Chancery Adopts Federal Test to Determine Whether to Stay a Civil Case Based on a Criminal Investigation

Neither the Delaware Supreme Court, nor other Delaware state courts have “articulated a specific test” to analyze whether to stay a civil case based on the pendency of a criminal case or investigation. The federal courts have, however, had the opportunity to address this issue frequently. Federal courts consider a number of factors in their analysis of whether to stay a civil case during the pendency of a criminal case or investigation. In the federal multi-factor test, the two primary considerations are: (1) “the status of the criminal case, including whether the defendants have been indicted” and (2) “the extent to which the issues in the criminal and civil cases overlap.” These two “overarching” considerations enable a court to assess the imminence and severity of the threat of criminal prosecution, and whether the civil case will have the effect of undermining a defendant's Fifth Amendment privilege against self-incrimination, or otherwise, prejudicing a defendant's ability to defend the criminal case.

Keeping in mind the status of the criminal case and the degree of overlap, federal courts then balance five additional factors:

• “The interest of the plaintiff in proceeding expeditiously with his case and any potential prejudice it may suffer from any delay;

• The burden upon the defendants from going forward with any aspects of the proceedings, in particular any prejudice to their rights;

• The convenience of the court and the efficient management of judicial resources;

• The interest of non-parties; and

• The interest of the public in the pending civil and criminal litigation.”

In balancing these five factors, federal courts necessarily consider the length of the requested stay, and emphasize that a total stay of a civil case is an “extraordinary remedy.”

In its recent decision in A. Schulman v. Citadel Plastic Holdings, C.A. No. 12459-VCL (Del. Ch. Nov. 2, 2017), the Court of Chancery adopted the federal multi-factor test to determine whether to stay a civil case during the pendency of a criminal case or investigation. After analyzing the factors, the court held that defendants were not entitled to a stay of the civil action based on a criminal investigation still in its early stages with an unknown degree of overlap with the civil action, and in which none of the defendants had been indicted. The court explained that only a fraction of investigations ever result in indictments, and the time period from investigation to indictment can be protracted, and thus, the “routine grant of pre-indictment stays would generate many false positives and result in lengthy delays of civil litigation.”