A former CEO imprisoned on charges of corporate fraud lost his bid to stay a civil lawsuit filed against him pending resolution of his section 2255 petition, filed in the District Court for Southern Indiana.
ASC Corporate Fraud Lawsuits
James Burkhart was the CEO of American Senior Communities (ASC), a large nursing home company. Burkhart allegedly led a $19 million overbilling and kickback scheme involving ASC vendors. But the charges didn’t stop there. He found himself facing multiple charges of fraud, money laundering, and conspiracy.
During the criminal case, ASC filed a civil lawsuit against Burkhart (among others). The lawsuit alleged RICO violations, as well as other state law and common law causes of action.
The criminal court stayed the civil lawsuit pending judgment in the criminal case. Eventually, Burkhard plead guilty to the criminal charges. Following this, ASC asked to reopen the civil case and the proceedings resumed shortly thereafter.
In the meantime, Burkhart learned that Barnes & Thornburg, the firm that represented him in his criminal case, also represented one of the ASC vendors that was allegedly harmed by his conduct. He filed a section 2255 motion alleging a “profound conflict of interest” and ineffective assistance of counsel.
Burkhart also moved to stay the civil case again, this time pending resolution of his §2255 motion. His argument to stay the trial stemmed from the belief that the civil discovery process could provide an unfair advantage to the government. Burkhart feared that his guilty plea would also lead to self-incrimination, and, as such, would taint the civil trial against him.
Corporate Fraud Lawsuits and 2255 Petitions
In the Seventh Circuit, determining whether to stay a civil proceeding pending a similar corporate fraud proceeding requires analysis of six factors:
(1) whether the two actions involve the same subject matter;
(2) whether the two actions are brought by the government;
(3) the posture of the criminal proceeding;
(4) the effect on the public interests at stake if a stay were to be issued;
(5) the interest of the plaintiff in proceeding expeditiously with the litigation and the potential prejudice to plaintiff from delay; and
(6) the burden that any particular aspect of the proceedings may impose on the defendant.
Judge Tanya Pratt found that a stay of the civil proceedings would not be in the interest of justice.
Burkhart’s section 2255 Motion
The judge also questioned Burkhart’s reference to his section 2255 motion as “a parallel criminal proceeding”. This issue is far from clear, but for purposes of this analysis a section 2255 motion is more akin to a new civil proceeding than a parallel criminal proceeding. When considering a stay of a separate civil case, that makes a difference.
“The post-conviction posture of the criminal proceedings weighs against a stay,” said Judge Pratt. “Unlike a pending criminal proceeding, a pending collateral attack on a conviction through a §2255 motion is not automatically grounds to stay a related civil case.” Judge Pratt also dismissed Burkhart’s self-incrimination concerns.
Src: Covington, Olivia “Convicted ex-ASC chief Burkhart loses bid to stay civil lawsuit“. TheIndianaLawyer.com, February 5, 2019