Paskenta Band of Nomlaki Indians et al v. Crosby et al

Filing 415

MENORANDUM AND ORDER signed by District Judge Morrison C. England, Jr. on 4/19/2017 GRANTING 351 Defendants' Motion to Stay Case pending the resolution of criminal proceedings against Defendants, subject to three exceptions on pending motions 382 , 384 , 388 ; not later than 90 days following the date this Memorandum and Order is electronically filed, and every 90 days thereafter until the stay is lifted, the parties are directed to file a Joint Status Report advising the Court as to the Status of the Criminal action. (Reader, L)

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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 11 PASKENTA BAND OF NOMLAKI INDIANS; and PASKENTA ENTERPRISES CORPORATION, 12 13 14 Plaintiffs, No. 2:15-cv-00538-MCE-CMK MEMORANDUM AND ORDER v. INES CROSBY; et al., 15 Defendants. 16 17 On January 5, 2017, three of the Defendants in this action were indicted for 18 conspiracy to embezzle or steal from a tribal organization, multiple substantive counts of 19 embezzlement or theft from a tribal organization, and various counts of making false 20 statements. United States v. Crosby, No. 2:17-cr-00006-MCE (E.D. Cal. Jan 5, 2017). 21 The alleged conspiracy substantially overlaps with Plaintiffs’ claims here under the 22 Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–1968. 23 Defendants filed a Motion to Stay in this case, ECF No. 351, claiming that their Fifth 24 Amendment rights would be undermined if this case was not stayed pending resolution 25 of the criminal charges against them. For the reasons that follow, that Motion is 26 GRANTED IN PART.1 This action is stayed pending resolution of the parallel criminal 27 1 28 Having determined that oral argument would not be of material assistance, the Court ordered the motion submitted on the briefs in accordance with Local Rule 230(g). 1 1 case, subject to limited exceptions for the resolution of motions currently pending before 2 the Court. 3 4 BACKGROUND 5 6 Plaintiff Paskenta Band of Nomlaki Indians (the “Tribe”) employed Ines Crosby, 7 John Crosby, Leslie Lohse, and Larry Lohse in executive positions for more than a 8 decade. Plaintiffs allege that Defendants used their positions to embezzle millions of 9 dollars from the Tribe and its principal business entity, the Paskenta Enterprises 10 Corporation (“PEC”). Plaintiffs allege the Defendants stole this money by, among other 11 things, withdrawing large sums from Plaintiffs’ bank accounts for their personal use and 12 by having the Tribe invest in two unauthorized retirement plans for the Defendants’ 13 personal benefit. Plaintiffs allege the Employee Defendants kept their activities hidden 14 from Plaintiffs by such means as harassment, intimidation, and cyber-attacks on the 15 Tribe’s computers. On January 5, 2017, three of the Defendants—Ines Crosby, John 16 Crosby, and Leslie Lohse—were indicted for various crimes premised on the same 17 alleged scheme of misappropriating the Tribe’s funds. 18 19 STANDARD 20 21 While a district court may stay civil proceedings pending the outcome of parallel 22 criminal proceedings, such action is not required by the Constitution. Fed. Sav. & Loan 23 Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989); Sec. & Exch. Comm’n v. 24 Dresser Indus., Inc., 628 F.2d 1368, 1375 (D.C. Cir. 1980). The Ninth Circuit has held 25 that “in the absence of substantial prejudice to the rights of the parties involved, 26 simultaneous parallel civil and criminal proceedings are unobjectionable under our 27 jurisprudence.” Keating v. Office of Thrift Supervision, 45 F.3d 322, 324–25 (9th Cir. 28 1995) (quoting Dresser, 628 F.2d at 1374). Nevertheless, a court may decide in its 2 1 discretion to stay civil proceedings “when the interests of justice seem to require such 2 action.” Id. (quoting United States v. Kordel, 397 U.S. 1, 12 n.27 (1970)). 3 When deciding whether to stay civil proceedings, courts should consider “the 4 particular circumstances and competing interests involved in the case.” Id. (quoting 5 Molinaro, 889 F.2d at 902). The Ninth Circuit has instructed the court to consider “the 6 extent to which the defendant's Fifth Amendment rights are implicated.” Id. (quoting 7 Molinaro, 889 F.2d at 902). 8 Additionally, courts 9 should generally consider the following factors: (1) the interest of the plaintiffs in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to plaintiffs of a delay; (2) the burden which any particular aspect of the proceedings may impose on defendants; (3) the convenience of the court in the management of its cases, and the efficient use of judicial resources; (4) the interests of persons not parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation. 10 11 12 13 14 15 Id. at 324–25 (citing Molinaro, 889 F.2d at 903). 16 17 DISCUSSION 18 19 Defendants argue their Fifth Amendment rights are “undoubtedly implicated” in 20 the civil case because “John Crosby, Ines Crosby, and Leslie Lohse were indicted for 21 the exact same conduct as is alleged in the civil suit.” Defs.’ Mot. to Stay, at 6. 22 Plaintiffs, for their part, “recognize certain factual similarities between the [c]ivil [a]ction 23 and the [c]riminal [a]ction” and therefore “agree to stay the [c]ivil [a]ction subject to 24 several limited carve-outs.” Pls.’ Opp’n to Mot. to Stay, at 1. That is, Plaintiffs do not 25 oppose generally staying the civil case, but want to maintain the ability to pursue certain 26 aspects of the civil case while the criminal case is pending. Plaintiffs would like the 27 following matters to be exempt from any stay of the civil case: 28 /// 3 1 (1) Completion of the briefing and hearing on Plaintiffs’ Motion for Reconsideration of the Order Denying Plaintiffs’ Motion for a Preliminary Injunction; (2) In the event that the Court does not grant Plaintiffs’ Reconsideration motion, conduct any other briefing or discovery necessary should the Court of Appeals remand Plaintiffs’ appeal of the Court’s order Denying Preliminary Injunction; (3) Pursuit of discovery against the RICO Ringleaders regarding their income, financial information, and sizeable gifts, etc. to other during the relevant period; (4) Pursuit of discovery against the RICO Ringleaders into their disposition of moneys and assets taken from the Tribe; and (5) Certification for appeal of the Court’s dismissal of Plaintiffs’ claims against the Defendants in the civil action. 2 3 4 5 6 7 8 9 Id. at 1–2 (citations omitted). Defendants, in turn, object only to “carve-outs” (3) and (4), 10 which would permit ongoing discovery. See Defs.’ Reply, ECF No. 376, at 1–2. Given 11 that the parties are in general accord that a stay should issue and the scope of stay, the 12 Court only address the two contested proposed carve-outs.2 13 As an initial matter, the Court must determine whether a stay is appropriate in the 14 first place, before turning to exceptions to that stay. Due to the overlap between the 15 allegations in both the civil action and the indictment, the Court finds that proceeding in 16 the civil action would likely implicate Defendants’ Fifth Amendment rights in a significant 17 manner. Indeed, “[t]he strongest case for deferring civil proceedings until after 18 completion of criminal proceedings is where a party under indictment for a serious 19 offense is required to defend a civil or administrative action involving the same matter.” 20 In re Zinnel, No. 2:12-cv-00249-MCE, 2013 WL 1284339, at *3 (E.D. Cal. Mar. 28, 2013) 21 (citing Dresser, 628 F.2d at 1375–76). The heart of the allegations in the civil action is 22 that Defendants defrauded the Tribe, misappropriating millions of the Tribe’s dollars. 23 The indictment concerns portions of the same alleged scheme, and specific allegations 24 often overlap. Compare, e.g., Third Amended Complaint (“TAC”), ECF No. 212, ¶ 454, 25 with Indictment, Crosby, No. 2:17-cr-00006-MCE, ECF No. 1, ¶¶ 22–24, 27, 29 (both 26 27 28 2 The Court notes that since the filing of the instant Motion and the related moving papers, the Court entered judgment pursuant to Rule 54(b) on the claims referenced in Plaintiffs’ fifth carve-out. ECF No. 378. The dismissed defendants have moved for attorney fees, and those motions are set for hearing on May 18, 2017. ECF Nos. 382, 384, 388, 413. The Court construes these motions for attorney fees as falling within the ambit of Plaintiff’s fifth carve-out. 4 1 alleging that Defendants took identical amounts on the same days: $74,826.50 on 2 May 24, 2012; $119,131.00 on June 7, 2012; $81,558 on July 20, 2012; $34,100.55 on 3 August 2, 2012; and $39,691.00 on September 14, 2012). Furthermore, the TAC’s 4 allegations sweep broader than the indictment, such that evidence obtained in 5 pursuance of the civil action “might be used to prove that [Defendants] intended to 6 commit the fraudulent acts alleged in the indictment, or had a plan to conceal 7 fraudulently obtained assets.” In re SK Foods, L.P., Civ. No. S-10-1492 LKK, 2010 WL 8 5136189, at *7 (E.D. Cal. Dec. 10, 2010). 9 Aside from the implication of Defendants’ Fifth Amendment rights, the factors 10 identified in Keating also counsel a stay. First, judicial resources will be conserved by 11 staying that case—after resolution of the criminal case, “common issues of fact will be 12 resolved and subsequent civil discovery will proceed unobstructed by concerns 13 regarding self-incrimination.” Taylor, Bean & Whitaker Mortg. Corp. v. Triduanum Fin., 14 Inc., No. CIV. 2:09-cv-0954 FCD EFB, 2009 WL 2136989, at *4 (E.D. Cal. July 15, 2009) 15 (quoting Jones v. Conte, No. C 045312S1, 2005 WL 1287017, at *2 (N.D. Cal. Apr. 19, 16 2005)). Second, there is no indication that a stay would affect the interest of non-parties 17 or be contrary to the public interest. Finally, as analyzed in more depth below 18 concerning Plaintiffs’ proposed carve-outs, Plaintiffs have not shown that they would 19 suffer prejudice absent a stay that would outweigh the burden on Defendants’ Fifth 20 Amendment rights. 21 Turning now to the contested carve-outs to the stay, Plaintiffs’ proposed 22 exceptions for continued discovery are so large that they would directly undermine the 23 main purpose of staying the civil proceeding—protection of Defendants’ Fifth 24 Amendment rights. Any discovery “regarding [Defendants’] income, financial 25 information, and sizeable gifts, etc. to others” or concerning the “disposition of moneys 26 and assets taken from the Tribe” directly implicates the Fifth Amendment concerns 27 identified above. If such a broad exception for continued discovery was implemented, it 28 is not clear why a stay should issue at all. 5 1 Plaintiffs desire these carve-outs in order to “address very real prejudices 2 Plaintiffs will suffer should the Court grant the . . . stay . . . , absent any freeze on their 3 assets.” Pls.’ Opp’n, at 2. In essence, Plaintiffs attempt to re-litigate the denial of the 4 preliminary injunction through their opposition to the Motion to Stay. First, this is 5 unnecessary as Plaintiffs have already filed a motion for reconsideration,3 which will be 6 unaffected by the stay. Briefing has already been completed by both parties, and the 7 motion is submitted. Second, Plaintiffs’ proposed discovery carve-out seems to be 8 designed to keep discovery into Defendants’ finances open long enough to obtain 9 sufficient evidence to freeze their assets. The Court will not tailor a stay to be so results- 10 oriented. 11 Despite overlap between the allegations against Defendants—misappropriation of 12 funds—and the discovery that Plaintiffs want to exempt from the stay—where those 13 allegedly misappropriated funds are—Plaintiffs claim that allowing such discovery would 14 not implicate Defendants’ Fifth Amendment rights. This is because they “are not seeking 15 liability[-]focused information and document[s]” but rather “only . . . evidence of 16 purchases sales, transactions and other events where the RICO Ringleaders spent or 17 used Tribal moneys.” Pls.’ Opp’n, at 10. This is, to say the least, a perplexing argument. 18 It is beyond the Court how it would be possible to distinguish between which information 19 is liability-focused and which is not. At the heart of the matter is how Defendants used 20 Plaintiffs’ funds while they held leadership positions within the Tribe. The information 21 Plaintiffs seek—Defendants’ finances and financial transactions—squarely addresses 22 liability for the alleged misuse of Plaintiffs’ funds. 23 /// 24 25 26 27 28 3 Plaintiffs originally filed a Motion for Preliminary Injunction requesting an asset freeze on June 29, 2015, ECF No. 72, which was denied, ECF No. 102. That denial was appealed to the Ninth Circuit, which reversed and remanded “for further findings of fact and conclusions of law to permit meaningful review” and directed the Court to “explain, on an individualized basis, why the evidence does or does not show a likelihood of dissipation” of Defendants’ assets. USCA Mem., ECF No. 343, at 3–4. The Court did so, laying out in more detail the basis for its denial of preliminary injunction. ECF No. 360. Plaintiffs have both moved for reconsideration of that new order, ECF No. 366, and appealed to the Ninth Circuit, ECF No. 365. 6 1 CONCLUSION 2 3 For the reasons above, Defendants’ Motion to Stay, ECF No. 351, is GRANTED, 4 and this action IS HEREBY STAYED pending the resolution of criminal proceedings 5 against Defendants, subject to three exceptions: (1) the pending Motion for 6 Reconsideration, ECF No. 366; (2) any briefing necessary in light of the disposition of 7 Plaintiffs’ appeal of the denial of a preliminary injunction; and (3) the pending Motions for 8 Attorney Fees, ECF Nos. 382, 384, 388. Not later than ninety (90) days following the 9 date this Memorandum and Order is electronically filed, and every ninety days thereafter 10 until the stay is lifted, the parties are directed to file a Joint Status Report advising the 11 Court as to the status of the criminal action. 12 13 IT IS SO ORDERED. Dated: April 19, 2017 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7

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