U.S. attorney asks state court to halt discovery in Starkey lawsuits

In a rare move, U.S. Attorney Andrew Luger has asked a Minnesota state court to halt discovery in two lawsuits against Starkey Laboratories Inc.

The pretrial civil fact-digging, the motion says, could potentially harm the government's separate criminal investigation. Luger said in the motion filed late last week that his office "respectfully moves the court for an order staying discovery in this matter to preserve the integrity of the United States criminal investigation."

Officials at the U.S. attorney's office on Thursday declined to comment about the matter.

Some local attorneys not involved with the lawsuits say Luger's move was unusual and may signal that indictments are coming.

The Federal Bureau of Investigation, the Internal Revenue Service and other law enforcement entities have led an investigation related to Starkey at least since the fall, when Bill Austin, owner of the hearing aid manufacturer, abruptly fired four top executives and two executive assistants. More firings followed.

The FBI and IRS raided the homes of two of the former executives in November and have since taken documents and interviewed dozens of current and former employees.

Starkey in December released a letter from the U.S. Department of Justice that said the company was the "alleged victim of criminal activity."

In his suit, Ruzicka accused Austin; Austin's wife, Tani; and Austin's stepson Brandon Sawalich (a Starkey senior vice president) of diverting millions in corporate funds and assets for personal use, committing tax fraud and devaluing the value of the company and its employee stock program.

Starkey, in response to the lawsuit, accused Ruzicka of stealing millions from the company. The company also accused Miller of taking "questionable payments" from a secret account that it wouldn't detail.

Citing the federal investigation that was underway, Starkey petitioned the court to halt discovery in the Guggenberger and Miller lawsuits. But a ruling by the court in March allowed the fact-gathering process to continue.

Mark Briol, Guggenberger's attorney, said he is knee-deep in discovery and has been since the ruling.

He said that before the U.S. attorney's motion can be heard, that office must submit a "memorandum of law" and other supporting documents with more details on why the state court should halt discovery.

Starkey's attorney, Scott Neilson, said Thursday that the criminal investigation prevented him from commenting. He said Starkey may file additional information in court in the coming weeks.

Marshall Tanick, attorney for Ruzicka, said Luger's request was unusual.

"It's very rare for this kind of a motion to be brought by the federal court intervening in a state court case," he said. "The situation is unusual and the motion is rare."

No similar request has been made in regard to Ruzicka's case, Tanick said.

Tanick said Ruzicka's case is not as far along in the discovery process. The case also has been stayed until June 30 so the parties can try to resolve the lawsuit in mediation. Both sides had filed a motion requesting the stay, which was granted May 17.

Tanick said the timing of mediation motions in his client's case and of the U.S. attorney's request to halt discovery in the Miller and Guggenberger cases was a coincidence.

"It's not related in any way to the government's motion to stay discovery" in the Guggenberger and Miller cases, Tanick said. Starkey and Ruzicka have been working on moving toward mediation "for weeks."