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A. Schulman, Inc. v. Citadel Plastic Holdings, LLC

Court of Chancery of Delaware

November 2, 2017

A. SCHULMAN, INC. HGGC CITADEL PLASTIC HOLDINGS, INC., and LUCENT POLYMERS, INC., Plaintiffs,
v.
CITADEL PLASTIC HOLDINGS, LLC, HUNTSMAN GAY CAPITAL PARTNERS FUND, L.P., HUNTSMAN GAY CAPITAL PARTNERS PARALLEL FUND A, L.P., HUNTSMAN GAY CAPITAL PARTNERS PARALLEL FUND B, L.P., HGIP ASSOCIATES, L.P., HGIP TRUST ASSOCIATES, L.P., HG AFFILIATE INVESTORS, L.P., HGCP, L.P., CHARLESBANK EQUITY FUND VII, LIMITED PARTNERSHIP, CHARLESBANK EQUITY COINVESTMENT FUND VII, LIMITED PARTNERSHIP, CB PARALLEL FUND VII, LIMITED PARTNERSHIP, CB OFFSHORE EQUITY FUND VII, L.P., CHARLESBANK COINVESTMENT PARTNERS, LIMITED PARTNERSHIP, KEVIN ANDREWS, MICHAEL W. HUFF, JASON JIMERSON, MATTHEW D. MCDONALD, and MARIO SANDOVAL, Defendants/Third-Party Plaintiffs/Counterclaim Third-Party Defendants,
v.
ROBERT J. BRINKMANN, Third-Party Defendant/Counterclaim Third-Party Plaintiff.

          Date Submitted: October 26, 2017

          Paul J. Lockwood, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP, Wilmington, Delaware; Attorney for Plaintiffs.

          David E. Ross, Eric D. Selden, Nicholas D. Mozal, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Attorneys for Defendants.

          MEMORANDUM OPINION

          LASTER, V.C.

         The plaintiffs sued an array of defendants. The defendants moved to dismiss the complaint pursuant to Rule 12(b)(6), contending that its allegations failed to state a claim on which relief could be granted. This court largely denied the motion, holding that the detailed allegations of the complaint stated claims for fraud and breach of contract. Discovery commenced. Over the past sixteen months, the parties exchanged nearly 500, 000 documents and took more than forty depositions, with dozens more on the horizon. The matter is currently scheduled for trial in March 2018.

         On October 3, 2017, the Federal Bureau of Investigation served the five individual defendants with subpoenas that required them to produce documents as part of an investigation being conducted by the United States Attorneys' Office for the Southern District of Indiana. The FBI also served subpoenas on other former employees of HGGC Citadel Plastic Holdings, Inc. and Lucent Polymers, Inc.

         Even though the numerous defendants in this action were differently situated, faced different threats of liability based on the allegations of the complaint, and likely possessed different defenses, they had chosen to be represented by a single Delaware firm and a single forwarding firm. After the subpoenas were served, defense counsel cancelled the upcoming depositions so that the five individuals could retain new counsel.

         On October 16, 2017, the defendants moved to stay this case in light of the criminal investigation. Although they claim to seek only a ninety-day stay to allow the new lawyers to familiarize themselves with the civil action and assess their clients' potential criminal exposure, in reality they seek an indefinite stay. Their proposal contemplates an open-ended postponement of all deadlines and case activity with a status conference after ninety days to update the court and discuss how to proceed. All of the defendants in the case would benefit from the stay, even though only the five individual defendants have received subpoenas.

         The Delaware courts have not articulated a specific test to apply when analyzing whether to stay a civil case in light of a pending criminal investigation. The federal courts have confronted the issue frequently.[1] The United States Court of Appeals for the Third Circuit has explained that deciding whether to stay a civil case "calls for the exercise of judgment, which must weigh competing interests and maintain an even balance."[2]

         The federal courts have identified a series of factors to guide the exercise of judgment. Two overarching considerations are (i) "the status of the criminal case, including whether the defendants have been indicted" and (ii) "the extent to which the issues in the criminal and civil cases overlap."[3] These headline issues help a court assess (i) the imminence and severity of the threat of criminal prosecution and (ii) whether the civil proceeding will have the effect of "undermining a defendant's Fifth Amendment privilege against self-incrimination, expanding the scope of criminal discovery beyond the limits of Rule 16(b) of the Federal Rules of Criminal Procedure, exposing the basis of the defense to the prosecution in advance of trial, or otherwise prejudicing the criminal case."[4]

         With the status of the criminal case and the degree of overlap in mind, a court then balances five additional factors:

(1) the interest of the plaintiff in proceeding expeditiously with his case and any potential prejudice it may suffer from any delay;
(2) the burden upon the defendants from going forward with any aspects of the proceedings, in particular any prejudice to their rights;
(3) the convenience of the court and the efficient management of judicial resources;
(4) the interests of any non-parties; and
(5) the interest of the public in the pending civil and criminal ...

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