violated Rule 11 of the

Federal Rules of Civil Procedure by failing to provide

the court with his mailing address, e-mail address,

telephone number, or any other contact information. See

Fed. R. Crim. P. 11(a) (“Every ... written motion must be

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signed ... by [an unrepresented] party personally ....

The paper must state the signer's address, e-mail

address, and telephone number.”).

The court also finds it relevant that, despite

Stroud’s minimal participation this litigation, he has

seemingly already made one misrepresentation to the

court. If that is the case, Stroud’s misrepresentation

constitutes a separate violation of Rule 11. See Fed. R.

Civ. P. 11(b)(3) (“By presenting to the court a ...

written motion ... an ... unrepresented party certifies

that to the best of the person's knowledge, information,

and belief ... the factual contentions have evidentiary

support ....”). In the first paragraphs of Stroud’s two

motions, he stated that, “The undersigned has contacted

Plaintiffs’ counsel, who has stated that Plaintiffs

oppose the relief requested by Stroud.” Def.’s Mot.

(Doc. Nos. 50 & 53) at 1. That sentence was copied

almost identically from Tuberville’s earlier motion; all

Stroud changed was Tuberville’s name to his own.

Plaintiffs stated to the court that Stroud’s contention

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about contacting them was a “bald-faced lie”; Stroud had

made no contact with plaintiffs or their counsel. Pls.’

Memo in Opp. (Doc. No. 56) at 6.

Given this pattern of elusive behavior and lack of

meaningful participation in this lawsuit, plaintiffs’

interests in having the litigation proceed (and having

the opportunity to ask the court for a default judgment

if Stroud’s non-cooperation continues) are compelling.

Cf. Int’l Business Machines Corp., 857 F. Supp. at 1391

(“[A] stay of this action would delay and likely hinder

any possible recovery that [the plaintiff] may obtain.”).

Balanced against Tuberville’s interests (as conveyed

through Stroud), the decision to deny Stroud’s motion to

stay is not a close one. Moreover, the interest in

plaintiffs’ ability to seek recovery against their

alleged defrauder does not lie solely with plaintiffs;

rather, the court finds it decidedly in the public

interest that victims of fraud be able to pursue recovery

in cases like this one. “To require the victim[s] to

forgo the pursuit of [their] own rights for an

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indeterminate period, while awaiting the ... outcome of

an investigation done in pursuit of broader interests,

seems unnecessary and unfair.” Id.

The court holds that, at this time, based on the

record before it, a stay in this case would be

unwarranted and unjust. If circumstances materially

change, Tuberville or Stroud may ask the court to

consider staying the litigation in light of the changed

circumstances. See U.S. ex rel. Gonzalez, 571 F. Supp.

2d at 766 (“Of course, if circumstances change, the

parties are free to request that the Court reconsider the

propriety of a stay.”).

***

Accordingly, it is ORDERED that defendant John David

Stroud’s motions to stay (Doc. Nos. 50 & 53) are denied.

DONE, this the 6th day of March, 2013.

 /s/ Myron H. Thompson 

UNITED STATES DISTRICT JUDGE

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