Erus Builders LLC v. Volt Solar Systems Incorporated et al

Filing 265

ORDER: IT IS ORDERED that Plaintiff's Motion to Stay Proceedings (Doc. 254 ) is denied [see attached Order for details]. Signed by Magistrate Judge John Z Boyle on 4/27/17.(MAW)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Erus Builders LLC, Plaintiff, 10 11 Volt Solar Systems Incorporated, et al., 13 ORDER v. 12 No. CV-14-02686-PHX-JZB Defendants. 14 15 Pending before the Court is Plaintiff’s Motion to Stay Proceedings Pending the 16 Securities and Exchange Commission’s Criminal Investigation. (Doc. 254.) For the 17 reasons below, the Court will deny Plaintiff’s Motion.1 18 I. Background 19 This matter has been pending in this Court since December 15, 2014. (Doc. 1.) 20 The initial February 5, 2016 discovery deadline was first extended to April 5, 2016, 21 subsequently extended to October 28, 2016, and finally extended to February 24, 2017. 22 (Docs. 36, 49, 114, 207.) During his initial deposition, Malcom Adler, at that time a 23 named Defendant in this matter, asserted a blanket refusal to answer questions based on 24 his Fifth Amendment rights in light of an SEC subpoena he received related to his 25 business dealings with the Volt entities and other parties. 26 Consequently, on December 3, 2015, Plaintiff filed a Motion to Compel Mr. Adler’s (Docs. 69, 69-6, 69-8.) 27 1 28 This matter is suitable for resolution based on the briefing alone. Accordingly, the Court denies Plaintiff’s request for oral argument. See Fed. R. Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 deposition. (Id.) After briefing, the Court granted Plaintiff’s Motion and required Mr. 2 Adler to appear for a second properly noticed deposition, during which he may not assert 3 a blanket claim of privilege to all potential questions posed by Plaintiff, but, instead, may 4 refuse on Fifth Amendment grounds to answer any “questions which present a ‘real and 5 appreciable danger of self-incrimination.’” (Doc. 114 at 6.) 6 After disputes arose over scheduling Mr. Adler’s second deposition, and whether 7 Mr. Adler would respond to any questions posed, the parties had two telephone 8 conferences with the Court regarding the deposition. (Docs. 117, 137.) 9 Mr. Adler sat for his deposition on July 18 and 19, 2016. (Docs. 168 at 15, 168-3 10 at 3.) During that time, it appears he asserted the Fifth Amendment privilege in response 11 to almost every question posed. (Docs. 168, 168-2, 168-3.) On September 19, 2016, 12 Plaintiff filed a second Motion to Compel Defendant Adler’s deposition, arguing Mr. 13 Adler’s invocation of his Fifth Amendment rights to every question posed was improper. 14 (Doc. 167.) However, on December 7, 2016, before the Court held oral argument and 15 ruled on the Motion to Compel, the parties filed a Stipulation for Entry of Judgment with 16 regard to Plaintiff’s claims against Mr. Adler based on a settlement reached between the 17 parties. (Doc. 224.) The parties contacted the Court and indicated that the oral argument 18 on Plaintiff’s Motion to Compel could be cancelled. The Court issued an Order advising 19 the parties that it would deny Plaintiff’s Motion to Compel as moot unless it received an 20 objection within ten days of the date of the Order. (Doc. 225.) Neither party filed an 21 objection. Therefore, on December 19, 2016, the Court denied the Motion to Compel as 22 moot. (Doc. 232.) The Court entered judgment against Mr. Adler on February 8, 2017, 23 and he is no longer a party to this case. (Doc. 248.) Other than a subpoena issued by 24 Plaintiff to the Volt entities’ former counsel for documents protected from disclosure by 25 the attorney-client and/or work product privileges, which the Court quashed by granting 26 Defendant Sharon Altman and Jerome Wenger’s Motion for Protective Order, Plaintiff 27 has not notified the Court of any other discovery disputes in this case in accordance with 28 the Court’s Scheduling Order. (Docs. 36, 208, 233.) -2- 1 On March 30, 2017, the day before the dispositive motion deadline, Plaintiff filed 2 its pending Motion to Stay. (Doc. 254.) Plaintiff requests the Court stay this matter 3 pending the outcome of the SEC proceedings against Mr. Adler. 4 II. Legal Standard 5 “A district court has discretionary power to stay proceedings in its own court.” 6 Lockyer v. Mirant Corp., 398 F.3d 1098, 1109 (9th Cir. 2005) (citing Landis v. North 7 American Co., 299 U.S. 248, 254, (1936)). The Constitution does not ordinarily require a 8 stay of civil proceedings pending the outcome of criminal proceedings. Federal Sav. & 9 Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989). Thus, it is permissible to 10 conduct a civil proceeding at the same time as a related criminal proceeding, even if that 11 necessitates the invocation of the Fifth Amendment privilege. Baxter v. Palmigiano, 425 12 U.S. 308, 318 (1976). 13 In deciding whether to stay civil proceedings pending parallel criminal 14 proceedings, a district court must consider “‘the particular circumstances and competing 15 interests involved in the case.’” Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 16 (9th Cir. 1995) (quoting Federal Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 17 (9th Cir. 1989)). Courts should consider the following six factors: (1) “the extent to 18 which the defendant’s fifth amendment rights are implicated;” (2) “the interest of the 19 plaintiff[] in proceeding expeditiously with this litigation or any particular aspect of it, 20 and the potential prejudice to plaintiff[] of a delay;” (3) “the burden which any particular 21 aspect of the proceedings may impose on defendants;” (4) “the convenience of the court 22 in the management of its cases, and the efficient use of judicial resources;” (5) “the 23 interests of persons not parties to the civil litigation;” and (6) “the interest of the public in 24 the pending civil and criminal litigation.” Keating, 45 F.3d at 325 (citing Molinaro, 889 25 F.2d at 903). 26 “The strongest case for deferring civil proceedings until after completion of 27 criminal proceedings is where a party under indictment for a serious offense is required to 28 defend a civil or administrative action involving the same matter.” Sec. & Exch. Comm’n -3- 1 v. Dresser Indus., Inc., 628 F.2d 1368, 1375-76 (D.C. Cir. 1980). “The case for staying 2 civil proceedings is ‘a far weaker one’ when ‘[n]o indictment has been returned[, and] no 3 Fifth Amendment privilege is threatened.’” Molinaro, 889 F.2d at 903 (quoting Dresser 4 Indus., 628 F.2d at 1376). See also S.E.C. v. Global Express Capital Real Estate Inv. 5 Fund, I, LLC, 289 F. App’x 183, 191 (9th Cir. 2008) (unpublished) (“The case for staying 6 civil proceedings is weak when no indictment has been returned.”). 7 III. Analysis 8 In this case, it is Plaintiff, not any of the Defendants, that requests a stay. Plaintiff 9 argues that a stay in this case pending the SEC’s investigation is appropriate because (1) 10 “Plaintiff has attempted on numerous occasions to obtain discovery related to the wiring 11 of the funds at issue . . . . However, to date, it appears that Mr. Adler is the only person 12 that has knowledge of the events that occurred with the Volt Entities,” but Mr. Adler has 13 asserted the Fifth Amendment privilege against self-incrimination, and, therefore, there is 14 a substantial prejudice to Plaintiff if a stay is not ordered; (2) evidence generally 15 suggests, contrary to their assertions otherwise, Defendants Altman and Wenger had 16 control over, or involvement in, Volt’s financial affairs; (3) this case overlaps with the 17 underlying SEC investigation; (4) Defendants would not be burdened by a stay; and (5) a 18 stay is in the Court’s and the public’s interests because Defendants “have veiled 19 themselves from discovery at every step, including but not limited to administratively 20 dissolving the entities of which they were members and/or executives and failing to 21 provide any documents related to this matter.” (Doc. 254.) 22 Defendants Altman and Wenger do not oppose a stay with regard to Wenger, but 23 assert that a stay of the case with regard to Altman is not appropriate.2 (Doc. 262.) More 24 specifically, Defendants argue that while there is an issue of fact for trial as to Defendant 25 Wenger’s liability, no issues remain as to Defendant Altman and she is entitled to 26 summary judgment as a matter of law. 27 In Reply, Plaintiff attaches additional discovery obtained, including emails and 28 2 Defendant Moore did not file a response to Plaintiff’s Motion to Stay. -4- 1 copies of checks, which Plaintiff asserts show that some of the money paid to Volt by 2 Plaintiff was disbursed to Defendants Altman and an entity owned by Defendant Wenger, 3 and contrary to their testimony otherwise, those Defendants had control over, or 4 involvement in, the Volt entities’ financial transactions. (Doc. 263.) 5 In balancing the relevant factors and considerations, the Court finds a stay is not 6 appropriate in this case and will deny Plaintiff’s Motion. As an initial matter, while there 7 appears to be no dispute that there is some overlap between the topics in the SEC 8 subpoena and some of the issues in this case, and although Mr. Adler’s counsel avers that 9 Mr. Adler would invoke his Fifth Amendment rights in response to any deposition 10 question or question at trial, the Court never addressed the extent to which Mr. Adler’s 11 Fifth Amendment rights are implicated with regard to Plaintiff’s claims against the 12 remaining Defendants because Plaintiff chose to abandon its Motion to Compel and has 13 not otherwise pursued obtaining deposition testimony from Mr. Adler. Notably, Plaintiff 14 previously took the position that Mr. Adler’s invocation to every question posed during 15 his deposition was not legally supported. (Docs. 69, 167.) Therefore, it is unclear to 16 what extent Mr. Adler’s Fifth Amendment rights are implicated in this case. United 17 States v. Pierce, 561 F.2d 735, 741 (9th Cir. 1977) (“Only after an invocation of the 18 privilege with respect to a specific question can a reviewing court determine whether a 19 responsive answer might lead to injurious disclosures.”). 20 However, even assuming that Mr. Adler’s Fifth Amendment rights are implicated 21 in this case to some extent, Defendants’ and the Court’s interests weigh heavily against 22 granting a stay. As Plaintiff concedes, Mr. Adler has not been indicted as a result of the 23 ongoing SEC investigation. And, there is no indication if or when Mr. Adler will be 24 indicted. It is possible the SEC investigation could continue for years, and, if criminal 25 charges are filed, Mr. Adler’s Fifth Amendment rights would be implicated for an even 26 longer period of time. The present action has been pending for approximately two and 27 half years, discovery has long since closed, and the dispositive motion deadline has 28 passed. Therefore, Plaintiff is effectively requesting the Court to, potentially years in the -5- 1 future, reopen discovery and again modify the deadlines in this matter. Such a stay 2 would disrupt the Court’s calendar by indefinitely postponing trial. 3 Partners LP v. Stratos, 22 F. Supp. 3d 1042, 1046 (C.D. Cal. 2014) (“Courts have 4 recognized that . . . ‘the court has an interest in clearing its docket.’ Molinaro, 889 F.2d 5 at 903. Staying a civil case until the resolution of a criminal case is inconvenient for the 6 court, especially where—like in Stratos’s situation—there is no date set for the criminal 7 trial. This factor consequently weighs against Stratos.”). ESG Capital 8 Likewise, witnesses’ memories can fade over the course of the delay, and 9 witnesses might not be available following the termination of the criminal proceedings. 10 Southwest Marine, Inc. v. Triple A Mach. Shop, Inc., 720 F. Supp. 805, 809 (N.D. Cal. 11 1989). Thus, because Plaintiff requests an indefinite stay of this case that would cause 12 Defendants prejudice, and hinder the Court’s ability to manage its docket, these factors 13 weigh heavily against granting Plaintiff’s request for a stay. 14 The Court finds that Plaintiff may suffer some prejudice without a stay of this 15 case. However, Plaintiff fails to establish that any potential prejudice it faces from being 16 unable to depose Mr. Adler or call him as a witness at trial outweighs the burdens to 17 Defendants and this Court of granting an indefinite stay, particularly because Plaintiff 18 chose to abandon its Motion to Compel against Mr. Adler. While Plaintiff asserts that 19 Mr. Adler is the only person who can provide information regarding the transfer of 20 Plaintiff’s funds to the remaining Defendants, Plaintiff fails to address its lack of 21 diligence in pursuing its Motion to Compel against him to obtain the discovery it believes 22 it needs to litigate its claims. 23 Further, Plaintiff attaches and cites to evidence obtained from other sources 24 regarding the transfer of at least some funds from Volt to Defendant Altman and Aztec 25 Solar Power Renewable Inc. There is no evidence in the record that any of the remaining 26 individual Defendants have refused to provide discovery based on their Fifth Amendment 27 rights. Presumably, those Defendants would have knowledge and information regarding 28 -6- 1 their own conduct.3 Plaintiff also cites to Affidavits by other former employee witnesses 2 of Volt or allegedly related entities who appear to have knowledge potentially relevant to 3 Plaintiff’s claims. (Doc. 256-9.) 4 Plaintiff to locate witnesses and obtain relevant information from the Defendants and 5 non-party witnesses other than Mr. Adler. Although the Court recognizes that Mr. Adler 6 very likely has knowledge relevant to this case, Plaintiff fails to demonstrate that it could 7 only have obtained discovery regarding the transfer of its funds to the other Defendants 8 through testimony by Mr. Adler. It is unclear what specific attempts were made by 9 Likewise, although Plaintiff references in its Motion to Stay an inability to obtain 10 discovery through subpoenas to the financial institutions used by the Volt entities and to 11 “agents of service for the Volt Entities,” Plaintiff never raised those issues with the Court 12 prior to the deadline for doing so.4 Plaintiff fails to explain its lack of diligence in 13 obtaining discovery from parties and third parties in this matter.5 14 Further, it is unclear whether Mr. Adler would provide testimony to support 15 Plaintiff’s specific claims against the other Defendants once the SEC investigation and 16 any resulting criminal proceedings conclude. Plaintiff has provided the Court with some 17 evidence that Defendants Wenger and Altman were involved with and received money 18 from the Volt entities. However, the only evidence it cites to indicate how Mr. Adler 19 20 21 22 23 24 25 26 27 28 3 Plaintiff submitted with its briefing checks paid to Altman from Volt, other checks signed by Altman, and brief excerpts from Altman’s deposition. (Docs. 256-5, 256-6, 264-1, 264-2.) However, Plaintiff does not address whether it questioned Altman regarding the checks during her deposition and, if so, the substance of her responses. Nor does Plaintiff assert it was prohibited from doing so. 4 To the extent Plaintiff is referring to its subpoena for documents to Defendants Altman and Wenger’s former counsel, for the reasons provided by the Court on the record, Plaintiff requested documents covered by the attorney-client and/or work-product privileges that are protected from discovery, regardless of Mr. Adler’s Fifth Amendment rights. (Docs. 208, 233, 234.) 5 Plaintiff asserts, without explanation, in its counsel’s Declaration attached to its Reply that “[w]e have requested additional documents from Wells Fargo, however at this time we cannot ascertain how many bank accounts the entities and their ‘affiliates’ had.” (Doc. 264 at 2.) However, discovery has long since closed and, as stated above, Plaintiff failed to raise any discovery disputes with regard to subpoenas or other discovery requested with the Court prior to the deadline for doing so. -7- 1 may testify during a deposition or at trial is Mr. Adler’s statements in a January 14, 2014 2 Form 10-k regarding Defendant Altman’s ownership of First Power and Light, Inc. and 3 her general control over that corporation’s decisions and transactions. 4 statements do not, however, address the specific transactions at issue in this case. 5 Therefore, the Court finds Plaintiff’s interests weigh only slightly in favor of granting a 6 stay. Mr. Adler’s 7 With regard to interests of other non-parties, the Court finds this factor is neutral. 8 None of the parties have identified any third-party interests that bear upon resolution of 9 Plaintiff’s Motion. 10 Finally, Plaintiff asserts that a stay of this matter is in the public’s interest because 11 Defendants have “used the corporate veil to shield their personal activities, while stating 12 on repeated occasions that there are no documents or communications in their custody 13 with regard to a $625,000 wire.” (Doc. 254 at 15) (emphasis in original). However, as 14 stated above, Plaintiff does not detail what specific discovery it sought directly from the 15 Defendants (other than deposition testimony from Mr. Adler) or other witnesses that was 16 improperly withheld. Nor did Plaintiff diligently and timely raise any such issues with 17 the Court. Further, the public has an interest in the expeditious litigation of this matter. 18 Therefore, at best, the Court also finds this factor to be neutral. 19 Plaintiff requests this Court stay this matter, for an indefinite amount of time, on 20 the hope that Mr. Adler, at some point in the future after the SEC investigation and any 21 resulting criminal proceedings conclude, will provide testimony in support of Plaintiff’s 22 claims against the remaining Defendants. After analysis of the relevant factors and 23 interests at issue in this case, the Court finds that a stay of this case pending the SEC’s 24 /// 25 /// 26 /// 27 /// 28 /// -8- 1 investigation is not appropriate and the Court will deny Plaintiff’s Motion. 2 Accordingly, 3 IT IS ORDERED that Plaintiff’s Motion to Stay Proceedings (Doc. 254) is 4 5 denied. Dated this 27th day of April, 2017. 6 7 8 Honorable John Z. Boyle United States Magistrate Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9-

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