Ellerton et al v. Sefton Resources Inc., et al

Filing 109

RECOMMENDATION AND ORDER OF UNITED STATES MAGISTRATE JUDGE by Magistrate Judge Nina Y. Wang on 12/29/16. The Court recommends that 84 MOTION to Dismiss filed by John J. Ellerton be DENIED; that 93 MOTION for Summary Judgment filed by S efton Resources Inc. be GRANTED; 75 MOTION for Sanctions filed by Sefton Resources Inc. be DENIED AS MOOT, and that the court DISMISS Mr. Ellerton's three remaining claims WITH PREJUDICE. Additionally, the Court ORDERS that 89 MOTION for Sanctions Under FRCP 37(d) filed by Sefton Resources Inc. is GRANTED IN PART AND DENIED IN PART. The Clerk of the Court is directed to mail Mr. Ellerton a copy of this Recommendation and Order at his address of record: John J. Ellerton, 2724 Puuhoolai Street, Kihei Maui, Hawaii 96753. (Attachments: # 1 Attachment 1, # 2 Attachment 2, # 3 Attachment 3, # 4 Attachment 4, # 5 Attachment 5) (nmarb, )

Deatley v. Keybank National Association, Not Reported in F.Supp.3d (2014)
2014 WL 4436808

2014 WL 4436808
Only the Westlaw citation is currently available.
United States District Court, D. Colorado.
Alan Deatley, NAPI (Colorado) LLC, a Washington
limited liability company, 15 Corporations,
Inc., a Washington corporation, Plaintiffs,
v.
Keybank National Association,
an Ohio corporation, Defendant.
Civil Action No. 12–cv–02973–PAB–BNB
|
Signed 09/09/2014
Attorneys and Law Firms
Joseph Daniel Bariault, Business Advocate Law, Seattle,
WA, for Plaintiffs.
Alan David Sweetbaum, Katherine Karamalegos Kust,
Sweetbaum Sands Anderson, P.C., Brian J. Berardini,
Brown, Berardini & Dunning, P.C., Denver, CO, for
Defendant.

ORDER
PHILIP A. BRIMMER, United States District Judge
*1 This matter is before the Court on the Voluntary
Motion to Dismiss Pursuant to F.R.C.P. 41(a)(2)
[Docket No. 71] filed by plaintiffs Alan DeAtley, NAPI
(Colorado) LLC (“NAPI”), and 15 Corporations, Inc.
(“15 Corporations”).

I. BACKGROUND

1

A. Mr. DeAtley's Criminal Case
On October 6, 2010, a Denver grand jury returned
an indictment against Mr. DeAtley, charging him with
several counts of criminal conduct in connection with
the State of Colorado's conservation easement tax credit
program. Docket No. 29–1. In July 2011, the state
court allowed Mr. DeAtley's counsel to withdraw based
upon irreconcilable conflicts and granted a continuance.
Mr. DeAtley then retained substitute counsel (“criminal
counsel”). People v. DeAtley (“DeAtley I ”), 2014 WL

2708455, at *1 (Colo. June 16, 2014). On November
13, 2012, Mr. DeAtley wrote to the trial court, asking
the court to permit criminal counsel to withdraw. Id.
at *2. The court granted Mr. DeAtley the opportunity
to retain substitute counsel, but did not permit criminal
counsel to withdraw. Id. In February 2013, Mr. DeAtley
filed a malpractice action pro se in the United States
District Court for the Eastern District of Washington
against criminal counsel, which was later transferred to
this District. DeAtley v. Stuart (“DeAtley II ”), No. 13–
cv–01140–REB–BNB (Docket No. 1 at 1). Mr. DeAtley
accused criminal counsel of failing to review supporting
documents and failing to retain a tax or forensic expert
for trial. Id. (Docket No. 3 at 1–2). Criminal counsel again
filed motions to withdraw. The trial court found that a
conflict of interest between Mr. DeAtley and criminal
counsel existed, but again denied criminal counsel's
motions to withdraw, concluding that Mr. DeAtley had
caused the conflict in order to delay the trial. DeAtley I,
at *2. On February 15, 2013, the trial court granted Mr.
DeAtley another opportunity to secure different counsel,
but Mr. DeAtley was unable to do so. Id. at *2-*3.
On March 26, 2013, criminal counsel filed a motion for
reconsideration, which the trial court denied. Id. at *3.
The trial court found that, although Mr. DeAtley had a
history of attempting to disqualify attorneys in order to
delay the trial, the complexity of the issues and the pending
May 2013 trial rendered highly unlikely the possibility of
Mr. DeAtley acquiring substitute counsel. Id. On April
9, 2013, criminal counsel filed a Petition for Rule to
Show Cause why their motion to withdraw should not
be granted with the Colorado Supreme Court. DeAtley
II, (Docket No. 42–6). On April 11, 2013, the Colorado
Supreme Court issued a Rule to Show Cause and stayed
the criminal proceedings. Id. (Docket No. 42–7).
On October 28, 2013, the magistrate judge in DeAtley
II recommended that criminal counsel's motion for a
prejudgment cost bond be granted and plaintiff's motion
to stay be denied, finding that
*2
[t]his
action,
alleging
malpractice against his Colorado
criminal defense counsel in the state
prosecution, is part-and-parcel of
Mr. DeAtley's abusive litigation
strategy. Mr. DeAtley refuses in the
state prosecution to proceed pro
se or to retain substitute counsel.
Through this malpractice action, he

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Deatley v. Keybank National Association, Not Reported in F.Supp.3d (2014)
2014 WL 4436808

makes it impossible for his current
criminal counsel to represent him in
the state prosecution. And now he
seeks to postpone this malpractice
action until the criminal case he
has stymied is resolved. Here, as in
the Keybank case, I do not intend
to facilitate Mr. DeAtley's improper
manipulation of the judicial system.
Id. (Docket No. 43 at 3). The district judge adopted
the magistrate judge's recommendation and dismissed the
case without prejudice for Mr. DeAtley's failure to post a
cost bond. Id. (Docket No. 56 at 7).
On June 16, 2014, the Colorado Supreme Court ruled that
the state trial court erred in denying criminal counsel's
motion to withdraw. It also ordered the trial court to
determine if Mr. DeAtley had obtained substitute counsel
and, if he had not, to advise Mr. DeAtley that he
may be forced to proceed to trial without an attorney.
DeAtley I, 2014 WL 2708455, at *5. The trial court
was further directed to give Mr. DeAtley a short and
reasonable time in which to determine how he would
like to proceed. Id. Based upon a review of the docket
sheet, Mr. DeAtley currently appears pro se and has been
given until September 16, 2014 to acquire counsel. People
v. DeAtley, 2010CR10309 (Denver Dist. Ct. August 22,
2014).

B. Procedural History
On July 3, 2012, plaintiffs filed this case in the
United States District Court for the Western District
of Washington and, on November 11, 2012, the case
was transferred to this District. Docket No. 1–1; Docket
No. 1. At the time of filing, the criminal case had been
pending against Mr. DeAtley for nearly two years. Mr.
DeAtley did not object to this case proceeding or raise
any Fifth Amendment concerns during the pleading stage,
briefing and resolution of a motion to dismiss, and into
discovery. On March 20, 2013, the magistrate judge
entered a scheduling order in this case. Docket No. 47.
On April 4, 2013, defendant filed a notice of deposition
of Mr. DeAtley for June 7, 2013. Docket No. 50. At the
request of Mr. DeAtley's attorney, defendant canceled
the deposition based upon the attorney's representation
that Mr. DeAtley was undergoing a medical procedure on
June 7. Docket No. 67 at 2. Rather than undergoing a
surgical procedure, Mr. DeAtley consulted with a doctor

on June 6, 2013. Id.; see also Docket No. 52 at 2, ¶ 3.
Mr. DeAtley's attorney admitted that his own situation
was “unresolved and now impaired due to [Mr. DeAtley's]
total lack of financial resources.” Docket No. 56 at 2, ¶ 3.
On June 21, 2013, defendant filed a motion for sanctions
for Mr. DeAtley's failure to appear at a deposition, which
the magistrate judge construed as a motion to compel
(“motion to compel”). Docket No. 52.
After defendant filed its motion to compel, plaintiffs
filed a motion to stay, asserting, for the first time,
that Mr. DeAtley's Fifth Amendment rights could be
compromised if he were deposed. Docket No. 59 at 2.
Although plaintiffs' motion to stay mentioned that the
criminal proceedings against Mr. DeAtley were stayed and
that Mr. DeAtley's attorneys in this case had retained a
criminal law expert to advise them on how to proceed,
plaintiffs did not argue that Mr. DeAtley's inability to
secure substitute counsel in the criminal proceeding had
any effect on his ability to proceed in the case. The
magistrate judge ordered Mr. DeAtley to appear for his
deposition and denied plaintiffs' motion to stay:
*3 It is apparent to me that
Mr. DeAtley is engaged in abusive
litigation tactics for the improper
purpose of manipulating the judicial
system to delay both Keybank's
attempts to pursue its foreclosure
action and the state criminal
prosecution .... [now] Mr. DeAtley
seeks to postpone indefinitely this
action until resolution of the
criminal case, progress of which he
has stymied. I do not intend to
facilitate Mr. DeAtley's improper
manipulation of the judicial system.
Docket No. 67 at 6.
On December 10, 2013, plaintiffs filed the instant motion,
requesting the Court to dismiss this case without prejudice
pursuant to Fed. R. Civ. P. 41(a)(2). Docket No. 71 at
1. 2 On December 17, 2013, plaintiffs filed a motion for
a protective order, seeking to prevent defendant from
deposing Mr. DeAtley. Docket No. 74. The magistrate
judge ordered that the deposition go forward. Docket No.
76. On December 20, 2013, Mr. DeAtley was deposed.
Defendant states that Mr. DeAtley failed to answer
numerous questions based on his Fifth Amendment rights.

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Deatley v. Keybank National Association, Not Reported in F.Supp.3d (2014)
2014 WL 4436808

Docket No. 77 at 4. Plaintiffs claim that Mr. DeAtley
“made a good faith effort to answer questions that
were not overtly related to his criminal indictment.”
Docket No. 78 at 2. Neither party provided the Court
with a deposition transcript or any further indication of
what took place during Mr. DeAtley's deposition. 3 On
January 27, 2014, defendant filed the Amended Notice
of Second Deposition of Alan DeAtley, indicating that
Mr. DeAtley would be deposed for a second time on
February 27, 2014. Docket No. 81. A second deposition
of Mr. DeAtley took place on February 27, 2014, where
defendants state that Mr. DeAtley invoked his Fifth
Amendment rights as to certain questions. Docket No.
101 at 4. Plaintiffs' counsel did not appear at the final
pretrial conference, but appears to have participated in
the drafting of a proposed final pretrial order. Docket
No. 98. The Final Pretrial Order states, in part, that
plaintiffs “have no witnesses to call, having not engaged
in discovery as a result of DeAtley's alleged inability
to actively participate in discovery without potentially
waiving his Fifth Amendment privilege.” Docket No. 99
at 5.
In the instant motion, plaintiffs argue that “DeAtley
is without criminal representation. Therefore, until
such time as DeAtley is able to retain new criminal
counsel, civil counsel must exercise extreme caution to
avoid inadvertently waiving DeAtley's Fifth Amendment
privilege.” Docket No. 71 at 2. Plaintiffs further claim
that Mr. DeAtley's assertion of his Fifth Amendment
rights at his deposition will “effectively deny[ ] him
the benefit of a full and fair hearing on his rights in
the civil case.” Id. Plaintiffs dispute that Mr. DeAtley
engaged in manipulative tactics and argue that the current
circumstances were the result of two factors outside
Mr. DeAtley's control. First, plaintiffs contend that Mr.
DeAtley's effort to remove his criminal counsel was not
an attempt to delay the proceedings, but was legitimately
based on his criminal counsel's failure to review “millions
of pages of documents, ... emails, correspondence, and
accounting records.” Id. at 4. Plaintiffs are critical of the
state judge's refusal to delay Mr. DeAtley's criminal trial
date, which plaintiffs argue caused Mr. DeAtley to be
unable to find an experienced criminal attorney willing to
take on his case. Docket No. 78 at 4. 4 Second, plaintiffs
argue that Mr. DeAtley can no longer afford to retain an
experienced criminal attorney. Id. at 5. Defendant, citing
the magistrate judge's finding concerning Mr. DeAtley's
conduct, responds that it has already been forced to forego

its right to foreclose on plaintiffs' property and would be
prejudiced if plaintiffs were permitted to refile this suit and
again halt foreclosure proceedings. Docket No. 77 at 6.

II. ANALYSIS
*4 A case may be “dismissed at the plaintiff's request
only by court order, on terms that the court considers
proper.” Fed. R. Civ. P. 41(a)(2). Rule 41(a)(2) is designed
to prevent voluntary dismissals that adversely affect the
opposing party. Brown v. Baeke, 413 F.3d 1121, 1123
(10th Cir. 2005). In the absence of legal prejudice to
the defendant, a district court should ordinarily grant
a plaintiff's request for dismissal without prejudice. Id.
Although the term “legal prejudice” is not explicitly
defined, relevant factors for courts in the Tenth Circuit to
consider include “the opposing party's effort and expense
in preparing for trial; excessive delay and lack of diligence
on the part of the movant; insufficient explanation of the
need for a dismissal; and the present stage of litigation.”
Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir. 1997).
These factors are not exhaustive or conclusive and the
court must take care to “consider the equities not only
facing the defendant, but also those facing the plaintiff.”
Ohlander, 114 F.3d at 1537.
In terms of the defendant's effort and expense in preparing
for trial, it appears that defendant has obtained the
necessary discovery it needs and is prepared to proceed to
trial. Defendant intends to call ten witnesses at trial, has
endorsed an expert witness, and has prepared an exhibit
list. Docket No. 99 at 5, 9–22. In addition, defendant,
with leave of the Court, has filed a motion for summary
judgment seeking dismissal with prejudice of plaintiffs'
claims. Docket No. 101 at 7. Although plaintiffs claim
that “little discovery has taken place by any party,”
Docket No. 71 at 3, defendant appears to have expended
sufficient effort in this case to proceed to trial, a factor
which weighs in defendant's favor. Compare Wimber By
and Through Wimber v. Dep't of Social & Rehabilitation
Servs., 156 F.R.D. 259, 261 (D.Kan.1994) (“The only
real investment in time and expense for the defendants
has been their opposition to the plaintiffs' motion for
preliminary injunction.”).
With respect to considerations of delay and diligence,
plaintiffs filed this case while Mr. DeAtley's criminal case
was pending, more than two years after Mr. DeAtley
was indicted. The Fifth Amendment concerns that Mr.
DeAtley now complains of were apparent, or reasonably

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Deatley v. Keybank National Association, Not Reported in F.Supp.3d (2014)
2014 WL 4436808

should have been, to plaintiffs and their attorneys at
the outset of this case. Moreover, the prospect that Mr.
DeAtley would be unable to secure substitute criminal
counsel to assist in asserting his Fifth Amendment rights
in this case should have been apparent to Mr. DeAtley
and his civil attorneys as early as November 2012,
when the trial court first granted Mr. DeAtley time to
secure substitute criminal counsel and he was apparently
unable to do so, and no later than February 2013,
when Mr. DeAtley was given the same opportunity. Cf.
Ohlander, 114 F.3d at 1538 (“the most persuasive reason
to file a motion to dismiss did not arise until eleven
months following the initial proceeding's initiation”).
Nonetheless, plaintiffs continued to litigate this case until
shortly after Mr. DeAtley's deposition was noticed. Cf.
Clark v. Tansy, 13 F.3d 1407, 1412 (10th Cir. 1993)
(finding no evidence of improper delay when pro se
plaintiff filed motion to dismiss without prejudice prior
to court's ruling on a motion to dismiss). Plaintiffs offer
no explanation for their delay in raising issues related
to Mr. DeAtley's Fifth Amendment rights. Meanwhile,
defendant is prejudiced by the fact that, while this
litigation remains pending, it cannot foreclose on property
related to plaintiffs' claims in this case. Defendant is
prepared to proceed to trial in an effort to permanently
resolve plaintiffs' claims, efforts which could be wasted if
this case were dismissed without prejudice and plaintiffs
subsequently refile. Moreover, plaintiffs do not directly
rebut the fact that plaintiffs' litigation conduct has, on
multiple occasions, been judged to be manipulative. The
Court concludes that plaintiffs' request for dismissal
without prejudice evinces excessive delay and a lack of
diligence. 5
*5 The Court turns to the factor concerning plaintiffs'
explanation for the need for dismissal. Mr. DeAtley
“unquestionably may assert a Fifth Amendment privilege
in this civil case and refuse to reveal information
properly subject to the privilege, in which event [he]
may have to accept certain bad consequences that flow
from that action.” See Mid–Am.'s Process Service v.
Ellison, 767 F.2d 684, 686 (10th Cir. 1985) (citations
omitted). However, plaintiffs fail to explain why Mr.
DeAtley's assertion of his Fifth Amendment rights
prevents plaintiffs from litigating this case. Plaintiffs do
not, for example, indicate why Mr. DeAtley's assertion
of his Fifth Amendment rights during his deposition
prevented plaintiffs from conducting discovery or would
otherwise affect the ability of NAPI and 15 Corporations,

both corporate entities with no Fifth Amendment rights,
to fully litigate this case. Moreover, even if Mr. DeAtley's
invocation of his Fifth Amendment privilege did interfere
with plaintiffs' ability to conduct discovery, “[a] party who
asserts the privilege against self-incrimination must bear
the consequence of lack of evidence.” United States v.
$148,840.00 in U.S. Currency, 521 F.3d 1268, 1274 (10th
Cir. 2008) (quotation marks omitted).
Plaintiffs primarily argue that Mr. DeAtley was a victim
of circumstances outside his control and, as such, should
not have to accept the consequences of his assertion of
his Fifth Amendment rights. Plaintiffs' argument is not
persuasive. Multiple judges have found Mr. DeAtley's
litigation conduct to be suspect and, after a thorough
review of the record, the Court has no basis upon which
to disagree. See Docket No. 67 at 6; Docket No. 76 at
1; DeAtley II, (Docket No. 43 at 2; Docket No. 56 at 4
(“The record in this case leaves no doubt that Mr. DeAtley
has interfered with the judicial process in this case. The
amount of interference is substantial.”); DeAtley I, 2014
WL 2708455, at *2 (noting that the state trial court found
that Mr. DeAtley had caused the conflict with criminal
counsel in order to delay trial). Thus, the Court concludes
that plaintiffs have failed to sufficiently explain the need
for a dismissal without prejudice. See Phillips USA, Inc.
v. Allflex USA, Inc., 77 F.3d 354, 358 (10th Cir. 1996)
(noting importance of plaintiff's explanation for dismissal
request).
The Court turns to the final factor, the present stage
of litigation. Plaintiffs filed the instant motion while
discovery was ongoing and after the resolution of a motion
to dismiss. Subsequently, Mr. DeAtley was deposed,
defendant completed discovery, and a final pretrial
conference was held. Moreover, although the threat of
plaintiffs refiling a second action forcing defendant to
expend effort relitigating this case does not, by itself,
create legal prejudice to the defendant, plaintiffs fail to
suggest any conditions of dismissal “to avoid redundancy
of [defendant's] effort should the case be refiled.” See
Brown, 413 F.3d at 1124; cf. Am. Nat'l Bank & Trust Co. of
Sapulpa v. Bic Corp., 931 F.2d 1411, 1412 (10th Cir. 1991)
(holding that, where plaintiff sought voluntary dismissal
subsequent to timely removal of case, district court did not
err in declining to attach conditions to dismissal without
prejudice). The Court finds that dismissal of this case
without prejudice at this stage in the case is unwarranted.

© 2016 Thomson Reuters. No claim to original U.S. Government Works.

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Deatley v. Keybank National Association, Not Reported in F.Supp.3d (2014)
2014 WL 4436808

As noted above, the Court is mindful of Mr. DeAtley's
Fifth Amendment rights. It may indeed be easier for
plaintiffs to litigate their claims once Mr. DeAtley's
criminal case has concluded. See Ohlander, 114 F.3d
at 1537. However, defendant litigated this case for
more than a year before plaintiffs filed the instant
motion, and plaintiffs will not be permitted to benefit
from an untimely and insufficiently supported request
for dismissal without prejudice. The Court finds that
dismissing this case without prejudice would cause legal
prejudice to defendant and will therefore deny plaintiffs'
motion.

III. CONCLUSION
For the foregoing reasons, it is
ORDERED that plaintiffs' Voluntary Motion to Dismiss
Pursuant to F.R.C.P. 41(a)(2) [Docket No. 71] is
DENIED.

All Citations
Not Reported in F.Supp.3d, 2014 WL 4436808

Footnotes

1
2
3
4
5

The background facts have been set forth at length elsewhere and will not be restated here except as relevant to resolving
the instant motion. See Docket No. 65 at 2–6.
Plaintiffs also filed a motion for an expedited ruling, which the Court denied. Docket Nos. 72, 73.
Defendant's response cited an exhibit purporting to contain excerpts from the deposition transcript, but the cited exhibit
was not attached to defendant's brief. Docket No. 77 at 4.
Plaintiffs argue, without citation to the record, that the state trial court in the criminal proceeding would have allowed
replacement counsel no more than 60 days to prepare for trial. Docket No. 71 at 3–4.
Plaintiffs cite multiple cases in support of their argument that dismissal without prejudice is appropriate to protect Mr.
DeAtley's rights. However, several of the cited cases concern the propriety of a stay of civil proceedings pending the
outcome of a related criminal proceeding and are therefore of limited applicability. See In re CFSRelated Secs. Fraud
Litig., 256 F.Supp.2d 1227 (N.D.Okla.2003) (denying request to stay civil discovery pending resolution of related criminal
case); Creative Consumer Concepts, Inc. v. Kreisler, 563 F.3d 1070 (10th Cir. 2009) (affirming trial court decision to
deny motion to stay); Creel v. Jahani, No. 09–cv–01063–REB–KMT, 2009 WL 4250065, at *4 (D.Colo. Nov. 25, 2009)
(denying motion to stay); see also Morrison v. Goff, 91 P.3d 1050, 1058 (Colo.2004) (holding that underlying criminal
appeal or motion for postconviction relief does not affect statute of limitations for related legal malpractice claims).

End of Document

© 2016 Thomson Reuters. No claim to original U.S. Government Works.

© 2016 Thomson Reuters. No claim to original U.S. Government Works.

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