A pending § 2255 motion does not automatically pause (“stay”) a related civil lawsuit. In this case, a federal judge in the Southern District of Indiana refused to stay a civil fraud suit against a former CEO while his § 2255 motion was pending.
The former CEO, imprisoned for corporate fraud, asked the court to put the civil lawsuit on hold until his § 2255 motion was decided. He lost. For what happens if a § 2255 motion is denied, see appealing a § 2255 denial.
Outcomes vary. A past result does not predict or guarantee the outcome of any other case.
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. He was charged with 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. Burkhart eventually pleaded guilty. 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 asked the court to stay the civil case again until his § 2255 motion was decided. He argued that civil discovery could give the government an unfair advantage and could force him to choose between testifying and protecting his right against self-incrimination.
Corporate Fraud Lawsuits and 2255 Petitions
Courts in the Seventh Circuit weigh six factors in deciding whether to stay a civil case while a related criminal proceeding is pending:
(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”. For this purpose, the court treated a § 2255 motion as different from a pending criminal case, and that difference mattered.
“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.
Source: Olivia Covington, “Convicted ex-ASC chief Burkhart loses bid to stay civil lawsuit,” The Indiana Lawyer (Feb. 5, 2019) (reporting the order of Judge Tanya Walton Pratt, U.S. District Court for the Southern District of Indiana).
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