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Smart Summary

Factual and Procedural Background

Kmart Corporation and Builders Square, Inc. ("Kmart") initiated a civil RICO lawsuit against Mark J. Aronds, Michael J. Garzoni, and several other defendants alleging a series of fraudulent real estate transactions involving undisclosed commission payments, embezzlement, money laundering, and related state law claims across multiple states. Following the filing of the first amended complaint, criminal indictments were issued against Aronds and Garzoni in the Eastern District of Michigan related to one of the contested transactions. Subsequently, the SEC filed a civil insider trading suit against the same defendants.

Before discovery commenced, Aronds moved to stay discovery due to the parallel criminal proceedings, a motion joined by an unindicted defendant, while other defendants either did not join or filed separate protective motions. The district court granted the motion to stay discovery for all defendants pending resolution of the related criminal cases, without holding a hearing or conducting an in camera review regarding alleged document destruction. Kmart sought reconsideration and a hearing, which were denied, and the district court later canceled the scheduling order. A related suit in another district was stayed in deference to this order.

Legal Issues Presented

  1. Whether the district court's order staying civil discovery pending related criminal proceedings constitutes a final appealable order under 28 U.S.C. § 1291 or recognized exceptions thereto.
  2. Whether the appellate court has jurisdiction to hear Kmart's appeal of the stay order.
  3. Whether the appellate court should treat Kmart's appeal as a petition for a writ of mandamus given the lack of finality.

Arguments of the Parties

Appellants' Arguments

  • The unindicted defendants had no valid basis to invoke the Fifth Amendment privilege to avoid civil discovery.
  • Granting the stay threatened the loss of critical evidence due to the advanced age and poor health of key third-party witnesses.
  • There was ongoing destruction of important documents by certain defendants.
  • Bank transaction records were at risk of destruction due to their age and applicable retention policies.
  • Other third-party documents faced potential loss under differing corporate retention policies.
  • No document retention order was in place to preserve evidence.
  • Kmart requested a hearing and an in camera review to assess the alleged destruction of documents.

Respondents' Arguments

The opinion does not contain a detailed account of the defendants' legal arguments beyond their motions to stay or for protection based on parallel criminal proceedings.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Idlewild Bon Voyage Liquor Corp. v. Epstein, 370 U.S. 713 (1962) Death knell or "effectively out of court" exception to finality Held inapplicable because the federal suit remained in federal court and the exception is limited to abstention cases involving state court jurisdiction.
Moses H. Cone Mem'l Hosp. v. Mercury Const., 460 U.S. 1 (1983) Limitation on the death knell exception to finality Confirmed that the death knell exception applies only in cases involving abstention to state courts, thus unavailable here.
Gillespie v. United States Steel Corp., 379 U.S. 148 (1964) Practical finality exception to finality doctrine Rejected as a basis for jurisdiction; the court no longer recognizes this exception.
Coopers and Lybrand v. Livesay, 437 U.S. 463 (1978) Limitations on extending practical finality exception Supported refusal to extend practical finality beyond unique facts, preserving the finality rule.
Will v. Calvert Fire Ins., 437 U.S. 655 (1978) Mandamus as an extraordinary remedy and discretion of district courts Mandamus denied because the district court's stay decision was discretionary and subject to reconsideration.
Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271 (1988) Extraordinary nature of mandamus relief Mandamus relief is only appropriate when there is a clear and indisputable right, which was not shown here.
Mayo v. Tri-Bell Indus., 787 F.2d 1007 (5th Cir. 1986) District court's discretion in staying discovery Confirmed that the district court's decision to stay discovery is within its discretion.

Court's Reasoning and Analysis

The court first addressed whether it had appellate jurisdiction over the district court's stay order. Under 28 U.S.C. § 1291, appellate jurisdiction is limited to final orders. The stay order was not final, and Kmart sought to invoke exceptions to finality: the death knell and practical finality doctrines.

The court found the death knell exception inapplicable because the federal suit remained before a federal court, and the exception applies only where the suit is effectively dismissed or transferred to state court. The practical finality exception was rejected based on Supreme Court precedent limiting its use and this circuit's refusal to recognize it.

Having no jurisdiction under these exceptions, the court considered Kmart's alternative request to treat the appeal as a petition for mandamus. The court emphasized that mandamus is an extraordinary remedy reserved for clear and indisputable rights. Because the district court's stay was discretionary and subject to reconsideration, Kmart failed to meet this high standard.

The court noted that while a hearing or in camera review of alleged document destruction might have been preferable, it lacked jurisdiction to review the stay order and could not grant mandamus relief.

Holding and Implications

APPEAL DISMISSED, MANDAMUS DENIED.

The court dismissed Kmart's appeal for lack of jurisdiction and denied the petition for a writ of mandamus. The direct effect is that the district court's stay of discovery pending resolution of related criminal proceedings remains in place. No new legal precedent was established by this decision, and the district court retains discretion to revisit its stay order.

KMART CORPORATION AND BUILDERS SQUARE, INC., PLAINTIFFS-APPELLANTS, v. MARK J. ARONDS, ET AL., DEFENDANTS, MARK J. ARONDS; THE NETWORK GROUP; SANCO REALTY INVESTMENTS INC.; SOUTHWEST APPLIANCES INCORPORATED; CONN APPLIANCES INC.; CARROLL W. CONN, JR.; PLANET DEVELOPMENT INC.; LAVERNE D. HENSEN A/K/A LOGAN D/B/A CORE PROPERTIES; GEOFFREY GOULD, D/B/A KLM PROPERTY MANAGEMENT; BAYWAY LAND GROUP; BAYWAY LAND CORP.; SHARON A. BILES; JO L. MARR; MARILYN TADLA; MAURICE ARONDS; SANDRA L. ARONDS; MICHAEL J. GARZONI; CENTRE MANAGEMENT INC.; FALCON INTERESTS REALTY CORP., D/B/A FALCON GROUP; KYLE D. TAUCH; ARNOLD C. TAUCH; MR. STORAGE INC.; 12610 BELLAIRE ONE LTD.; 12610 BELLAIRE ONE INC.; K REALTY CORP; K REALTY ONE, LTD.; K REALTY TWO CORP.; K REALTY TWO, LTD.; K REALTY THREE CORP.; K REALTY THREE, LTD.; WESTHEIMER SQUARE ONE, INC.; WESTHEIMER SQUARE ONE, LTD., DEFENDANTS-APPELLEES.

DUHE, Circuit Judge:

Petitioners-Appellants Kmart Corporation and Builders Square, Inc. appeal the district court's order staying this civil RICO suit against Respondent-Appellee Mark J. Aronds, et al. pending the resolution of related criminal matters. We are without jurisdiction to hear Kmart's appeal and so dismiss it, and deny mandamus.

BACKGROUND

Appellants Kmart Corp. and Builders Square, Inc. ("Kmart") filed a civil RICO suit against Mark J. Aronds ("Aronds"), a Texas real estate salesman, Michael J. Garzoni ("Garzoni"), an attorney and former Kmart in-house real estate representative, and others (collectively "defendants") for allegedly defrauding Kmart and Builders Square in at least fourteen transactions in eight different states. Kmart contends that the Defendants engaged in a series of self-interested real estate transactions, undisclosed commission payments, embezzling and money laundering, and other RICO and pendent state law claims.

Several months after Kmart filed its first amended complaint, Aronds and Garzoni were indicted in the Eastern District of Michigan for one of the transactions Kmart complained of. A second indictment followed a month later naming Garzoni and two other defendants. Two days later, the SEC filed a civil suit for insider trading against Aronds and Garzoni.

Before discovery began, Aronds moved to stay discovery based on the parallel criminal proceedings. Another unindicted defendant joined in the motion. Most of the remaining defendants did not join in the motion or file their own motion. Garzoni and the two other indicted defendants filed separate motions for protection.

Here, Aronds includes Aronds individually and d/b/a Mr. Storage, The Network Group, Inc., Sanco Realty Investments, Inc., Southwest Appliances, Inc., Planet Development, Inc., Maurice Aronds, Sandra L. Aronds a/k/a Foote, Bayway Land Group, Bayway Land Corp., Sharon A. Biles, Jo L. Marr, Marilyn Tadla, Centre Management, Inc., 12610 Bellaire One, Ltd., 12610 Bellaire One, Inc.

The district court dismissed this motion together with all other pending motions after it granted Aronds' motion to stay. Kmart appeals only the propriety of the stay order.

In response to Aronds' motion, Kmart admitted that the indicted defendants may have Fifth Amendment concerns. The unindicted defendants, Kmart argues, had no basis to assert their Fifth Amendment privilege against civil discovery because they were unindicted. Kmart went on to contend that granting the stay would threaten the loss of key evidence because: 1) Kmart needed to depose several key third-party witnesses who were over seventy and/or in poor health; 2) certain defendants had destroyed and were continuing to destroy critical evidence; 3) certain bank transactions in issue were more than five years old and their documentation was subject to destruction under state and federal law; 4) other third-party documents could be lost under different corporate retention policies; and 5) there was no document retention order in place. Kmart sought a hearing on the motion to stay discovery. It also asked the court to conduct an in camera review of evidence that the defendants had destroyed documents that were responsive to outstanding discovery requests.

The district court granted Aronds' motion to stay discovery against all the defendants pending the resolution of United States v. Aronds and United States v. Garzoni. The court did not hold a hearing or conduct an in camera examination. The order provided that: [D]iscovery in this case should be stayed as to all Defendants, but only until resolution of United States v. Aronds. . . and United States v. Garzoni . . . Accordingly the Court ORDERS that the case is STAYED pending the resolution of the related criminal matters.

Several days later, the district court dismissed without prejudice all pending motions. Kmart moved for reconsideration which was denied. The district court issued a subsequent order canceling its scheduling order. In deference to the judge's order, a district judge in the Eastern District of Missouri stayed discovery in a similar suit in his court.

ANALYSIS

JURISDICTION

To establish appellate jurisdiction, Kmart must show either that the stay order is "final" within the meaning of 28 U.S.C. Section(s) 1291 or that the order falls within a recognized exception to the finality doctrine. If the order does not come within an exception to the finality doctrine, then Kmart asks this court to treat its motion as a petition for mandamus.

A. FINALITY

Generally, 28 U.S.C. §(s) 1291 grants courts of appeal jurisdiction only over final judgments of district courts. Kmart concedes that the stay order is not final, but looks to two exceptions to finality to obtain appellate jurisdiction. Those exceptions are: 1) the death knell or "effectively out of court" doctrine stated in Idlewild Bon Voyage Liquor Corp. v. Epstein, 370 U.S. 713, 82 S.Ct. 1294, 8 L.Ed.2d 794 (1962); and 2) the practical finality doctrine under Gillespie v. United States Steel Corp., 379 U.S. 148, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964).

Kmart does not address the collateral order doctrine under Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), so we do not discuss the applicability of this exception. See Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994) (stating that a party who inadequately briefs an issue waives the claim).

The death knell or "effectively out of court" doctrine as stated in Idlewild states that a case is final when it is effectively out of court. The Supreme Court, however, limited the death knell exception in Moses H. Cone Mem'l Hosp. v. Mercury Const., 460 U.S. 1, 10 n. 11, 103 S.Ct. 927, 934 n. 11, 74 L.Ed.2d 765 (1983). The Court held that Idlewild's reasoning was limited to abstention or similar doctrines where all or an essential part of the federal suit goes to a state forum. Id.

Further, this Court has stated that while it liberally construed the death knell exception in the past, it could no longer do so because the exception was limited to cases where the stay requires all or essentially all of the suit to be litigated in state court. See U.S. v. Garner, 749 F.2d 281, 288 (5th Cir. 1985); see also Kershaw v. Shalala, 9 F.3d 11, 14 (5th Cir. 1993). Here, the federal suit remains in federal court so the exception is not applicable. We find, therefore, the death knell exception unavailable.

As for the practical finality exception stated in Gillespie v. United States Steel Corp., 379 U.S. 148, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964), the Supreme Court refused to extend the exception beyond the unique facts of Gillespie holding that doing so would strip Section(s) 1291 of all significance. Coopers and Lybrand v. Livesay, 437 U.S. 463, 477 n. 30, 98 S.Ct. 2454, 2462 n. 30, 57 L.Ed.2d 351 (1978) (noting that Gillespie concerned a marginally final order disposing of an unsettled issue of national significance and that review of the issue "unquestionably implemented the same policy Congress sought to promote in Section(s) 1292(b)"). Furthermore, this Court no longer recognizes the exception. See Newpark Shipbuilding and Repair, Inc. v. Roundtree, 723 F.2d 399 (5th Cir. 1984) (stating that pragmatic finality is in fundamental conflict with the purpose of the finality rule) and Sherri A.D. v. Kirby, 975 F.2d 193, 202 n. 12 (5th Cir. 1992) (calling practical finality more chimerical than real). Thus, we hold that there is no jurisdiction under the practical finality exception.

B. WRIT OF MANDAMUS

Kmart argues in the alternative that we should treat the appeal as a petition for a writ of mandamus.

28 U.S.C. §(s) 1651(a) states: The Supreme Court and all courts established by an Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.

A writ of mandamus is an extraordinary remedy. Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 289, 108 S.Ct. 1133, 1143-44, 99 L.Ed.2d 296 (1988). Traditionally, an appellate court used the writ, both at common law and in the federal courts, to aid jurisdiction either in confining an inferior court to its prescribed jurisdiction or in compelling that court to exercise its authority when it has a duty to do so. Will v. Calvert Fire Ins., 437 U.S. 655, 661, 98 S.Ct. 2552, 2556, 57 L.Ed.2d 504 (1978). The party requesting mandamus has the burden of proving a "clear and indisputable" right to the writ. Bankers Life and Cas. Co. v. Holland, 346 U.S. 379, 384, 74 S.Ct. 145, 148-49, 98 L.Ed. 106 (1953). In Will, the Supreme Court refused to issue a writ because Calvert remained free, as the state case progressed, to reurge the district court to reconsider its decision to defer. There deferral was not the equivalent of dismissal. Id. at 665, 98 S.Ct. at 2558. The Court went on to hold that if a matter is within the district court's discretion, the litigant's right to a particular result cannot be "clear and indisputable." Id. at 666, 98 S.Ct. at 2559. While the Will decision is a plurality opinion, the Court confirmed Will's reasoning by citing it in a later majority opinion. See Allied Chemical Corp. v. Daiflon, Inc., 449 U.S. 33, 36, 101 S.Ct. 188, 190-91, 66 L.Ed.2d 193 (1980).

Here, like the Will case, the district court is free to revisit its decision. More importantly, the district court's decision to stay is within its discretion. Mayo v. Tri-Bell Indus., 787 F.2d 1007, 1012 (5th Cir. 1986). As a result, Kmart does not have the required "clear and indisputable" right to the writ.

CONCLUSION

It may have been wiser for the district court to have held a hearing and conducted an in camera review of evidence that documents had been destroyed, but we lack appellate jurisdiction and the very high mandamus threshold is not met.

APPEAL DISMISSED, MANDAMUS DENIED.

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KMART CORP. v. ARONDS
(Sep 25, 1997)