Federal Insurance Company v. Laney et al
Filing
113
ORDER GRANTING MOTION TO SUBSTITUTE MATRIX SERVICE COMPANY AS PLAINTIFF FOR FEDERAL INSURANCE COMPANY AND VACATING HEARING by Judge William Alsup [granting 99 Motion to Substitute Party. Federal Insurance Company terminated]. (whasec, COURT STAFF) (Filed on 7/12/2013)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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FEDERAL INSURANCE COMPANY,
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Plaintiff,
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For the Northern District of California
United States District Court
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No. C 12-04708 WHA
v.
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KEVIN LANEY, et al.,
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Defendants.
___________________________________/
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IMPERIAL SHOTCRETE, INC.,
Third Party Plaintiff,
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ORDER GRANTING MOTION
TO SUBSTITUTE MATRIX
SERVICE COMPANY AS
PLAINTIFF FOR FEDERAL
INSURANCE COMPANY
AND VACATING HEARING
v.
BRIAN FEDERICO,
Third Party Defendant.
/
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INTRODUCTION
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In this fraud and misappropriation action, plaintiff Federal Insurance Company moves
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to substitute Matrix Service Company as plaintiff. For the reasons stated below, the motion to
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substitute plaintiffs is GRANTED. The July 25 hearing is VACATED.
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STATEMENT
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The main question presented by plaintiff’s motion is whether substitution is proper
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under Rule 25(c). The basic facts are set out in previous orders and need not be repeated here
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(see Dkt. No. 90). The facts relevant to this order follow.
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Defendants Charles Burnette, Brandon Hourmouzus, Mark Zembrycki, Kevin Laney and
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Kelly Laney worked for Matrix Service Company as project managers. They were authorized to
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hire subcontractors, procure materials, and approve invoices for payment. Imperial Shotcrete,
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Inc. was a contractor hired by Matrix as a concrete supplier (2d Amd. Cmpl. at ¶¶ 32–33).
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Defendants Miguel Ibarria and Brian Federico worked for Imperial (id. at ¶ 35).
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Matrix Service provided (and still provides) engineering, procurement, fabrication,
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construction, repair and maintenance services principally to the petroleum, petrochemical,
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power, bulk storage, terminal, pipeline, and industrial gas industries. During the relevant time
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period, Matrix had an insurance policy with plaintiff Federal Insurance Company which
provided indemnity for loss caused employee theft. Matrix submitted to Federal a claim for
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For the Northern District of California
United States District Court
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loss caused by employee theft; after an investigation, Federal paid Matrix $1,433,114 for its
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claim. Federal then filed the instant lawsuit against defendants in its capacity as subrogee and
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assignee of Matrix, pursuant to the terms of the insurance policy which entitles FIC to pursue
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subrogation rights against third parties responsible for the losses it has paid under the policy
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(id. at ¶¶ 16–17).
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Three months after the civil complaint was filed, the indictment in United States v.
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Ibarria, No. 4:12-cr-00862-YGR was filed. Defendants Charles Burnette, Kevin Laney,
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Miguel Ibarria, Brian Federico, and Brandon Hourmouzus are defendants in that criminal
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prosecution, assigned to Judge Yvonne Gonzalez Rogers. The indictment charges these
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defendants with conspiring to commit mail fraud and mail fraud, the same subject matter as
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the present civil action. Defendants’ motion to stay civil proceedings herein was granted with
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respect to defendants Charles Burnette and Kevin Laney. A case management conference is
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scheduled for July 25 to determine whether the stay should be lifted (Dkt. No. 90).
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On May 13, 2013, Federal assigned all of its rights and remedies against all defendants,
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including all claims and causes of actions alleged in this lawsuit, to Matrix. As a result of this
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assignment, Matrix and Federal seek to substitute Matrix for Federal as plaintiff in this action.
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Matrix has notified each party that has appeared in this lawsuit that Matrix intended to file
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this motion to substitute. All parties except for Miguel Ibarria and Imperial Shotcrete have
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authorized the substitution. Ibarria and Shotcrete have filed an opposition to the motion.
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ANALYSIS
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1.
MOTION TO SUBSTITUTE.
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Rule 25(c) allows a substitution upon a transfer of interest. This rule provides “[i]f an
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interest is transferred, the action may be continued by or against the original party unless the
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court, on motion, orders the transferee to be substituted in the action or joined with the original
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party.” “Rule 25(c) is not designed to create new relationships among parties to a suit but is
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designed to allow the action to continue unabated when an interest in the lawsuit changes
hands.” Educational Credit Management Corp. v. Bernal, 207 F.3d 595, 598 (9th Cir. 2000).
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For the Northern District of California
United States District Court
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Defendants argue that the motion for substitution should be denied because FIC’s
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assignment of rights to Matrix was “dilatory” (Dkt. No. 110 at 8). Defendants offers no
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authority for this proposition but rather analogize from Rule 25(a)(1). The analogy is misguided.
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Rule 25(a) deals with substitution in the case of the death of a party. Rule 25(c) governs
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substitutions when interests have been transferred. Rule 25(c) applies in this case, because
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Federal has transferred its interest to Matrix. Rule 25(c) has no time limit, and no reported
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decision has ever applied Rule 25(a)(1)’s time limit to Rule 25(c).
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The core of defendants’ objection appears to be that the substitution would somehow
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impair their ability to “prepare for a fair trial” (Reply Br. 8). Defendants do not, however,
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articulate how this substitution would inhibit their preparation. Given that the claims and facts
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remain the same, this order finds this argument without merit.
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Allowing substitution here is consistent with our court of appeal’s holding in Bernal.
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Federal’s interest has changed hands to Matrix. Given that the facts and claims in the complaint
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remain unchanged, Matrix’s substitution allows this action to continue as before. Matrix has
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effectively stepped back into own shoes following assignment of its interest in this litigation
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to Federal and Federal’s later reassignment of that same interest back to Matrix.
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DEFENDANTS’ REQUESTS FOR SPECIFIC ORDERS.
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Defendants request the following orders: (1) that Matrix can only assert Federal’s rights
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and remedies in this lawsuit; (2) that defendants be allowed 30 days to file a compulsory
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counterclaim against Matrix for so-called legitimate invoices which defendants claim Matrix
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owes totaling about $500,000; and (3) that a new case management conference should be held
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at which current cutoff and discovery dates are vacated and new and different dates are set.
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Matrix and Federal move to substitute Matrix for Federal, not to add additional claims
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against defendants. To do the latter, Matrix would have to first move to amend its complaint.
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Defendants may make their objections at that time.
As to defendants remaining requests, a case management conference is scheduled for
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For the Northern District of California
United States District Court
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July 25, 2013, to re-evaluate the need for a longer stay. The Court will then determine whether
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any modification to the deadlines set by the case management order are warranted.
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The hearing on this motion for July 25 is hereby vacated. The case management
conference set for JULY 25 AT 8 A.M. IS NOW MOVED TO 11 A.M.
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CONCLUSION
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For the reasons stated above, the motion to substitute plaintiffs is GRANTED. Matrix is
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hereby ORDERED to file an amended complaint that substitutes its name for Federal and makes
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no additional changes of any kind by NOON on TUESDAY, JULY 16.
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IT IS SO ORDERED.
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Dated: July 12, 2013.
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE
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