On March 21, 2016, the Illinois First District Appellate Court upheld the ruling of an Illinois county judge, who stayed a civil legal malpractice case, because a parallel criminal case was still ongoing against the alleged perpetrator of a fraudulent investment scheme. The malpractice claim was against the firm, Chuhak & Tecson, whose attorney, Gary Stern, allegedly misled investors by convincing them to invest in fuel tax credit partnerships.
The appeal involved the question whether the lower court properly granted a stay of the malpractice case, while the federal criminal case was still ongoing in the tax court, and notwithstanding the fact that Stern was not personally named as a defendant in the malpractice case.
The civil action had been filed in 2012 by 21 investors, who were clients of an accountant familiar to the law firm. Stern solicited their interest in the gas partnerships, seeking tax credits for non-conventional source fuels, geared toward reuse of methane gas from landfills.
The IRS eventually disallowed the tax credits, moved against the investors, who then asked the Chuhak firm to help defend them. Chuhak refused, claiming a conflict of interest. The lawsuit ensued.
Stern was indicted on federal tax fraud charges in 2014. After the indictment, the plaintiffs in the malpractice case sought discovery of Defendants, including Stern. Citing Stern’s constitutional rights against self-incrimination, the firm sought a stay of the proceedings, which the county court judge granted in February, 2015, believing that Stern and others refusal to participate in the discovery process, would be unfairly prejudicial to them.
The appellate panel found that the lower court judge had acted within his authority in granting the stay, agreeing that the claims in both cases involved the same fraudulent scheme and involved the same players, who would justifiably not participate in the civil action while the criminal case was ongoing. The Court remarked that it was unclear how the Plaintiffs in the civil action could proceed under the circumstances presented.
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