Deluca v. GPB Automotive Portfolio, LP

Background

This proposed class action alleges a nationwide scheme to defraud investors. The plaintiffs sued individual defendants, investment funds they controlled, and the auditing firms Crowe LLP, EisnerAmper LLP, Margolin, Winer & Evens LLP, RSM US LLP, and Cohn Reznick LLP. The action began in 2019, and some claims were dismissed in 2020.

In 2021, three defendants—David Gentile, Jeffry Schneider, and Jeffrey Lash—were indicted in a related federal criminal case. The parties then stipulated to stay this civil action against all defendants until final judgment in the criminal case, while allowing the plaintiffs to seek termination or lifting of the stay. In January 2023, Judge Kaplan lifted the stay as to the auditor defendants, finding that the claims against them involved issues uniquely or principally related to the auditors and that discovery and motion practice could proceed against them while the stay remained in place for the other defendants.

The auditor defendants later filed motions to dismiss. Those motions included arguments that particular plaintiffs had not specifically alleged reliance on audit opinions or other information when making investment decisions. The dismissal motions were pending when the plaintiffs sought to amend the complaint to add four named plaintiffs.

The Proposed Stay

The auditor defendants sought a temporary stay of discovery and suspension of case deadlines until the district judge acted on a report recommending a receivership in related litigation. They argued that the recommended litigation injunction might cover this action, that class-certification discovery would be difficult without testimony from central figures, that discovery would eventually have to be repeated, that investors’ damages might depend on distributions from a receivership, and that a complete stay would promote efficiency.

The plaintiffs argued that the auditor defendants were repeating arguments previously rejected when Judge Kaplan lifted the stay. They also said that the proposed second amended complaint made only minimal changes: adding four class representatives without adding claims, substantive allegations, or defendants.

Court’s Analysis and Rulings

The court explained that a stay of civil litigation during related criminal proceedings is an extraordinary remedy and that the party seeking it bears the burden of showing why it is needed. Whether to grant a stay depends on the specific circumstances, including the overlap between the civil and criminal cases, the status of the criminal case, the parties’ competing interests, the burden on defendants, judicial efficiency, and the public interest.

The court concluded that the related receivership proceedings had the potential to affect this case, but that the scope of the proposed litigation hold remained uncertain because the relevant district judge had not yet acted on the recommendation. The court found that the new developments did not eliminate the reasoning behind Judge Kaplan’s earlier decision to lift the stay. It therefore denied, in part, the auditor defendants’ request to stay the action.

The court also found reasonable grounds to pause class-certification work because the plaintiffs were adding new class representatives. It adjourned all deadlines concerning the motion for class certification until the court issues a report and recommendation on the anticipated motions to dismiss, and it stayed discovery directed specifically to class certification. The court expressly stated that it was not staying ongoing merits discovery. The parties were to continue exchanging documents and scheduling depositions of people who were not facing criminal charges or asserting a constitutional privilege against self-incrimination, so long as the discovery was not exclusively about class certification.

The court granted the plaintiffs’ request for leave to amend and ordered them to file the proposed amended complaint by September 19, 2023. Upon filing the second amended complaint, the previously filed motions to dismiss were denied as moot. The auditor defendants were directed to state whether they wished to file a combined motion to dismiss, and the parties were directed to propose a briefing schedule. The parties also had to submit letter motions within fourteen days after the related district judge’s decision on the receivership recommendation addressing any effect on this case.

Classification

This is a procedural order. It addresses amendment of the pleadings, motions to dismiss becoming moot, discovery, class-certification deadlines, and a requested stay; it does not decide the underlying investor-fraud claims.