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Bell v. Taylor

United States District Court, D. Hawaii

April 26, 2019

IAN BELL, Derivatively on, Behalf of ECO SCIENCE SOLUTIONS, INC., Plaintiffs,
v.
JEFFREY TAYLOR, DON LEE TAYLOR, L. JOHN LEWIS, S. RANDALL OVESON, and GANNON GIGUIERE, Defendants.

          ORDER DENYING DEFENDANT'S MOTION TO STAY CIVIL CASE

          Leslie E. Kobayashi United States District Judge.

         Before the Court is Defendants Jeffrey Taylor (“J. Taylor”), Don Lee Taylor (“D. Taylor”), L. John Lewis (“Lewis”), S. Randall Oveson (“Oveson”), Gannon Giguiere (“Giguiere”), and Nominal Defendant Eco Science Solutions, Inc.'s (“ESSI” and collectively “Defendants”) Motion to Stay Civil Case (“Motion”), filed on January 29, 2019. [Dkt. no. 84.] Plaintiffs Ian Bell (“Bell”) and Marc D'Annunzio (“D'Annunzio, ” collectively “Plaintiffs”) filed their memorandum in opposition on February 22, 2019, and Defendants filed their reply on March 1, 2019. [Dkt. nos. 89, 91.] The Court finds this matter suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice for the United States District Court for the District of Hawaii (“Local Rules”). Defendants' Motion is hereby denied because, after weighing the particular circumstances and interests in this case, the Court concludes not substantial prejudice will result from proceeding with the parallel criminal and civil cases.

         BACKGROUND

         This case arises out of the business transactions surrounding ESSI from December 2015 to January 2018. Plaintiffs allege that Giguiere was the mastermind of an elaborate “pump-and-dump” scheme where Defendants artificially inflated ESSI's stock price through false representations and manipulative trading practices, then sold large quantities of the inflated stock to other investors. [Verified Amended Consolidated Stockholder Derivative Complaint (“Amended Complaint”), filed 12/10/18 (dkt. no. 78), at ¶¶ 2-4.]

         In December 2015, Defendants J. Taylor and D. Taylor obtained the controlling shares of ESSI. J. Taylor was named as ESSI's Chief Executive Officer (“CEO”) and D. Taylor as ESSI's Chief Financial Officer (“CFO”). They were also named ESSI's sole directors. [Id. at ¶¶ 61-62.] In addition, J. Taylor is ESSI's President and Secretary, and D. Taylor is ESSI's Treasurer. [Id. at ¶¶ 36-37.] Throughout 2016 and 2017, ESSI entered into numerous business deals, mainly with companies owned or controlled by Giguiere or other Defendants. [Id. at ¶¶ 9, 16, 18, 38-39.]

         The first such business deal was an agreement to purchase “technology licensing and marketing support” from Separation Degrees - One, Inc. (“SDOI”), a company of which Giguiere was “the founder, Chairman, CEO, Secretary, and President.” [Id. at ¶ 66.] As payment for the services by SDOI, ESSI transferred large quantities of its own stock to SDOI, which “translated into millions of dollars for defendant Giguiere.” [Id. at ¶¶ 83-84.] The “marketing support” of SDOI took the form of two articles posted to TheMoneyStreet.com, a stock promotion website also controlled by Giguiere. The articles encouraged readers to purchase ESSI stock, driving prices up. [Id. at ¶¶ 76-82.] The “technology licensing” was a software platform that ESSI used to build two mobile applications, Herbo, a digital marketplace, and Fitrix, a fitness tracker. [Id. at ¶¶ 72-74.]

         ESSI also entered into a financing agreement with Phenix, another company controlled by Giguiere. ESSI agreed to sell ten million shares of its stock to Phenix at a discounted price based on a formula contained in the agreement. [Id. at ¶¶ 100-01.]

         The last relevant transaction occurred in 2017, where ESSI signed a letter of intent to acquire Ga-Du Bank, Inc. (“Ga- Du”), an entity controlled by Lewis and Oveson. [Id. at ¶¶ 38-39, 105.] A May 5, 2017 ESSI press release stated acquisition of Ga-Du would allow it to “provid[e] payment processing, cash management and financial services to its customers in the cannabis industry.” [Id. at ¶ 105.] However, Plaintiffs allege Ga-Du's charter and formation were questionable. [Id. at ¶ 106.] As a result of the acquisition process, Ga-Du became a wholly owned subsidiary of ESSI, Lewis became the Ga-Du CEO, Oveson became the Ga-Du Chief Operating Officer (“COO”), each was given a base salary of $120, 000, and each was appointed as an ESSI director. [Id. at ¶¶ 115, 119.]

         In total, the Amended Complaint alleges Defendants caused a loss of market capitalization of over $137 million, seeing the stock price of ESSI drop from a high of $4.58, on January 20, 2017, to a low of $0.28, on June 12, 2017. [Id. at ¶ 116.] J. Taylor and D. Taylor each received three million shares of ESSI stock, worth $8, 190, 000 each at the time of issuance, as “stock-based compensation recorded as management fees.” [Id. at ¶ 117.] J. Taylor and D. Taylor also received $115, 000 and $105, 000 salaries, respectively, for 2016. [Id.] In addition to their salaries, Lewis and Oveson were given the option to purchase 2.5 million shares and 1.5 million shares, respectively, of ESSI stock at $2.00 per share. [Id. at ¶ 118.] Throughout the process, Giguiere sold over 6.6 million shares of ESSI stock, resulting in proceeds of over $8.5 million, some of which was funneled, through a third-party, back into ESSI accounts to pay for salaries. [Id. at ¶¶ 97-99.]

         On June 29, 2018, Giguiere was indicted in a California federal court on: two counts of conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371; and two counts of securities fraud, in violation of 15 U.S.C. §§ 78j(b), 78ff and 17 C.F.R. § 240.10b-5. [Amended Complaint, Exh. B (Indictment in United States v. Giguiere, et al., No. 18 CR 3071 WQH (S.D. Cal.) (“California Indictment”)).] The California Indictment is based, in part, on the same events and facts as the instant case with regard to ESSI and TheMoneyStreet.com. [Amended Complaint at ¶¶ 136-39.] A jury trial in the criminal case is currently scheduled to begin on for August 20, 2019. [Reply at 3.]

         On July 6, 2018, following a parallel investigation, the Securities and Exchange Commission (“SEC”) filed a civil action based on Giguiere's involvement with ESSI and other corporations. [Amended Complaint at ¶ 143 & Exh. A (Complaint in S.E.C. v. Giguiere, et al., No. 18CV1530 BEN JLB (S.D. Cal.) (“SEC Complaint”)).] The SEC Complaint alleges Giguiere violated § 78j(b) and § 240.10b-5(a) and (c). The SEC action was stayed pending resolution of Giguiere's criminal charges. [Amended Complaint at ¶¶ 143-48.]

         Defendants' Motion seeks a stay of the proceedings in the instant case, pending resolution of the criminal case against Giguiere. The Motion argues Giguiere's Fifth Amendment rights will substantially interfere with the discovery process as to all Defendants in this case.

         STANDARD

The Constitution does not ordinarily require a stay of civil proceedings pending the outcome of criminal proceedings. Federal Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989); Securities & Exchange Comm'n v. Dresser Indus., 628 F.2d 1368, 1375 (D.C. Cir.), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980). “In the absence of substantial prejudice to the rights of the parties involved, [simultaneous] parallel [civil and criminal] proceedings are unobjectionable under our jurisprudence.” Dresser, 628 F.2d at 1374. “Nevertheless, a court may decide in its discretion to stay civil proceedings . . . ‘when the interests of ...

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