Case Highlight: California District Court Refuses to Stay Civil Case Pending Resolution of Potential Criminal Prosecution

In Sanrio, Inc. v. Ronnie Home Textile Inc., the U.S. District Court for the Central District of California recently refused to stay a civil case pending completion of a parallel criminal counterfeiting investigation.

In Sanrio, the plaintiffs sued a corporation and two alleged principals for trademark infringement and other claims. The case was filed after law enforcement seized allegedly counterfeit goods offered for sale by the defendants and related evidence. The defendants argued that the civil case should be stayed because the seizure left them without means to substantively defend themselves. They further argued that allowing the civil case to go forward would implicate the individual defendants’ Fifth Amendment rights, though criminal charges had not been brought against them.

The plaintiffs opposed the motion, arguing that any Fifth Amendment protections were diminished in light of the evidence already seized from the defendants; that Braswell v. United States precluded both the corporate and individual defendants from asserting the Fifth Amendment as to corporate records; that defendants’ customers, suppliers, and other third parties might unwittingly destroy evidence during a stay; and that the plaintiffs might miss statute of limitations to sue additional infringers whose identities they could discover in the civil action.

The Court applied the factors set forth in Keating v. Office of Thrift Supervision to deny a stay of the civil case pending the outcome of the criminal investigation. These factors included the extent to which a defendant’s Fifth Amendment rights would be impacted. The court noted that corporations cannot assert Fifth Amendment rights and that the individual defendants here could not assert the privilege as to business records which they held in a representative, as opposed to personal, capacity.

Sanrio serves as a reminder to alleged infringers not to assume that they will be able to stay civil proceedings just because law enforcement is involved in a related criminal proceeding.

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