FILED: NEW YORK COUNTY CLERK 03/20/ :29 PM INDEX NO /2017 NYSCEF DOC. NO. 16 RECEIVED NYSCEF: 03/20/2017

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK x TGT, LLC Plaintiff, -against- ADVANCE ENTERTAINMENT, LLC and JOSEPH MELI, Defendants x Index No /2017 Hon. Jeffrey Oing MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS MOTION TO STAY THIS ACTION Defendants Advance Entertainment, LLC and Joseph Meli ( Meli ) submit this memorandum in support of their motion, pursuant to CPLR 2201, to stay all proceedings in this action pending resolution of the related federal criminal case in which Meli was indicted on February 23, PRELIMINARY STATEMENT Meli is a defendant in an ongoing criminal case pending in the U.S. District Court in Manhattan, U.S. v. Meli, 117-cr KMW-2 (S.D.N.Y.). In the criminal case, Meli has been charged with multiple felony counts, including fraud, related to funds that the government alleges Meli misappropriated from various investors in his ticket-broker business, including the plaintiff in this case, TGT, LLC ( TGT ). TGT filed this action only after the federal criminal charges were filed. It is a copy-cat suit that raises the exact same legal issues the federal government has already alleged in the already-pending criminal action. Meli is entitled to a stay of this civil action pending resolution of the criminal charges against him. It is fundamental that, given considerations of judicial economy, comity and 1 1 of 9

2 constitutional due process, courts will not permit civil actions by alleged victims to proceed before the underlying criminal charges are adjudicated. Permitting this civil action to proceed will unfairly burden Meli s constitutional rights to defend himself against the criminal charges and potentially interfere with a federal criminal case, including running the risk of duplicative and inconsistent adjudications of overlapping issues of fact and law. Moreover, because the U.S. government is acting in the interests of TGT (and other alleged victims) in seeking enforcement of the criminal law and in seeking restitution for TGT and the others, there is no risk that a stay in this action will prejudice TGT. STATEMENT OF FACTS On January 26, 2017, the Manhattan U.S. Attorney s Office arrested Meli on a filed criminal complaint, charging Meli with securities fraud, wire fraud, and conspiracy. Meli is well known in the music and entertainment industry as an event producer and ticket broker. For years, he has operated a ticket broker business, using investor money to purchase blocks of tickets to live performances and events (like Broadway plays, concerts and sports events) in order to resell those tickets in the secondary market. In the criminal case, the prosecution alleges that Meli assisted others in operating a Ponzi scheme and defrauded investors in his ticket broker business by raising money from investors to pay off earlier investors rather than purchasing tickets for resale in the secondary market. After being arraigned on the criminal complaint, the prosecution indicted Meli on these same charges the following month. The indictment a copy of which is included as Exhibit A to the accompanying Bowen Affirmation for the Court s convenience also included new factual allegations, including facts that relate to TGT s investment with Meli in of 9

3 See Ex. A, U.S. v. Meli (ECF No. 16), at Meli was arraigned on the indictment on February 28, See Bowen Affirm. Ex. B, U.S. v. Meli (ECF No. 18). At the time of his initial arrest, the Securities and Exchange Commission ( SEC ) filed a parallel civil action for securities fraud. SEC v. Meli, 17-cv-632-LLS (S.D.N.Y.). At the time the SEC commenced that action, it obtained an ex parte TRO restricting Meli from dissipating any assets. (Meli expects to enter a consent order preliminarily in the SEC Action, which will enjoin him from dissipating investor assets for the duration of the criminal case.) See Bowen Affirm. Ex. C, SEC v. Meli, 17-cv-632-LLS (ECF No. 19). After Meli s arrest and the initial federal criminal charges were filed, TGT commenced this action on February 3, In its complaint, TGT claims that it made a multi-million dollar investment with Meli to purchase tickets to the forthcoming Harry Potter Broadway musical for resale in the secondary market. The TGT complaint, like the criminal complaint, charges that Meli used fraud and deception to solicit TGT s funds, and that Meli never intended to obtain the Harry Potter tickets, but rather misappropriated the TGT investment for his own use. See Bowen Affirm. Ex. D. These are the same allegations that the federal government has made against Meli in the indictment. ARGUMENT A STAY OF THIS ACTION IS WARRANTED PENDING RESOLUTION OF THE CRIMINAL CASE Courts have discretion to stay a civil action pending the outcome of a first-filed action, CPLR 2201, and they routinely stay civil actions, like this one, in favor of a pending criminal case. Basic considerations of judicial economy and orderly process require that this action be stayed. In addition, here, deference to the overriding constitutional due process values at stake in the criminal proceeding make the stay all the more imperative. See Mook v. Homesafe Am. Inc., 41 N.Y.S.3d 3 3 of 9

4 759, (2d Dept. 2016) ( [T]here is no question but that the court may exercise its discretion to stay proceedings in a civil action until a related criminal dispute is resolved. ). In situations like this one, where the civil defendant faces a related criminal indictment, courts have rather consistently found the privilege against self-incrimination to be a compelling factor and therefore found it appropriate to stay related civil cases during the pendency of criminal prosecutions. Stolowski v. 234 E. 178th St. LLC, 2006 WL , at *6 (N.Y. Sup. Ct. May 22, 2006); Garden City Irr., Inc. v. Salamanca, 2005 WL , at *3-4 (N.Y. Sup. Ct. Apr. 18, 2005) (stay granted where resolution of the criminal action may result in this case either not requiring discovery or a trial or significantly simplify and streamline discovery and trial ); Budget Mortgage Bankers, Ltd. v. Maza, 2004 WL , at *4 (N.Y. Sup. Ct. Dec. 14, 2004) ( The granting of a stay will avoid the possibility of irreconcilably inconsistent results... [and] would certainly save scarce judicial resources. ). The courts generally weigh six factors in assessing whether a stay is warranted (i) the extent to which the issues in the criminal case overlap with those in the civil case; (ii) the status of the criminal case, and in particular whether the defendants have been indicted; (iii) the private interests of the plaintiffs in proceeding expeditiously weighed against the prejudice caused by the delay; (iv) the private interests of the defendants and the burden that proceeding with the civil action would impose on them; (v) the interests of the court; and (vi) the public interest. See, e.g., Schneiderman v. Eichner, 2016 WL , at *4 (N.Y. Sup. Ct. July 13, 2016) (citing Trustees of Plumbers and Pipefitters Nat. Pension Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995) and Volmar Distrib., Inc. v. N.Y. Post Co., 152 F.R.D. 36, 39 (S.D.N.Y. 1993) ( Balancing these factors is a case-by-case determination, with the basic goal being to avoid prejudice. )). See also Britt v. Int l Bus Servors, Inc, 679 N.Y.S.2d 616, 617 (1st Dept. 1998) 4 4 of 9

5 ( Factors to consider include avoiding the risk of inconsistent adjudications, application of proof and potential waste of judicial resources. ). All of these factors weigh in favor of a stay in this case. Factor One Overlap of Factual and Legal Issues There is no question that the same operative facts alleged in TGT s complaint are also included in the criminal indictment against Meli. In fact, TGT s counsel acknowledged that, after TGT learned of the criminal case, TGT discussed their claims against Meli with the U.S. Attorney s Office and that TGT was cooperating with the prosecution. Bowen Affirm. 5. Moreover, TGT s complaint is premised on the allegation that Meli was engaged in an overarching fraudulent scheme the scheme that the federal indictment charges Thus, TGT, like the U.S. Attorney s Office, charges that Meli collected investor funds in order to make payments to previous investors, without actually purchasing or selling tickets to live event productions. Compare Bowen Affirm. Ex. D, TGT Complaint, at 1-3, 9-24 with Bowen Affirm. Ex. A, Criminal Indictment, at The subject matter, facts, and law at issue in the instant action, including the assets involved in the entirety of the alleged fraudulent transactions, are under investigation and at issue in the federal criminal indictment against Meli. This action will inevitably implicate overlapping evidence. A stay of civil proceedings is granted, in situations identical to this one, where civil and criminal actions involve the same subject matter. See El Greco Inc. v. Cohn, 527 N.Y.S.2d 256, 257 (2d Dept. 1988) The parties in the two actions are virtually identical, the issues to be resolved overlap, and, moreover, the record discloses that a more complete disposition of the parties respective contentions can be obtained in the earlier-commenced Federal action. Additionally, considering the similarity of the issues involved, the imposition of a 5 5 of 9

6 stay further avoids the risk of inconsistent adjudications, duplication of proof, and the potential waste of judicial resources. See also Mook, 41 N.Y.S.3d at 761; Reliance Ins. Co. v. Tiger Int l, Inc., 457 N.Y.S.2d 813, 814 (1st Dept. 1983) ( Clearly, the pending federal action, commenced prior to institution of this suit, albeit broader in scope, is the proper forum to afford a more complete and appropriate disposition of the underlying issues. ); Bank of N.Y. v Levy, 506 N.Y.S.2d 767, 768 (2d Dept. 1986) (finding that it was appropriate for Special Term to stay the proceeding before it, pending the outcome of the Federal class action suit ). Factor Two Status of Criminal Case The weight of authority in [the Second] Circuit indicates that courts will stay a civil proceeding when the criminal investigation has ripened into an indictment. In re Par Pharm., 133 F.R.D. 12, 13 (S.D.N.Y. 1990); see also Britt, 679 N.Y.S.2d at 617 ( A compelling factor is a situation where a defendant will invoke his or her constitutional right against selfincrimination. ); Parker v. Dawson, 2007 WL , at *8 (E.D.N.Y. Aug. 27, 2007) (ordering stay of discovery in civil action, pending resolution of indictment against defendant in related criminal action). Courts have noted that a civil stay is most appropriate when the defendant has already been indicted, as the likelihood that a defendant may make incriminating statements is greatest after an indictment has issued. SEC v. One or More Unknown Purchasers of Sec. of Glob. Indus., Ltd., 2012 WL , at *3 (S.D.N.Y. Nov. 9, 2012); see SEC v. Archer, 2016 WL , at *2 (S.D.N.Y. Aug. 10, 2016) (staying discovery in civil case pending criminal proceedings, where allowing discovery in civil case to proceed would have subjected defendant to a Fifth Amendment dilemma provide answers to the SEC s questions (and perhaps live with them in the criminal prosecution); or refuse to answer, and face a potential adverse inference in the enforcement action. ). 6 6 of 9

7 Here, as noted above, Meli has been indicted on the criminal charges that overlap with this action. That case is currently in pretrial discovery. Any discovery in this case would be duplicative of the criminal action, and creates the risk of unfairness against Meli. The interests of TGT and the prosecution are aligned in that the prosecution could benefit by any discovery obtained by TGT, and TGT has an interest in the success of the criminal case against Meli, given the potential preclusive effect of any criminal conviction against him. Factors Three and Four Overwhelming Prejudice to Meli While TGT has a legitimate interest in the expeditious resolution of their case, the prejudice to Meli and burden on his constitutional rights outweigh TGT s interests. This is especially true in light of the fact that the federal government is litigating the core facts in the criminal case that TGT would be litigating in this action; in other words, the TGT claims are not being delayed as much as litigated by the federal government in a different forum. Given criminal restitution laws for alleged victims, TGT, too, stands to gain directly from a criminal conviction since, upon conviction and sentencing, the federal court may award restitution to victims. In such circumstances, the prejudice to the criminal defendant outweighs the potential delay and inconvenience to plaintiff. See, e.g., Britt, 679 N.Y.S.2d at 617 ( Under these circumstances, while there may be prejudice to plaintiff by the delay, his prejudice is not as severe as defendants would suffer without a stay. ); Mook, 41 N.Y.S.3d at 761 ( While a stay may cause inconvenience and delay to the plaintiffs, the failure to grant the stay would cause [defendant] to suffer the severe prejudice of being deprived of a defense. ). 7 7 of 9

8 Factors Five and Six Interests of the Public and the Court Finally, the public interest, and the interest of this Court in judicial economy, are both better served by a stay of this action. Considerations of judicial economy weigh in favor of a stay in these circumstances. See Garden City Irr., Inc. v. Salamanca, 2005 WL , at *3-4 (N.Y. Sup. Ct. Apr. 18, 2005) (stay appropriate because a guilty verdict would collaterally estop the defendant from contesting the facts underlying the conviction); Budget Mortg. Bankers, Ltd. v. Maza, 2004 WL , at *4 (N.Y. Sup. Ct. Dec. 14, 2004) (same). Nor is there any appreciable risk of danger to the public interest. The prosecution, in conjunction with the SEC, has obtained freeze orders on Meli s assets. Given these restrictions and federal court orders, there is no credible danger of flight, dissipation of assets or additional potential harm against others. See Volmar Distributors, Inc. v. N.Y. Post Co., 152 F.R.D. 36, 40 (S.D.N.Y. 1993) (staying civil action pending criminal proceeding where due to the overlapping issues in the criminal and civil trials, the criminal justice system will help safeguard the evidence ); Parker, 2007 WL , at *6 (same). Finally, the stay best comports with the sacrosanct constitutional principles of due process that undergird our entire judicial system While the stay of the instant action pending the resolution of the criminal prosecution may cause inconvenience and delay to the plaintiff, the protection of [defendant s] constitutional right against self-incrimination is the more important consideration. DeSiervi v. Liverzani, 523 N.Y.S.2d 147, 148 (2d Dept. 1988); U.S. v. Certain Real Prop. & Premises Known as 1344 Ridge Rd., Laurel Hollow, Syosset, N.Y., 751 F. Supp. 1060, 1063 (E.D.N.Y. 1989) ( While a stay... may cause some inconvenience and delay... protection of defendants constitutional rights against self-incrimination is the more important consideration. ); Trustees of Plumbers and Pipefitters, 886 F. Supp. at 1140 (plaintiff s 8 8 of 9

9 interest in proceeding with discovery is trumped by defendant s interest in avoiding the quandary of choosing between his Fifth Amendment rights or effectively forfeiting the civil case); Dienstag v. Bronsen, 49 F.R.D. 327, 329 (S.D.N.Y. 1970) (finding that while a stay will undoubtedly cause inconvenience and delay to plaintiffs, protection of defendants' constitutional rights against self-incrimination is the more important consideration). CONCLUSION For the reasons set forth herein, this Court should enter an order staying this matter, pending resolution of the ongoing criminal investigation and concomitant criminal proceedings against Defendant Meli. Dated New York, New York March 20, 2017 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP By /s/ Michael P. Bowen. Michael P. Bowen Jessica Rosenberg 1633 Broadway New York, New York (212) Attorneys for Advance Entertainment, LLC and Joseph Meli 9 9 of 9