Federal Insurance Company v. Laney et al

Filing 90

ORDER GRANTING MOTION TO STAY PROCEEDING AND MOTION FOR JOINDER by Judge William Alsup [granting in part and denying in part 68 Motion to Stay; granting 73 Motion for Joinder]. (whasec, COURT STAFF) (Filed on 2/14/2013)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 FEDERAL INSURANCE COMPANY, 11 For the Northern District of California United States District Court 10 Plaintiff, 12 13 14 15 16 17 v. No. C 12-04708 WHA KEVIN LANEY; CHARLES BURNETTE; BRANDON HOURMOUZUS; MARKE ZEMBRYCKI; KELLY LANEY; MIGUEL IBARRIA; BRIAN FEDERICO; BURNETTE ENGINEERING RESOURCES LLC AKA BER CONSULTANTS LLC; ROGUE CONSULTANTS; UT RADAR CONSULTING; HOURMOUZUS & SONS, LLC; and IMPERIAL SHOTCRETE, INC., 18 Defendants. / 19 20 IMPERIAL SHOTCRETE, INC., Third party plaintiff, 21 22 23 24 ORDER GRANTING MOTION TO STAY PROCEEDING AND MOTION FOR JOINDER v. BRIAN FEDERICO, Third party defendant. / 25 26 27 28 INTRODUCTION In this fraud and misappropriation action, defendants move to stay civil proceedings pending resolution of a criminal case involving a number of the defendants herein. 1 Defendant Kevin Laney moves to join defendant Charles Burnette in this motion to stay. 2 Only to the extent stated below, defendants’ motions are GRANTED. 3 4 STATEMENT Matrix Service Company provides engineering, procurement, fabrication, construction, storage, terminal, pipeline and industrial gas industries. Matrix had an insurance policy with 7 plaintiff Federal Insurance Company which provided indemnity for loss caused by employee 8 theft. Matrix submitted to plaintiff a claim based on the alleged acts, and after an investigation, 9 plaintiff paid Matrix $1,433,114 for its claim. Plaintiff now sues defendants in its capacity as 10 subrogee and assignee of Matrix, pursuant to the terms of the insurance policy which entitles 11 For the Northern District of California repair and maintenance services principally to the petroleum, petrochemical, power, bulk 6 United States District Court 5 plaintiff to pursue subrogation rights against third parties responsible for the losses plaintiff has 12 paid under the policy (2d Amd. Compl. ¶¶ 16–17). 13 Defendants Charles Burnette, Brandon Hourmouzus, Mark Zembrycki, Kevin Laney 14 and Kelly Laney worked for Matrix as project managers. They were authorized to hire 15 subcontractors, procure materials, and approve invoices for payment. Imperial Shotcrete, Inc. 16 was a contractor hired by Matrix as a concrete supplier (id. at ¶¶ 32–33). Defendants Miguel 17 Ibarria and Brian Federico worked for Imperial (id. at ¶ 35). 18 In an alleged conspiracy and scheme, defendants Burnette, Hourmouzus, Kevin and 19 Kelly Laney created four separate companies (id. at ¶¶ 18–30). Imperial retained these four 20 separate companies as subcontractors to provide goods and services to Imperial in connection 21 with Matrix construction projects. Defendants Burnette, Hourmouzus, Kevin and Kelly Laney, 22 through the separate companies they created, allegedly submitted to Imperial fraudulent invoices 23 for goods that were never delivered and services that were never rendered. Defendants Ibarria 24 and Federico, allegedly knowing the invoices were fraudulent, included those amounts in their 25 own invoices submitted to Matrix by Imperial. Defendant Zembrycki allegedly used, without 26 consent, the name of a legitimate company to create fraudulent invoices which were also sent to 27 Imperial; the amount of those invoices were also included in the invoices submitted to Matrix by 28 Imperial. When defendants received these invoices in their capacity as Matrix project managers, 2 1 they approved them (id. at ¶ 35). These acts allegedly occurred for about four years (id. at ¶ 34). 2 The sum of fraudulent invoices submitted to Matrix by Imperial was of $1,655,249.10 (id. at 3 ¶ 35). 4 In September 2012, plaintiff filed a civil complaint against the individual defendants 5 and the companies that were created by the individual defendants. Plaintiff alleges fraud, 6 concealment, misappropriation, breach of fiduciary duty, and unjust enrichment. 7 Three months after the civil complaint was filed, the indictment in United States v. 8 Ibarria, no. 4:12-cr-00862-YGR was filed. Defendants Charles Burnette, Kevin Laney, Miguel 9 Ibarria, Brian Federico, and Brandon Hourmouzus are defendants in that criminal case, assigned to Judge Yvonne Gonzalez Rogers. The indictment charges these defendants with conspiring 11 For the Northern District of California United States District Court 10 to commit mail fraud and mail fraud, the same subject matter as the present civil action. 12 13 14 Defendant Charles Burnette filed this motion to stay proceedings pending resolution of criminal case and defendant Kevin Laney filed a joinder. The hearing on this motion was held on February 14, 2013. Defendants are scheduled 15 to appear at the Oakland Courthouse on February 22, 2013, for a status conference hearing 16 regarding United States v. Ibarria. No notice to relate the two cases has been filed by any party. 17 18 ANALYSIS 19 1. 20 Defendant Kevin Laney moves to join in defendant Charles Burnette’s motion to stay 21 civil proceedings pending resolution of criminal case (Dkt. No. 75). Plaintiff argues that the 22 arguments by defendant Laney must be contained with those in defendant Burnette’s motion. 23 Not so. Defendant Laney’s motion for joinder is GRANTED. 24 2. MOTION FOR JOINDER. MOTION TO STAY PROCEEDING PENDING RESOLUTION OF CRIMINAL CASE. 25 “The Constitution does not ordinarily require a stay of civil proceedings pending the 26 outcome of criminal proceedings.” Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 27 (9th Cir. 1995) (citing Fed. Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 28 1989)). “[A] court may decide in its discretion to stay civil proceedings . . . when the interests 3 1 of justice seem to require such action.” Ibid. (quoting Sec. & Exch. Comm’n v. Dresser Indus., 2 Inc., 628 F.2d 1368, 1375 (D.C. Cir. 1980)) (internal quotations and citations omitted). 3 The decision whether to stay civil proceedings in the face of a parallel criminal proceeding 4 should be made in light of the particular circumstances and competing interests involved in the 5 case. Ibid. (quoting Molinaro, 889 F.2d at 902) (internal quotations omitted). Our court of 6 appeals has held that: 7 8 9 11 For the Northern District of California United States District Court 10 12 13 14 the decisionmaker should consider the extent to which the defendant’s fifth amendment rights are implicated. In addition, the decisionmaker 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. Keating, 45 F.3d at 324–325 (quoting Molinaro, 889 F.2d at 903) (emphasis in original). A. Defendants’ Fifth Amendment Privilege. 15 “The strongest case for deferring civil proceedings is where a party under indictment 16 for a serious offense is required to defend a civil or administrative action involving the same 17 matter.” Dresser, 628 F.2d at 1375-76. The parallel proceeding “might undermine the party’s 18 Fifth Amendment privilege against self-incrimination, expand rights of criminal discovery 19 beyond the limits of Federal Rule of Criminal Procedure 16(b), expose the basis of the defense 20 to the prosecution in advance of criminal trial, or otherwise prejudice the case.” Id. at 1376. 21 Many district court decisions applying the Molinaro multi-factor test have held that if the 22 defendant in both criminal and civil proceedings is an individual who has been indicted and 23 the issues in both proceedings are the same, the defendant’s Fifth Amendment privilege will be 24 implicated. See e.g., Taylor, Bean & Whitaker Mortg. Corp. v. Triduanum Fin., Inc., 2009 U.S. 25 Dist. LEXIS 60849, at *6 (E.D. Cal. July 15, 2009) (Judge Frank Damrell, Jr.); Jones v. Conte, 26 2005 U.S. Dist. LEXIS 46962, at *3 (N.D. Cal. Apr. 19, 2005) (Judge Susan Illston); Allied 27 World Nat’l Assur. Co. v. SK PM Corp., 2011 U.S. Dist. LEXIS 82602, at *9–10 (E.D. Cal. 28 July 28, 2011) (Judge Oliver Wanger). 4 1 Here, defendants’ Fifth Amendment privilege will be implicated. Defendants Burnette 2 and Laney were indicted for the same conduct as the civil suit. In both proceedings, defendants 3 are accused of defrauding Matrix by knowingly submitting false and inflated invoices to Matrix 4 that exceeded the actual work performed and the materials used (2d Amd. Compl. ¶¶ 34–35, 5 Dkt. No. 69 Exh. 1 at 8). As a result, at least some disclosures provided in the civil proceedings 6 will be relevant to the issues in the criminal proceedings. Allowing the civil proceedings to 7 continue will permit the government to gain access to discovery that it would otherwise not 8 have under the federal rules of criminal procedure, such as documents derived from initial 9 disclosures, defendants’ responses to interrogatories, pleadings and admissions at any 11 For the Northern District of California United States District Court 10 depositions (Dkt. No. 65 Exh. A at 5). Plaintiff argues that the defendants’ motion should be denied because there is no 12 constitutional right to a stay. See Keating, 45 F.3d at 324. While this is undoubtedly correct, 13 defendants do not contend otherwise. Rather, defendants argue that their Fifth Amendment 14 rights will be implicated by discovery and disclosures required in the civil action. This factor 15 heavily weighs in favor of a stay, at least for a few months. 16 17 B. Plaintiff’s Interest and Defendant’s Burden. Plaintiff notes that only two of the seven defendants are seeking a motion to stay. 18 Plaintiff argues that if granted, a stay would prejudice plaintiff because it would impede its 19 ability to timely pursue relief against the remaining defendants. This is plaintiff’s most 20 persuasive argument. Plaintiff has paid its insured for the loss and is thus entitled to be 21 compensated in a timely manner. 22 Defendants argue that plaintiff will benefit from the stay because through the criminal 23 proceedings, the government will conduct much of the necessary litigation that will resolve the 24 allegations at issue in the civil proceedings, at no cost to the plaintiff. 25 This is incorrect unless the criminal prosecution goes to trial. If there are guilty pleas 26 instead, the underlying discovery will not ordinarily be turned over to plaintiff by the 27 government. The guilty pleas themselves may wind up being the lesser included offenses that 28 do not read on plaintiff’s claims herein. 5 1 2 C. Court’s Convenience in Managing Its Docket. Defendants argue that judicial resources will be saved to the extent that the resolution of 3 the criminal proceedings resolves issues in the civil proceedings, avoiding duplication of work in 4 two cases. Plaintiff, however, argues that a stay would require the Court to wait indefinitely for 5 the criminal proceedings to end before the civil proceedings can proceed. To reconcile both of 6 these issues, some courts have granted stays for a finite period of time. Taylor, Bean & Whitaker 7 Mortg. Corp., 2009 U.S. Dist. LEXIS 60849 at *10 (motion to stay granted for six months); 8 Jones, 2005 U.S. Dist. LEXIS 46962 at *5 (motion to stay granted until the resolution of the 9 criminal proceeding or until six months from the date of the order, whichever occurs first). Granting a short stay is reasonable, as to the moving parties only. 11 For the Northern District of California United States District Court 10 12 13 D. Neither defendants nor plaintiff note any non-party and public interests. These factors, therefore, receive minimal consideration. 14 15 Non-Party and Public Interests. E. Additional Arguments Made by Plaintiff. Citing Landis v. North American Co., 299 U.S. 248, 255 (1936), plaintiff argues that 16 defendants have not established the good cause necessary to seek a stay. The decision cited by 17 plaintiff is inapposite. Landis does not address the issue of staying a civil proceeding pending 18 the outcome of a criminal proceeding, and it does not concern a defendant who has been 19 indicted. 20 CONCLUSION 21 For the foregoing reasons, defendants’ motion to stay civil proceedings is GRANTED 22 only as it relates to defendants Charles Burnette and Kevin Laney. No stay is imposed as to 23 anyone else. A case management conference will be scheduled in four months, at 11:00 A.M. 24 on JUNE 20, 2013, to re-evaluate the need for a longer stay. The Court is mindful of plaintiff’s 25 interest in recovering gains and in due course the calculus of equities will be re-assessed. In the 26 27 28 6 1 meantime, counsel and all parties, including Burnette and Laney, are ordered to preserve all 2 evidence relevant to this case. 3 4 IT IS SO ORDERED. 5 6 Dated: February 14, 2013. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 7 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7

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