Opinion ID: 394126
Heading Depth: 2
Heading Rank: 3

Heading: Stay of SEC Civil Proceedings

Text: 18 Appellants argue that the district court erred by failing to stay the SEC's civil proceedings once a federal grand jury began its criminal investigation of the same transactions underlying the SEC's suit. According to appellants, once there is a criminal proceeding regarding the same transactions as are involved in a civil proceeding, the civil discovery against the subject of the criminal proceeding should cease in the civil case. Brief for Appellants at 14. Reynolds also argues that the magistrate and district court both erred in overruling his objection to the SEC's discovery attempts on the ground that the information sought was privileged. 19 There is no general federal constitutional, statutory, or common law rule barring the simultaneous prosecution of separate civil and criminal actions by different federal agencies against the same defendant involving the same transactions. Parallel civil and criminal proceedings instituted by different federal agencies are not uncommon occurrences because of the overlapping nature of federal civil and penal laws. The simultaneous prosecution of civil and criminal actions is generally unobjectionable because the federal government is entitled to vindicate the different interests promoted by different regulatory provisions even though it attempts to vindicate several interests simultaneously in different forums. The Supreme Court recognized that the federal government may pursue civil and criminal actions either simultaneously or successively in 1912 in Standard Sanitary Manufacturing Co. v. United States, 226 U.S. 20, 52, 33 S.Ct. 9, 16, 57 L.Ed. 107 4 and reaffirmed this principle in 1970 in United States v. Kordel, 397 U.S. 1, 11, 90 S.Ct. 763, 769, 25 L.Ed.2d 1. 5 In both cases, the Supreme Court observed that prompt investigation and enforcement both civilly and criminally were sometimes necessary in order to protect the public interest and that deferring or foregoing either civil or criminal prosecutions could jeopardize that interest. Accordingly, the Supreme Court declined to create a per se rule forbidding simultaneous civil and criminal actions to enforce the antitrust and food and drug laws at issue in Standard Sanitary Manufacturing Co. and Kordel. 20 This principle is fully applicable when the SEC and Justice Department each seek to enforce the federal securities laws through separate civil and criminal actions. The District of Columbia Court of Appeals recently held in a similar context that the need to prosecute simultaneous civil and criminal actions to enforce the federal securities laws could be as pressing as the need to prosecute simultaneous actions to enforce the antitrust or food and drug laws. SEC v. Dresser Industries, Inc., 628 F.2d 1368 (D.C. Cir.) (en banc), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980). Protection of the efficient operation of the securities markets and the financial holdings of investors from fraudulent marketing practices may require prompt civil enforcement which can not await the outcome of a criminal investigation. Id. at 1375. We agree with the reasoning of the District of Columbia Court of Appeals and decline to create any per se rule forbidding the SEC and Justice Departments from pursuing simultaneous investigations or lawsuits into the same transactions allegedly in violation of the federal securities laws. 21 The Supreme Court's decision in United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978), relied upon by appellants, does not require a contrary result. In LaSalle National Bank and its precursor Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971) the Supreme Court held that the Internal Revenue Service (IRS) may not use its authority to issue summonses under 26 U.S.C. § 7602 (1976) solely for the purpose of gathering information for a criminal prosecution. See United States v. Davis, 636 F.2d 1028, 1036 (5th Cir. 1981). But the rule set out in those cases was based upon limitations unique to the IRS resulting from the statutory scheme of the Internal Revenue Code rather than upon any general principles concerning the simultaneous and parallel prosecution of civil and criminal cases by different federal agencies. See SEC v. Dresser Industries, Inc., supra, 628 F.2d at 1378-90 & n. 25. The SEC's authority to subpoena material from appellants under Fed.R.Civ.P. 26 is considerably broader than the IRS's authority to subpoena material under § 7602, encompassing the right to discover any non-privileged material relevant to the subject matter of the action. See Wehling v. Columbia Broadcasting System, 608 F.2d 1084, 1086 (5th Cir. 1979). Accordingly, the limitations imposed upon the IRS by § 7602 recognized by the Supreme Court in LaSalle National Bank are not applicable to this civil suit by the SEC. Cf. SEC v. Dresser Industries, Inc., supra, 628 F.2d at 1377-84 (LaSalle National Bank not applicable to SEC's issuance of summons). 22 In special circumstances, however, a district court should stay one of the proceedings pending completion of the other to prevent a party from suffering substantial and irreparable prejudice. See United States v. Kordel, supra, 397 U.S. at 11-13, 90 S.Ct. at 769-70, 25 L.Ed.2d 1; SEC v. Dresser Industries, Inc., supra, 628 F.2d at 1377. For instance, in Wehling v. Columbia Broadcasting System, supra, 608 F.2d 1084, we held that the district court erred by failing to stay a civil libel action pending the outcome of a related criminal investigation and potential prosecution or the running of the applicable statute of limitations after the plaintiff had validly claimed his fifth amendment privilege in response to the defendant's discovery requests and had sought a protective order staying the civil suit. See also The Black Panther Party v. Smith, 661 F.2d 1243, 1270-1274 (D.C. Cir. 1981); United States v. U. S. Currency, 626 F.2d 11, 14-15 (6th Cir. 1980); Campbell v. Gerrans, 592 F.2d 1054 (9th Cir. 1979); Thomas v. United States, 531 F.2d 746 (5th Cir. 1976). But in this case appellants neither sought a protective order from the district court nor objected to specific information sought by the SEC. Instead, appellants simply refused to respond at all to the SEC's discovery requests. Howton never appeared for any deposition or hearing before the district court and never produced any records for the SEC. Reynolds did appear for a few depositions but sought to exercise a blanket privilege by refusing to respond to any questions of any type and also never produced any records. A blanket refusal to answer questions at deposition on the ground that they are privileged is an improper invocation of the fifth amendment, irrespective of whether such a claim is made by a plaintiff, defendant, or a witness. Note, Plaintiff as Deponent: Invoking the Fifth Amendment, 48 U.Chi.L.Rev. 158, 164 (1981); id. at 161. This Court has held that such a blanket assertion of the privilege is insufficient to relieve a party of the duty to respond to questions put to him, stating that even if the danger of self-incrimination is great, (the party's) remedy is not to voice a blanket refusal to produce his records or testify. Instead, he must present himself with his records for questioning, and as to each question and each record elect to raise or not to raise the defense. United States v. Roundtree, 420 F.2d 845, 852 (5th Cir. 1969) (footnote omitted). See United States v. Malnik, 489 F.2d 682, 685 (5th Cir. 1974); Note, supra, 48 U.Chi.L.Rev. at 161. Requiring a party to object with specificity to the information sought from him permits the district court to rule on the validity of his claim of privilege. A party is not entitled to decide for himself whether he is protected by the fifth amendment privilege. Rather, this question is for the court to decide after conducting a particularized inquiry, deciding, in connection with each specific area that the questioning party seeks to explore, whether or not the privilege is well-founded. United States v. Melchor Moreno, 536 F.2d 1042, 1049 (5th Cir. 1976). Even where a party has a legitimate claim of privilege with respect to certain questions or lines of inquiry, that person may not be entitled to invoke his privilege to remain totally silent. Only where the court finds that he could legitimately refuse to answer essentially all relevant questions, United States v. Gomez-Rojas, 507 F.2d 1213, 1220 (5th Cir. 1975), because of the threat of incrimination from any relevant questioning is a person totally excused from responding to relevant inquiries. Otherwise, a person is entitled to invoke the privilege (o)nly as to genuinely threatening questions .... United States v. Melchor Moreno, supra, 536 F.2d at 1049. See generally United States v. Goodwin, 625 F.2d 693, 700-01 (5th Cir. 1980). Therefore, a blanket invocation of the fifth amendment privilege is insufficient to relieve a civil litigant of the responsibility to answer questions put to him during the civil discovery process and to claim the privilege with respect to each inquiry. See National Life Insurance Co. v. Hartford Accident & Indemnity Co., 615 F.2d 595, 598-600 (3d Cir. 1980); id. at 599 (cases cited); In re Folding Carton Antitrust Litigation, 609 F.2d 867, 873 (7th Cir. 1979) (per curiam); 8 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2018, at 142-43 (1970 & Supp.1981); Note, supra, 48 U.Chi.L.Rev. at 161, 164. Appellants' failure properly to raise their claim of privilege in the proceedings before the district court prevents them from relying on this contention on appeal.