Papa John's V. Rezko Llcs_7thcirbrief

Case: 09-2356

Document: 16

Filed: 07/31/2009

Pages: 65

No. 09-2356

United States Court of Appeals for the Seventh Circuit Papa John’s International, Inc., and PJ Food Service, Inc. Appellants,

v. Antoin Rezko, et al, Appellees.

Brief of Appellants. Appeal as of Right from a Dismissal Order of the U.S. District Court for the Northern District of Illinois at Chicago. Hon. Samuel Der-Yeghiayan, U.S. District Judge.

Brief of Appellants by: Lee Thomason Corporate Counsel Papa John’s International, Inc. 2002 Papa John’s Boulevard Louisville, KY 40299 (502) 261-4773

Print Form Save16 Form Filed: Clear Form Case: 09-2356 Document: 07/31/2009 CIRCUIT RULE 26.1

Pages: 65

DISCLOSURE STATEMENT

Appellate Court No: 09-2356 Short Caption: Papa John's Int'l, Inc. and PJ Food Service, Inc. v. Rezko, et al. To enable the judges to determine whether recusal is necessary or appropriate, an attorney for a non-governmental party or amicus curiae, or a private attorney representing a government party, must furnish a disclosure statement providing the following information in compliance with Circuit Rule 26.1 and Fed. R. App. P. 26.1. The Court prefers that the disclosure statement be filed immediately following docketing; but, the disclosure statement must be filed within 21 days of docketing or upon the filing of a motion, response, petition, or answer in this court, whichever occurs first. Attorneys are required to file an amended statement to reflect any material changes in the required information. The text of the statement must also be included in front of the table of contents of the party's main brief. Counsel is required to complete the entire statement and to use N/A for any information that is not applicable if this form is used. [

]

PLEASE CHECK HERE IF ANY INFORMATION ON THIS FORM IS NEW OR REVISED AND INDICATE WHICH INFORMATION IS NEW OR REVISED.

(1) The full name of every party that the attorney represents in the case (if the party is a corporation, you must provide the corporate disclosure information required by Fed. R. App. P 26.1 by completing item #3): Papa John's International, Inc.

PJ Food Service, Inc.

(2) The names of all law firms whose partners or associates have appeared for the party in the case (including proceedings in the district court or before an administrative agency) or are expected to appear for the party in this court: Former counsel were: (1) Hunton & Williams, (2) Foley & Lardner, (3) Sonnenschien Nath & Rosenthal, LLP

(4) Katten Muchin Rosenman LLP, (5) Seyfarth Shaw LLP, (6) K&L Gates LLP

(3) If the party or amicus is a corporation: i) Identify all its parent corporations, if any; and Papa John's International, Inc., is a publicy-traded company, which wholly owns PJ Food Service, Inc.

ii) list any publicly held company that owns 10% or more of the party’s or amicus’ stock: None

Attorney's Signature:

~s~ Charles L. Thomason

Date: 06 AUG 2009

Attorney's Printed Name: Charles Lee Thomason Please indicate if you are Counsel of Record for the above listed parties pursuant to Circuit Rule 3(d). Address:

Yes

No

Legal Dept. Papa John's International, Inc.

2002 Papa John's Blvd. Phone Number: E-Mail Address:

Louisville, KY 40299

(502) 261-4773

Fax Number:

(502) 261-4324

[email protected]

Print Form

Save Form

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rev. 01/08 AK

Case: 09-2356

Document: 16

Filed: 07/31/2009

Pages: 65

Table of Contents Page Corporate Disclosure Statement Table of Contents

………………………………………..

i

Table of Authorities

………………………………………..

iv

A. Arranged Alphabetically …………………………………. iv B. Arranged by Precedential Source ……………………….….. xiii Jurisdictional Statement of Appellants

……………………

1

Statement of the Issues Presented for Review

……………………

2

Statement of the Case, Proceedings and Disposition Below 1. 2.

………

5

……………………

5

The Civil Suit Pleaded for Lanham Act and Related Relief ………………………………….

6

The Action For Injunctive Relief Against the LLC Franchisees

3. The Indictment of the Individual Defendant

………

7

4. The Stay of All Discovery as to All Defendants

………

9

5. Continuing Status Conferences

……………………

10

6. The Sua Sponte Dismissal Order

……………………

11

Statement of Facts Relevant to Issues for Review

.……………

13

Summary of Arguments

……………………………………..…

17

ARGUMENT

……………………………………..…

18

I. Error to Stay Discovery as to the LLC Defendants …………….

18

A. Standard of Review For a Stay Based on the Fifth Amendment 1.

………………..………...

18

Typical Stays are Reviewed for Abuse of Discretion ………………..………...

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Page

2.

Standards of Review Appropriate to Stays of Civil Discovery Due to Criminal Charges Against the Individual Co-Defendant of Several Corporate Entity Defendants .……………

20

The Standard of Review Appropriate to the Stay Order

……………………

24

II. The Decision To Stay All Discovery, as to All More Certain Standards to Guide Lower Courts in Evaluating Whether to Stay,or to Limit Discovery .……………

25

3.

A. Varied Tests Across the Circuits, and None in this Circuit …………………………………. 25 B. No 5th Amendment Privilege Protects The LLC-Defendants …………………………………. 31 C. The Stay was Contrary to the Collective Entity Doctrine …………………………………. 33 III.

Dismissal, Sua Sponte and Without Notice, Was Error ……………………………………………..…

CONCLUSION

……………………………………..…

Statement that Oral Argument Not Requested

38 41

………..….………

42

CERTIFICATION REGARDING TYPE SIZE AND STYLE ………….……..…

43

CIRCUIT RULE 31(e) STATEMENT

………..….………

44

……………………………………..…

45

CERTIFICATE OF SERVICE

CIRCUIT RULE 30(d) STATEMENT

………..….………

46

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SHORT APPENDIX The following relevant documents from the proceedings below are provided. Record Entry #

Date Filed

Description

217

03/02/2007 MINUTE entry: Defendant's motion to stay is granted, but with a direction that all records of the corporate defendants and all records in the possession of defendant Rezko that may reasonable be deemed discoverable in this action be preserved.

218

03/02/2007 MEMORANDUM Opinion and Order on motion to stay all discovery as to all defendants, and to preserve all records that may reasonable be deemed discoverable. 04/29/2009 MINUTE entry: The instant action is hereby terminated without prejudice to reinstate.

246

248

05/22/2009 NOTICE of appeal by Papa John’s International, Inc., and PJ Food Service, Inc.

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TABLE OF AUTHORITIES A. Alphabetically Arranged. Page 9A Fletcher, Cyclopedia of the Law of Corporations, § 4671 15A Wright, Miller & Cooper, FEDERAL PRACTICE AND PROCEDURE § 3914.6, at 145 n. 18 (2d ed. 2000)

…….

18

…………………..

3

28 U.S.C. §1291

…………………………………….. 1 & 3

28 U.S.C. §1331

……………………………………..…

1

28 U.S.C. §1338

……………………………………..…

1

……………..………………………………..

1

……………………………………..…

1

28 U.S.C. §1338(b) 28 U.S.C. §1367

Albemarle Paper Co. v. Moody, 422 U.S. 405, 45 L.Ed.2d 280, 95 S. Ct. 2362 (1975)

…………………..

23

Bellis v. United States, 417 U.S. 85, 94 S. Ct. 2179, 40 L.Ed.2d 678 (1974)

…………………..

34

Barnes v. Briley, 420 F.3d 673, 676 (7th Cir. 2005) …………………..

2

Bland v. Fiatallis North America, Inc., ……………………………….. 401 F.3d 779 (7th Cir. 2005)

21

Braswell v. United States, 487 U.S. 99, 108 S. Ct. 2284, 101 L.Ed.2d 98 (1988)

………………….

35

Cargile v. Barrow, 2009 WL 222947 (Ohio App. 1st Dist. Jan. 30, 2009)

…………………..

21

CHB Uptown Properties, LLC v. Financial Place Apartments, LLC, 378 Ill.App.3d 105, 881 N.E.2d 423 (Ill. App. 1st Dist. 2007) …………………..

29

Clinton v. Jones, 520 U.S. 681, 117 S. Ct. 1636, 137 L.Ed.2d 945 (1997)

…………………..

18

………………….……………..

1

Copyright Act, Title 17 U.S.C.

iv

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Page Corporate Assets, Inc. v. Paloian, 368 F.3d 761 (7th Cir. 2004)

………………………………..

22

Corley v. Rosewood Care Center, Inc. of Peoria, 142 F.3d 1041 (7th Cir. 1998) ………………………………..

19

Cruz v. County of DuPage, 1997 WL 370194 (N.D. Ill. 1997) ……………………………….. Doe v. Oberweis Dairy, 456 F.3d 704 (7th Cir. 2006), cert. den’d, 549 U.S. 1278 (2007)

27-31

………………..………..

40

Donovan v. Robbins, 752 F.2d 1170 (7th Cir. 1984) …………………..

21

Fernandez v. ATA Airlines, Inc., 2006 WL 211818 (N.D.Ill. 2006) ………………………………..

11

In re 25 Grand Jury Subpoenas Dated Oct. 21, Oct. 22, and Dec. 3, 1986, 654 F.Supp. 647 (N.D. Ind. 1987)

……………

36

Jutzi-Johnson v. U.S., 263 F.3d 753 (7th Cir. 2001)

……………

23

…………………..

2

Keating v. Office of Thrift Supervision, 45 F.3d 322 (9th Cir. 1995), cert. denied, 516 U.S. 827 (1995) ……………

26

Kaba v. Stepp, 458 F.3d 678 (7th Cir. 2006)

Koester v. American Republic Investments, Inc., ……………………………….. 26-30 11 F.3d 818 (8th Cir. 1993) Lambersky v. Petritis, 2002 WL 1285883 (N.D. Ill. 2002)

…….

11

Landis v. North American Co., 299 U.S. 248, 57 S. Ct. 163, 165-66, 81 L.Ed. 153 (1936) …………………..

19

Lanham Act and 15 U.S.C. §1121

………………….……………..

Mars Steel Corp. v. Continental Bank N.A., 880 F.2d 928 (7th Cir. 1989) (en banc)

1

…………………..

23

………………..………..

36

Microfinancial, Inc. v. Premier Holidays Intern., Inc., 385 F.3d 72 (1st Cir. 2004) ………………………………..

30

Martin Trigona v. Gouletas, 634 F.2d 354 (7th Cir. 1980), cert. den’d, 449 U.S. 1025 (1980)

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Page Mostly Memories, Inc. v. For Your Ease Only, Inc., 526 F.3d 1093 (7th Cir. 2008) ……………………………….. Musser v. Gentiva Health Servs., 356 F.3d 751 (7th Cir.2004) ………………………………..

22

Olive Can Co., Inc. v. Martin, 906 F.2d 1147 (7th Cir. 1990)

19

………………………………..

Pacific Mut. Life Ins. Co. v. American Nat. Bank and Trust Co. of Chicago, 649 F.Supp. 281 (N.D. Ill. 1986)

2

…….

36

Papa John’s Int’l v. Rezko, 2007 WL 1597944 (N.D. Ill. 2007) …….

5

Riverboat Casino Cruises, Inc. v. Triangle Insulation & Sheet Metal Co., 302 F.3d 667 (7th Cir.2002) ………………..………..

39

Ruski v. City of Bayonne, 811 A.2d 939 (N.J. Super. App. Div. 2002) …………………..

38

Salgado by Salgado v. General Motors Corp., ……………………………….. 150 F.3d 735 (7th Cir. 1998)

21

Securities and Exchange Commission v. Canandaigua Enterprises Corp., 339 F.2d 14 (2nd Cir. 1964) ………………………………..

23

Standard Sanitary Manufacturing Co. v. United States, 226 U.S. 20, 52, 33 S. Ct. 9, 57 L.Ed. 107 (1912) …………… 22 Sverdrup Corp. v. Edwardsville Comm. Unit School Dist. No. 7, 125 F.3d 546 (7th Cir. 1997)

….…

23

Tranzact Technologies, Ltd. v. Evergreen Partners, Ltd., ……………………………….. 366 F.3d 542 (7th Cir. 2004)

39

United States v. Arizechi, 2006 WL 1722591 (D.N.J. 2006)

…….

35

………………..………..

23

United States v. Certain Real Property Commonly Known as 6250 Ledge Rd., 943 F.2d 721(7th Cir. 1991) ………………………………..

26

United States v. Burr, 25 F. Cas. 30 (No. 14,692d) (C.C. Va. 1807)

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Page United States v. Feng Juan Lu, 248 Fed.Appx. 806, ………………….. 2007 WL 2753030 (9th Cir. 2007)

35

United States v. Kordel, 397 U.S. 1, 90 S. Ct. 763, 25 L.Ed.2d 1 (1970)

………………..………..

22

…………………..

36

United States v. Kuta, 518 F.2d 947 (7th Cir. 1975)

United States v. Pate, 105 Fed. Appx. 597 (5th Cir. 2004)

…….

United States v. Matute-Santos, ………………….. 168 Fed. Appx. 343 (11th Cir. 2006) United States v. Rezko, 2008 WL 4890232 (N.D.Ill. 2008) ……. United States v. Wallace & Tiernan Co., 336 U.S. 793, 69 S. Ct. 824, 93 L.Ed. 1042 (1949) …………… United States v. White, 322 U.S. 694, 64 S. Ct. 1248, 88 L.Ed. 1542 (1944) Wilson v. United States, 221 U.S. 361, 31 S. Ct. 538, 55 L.Ed. 771 (1911)

20 20 14 2

…………………..

33

………………..………..

33

Wilton v. Seven Falls Co., 515 U.S. 277, 115 S. Ct. 2137, 132 L.Ed.2d 214 (1995)

…………………..

Winters v. Fru-Con Inc., 498 F.3d 734 (7th Cir. 2007)

……………

24 24

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TABLE OF AUTHORITIES B. Arranged by Precedential Source. Page U.S. Supreme Court decisions: Albemarle Paper Co. v. Moody, 422 U.S. 405, 45 L.Ed.2d 280, 95 S. Ct. 2362 (1975)

…………………..

24

Bellis v. United States, 417 U.S. 85, 94 S. Ct. 2179, 40 L.Ed.2d 678 (1974)

…………………..

34

Braswell v. United States, 487 U.S. 99, 108 S. Ct. 2284, 101 L.Ed.2d 98 (1988)

…………………..

35

Clinton v. Jones, 520 U.S. 681, 117 S. Ct. 1636, 137 L.Ed.2d 945 (1997)

…………………..

18

Landis v. North American Co., 299 U.S. 248, 57 S. Ct. 163, 165-66, 81 L.Ed. 153 (1936) …………………..

19

Standard Sanitary Manufacturing Co. v. United States, 226 U.S. 20, 52, 33 S. Ct. 9, 57 L.Ed. 107 (1912) ……………

22

United States v. Burr, 25 F. Cas. 30 (No. 14,692d) (C.C. Va. 1807)

………………..………..

23

United States v. Kordel, 397 U.S. 1, 90 S. Ct. 763, 25 L.Ed.2d 1 (1970)

………………..………..

22

United States v. Wallace & Tiernan Co., 336 U.S. 793, 69 S. Ct. 824, 93 L.Ed. 1042 (1949) ……………

2

United States v. White, 322 U.S. 694, 64 S. Ct. 1248, 88 L.Ed. 1542 (1944) Wilson v. United States, 221 U.S. 361, 31 S. Ct. 538, 55 L.Ed. 771 (1911)

…………………..

33

………………..………..

33

Wilton v. Seven Falls Co., 515 U.S. 277, 115 S. Ct. 2137, 132 L.Ed.2d 214 (1995)

…………………..

24

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Page Seventh Circuit decisions: Barnes v. Briley, 420 F.3d 673, 676 (7th Cir. 2005) …………………..

2

Bland v. Fiatallis North America, Inc., ……………………………….. 401 F.3d 779 (7th Cir. 2005)

21

Corporate Assets, Inc. v. Paloian, 368 F.3d 761 (7th Cir. 2004)

………………………………..

22

Corley v. Rosewood Care Center, Inc. of Peoria, 142 F.3d 1041 (7th Cir. 1998) ………………………………..

19

Doe v. Oberweis Dairy, 456 F.3d 704 (7th Cir. 2006), cert. den’d, 549 U.S. 1278 (2007)

………………..………..

40

Donovan v. Robbins, 752 F.2d 1170 (7th Cir. 1984) …………………..

21

Jutzi-Johnson v. U.S., 263 F.3d 753 (7th Cir. 2001)

……………

23

Mars Steel Corp. v. Continental Bank N.A., 880 F.2d 928 (7th Cir. 1989) (en banc)

…………………..

23

Kaba v. Stepp, 458 F.3d 678 (7th Cir. 2006)

…………………..

2

………………..………..

36

Martin Trigona v. Gouletas, 634 F.2d 354 (7th Cir. 1980), cert. den’d, 449 U.S. 1025 (1980)

Mostly Memories, Inc. v. For Your Ease Only, Inc., 526 F.3d 1093 (7th Cir. 2008) ……………………………….. Musser v. Gentiva Health Servs., 356 F.3d 751 (7th Cir.2004) ………………………………..

22

Olive Can Co., Inc. v. Martin, 906 F.2d 1147 (7th Cir. 1990)

………………………………..

19

Riverboat Casino Cruises, Inc. v. Triangle Insulation & Sheet Metal Co., 302 F.3d 667 (7th Cir.2002) ………………..……….. Salgado by Salgado v. General Motors Corp., 150 F.3d 735 (7th Cir. 1998) ………………………………..

39

2

21

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Page Sverdrup Corp. v. Edwardsville Comm. Unit School Dist. No. 7, 125 F.3d 546 (7th Cir. 1997)

….…

23

Tranzact Technologies, Ltd. v. Evergreen Partners, Ltd., ……………………………….. 366 F.3d 542 (7th Cir. 2004)

39

United States v. Certain Real Property Commonly Known as 6250 Ledge Rd., 943 F.2d 721(7th Cir. 1991) ………………………………..

26

U.S. v. Kuta, 518 F.2d 947 (7th Cir. 1975)

36

…………………..

Winters v. Fru-Con Inc., 498 F.3d 734 (7th Cir. 2007)

……………

24 Page

Other Circuit Courts decisions: Keating v. Office of Thrift Supervision, 45 F.3d 322 (9th Cir. 1995), cert. denied, 516 U.S. 827 (1995) …………… 27 Koester v. American Republic Investments, Inc., ……………………………….. 11 F.3d 818 (8th Cir. 1993)

26

Microfinancial, Inc. v. Premier Holidays Intern., Inc., ……………………………….. 385 F.3d 72 (1st Cir. 2004)

30

Securities and Exchange Commission v. Canandaigua Enterprises Corp., ……………………………….. 339 F.2d 14 (2nd Cir. 1964)

23

United States v. Feng Juan Lu, 248 Fed. Appx. 806, 2007 WL 2753030 (9th Cir. 2007) 34 United States v. Pate, 105 Fed. Appx. 597 (5th Cir. 2004)

…….

20

…………………..

20

Papa John’s Int’l v. Rezko, 2007 WL 1597944 (N.D. Ill. 2007) …….

5

United States v. Matute-Santos, 168 Fed. Appx. 343 (11th Cir. 2006) Decisions in the case below:

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Page District Court decisions: Cruz v. County of DuPage, 1997 WL 370194 (N.D. Ill. 1997) ………………………………..

28

Fernandez v. ATA Airlines, Inc., 2006 WL 211818 (N.D.Ill. 2006) ………………………………..

11

In re 25 Grand Jury Subpoenas Dated Oct. 21, Oct. 22, and Dec. 3, 1986, 654 F.Supp. 647 (N.D. Ind. 1987)

36

……………

Lambersky v. Petritis, 2002 WL 1285883 (N.D. Ill. 2002)

…….

11

Pacific Mut. Life Ins. Co. v. American Nat. Bank and Trust Co. of Chicago, 649 F.Supp. 281 (N.D. Ill. 1986)

…….

36

United States v. Arizechi, 2006 WL 1722591 (D.N.J. 2006)

…….

35

United States v. Rezko, 2008 WL 4890232 (N.D.Ill. 2008)

…….

13

Lanham Act and 15 U.S.C. §1121

………………….……………..

1

Copyright Act, Title 17 U.S.C.

………………….……………..

1

28 U.S.C. §1291

……………………………………..…

1

28 U.S.C. §1331

……………………………………..…

1

28 U.S.C. §1338

……………………………………..…

1

……………..………………………………..

1

……………………………………..…

1

Federal Statutes

28 U.S.C. §1338(b) 28 U.S.C. §1367

State Cases and Other Authorities: Cargile v. Barrow, 2009 WL 222947 (Ohio App. 1st Dist. Jan. 30, 2009)

…………………..

21

CHB Uptown Properties, LLC v. Financial Place Apartments, LLC, 378 Ill.App.3d 105, 881 N.E.2d 423 (Ill. App. 1st Dist. 2007) …………………..

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Page Ruski v. City of Bayonne, 811 A.2d 939 (N.J. Super. App. Div. 2002) ………………….. 15A Wright, Miller & Cooper, FEDERAL PRACTICE AND PROCEDURE § 3914.6, at 145 n. 18 (2d ed. 2000)

…………………..

9A Fletcher, Cyclopedia of the Law of Corporations, § 4671

…….

39

3 18

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Jurisdictional Statement Jurisdiction over this matter in the district court was founded upon federal statutes, per 28 U.S.C. §1331, and based primarily on the Lanham Act claims cognizable under 28 U.S.C. §1338 and 15 U.S.C. §1121, as well as claims under the Copyright Act, Title 17 U.S.C.

There too was

supplemental jurisdiction over the trade secrets, contract breach, tortious interference and conversion claims under 28 U.S.C. §1338(b), as well as 28 U.S.C. §1367. On April 29, 2009, the lower court, sua sponte, ordered this “Civil case terminated,” which constituted an order that was final as to all issues and to all parties. On that basis, 28 U.S.C. §1291 provides jurisdiction for this appeal. The notice of appeal is filed herewith on May 22, 2009, which is timely under Rule 4(a), FED. R. APP. PROC. No cross-appeal was filed, which terminated all counterclaims. A possible question of appellate jurisdiction does deserve to be addressed. The sua sponte order dismissed “without prejudice.” Panel decisions of this Circuit Court have held that an order dismissing a case without prejudice is non-final for purposes of appellate jurisdiction.

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The typical setting for this aspect of the §1291 “final order” issue is when the dismissal without prejudice contemplates or denies a possible amendment to cure a deficient pleading. Barnes v. Briley, 420 F.3d 673, 676 (7th Cir. 2005) ("if the plaintiff ‘cannot cure the defects’ in his complaint, the dismissal in effect was with prejudice and is final for purposes of appellate review")." Here, a curative amendment is not an issue. The order that terminated plaintiffs’ case was "effectively a final order because no amendment could resolve the problem.” See Kaba v. Stepp, 458 F.3d 678, 680 (7th Cir. 2006), quoted in, Mostly Memories, Inc. v. For Your Ease Only, Inc., 526 F.3d 1093, 1097 (7th Cir. 2008). The issue, presented by the foregoing cases from this Circuit on finality, follows from footnote 1 in the Supreme Court’s ruling in U.S. v. Wallace & Tiernan Co., 336 U.S. 793, 69 S. Ct. 824, 93 L.Ed. 1042 (1949). In Tiernan, the district court dismissed “the action without prejudice” after “denying the Government's motions for production of documents essential to prove the Government's case.” That arguably corresponds to the order below that had stayed all discovery as to all defendants, which foreclosed discovery essential to prove the plaintiffs’ case. The Court in Tiernan determined that appellate jurisdiction was present, stating that entry of a dismissal “without prejudice to filing 2

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another suit does not make the cause unappealable, for denial of relief and dismissal of the case ended this suit so far as the District Court was concerned.”

Caselaw, which follows and distinguishes the Tiernan

decision is collected at 15A Wright, Miller & Cooper, FEDERAL PRACTICE AND PROCEDURE

§ 3914.6, at 145 n. 18 (2d ed. 2000).

The appellants respectfully submit that the order terminating the case below “without prejudice,” is final in accord with the Tiernan ruling. Terminating this case without prejudice “does not make the cause unappealable.” Id. The lower court was done with the case, and when that court, sua sponte, ordered this “Civil case terminated,” its order was final within the meaning of 28 U.S.C. §1291.

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Statement of the Issues Presented For Review. While the lower court assessed whether a stay of all discovery might burden the individual defendant’s privilege against self-incrimination, no separate assessment was made as to his “corporate” co-defendants, which have no such privilege or right to avoid discovery. Whether, in exercising its discretion to stay all discovery as to all of the “corporate” defendants, the lower court made errors of law regarding the 5th Amendment, or erroneous factual determinations about the balance between the certain prejudice to the plaintiffs and any burden to the “corporate” defendants if all discovery was stayed. Whether the lower court erred by enabling unindicted, “corporate” defendants to bootstrap onto protections against civil discovery, which only could protect the indicted, individual defendant. What factors should govern decisions by courts in this Circuit to stay, or limit, discovery in civil cases where one defendant was indicted. To grant an unbounded stay of all discovery shielding all the “corporate” defendants, instead of a tailored protective order permitting some appropriate discovery, was error and an abuse of discretion. It was error to dismiss the plaintiff’s case against all defendants, sua sponte and without notice.

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Statement of the Case and Proceeding Below. The appellants seek review of two orders by the lower court – the stay of all discovery against all defendants1 {Dkt. #217}2, and the final order that sua sponte “terminated” plaintiff’s entire civil case as to all defendants {Dkt. #246}. Review of those orders, in the context of some related rulings, is requested as to the defendants-appellees, which are “collective entities,” specifically, LLCs organized under Delaware law.3 The LLC-defendants-appellees formerly were franchisees of the Plaintiff-Appellant Papa John’s International, Inc. (PJI). As franchisees, those LLCs were customers of the Plaintiff-Appellant PJ Food Service. 1. The Action For Injunctive Relief Against the LLC Franchisees. In May 2004, PJI terminated the franchises granted to the LLCs, which triggered obligations for the LLCs to de-identify the franchised restaurant locations, to remove the trademarks and all brand names of plaintiff, to return certain proprietary information and manuals, to discontinue operating as Papa John’s franchisees, and to have no direct or indirect association with any competing restaurant businesses. 1

The Memorandum Opinion is at 2007 WL 1597944 (N.D. Ill. 2007). The Minute Order is dkt. # 217, and the memorandum opinion is dkt. #218. Both are included in the short appendix, bound herewith. 3 The appellees referred to as “LLC-defendants” are PJ Chicago LLC, Chicago P.J., LLC, and East Coast PJ, LLC, as identified in the First Amended Complaint {Dkt. #3}. 2

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The LLCs-franchisees of Papa John’s did not honor these posttermination contractual obligations, which provoked this civil suit seeking inter alia injunctive relief and damages. At the eleventh hour, the LLC defendants agreed to comply, and consented to an agreed order, at a hearing in open court. {Dkt. #14}. Then, the LLCs failed to honor that agreement and injunction, as was detailed in a later-needed Emergency Motion for an Order to Show Cause {Dkt. #25}. Plaintiffs next amended the complaint to add as a defendant the individual Antoin Rezko {Dkt. #29}, because he had signed guaranties for the obligations of the LLC franchisees, Also, defendant Rezko was bound individually by the LLC-franchisees’ non-compete agreements. 2. The Civil Suit Pleaded for Lanham Act and Related Relief. Before the franchise agreements terminated, the LLC defendantsfranchisees were licensees of the Papa John’s trademarks and proprietary information.

That license ended on May 3, 2004 when the LLC-

franchisees were terminated, see, e.g., ¶50 in plaintiffs’ 3rd Amended Complaint. {Dkt. #169}. The termination date essentially is the starting date for the alleged civil wrongs. That May 2004 termination date is significant to the discovery stay order, for which review here is sought.

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The former franchisees covenanted in the franchise agreements, that upon termination, that those LLCs would return to plaintiff all of its proprietary information, and that the LLCs would ‘de-identify’ each branded restaurants. Then, in a later-breached agreed order {Dkt. #14}, the LLC defendants promised to fulfill all of those requirements not later than June 8, 2004, see, e.g., ¶55 & 56 in the 3rd Amended Complaint. “After termination” the LLC defendants “continued to use” the trademarks and proprietary data of plaintiff, without any authorization of the franchisor. See, e.g., ¶4 & 52 of the 3rd Amended Complaint.4 The post-termination, viz. post May 3, 2004, actions of the defendants-LLCs were alleged as infringements of the plaintiff’s registered trademarks, the misappropriation as well as the conversion of the plaintiff’s trade secrets and proprietary information, and as violations of the post-termination covenants of the LLC-defendants not to compete with plaintiff’s brand. See, e.g., ¶8 of the 3rd Amended Complaint. {Dkt. #169}. 3. The Indictment of the Individual Defendant. The well-pleaded allegations of the plaintiffs’ civil suit demand injunctive relief related to events after the May 3, 2004 termination of the 4

Also claimed were unpaid royalties and for open invoices for food and supplies.

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LLCs as franchisees. The plaintiff sought to discovery about the posttermination activities of the LLC defendants, as well as their affirmative defenses. The LLC defendants never provided the requested discovery. In 2006, the individual defendant was indicted on federal charges. All the defendants moved to have all discovery in the civil case stayed. {Dkt. #173}. The motion was granted, as to all defendants and as to all discovery. {Dkt. #217 & #218}.5 The indictment, which accompanied the motion to stay discovery, pleads crimes that the individual defendant allegedly perpetrated long before the civil wrongs of the LLC franchisees alleged in the plaintiff’s suit. {Dkt. #173-2}. The indictment regards events prior to 2003. For example, ¶2 of Count One in the indictment alleges from 2001 and "continuing to at least on or about August 14, 2003," that the individual defendant participated in a scheme to defraud. Also, it was alleged in ¶16 of Count One, and ¶2 of Count Two, that the mails or wire were used "on or about October 16, 2001," nearly three years prior to the post-termination events in civil complaint. {Dkt. # 173-2}.6

5

The Minute Order and Memorandum opinion are in the short appendix, bound hereto, as well as in the Appendix filed separately herewith. 6 The two-count Indictment, which accompanied defendants’ motion for a stay of discovery, is included with the Appendix filed separately herewith.

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4. The Stay of All Discovery as to All Defendants. In granting the stay of all discovery, as to the individual and all “corporate” defendants, the lower court acknowledged that the LLCdefendants had “not been indicted and, in any event, have no privilege” against self-incrimination.

{Dkt. #218}.

It noted too that by staying

discovery, there “is prejudice to plaintiff – if they are entitled to recover, that recovery will be delayed and may be reduced because the assets of defendants may have gone elsewhere.” To hamper that, the lower court “grant[ed] the stay, but we do so with a direction that all records of the corporate defendant and all records in the possession of defendant Rezko that may reasonably deemed discoverable in this action be preserved.” The bottom line is that no discovery, or any log, ever were provided.7 The defendants Dec. 2006 motion for a stay of all civil discovery {Dkt. # 173} omitted the arguably material fact that “On November 7, 2006, shortly after Rezko's indictment, the parties [in the criminal case] met and conferred in accordance with Local Criminal Rule 16.1 [and the] government indicated at that time that it had ‘hundreds of thousands’ of

7

No discovery scheduling order ever was entered, even though plaintiffs moved for a conference and entry of scheduling order {Dkt. #56}.

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documents scanned into a database, which it would share with the defense, and that its production would continue on a rolling basis.” See, 2007 WL 4856175 (May 31, 2007), Defendant Antoin Rezko's Motion to Compel Complete Production, in U.S. v. Rezko, 05 CR 691 (N.D. Ill.). Documents that the U.S. Attorney produced to the indicted individual, which were responsive to the civil discovery in this case, could have been produced without impacting the privilege. 5. Continuing Status Conferences. After all discovery was stayed, including discovery from the LLCdefendants, those LLCs answered the plaintiffs’ complaint. Taking the stay order as a ‘green light’ to disregard that LLC-defendants have no right against self-incrimination, those “corporate” defendants made full use of the Fifth Amendment as a shield. Here is one example: 17. Defendant PJ Chicago is incorporated under the laws of the State of Delaware and has its principal place of business in Chicago, Illinois. PJ Chicago is a former Papa John’s franchisee and operator of five (5) Papa John’s Franchised Restaurants in Illinois. ANSWER: The Answering Defendants are without knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 17 without input from Rezko, who has asserted his Fifth Amendment right in response to the allegations in this paragraph, and accordingly, they deny the same.

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However, the LLC-defendants did dart from behind the shield to plead an affirmative defense, in the nature of accord and satisfaction, based on a “settlement agreement.” {Dkt. # 224, pg. 35}.8 The LLCdefendants affirmatively pled these assertions, knowing that the stay would shield discovery about this affirmative defense.9

After the stay of all

discovery, and with all defendants asserting the Fifth Amendment privilege as to all matters, the civil case stalled. The docket reflects status conferences in 2007 and 2008, but meaningful actions could not occur. 6. The Sua Sponte Dismissal Order. The final ruling below, dismissed the case sua sponte and without notice or opportunity to be heard. {Dkt. # 246}. No party requested a dismissal, and no motions were pending. No procedural basis for the sua sponte dismissal was stated – “this case is five years old.” Review of a sua sponte order, entered without notice, almost necessitates consideration of arguments that there was no opportunity to raise below.

8

To prove an accord and satisfaction, under Illinois law, the LLC defendants would need to evidence proving “(1) an honest dispute between the parties, (2) a tender with the explicit understanding of both parties that it was in full payment of all demands, and (3) an acceptance by the creditor with the understanding that the tender is accepted in full payment.” Lambersky v. Petritis, 2002 WL 1285883 (N.D. Ill. 2002) (cit. om.). 9 See, e.g., "ATA filed its motion …on its affirmative defenses of accord and satisfaction ...[and], the Court granted ...leave to conduct discovery before responding to the motion." Fernandez v. ATA Airlines, Inc., 2006 WL 211818 (N.D.Ill. 2006).

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Plaintiffs-appellants timely filed a notice of appeal. No cross-appeal was filed, which finally terminated any counterclaims.

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Statement of the Facts Relevant to the Issues for Review. In granting a stay all discovery as to all defendants, the lower court concluded that the civil suit and the criminal indictment, “in substantial respects, involve the same subject matter.”

{Dkt. #218}10

When the

separate pleadings in “the two actions” are compared, similarities are found, but the torts and the crimes differ substantially in time and place. The criminal indictment regards schemes to defraud the Illinois citizenry of their right to fair governance by public officials. A post-verdict ruling summarized the essence of the criminal case. The thrust of the conviction was Defendant's scheme to defraud the people of the State of Illinois that he carried out with Stuart Levine and others. Specifically, Defendant Rezko was convicted of using his influence with Governor Blagojevich's administration and Stuart Levine's membership on two State of Illinois boards to influence the actions of these boards for private gain. Co-schemer Levine was a member of 1) the Board of Trustees of the Teacher's Retirement System of the State of Illinois (“TRS”), a public pension plan that provided benefits for teachers employed by the Illinois public schools, and 2) the Illinois Health Facilities Planning Board (“Planning Board”), an Illinois Sate board that reviewed applications submitted by hospitals that wanted to build new facilities in Illinois. The jury convicted Rezko of defrauding the beneficiaries of TRS and the people of the State of Illinois of the honest services of Stuart Levine as a board member of TRS and the Planning Board. Rezko and Levine further used Rezko's influence with the Blagojevich administration and Levine's roles on the boards to influence the actions of TRS and the

10

The Minute Order is dkt. # 217, and the memorandum opinion is dkt. #218. Both are included in the short appendix, bound herewith.

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Planning Board for the benefit of themselves and others, and to carry out the scheme. U.S. v. Rezko, 2008 WL 4890232 (N.D.Ill. 2008). The civil action does not deal with any “actions of these boards for private gain,” or “hospitals,” etc. The plaintiffs-appellants commenced this civil suit against the LLC-defendants, PJ Chicago LLC, Chicago P.J., LLC, and East Coast PJ, LLC, after those former franchisees were terminated in May, 2004.

The criminal indictment charges that the

individual Rezko used the mails or wires “on or about October 16, 2001.” The operative events in the indictment were years before the posttermination events at the heart of the civil complaint. {Dkt. # 173-2}.11 The civil suit alleged that, despite being terminated as franchisees, the LLC-defendants were continuing to operate their restaurants using the plaintiff’s trademarks, brands, and proprietary information, and that the LLCs were breaching covenants not to compete. An earlier ruling {Dkt. #141} in this case summarized the civil claims, as follows: Plaintiffs allege that defendants, former franchisees operating Papa John’s restaurants in Illinois and Michigan, continued to use the Papa John’s trademarks, trade secrets, and copyrighted or otherwise proprietary materials, in the wake of termination of the franchises. Additionally, defendants allegedly continued to operate pizza restaurants, renamed ‘Papa Tony’s,’ in the same locations as the formerly franchised restaurants. 11

The two-count Indictment, which accompanied defendants’ motion for a stay of discovery, is included with the Appendix filed separately herewith.

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Plaintiffs contend that such actions constitute counterfeiting, infringement, unfair competition and trademark dilution in violation of the Lanham Act; copyright infringement …; misappropriation of trade secrets in violation of the Kentucky Uniform Trade Secrets Act; breach of contract, including breach of the post-term covenants not-to-compete. Memorandum Opinion,{Dkt. #141, page 2 of 15}. From the outset, the plaintiff sought injunctive relief to require the former franchisees to de-identify the restaurants, to remove all brands and trademarks of the plaintiff, to discontinue use and to return all of the plaintiff’s proprietary information, and for the LLC-defendants to cease all restaurant operations that competed directly or indirectly with the plaintiff’s.

In fact, the defendants agreed to an injunction {Dkt. #14},

which then was violated. {Dkt. #25}. Thereafter, the defendants signed a settlement agreement, but again, that was breached. {Dkt. #31}. Plaintiffs alleged the LLC-defendants were liable for damages for the post-termination infringements, etc., and for non-payment for the food deliveries and for royalties due prior to termination of the franchise agreements. An amended complaint added the individual Rezko as a defendant {Dkt. #29}, because he was bound individually by the covenants not to compete, and he had signed personal guaranties for the obligations of the LLC-defendants, as well as promissory notes.

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Plaintiffs timely served discovery on the LLC-defendants, but no records of these companies ever were produced.

After the individual

defendant was indicted, all of the defendants began asserting the privilege against self-incrimination. That culminated in the order that stayed all discovery, as to all defendants, including the LLC-defendants. In the stay order {Dkt. #218}, the lower court acknowledged that the “records of the corporate defendants …that may reasonably be deemed discoverable in this action,” was a body of documents separate from the “records in the possession of [the individual] defendant Rezko.” Still, the stay was as to all defendants, all records, and all discovery. In 2009, the civil case was reassigned to the Hon. Samuel DerYeghiyian.

Shortly after that, and without notice, a minute order

“terminated” Plaintiffs’ case sua sponte with only this brief explanation. In view of the fact that this case is five years old and the record is unclear as to which Defendants are in or affected by the Bankruptcy, the instant action is hereby terminated without prejudice to reinstate once Plaintiffs decide that the Bankruptcy is no longer an impediment for the case to proceed against one or more of the Defendants. All pending dates and motions are hereby stricken as moot. Civil case terminated. The age and pace of the case was due to the earlier order that had stayed all discovery by plaintiffs from all defendants. {Dkt. #218}.

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Summary of Arguments. This appeal only regards issues as to the “corporate” defendants. Granting an unbounded stay of all discovery as to all defendants, and providing a discovery shield to all the “corporate” defendants, which were not indicted and which have no privilege against self-incrimination, was based on errors of law regarding the 5th Amendment, as well as erroneous factual determinations about the balance between the certain prejudice to the plaintiffs and any plausible burden to the “corporate” defendants if all discovery was stayed. In the absence of guidance from the Seventh Circuit, the lower court stayed all discovery as to all defendants by following guidelines that differ from and are not consonant with the mandatory and permissive guidelines that other Circuit courts have established. The lower court erred by enabling unindicted, “corporate” defendants to bootstrap onto protections against civil discovery that only the individual co-defendant can assert, instead of a tailored protective order permitting some appropriate discovery, Dismissal of plaintiffs’ case, sua sponte and without notice, was error.

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ARGUMENT I. Error to Stay Discovery as to the LLC Defendants. Staying civil discovery as to corporate entities, which had not been indicted, was error. Aside from making no determination specifically as to the “corporate” defendants, the order to stay all discovery from those defendants was error under the decisional law that follows the line of rulings of our Supreme Court in Bellis, Wilson, White and Braswell.12 A. Standard of Review For a Stay Based on the Fifth Amendment. 1.

Typical Stays are Reviewed for Abuse of Discretion.

The lower court had "broad discretion to stay proceedings as an incident to its power to control its own docket," Clinton v. Jones, 520 U.S. 681, 706, 117 S. Ct. 1636, 137 L.Ed.2d 945 (1997), particularly, in cases

12

This line of authority, later cited herein, was summed up in 9A Fletcher, Cyclopedia of the Law of Corporations, § 4671, [citations om.], as follows: An officer of a corporation cannot refuse to testify or produce corporate documents on the ground that he or she may thereby incriminate the corporation. Neither a collective entity nor its representatives may refuse to comply with an order to produce on the ground that the contents of any documents produced in a response to the order might tend to incriminate them. Without regard to the size of the corporation, and without regard to whether the subpoena was addressed to the corporation or to a custodian, a corporate custodian may not resist a subpoena for corporation records on Fifth Amendment grounds. A “custodian” encompasses any agent of the corporation who under ordinary principles of corporate law has custody or control over corporate documents. The custodian of the corporate or entity records holds those documents in a representative rather than personal capacity, and the custodian's act of production is deemed an act of the corporation rather than the act of the individual.

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where the "proponent of a stay bears [its] burden of establishing its need." Id., at 708. See also, Landis v. North American Co., 299 U.S. 248, 254-55, 57 S. Ct. 163, 165-66, 81 L.Ed. 153 (1936) (staying a parallel proceeding “calls for the exercise of judgment, which must weigh competing interests and maintain an even balance”). No Seventh Circuit case was found specifying a standard of review for a stay of all civil discovery against non-indicted companies, based upon the interests of an indicted co-defendant. Also, no decision by this Circuit court was found that sets forth what factors control decisions to stay civil discovery when one of the defendants has been indicted. Three embedded issues: stays, limits on discovery, and individual’s privilege against self-incrimination, bear upon what standard of review appropriately should apply to a discovery stay against LLC-defendants. Typical stays and general discovery limitations are reviewed for an abuse of discretion in this Circuit. “Our standard of review for the district court's decision not to allow additional pre-trial discovery is abuse of discretion." Olive Can Co., Inc. v. Martin, 906 F.2d 1147, 1152 (7th Cir. 1990) (civil RICO case). "District judges enjoy broad discretion in settling discovery disputes and in delimiting the scope of discovery in a given case." Corley v. Rosewood Care Center, Inc. of Peoria, 142 F.3d 1041, 1052 (7th 19

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Cir. 1998) (subs. hist. om.)(civil RICO case). A stay of all discovery from corporate parties, which are not targeted by any criminal charges, should not get the review typical to docket or discovery control. 2.

Standards of Review Appropriate to Stays of Civil Discovery Due to Criminal Charges Against the Individual Co-Defendant of Several Corporate Entity Defendants.

Where the decision to stay proceedings involves issues other than docket control, a more probing standard of review should apply. Matters raised under the Fifth Amendment, if it is implicated and how it might be preserved, either are not reviewed deferentially, or those are reviewed as mixed questions of law and fact.

See, generally, "We

review a district court's denial of a claim of Fifth Amendment privilege de novo." U.S. v. Pate, 105 Fed. Appx. 597, 599 (5th Cir. 2004), and U.S. v. Matute-Santos, 168 Fed. Appx. 343, 346 (11th Cir. 2006) ("We review Santos' Fifth Amendment claim de novo.").

However, "a stay of ...

discovery might be justified by considerations that do not require the recognition of any constitutional immunity." Clinton, id., at 706. Here, an individual defendant’s right not to incriminate himself may not justify shielding unindicted, corporate co-defendants from all civil discovery.

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Also, deferential review is not the standard for decisions about a civil litigant’s privilege to refuse to answer. “The appropriate standard of review of a district court's findings of fact regarding claims of attorneyclient privilege is the clearly erroneous standard.” Bland v. Fiatallis North America, Inc., 401 F.3d 779, 787 (7th Cir. 2005). “While we generally apply an abuse-of-discretion standard of review for discovery orders, when discovery involves questions of privilege, we review the order de novo.” Cargile v. Barrow, 2009 WL 222947 (Ohio App. 1st Dist. Jan. 30, 2009). An individual’s privilege against self- incrimination involves issues of law, and a ruling that extending the privilege to unindicted, corporate entities should not be reviewed deferentially. Even the abuse of discretion standard contemplates review for legal errors. “Even when the standard is abuse of discretion, review for errors of law is plenary.” Donovan v. Robbins, 752 F.2d 1170, 1178 (7th Cir. 1984). Also, any factual determinations are reviewed. “In applying [the abuse of discretion] standard, we scrutinize the district court's determination to ensure that it invoked the correct legal standards and that its findings of fact are not clearly erroneous.” Salgado by Salgado v. General Motors Corp., 150 F.3d 735, 739 at fn. 4 (7th Cir. 1998). In general, “a court abuses its discretion when its decision is premised on an incorrect legal principle or a

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clearly erroneous factual finding, or when the record contains no evidence on which the court rationally could have relied.” Corporate Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir. 2004).13 Here, appellants request that the stay below of all discovery as to all corporate defendants, based on criminal charges only against a non-corporate, individual co-defendant, not be reviewed deferentially. Review of a stay of discovery as to the indicted individual would be for an abuse of discretion, but this appeal only regards the LLCdefendants.

Here, the panel is asked to apply a standard of review

appropriate to a stay of all discovery as to unindicted, corporate litigants that have no rights against self-incrimination. Older cases, and the leading cases on stays due to indictment of one defendant, recognize that a district court may stay civil cases, defer civil discovery, or impose protective orders and conditions “when the interests of justice seem[ ] to require such action.” U. S. v. Kordel, 397 U.S. 1, 12 n. 27, 90 S. Ct. 763, 25 L.Ed.2d 1 (1970); Standard Sanitary Manufacturing Co. v. U. S., 226 U.S. 20, 52, 33 S. Ct. 9, 57 L.Ed. 107 (1912) ("the most

13

“A court does not abuse its discretion unless ... (1) the record contains no evidence upon which the court could have rationally based its decision; (2) the decision is based on an erroneous conclusion of law; (3) the decision is based on clearly erroneous factual findings; or (4) the decision clearly appears arbitrary.” Musser v. Gentiva Health Servs., 356 F.3d 751, 755 (7th Cir.2004).

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favorable view which can be taken of the rights of defendants in such situation is that they depend upon the discretion of the court in the particular case"). Should review for an abuse of discretion be appropriate for the stay granted below as to the corporate defendants, then certain and pertinent standards should inform that review. For “without meaningful standards for decision, appellate courts can do little more than sustain the district judge, save in a most flagrant case." SEC v. Canandaigua Enterprises Corp., 339 F.2d 14, 19 (2nd Cir. 1964), C.J. Friendly. “Deferential review is not the equivalent of no review at all." Sverdrup Corp. v. Edwardsville Comm. Unit School Dist. No. 7, 125 F.3d 546, 550 (7th Cir. 1997).

Such

"discretionary choices are not left to a court's ‘inclination, …and its judgment is to be guided by sound legal principles.’" United States v. Burr, 25 F. Cas. 30, 35 (No. 14,692d) (C.C. Va. 1807), Marshall, C. J., quoted in, Albemarle Paper Co. v. Moody, 422 U.S. 405, 416, 45 L.Ed.2d 280, 95 S. Ct. 2362 (1975). See too, Jutzi-Johnson v. U.S., 263 F.3d 753, 759 (7th Cir. 2001) (questioning "standardless, unguided exercise of discretion … reviewable for abuse of discretion pursuant to no standard to guide the reviewing court either"), and Mars Steel Corp. v. Continental Bank N.A., 880 F.2d 928,

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936 (7th Cir. 1989) (en banc), (“District courts must make findings and exercise discretion against a background of legal rules.”)14 This Circuit panel’s decision in Winters v. Fru-Con Inc., 498 F.3d 734, 742 (7th Cir. 2007) “review[ed] for abuse of discretion the district court's choice of factors to include within th[e] framework" for its decision to bar experts, and it reviewed de novo whether the lower court “identified and applied the appropriate legal standards.” That approach could be proper to review the “choice of factors” and “legal standards” for a lower court to stay all civil discovery from unindicted, corporate defendants that were the co-defendants of an indicted individual. 3.

The Standard of Review Appropriate to the Stay Order.

Based on the foregoing, the appellants urge the Court, in reviewing the stay of all discovery as to the unindicted corporate defendants to engage in a de novo review of the appropriate legal standards and how those were applied; to review factual determinations for clear error; and, to review for an abuse of discretion the factors chosen by the lower court in making its decision to stay discovery as to the defendants-appellees PJ Chicago LLC, Chicago P.J., LLC, and East Coast PJ, LLC, which were 14

See also, Wilton v. Seven Falls Co., 515 U.S. 277, 281, 115 S. Ct. 2137, 132 L.Ed.2d 214 (1995) (certiorari granted to resolve standards "govern[ing] a district court's decision to stay a declaratory judgment action in favor of parallel state litigation").

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former Papa John’s franchisees, and as to defendants-appellees AR Pizza LLC, Chaib Investments, LLC and Newco Pizza LLC, which continued the former franchisees’ businesses in competition with, and without authorization from, plaintiff Papa John’s International, Inc. Were that standard to be applied, the appellants contend that the stay of discovery was error. As a matter of law, the LLC-defendants have no rights against self-incrimination. The factors that the lower court felt were determinative differ from those other circuits use.

To deny all

discovery from the LLC-defendants was an abuse of discretion.

In

choosing what level of review is proper, the broader issue is whether the determination to stay civil discovery is better committed to the view of a single judge, or to a set of judicially-articulated standards. II. The Decision To Stay All Discovery, as to All Defendants was Error, and a Need Exists for More Certain Standards to Guide Lower Courts in Evaluating Whether to Stay, or to Limit Discovery. A. Varied Tests Across the Circuits, and None in this Circuit. Federal courts evaluate requests to stay a civil action on a case-bycase basis. In several circuits, multifactor tests guide lower courts when the request to stay regards criminal charges against one defendant in the

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civil case. The determinative factors vary among the Circuits, and across a range of stringency. No Seventh Circuit decision has been found that delineates the determinative factors that could warrant a stay.15 In the Eighth Circuit, a “civil defendant cannot hide behind a blanket invocation of the Fifth Amendment privilege [and thus,] to warrant a stay, defendant must make a strong showing either that the two proceedings are so interrelated that he cannot protect himself at the civil trial by selectively invoking his Fifth Amendment privilege, {cit. om.}, or that the two trials will so overlap that effective defense of both is impossible." Koester v. American Republic Investments, Inc., 11 F.3d 818, 823 (8th Cir. 1993). In the Eighth Circuit, a stay would be granted only when the defendant has made a “strong showing” of two factors: a real interrelationship between the civil case allegations and the criminal indictment, and that “he cannot protect” against loss of the privilege, or alternatively, that an effective defense of both cases is “impossible.” If a defendant in an 8th Circuit court was on the 7th Circuit side of the Mississippi River, then that civil case might stayed without the “strong” 15

In one case with possible relevance, a specific showing of prejudice was required. The “failure to indicate with precision how he would be prejudiced if the civil action went forward while the criminal action was pending in state court is yet another factor which leads the Court to the conclusion that he was not entitled to a stay." United States v. Certain Real Property Commonly Known as 6250 Ledge Rd., 943 F.2d 721, 730 (7th Cir. 1991) ("blanket assertion of the privilege does not provide a sufficient basis for a district court to grant a stay," at fn. 9).

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showings that he “cannot protect” the privilege or that it is “impossible” to defend himself. It provokes the question of whether the view of a single judge is preferable to a system of judicial standards. In the Ninth Circuit, the factor given primacy is “the extent to which the defendant’s fifth amendment rights are implicated.” Keating v. Office of Thrift Supervision, 45 F.3d 322, 324-25 (9th Cir. 1995), cert. denied, 516 U.S. 827 (1995).

After assessing that primary question, then “the

decisionmaker should generally consider the following factors: (1) the interest of the plaintiffs in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to plaintiffs of a delay; (2) the burden which any particular aspect of the proceedings may impose on defendants; (3) the convenience of the court in the management of its cases, and the efficient use of judicial resources; (4) the interests of persons not parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation.” Id. Here, the lower court did not indicate that the primary factor in Keating carried much weight when it granted the stay as to the LLC-defendants. In the present case, the district court followed the unpublished decision of another court in the district, Cruz v. County of DuPage, 1997 WL

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370194 (N.D. Ill. 1997).16

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In part due to the lack of controlling,

multifactor test from any Seventh Circuit decision, the district judge in Cruz had “extracted” from caselaw “some general guidelines for when a stay should be granted [that] include (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 plaintiffs in proceeding expeditiously with this litigation and the potential prejudice to plaintiffs of a delay; and (6) the burden that any particular aspect of the proceedings may impose on defendants.” The lower court here deemed Cruz the “applicable law” to follow. The “guidelines” that the Judge in Cruz had “extracted” from “the cases cited by the parties,” do not include the primary factor of the Fifth Amendment right from the Ninth Circuit’s Keating decision, and not the “strong showing[s]” that the Eighth Circuit required in the Koester case. Differences between the factors enumerated by the several circuit courts provoke the concern that the “discretion” to stay, based on Fifth Amendment considerations, varies - because the factors vary. Another circuit court might reverse the stay ruling here, as not aligned with its 16

The Cruz case was a §1983 case that overlapped a criminal investigation. 28

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precedent. All cases that apply the ‘same’ Fifth Amendment should be consonant in the factors that guide decisions to stay discovery, or not. After applying the factors from the Cruz decision, the lower court here stayed all discovery against all the corporate defendants in the civil case, based on the individual co-defendant having been indicted. Using those same factors from Cruz, the state court of Illinois refused to stay a civil case against other corporate co-defendants of the same individual defendant, in CHB Uptown Properties, LLC v. Financial Place Apartments, LLC, 378 Ill.App.3d 105, 109, 881 N.E.2d 423 (Ill. App. 1st Dist. 2007). The decision here to stay discovery, and the denial of a stay of civil discovery in CHB, hinge on the first factor from the Cruz case – whether the indictment and the civil suit “involve the same subject matter.” That ‘sameness’ is not a stated factor in the Keating case from the Ninth Circuit, or in cases from the First Circuit. Factors unmentioned in the Cruz case are to be considered in First Circuit cases. When the First Circuit reviewed a decision not to stay an entire civil case, it set forth the “five factors that typically bear on the decisional calculus: (i) the interests of the civil plaintiff in proceeding expeditiously with the civil litigation, including the avoidance of any prejudice to the plaintiff should a delay transpire; (ii) the hardship to the 29

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defendant, including the burden placed upon him should the cases go forward in tandem; (iii) the convenience of both the civil and criminal courts; (iv) the interests of third parties; and (v) the public interest.” Then, to that list, it “add[ed] (vi) the good faith of the litigants (or the absence of it) and (vii) the status of the cases.” Microfinancial, Inc. v. Premier Holidays Intern., Inc., 385 F.3d 72, 78(1st Cir. 2004). Factors (i), (ii) and (v) in Microfinancial correspond to factors in Cruz, but the others listed by the First Circuit vary, or certainly expand on those in Cruz. Here, the lower court did not consider, or under Cruz would not have considered, the “good faith of” the LLC-defendants “or the absence of” that in seeking to shield those LLCs behind the privilege assertion of their individual co-defendant. In the First Circuit, that could indicate an error in the stay analysis, but here where no Seventh Circuit case sets out the pertinent factors, the lower court limit its decision to the Cruz factors. The appellants urge this Court to adopt a multifactor test that sets as the primary consideration “the extent to which the defendant's fifth amendment rights are implicated,” from the Keating case, and requires the “strong showing” that Eighth Circuit in Koester had required. Having a Seventh Circuit test, which sets out the appropriate factors would be worthwhile, especially if the decision here to stay all discovery as to the 30

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LLC-defendants were to be vacated and remanded. The selected factors should accords with the “interests of justice” analysis from the Supreme Court’s Kordel decision, (“District Court denied the motion upon finding that the corporation had failed to demonstrate that substantial prejudice and harm would result from being required to respond to the interrogatories,” supra, at 5). Here, no discovery was provided by the LLC-defendants.

No

privilege log was provided, or required, which shrouded all details about the LLCs, and their representative and managers. In granting a stay of all discovery from the LLC-defendants, the lower court applied the Cruz factors to the circumstances facing the individual defendant. In practical terms, no separate assessment as to the LLC-defendants was made by the lower court. If applied, the Cruz factors of no privilege and real prejudice would bear against granting the LLC-defendants a stay. B. No 5th Amendment Privilege Protects The LLC-Defendants. This Court is urged, respectfully, to place the extent to which a 5th Amendment privilege is at risk as the first and most important factor to consider when a defendant seeks a blanket stay of discovery in a civil case running parallel to a criminal case.

Corollary considerations include

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asking whether less-prejudicial alternatives, such as a limiting protective order, can serve effectively to balance the relative interests of the parties. Here, a stay of all discovery, as to all defendants was error. The lower court acknowledged that the LLC-defendants have no privilege against self-incrimination. Also, the LLC-defendants were not under criminal indictment. These threshold factors from the Cruz case did not favor a stay that shielded the LLC-defendants from all discovery. The lower court recognized that stay of all discovery would cause “prejudice to plaintiffs.” It did not find that the LLC-defendants would, or could face any “burden” from the criminal proceedings. Indeed, the LLCdefendants were not party to those proceedings. No prejudice to the LLCdefendants from providing discovery was shown. It thus was error, based on a fair application of the Cruz factors, to stay all discovery in this case as to the unindicted LLC-defendants. A protective order, limiting discovery, was a workable option and a less-prejudicial one.

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C. The Stay was Contrary to the Collective Entity Doctrine. The stay of all discovery from all of the LLC-defendants, due to factors applicable only to the individual defendant, was error. While the Seventh Circuit has not ruled how the “collective entity” and the “act of production” doctrines apply, substantial U.S. Supreme Court precedent holds that the LLC-defendants are not entitled to ‘piggyback’ on the privilege protections available to their individual co-defendant. Longstanding precedent holds, and the lower court here agreed, that the LLC-defendants have no privilege against self-incrimination. "The constitutional privilege against self-incrimination …appl[ies] only to natural individuals. ... it cannot be utilized by or on behalf of any organization such as a corporation." United States v. White, 322 U.S. 694, 64 S. Ct. 1248, 88 L.Ed. 1542 (1944) (when corporation is subpoenaed, corporation president must produce corporate documents). Next, these unindicted LLC-defendants, which are not protected by the privilege, may not resist production of corporate records, even if the contents may incriminate an individual. Wilson v. United States, 221 U.S. 361 (1911) (“If the corporation were guilty of misconduct, he could not

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withhold its books to save it; and if he were implicated in the violations of law, he could not withhold the books to protect himself from the effect of their disclosures,” id., at 376). Other cases affirm that a “collective entity,” including a LLC with one owner, may not shield its records upon the individual owner’s asserted right against self-incrimination.

An “equally long line of cases has

established that an individual cannot rely upon the privilege to avoid producing the records of a collective entity which are in his possession in a representative capacity, even if these records might incriminate him personally.” Bellis v. U. S., 417 U.S. 85, 88, 94 S. Ct. 2179, 40 L.Ed.2d 678 (1974) (records generated by corporate entities are not shielded by the privilege against self-incrimination). The Bellis case, and those that follow it, make clear the even one-person corporate and “collective entities” have no privilege to refuse production of corporate records. "In view of the inescapable fact that an artificial entity can only act to produce its records through its individual officers or agents, recognition of the individual's claim of privilege with respect to the financial records of the organization would substantially undermine the unchallenged rule that the organization itself is not entitled to claim any Fifth Amendment privilege." Id., at 90. To shield the LLC-defendants records was error.

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These principles in Wilson and Bellis were reaffirmed in Braswell v. U. S., 487 U.S. 99, 100, 108 S. Ct. 2284, 101 L.Ed.2d 98 (1988), which held that “the custodian of corporate records may [not] resist a subpoena for such records on the ground that the act of production would incriminate him in violation of the Fifth Amendment.” In that case, Braswell operated his business through two corporations, of which he was the sole shareholder. “It is well settled that no privilege can be claimed by the custodian of corporate records, regardless of how small the corporation may be.” Id.17 In the present case, shielding the LLC-defendants from all civil discovery was error based on the foregoing principles from the White, Wilson, Bellis and Braswell decisions.18 “There is no question but that the contents of the [LLC-defendants’] business records are not privileged." Braswell, supra, at 102. The lower court erred in cloaking the “corporate records” from discovery based on the privilege asserted by the individual co-defendant. The conclusion in those cases attaches here even if these “collective entity” LLCs are solely-owned by the individual defendant.

17

The “corporate custodians of 'one-man corporations' cannot assert a Fifth Amendment privilege with respect to the production of corporate documents.” U.S. v. Arizechi, 2006 WL 1722591 (D.N.J. 2006); accord, U.S. v. Feng Juan Lu, 248 Fed. Appx. 806, 2007 WL 2753030 (9th Cir. 2007). 18 See, footnote 12, supra, quoting a treatise summary of the holdings in these cases.

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The LLC-defendants have “an obligation is to produce” records, and “that obligation is unaffected by the [individual codefendant’s] personal Fifth Amendment privilege.” In re 25 Grand Jury Subpoenas Dated Oct. 21, Oct. 22, and Dec. 3, 1986, 654 F.Supp. 647, 652 (N.D. Ind. 1987). “Moreover, at least with respect to the content of the business documents, no individual custodian of business documents can assert a personal Fifth Amendment privilege claim even if there are incriminatory statements in those records.” Pacific Mut. Life Ins. Co. v. American Nat. Bank and Trust Co. of Chicago, 649 F.Supp. 281, 284 (N.D. Ill. 1986) (the “effect of permitting custodians of partnership and corporate records to avoid production of such records in reliance on the Fifth Amendment would be to extend the privilege against self-incrimination to the collective entities," id., at 285).19 At a minimum, the LLC-defendants should have been required to provide a privilege log; but quare: what privilege could these “corporate” entities assert.

19

The individual "defendant was obligated to comply with the subpoena for the partnership records despite the fact that they may have incriminated him." U.S. v. Kuta, 518 F.2d 947, 954 (7th Cir. 1975). "Trigona's claim of commingling [of personal and business records] was speculative and overbroad and that the privilege was claimed in bad faith in order to hinder the appellees ...[and the] evasiveness of this witness, his discredited claims of lack of memory, his failure to offer any credible explanation as to how answers to seemingly innocuous questions might be incriminating, his personal interest in frustrating the efforts of the appellees to collect upon their judgment are ‘peculiarities of the case’ which the trial court could properly consider." Martin Trigona v. Gouletas, 634 F.2d 354, 362 (7th Cir. 1980), cert. den’d, 449 U.S. 1025 (1980).

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The lower court’s stay order acknowledged that the records of the LLC-defendants are distinct, and separate from, records possessed by the individual defendant. It granted the stay, but “with a direction that all records of the corporate defendants and all records in the possession of the defendant Rezko …be preserved.”

{Dkt. #224}.

That acknowledged

distinction fits within the caselaw principles on the “collective entity” doctrine, which focuses on the contents of corporate records, or at least the status of the records, i.e., corporate or individual, as well as with the focus of the “act of production” doctrine as to whether a compelled production of records may impact an individual's right against self-incrimination.20 It is error to merge the analysis, or to disregard the doctrinal distinctions between the records of an individual and those of a corporate entity, particularly where a 5th Amendment privilege personal to the individual is extended to collective entities that he owns. The order granting a stay of all discovery as to all defendants was error based on the collective entity doctrine.

“Any claim of Fifth

Amendment privilege asserted by the [individual defendant] would be

20

On the issue of the “extent to which the collective entity rule and the act of production doctrine limit one another ...the Seventh Circuit has not yet chosen a side.” Pacific Mut. Life, supra.

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tantamount to a claim of privilege by the corporation - which of course possesses no such privilege.” Braswell, supra at 110. The lower court assessed only the impact that a stay could have on the individual defendant.

It failed to consider the equally important

matter of a how a stay of all discovery from the unindicted LLCdefendants (with no privilege) would prejudice the plaintiffs. The appellants respectfully request that the order granting a stay of discovery against the LLC-defendants be vacated, and that the matter be remanded for consideration consistent with the collective entity doctrine, and with such other factors as this Circuit deems appropriate. III. Dismissal, Sua Sponte and Without Notice, Was Error. After the civil case stalled without any way to pursue discovery, the lower court dismissed it, sua sponte, and “terminated [the] civil case,” without notice or opportunity to be heard. This Court has “cautioned district courts to provide parties with notice and a fair opportunity to present evidence when they are considering entering judgment sua sponte.” Tranzact Technologies, Ltd. v. Evergreen Partners, Ltd., 366 F.3d 542, 549 (7th Cir. 2004), citing, S. Ill.

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Riverboat Casino Cruises, Inc. v. Triangle Insulation & Sheet Metal Co., 302 F.3d 667, 678 (7th Cir.2002). That opportunity was not provided here. The Tranzact decision instructs “that sua sponte dismissals, …are hazardous for three reasons: (1) they often conflict with the traditional adversarial precepts of our system of justice by tending to make the district court seem like a proponent of one side as opposed to a neutral decisionmaker; (2) they may prejudice plaintiffs by depriving them of the opportunity to … argue against dismissal; and (3) they tend to defeat the very purpose they are designed to serve -- judicial efficiency.” Id. Cf., Ruski v. City of Bayonne, 811 A.2d 939, 941 (N.J. Super. App. Div. 2002), a “trial court may be tempted to enter a dismissal order of this type because it would dispose of a case at least temporarily, but case disposition for disposition's sake is not the goal of our system.” The order here that terminated the plaintiff’s case was “case disposition for disposition's sake,” and it should be vacated. The Riverboat Casino case set limits, which were not heeded before the brief minute order below “terminated” the case. A district court lacks unfettered power to dismiss sua sponte, where the plaintiff has (1) no “proper notice that the district court was considering” a dismissal, and (2) no “opportunity to present evidence in opposition to the court's entry” of 39

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the order that terminated the case. Supra, 302 F.3d at 678. The lower court gave plaintiffs no notice that the case might be terminated, and no opportunity to be heard on the matter.

“In sum, the district judge

terminated the case prematurely.” Doe v. Oberweis Dairy, 456 F.3d 704, 718 (7th Cir. 2006), cert. den’d, 549 U.S. 1278 (2007). The appellants request that the panel "Reverse the district court's sua sponte order dismissing the lawsuit." CPL, Inc. v. Fragchem Corp., 512 F.3d 389 (7th Cir. 2008). Based on the foregoing, the sua sponte dismissal was error, and that order should be reversed.

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STATEMENT REGARDING ORAL ARGUMENT In view of the likelihood that no counsel will appear for appellees, the Appellants do not request oral argument. August 6, 2009 -S- Charles L. Thomason _______________________ Charles L. Thomason Counsel for Appellants

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STATEMENT REGARDING TYPE SIZE AND STYLE I certify that this brief complies with the type volume limitation set forth in F.R.App.P. 32(a)(7)(B) because it contains less than 10,000 words, not including parts of the brief exempted by F.R.App.P. 32(a)(7)(B)(iii). This brief also complies with the typeface requirements of F.R.App.P. 32(a)(6), because this brief has been prepared using a proportionally spaced typeface, specifically using Microsoft Word in 14 point Calisto MT. FORM 6. CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS, AND TYPE STYLE REQUIREMENTS 1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because: X__this brief contains 8707 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii), or __this brief uses a monospaced typeface and contains [state the number of ] lines of text, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). 2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because: x__this brief has been prepared in a proportionally spaced typeface using MS-Word in Calisto MT font 14 point or __this brief has been prepared in a monospaced typeface using [state name and version of word processing program] with [state number of characters per inch and name of type style]. (s) _Charles L. Thomason_______________________________ Attorney for ____Appellants_____________________ Dated: _____6 AUG 2009_______________________

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CIRCUIT RULE 31(e) STATEMENT

I certify that no Rule 31(e) statement is required because a “digital version of each brief (including the appendix required by Circuit Rule 30(a) to (c))[HAS BEEN OR IS BEING] furnished to the court at the time the paper brief is filed.” August 6, 2009 -S- Charles L. Thomason _______________________ Charles L. Thomason Counsel for Appellants

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CERTIFICATE OF SERVICE The undersigned certifies that two complete copies of the foregoing Brief of Appellants was served by U.S. MAIL upon counsel for the Appellees, on this 6th day of August, 2009, addressed to:

David C. Gustman, Esq. Michael J. Kelly, Esq. Kellye L. Fabian, Esq. FREEBORN & PETERS LLP 311 South Wacker Drive Suite 3000 Chicago, Illinois 60606 Counsel for Antoin S. Rezko, PJ Chicago, L.L.C., Chicago PJ L.L.C., East Coast PJ, L.L.C., Abdelhamid Chaib, Chaib Investments, L.L.C., AR Pizza, L.L.C., Newco Pizza, L.L.C. I declare under penalty of perjury that the above is true and correct.

Executed on August 6, 2009, at Louisville, KY -S- Charles L. Thomason _______________________ Charles L. Thomason Counsel for Plaintiffs lee_thomason@papajohns[dot]com

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CIRCUIT RULE 30(d) STATEMENT

I certify that all materials required by Circuit Rule 30(a) and Circuit Rule 30(b) are included in the filings made on behalf of appellants. August 6, 2009 -S- Charles L. Thomason _______________________ Charles L. Thomason Counsel for Appellants

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Case Case: 1:04-cv-03131 09-2356 Document: Document16217 Filed: Filed 07/31/2009 03/02/2007 Pages: Page 165of 1

Case Case: 1:04-cv-03131 09-2356 Document: Document16218 Filed: Filed 07/31/2009 03/02/2007 Pages: Page 165of 2

Case Case: 1:04-cv-03131 09-2356 Document: Document16218 Filed: Filed 07/31/2009 03/02/2007 Pages: Page 265of 2

Order Form (01/2005)

Case Case: 1:04-cv-03131 09-2356 Document: Document16246 Filed: Filed 07/31/2009 04/29/2009 Pages: Page 165of 1

United States District Court, Northern District of Illinois Name of Assigned Judge or Magistrate Judge

Samuel Der-Yeghiayan

CASE NUMBER

04 C 3131

CASE TITLE

Sitting Judge if Other than Assigned Judge

DATE

4/29/2009

Papa John’s International, Inc., et al. Vs. PJ Chicago, LLC, et al.

DOCKET ENTRY TEXT

In view of the fact that this case is five years old and the record being unclear as to which Defendants are in or affected by the Bankruptcy, the instant action is hereby terminated without prejudice to reinstate once Plaintiffs decides that the Bankruptcy is no longer an impediment for the case to proceed against one or more of the Defendants. All pending dates and motions are hereby stricken as moot. Civil case terminated.

Docketing to mail notices.

Courtroom Deputy Initials:

04C3131 Papa John’s International, Inc., et al. Vs. PJ Chicago, LLC, et al.

maw

Page 1 of 1

Case Case: 1:04-cv-03131 09-2356 Document: Document16248 Filed: Filed 07/31/2009 05/22/2009 Pages: Page 165of 2

THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION PAPA JOHN’S INTERNATIONAL, INC., and P.J. FOOD SERVICE, INC., Plaintiffs, vs. ANTOIN REZKO, et al. Defendants.

) ) ) ) ) ) ) ) ) ) ) )

Case No. 04-C-3131 Judge Samuel Der-Yeghiayan

Notice of Appeal to United States Court of Appeals for the Seventh Circuit Plaintiffs, Papa John's International, Inc. and P.J. Food Service, Inc., appeal to the United States Court of Appeals for the Seventh Circuit from the final order, entered on April 29, 2009, by the United States District Court for the Northern District of Illinois {dkt. # 246}, that "terminated" plaintiffs’ case, as well as earlier interlocutory orders. The parties to the orders appealed from and the names and addresses of their respective attorneys are on the attached certificate of service. Date: May 22, 2009 Respectfully submitted,

_-s- Charles L. Thomason__ Charles L. Thomason, Counsel Papa John’s International, Inc. 2002 Papa John’s Boulevard Louisville, KY 40299 (502) 261-4773 Admitted Pro Hac Vice for Plaintiffs