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)

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