Magistrate Judge Marilyn Go
The government alleged Hines and Chestnut promoted a tax fraud scheme grounded on the preparation and submission of returns claiming refunds based on false IRS Forms 1099-OID and 1099-A. A related criminal probe is ongoing. Due to overlap of issues in the civil case and criminal investigationwhere an indictment has not yet issueddefendants could either testify and waive Fifth Amendment privilege or invoke their Fifth Amendment rights and risk an adverse inference. The bulk of the six considerations in Louis Vuitton Malletier v. LY USA weighed against staying the civil case pending resolution of the criminal investigation. The government’s discovery in the civil action could not be used in other proceedings except for impeachment purposes or in connection with a perjury prosecution arising from defendants’ deposition testimony. However, the government may use information derived from the instant civil action against other individuals or entities in any other proceedings. Such accommodation would minimize the prejudice to defendants by having to choose between risking an adverse inference being drawn against them in the civil action and waiving their Fifth Amendment rights.
