Cumis Insurance Society, Inc. v. CU Pacific Audit Solutions, LLC

Filing 186

ORDER GRANTING DEFENDANT/THIRD PARTY PLAINTIFF'S 136 MOTION FOR PARTIAL SUMMARY JUDGMENT ON SECOND AMENDED THIRD PARTY COMPLAINT. Signed by JUDGE LESLIE E. KOBAYASHI on 11/30/2015. ~ CU Pacific's Motion for Partial Summary Judgment on Second Amended Third Party Complaint, filed September 2, 2015, is HEREBY GRANTED. This Court GRANTS summary judgment in favor of CU Pacific as to Count I of the Second Amended Third Party Complaint, filed January 7, 2015, agains t Defendant Nishida in the amount of $330,459.99, against Defendant Cheng in the amount of $21,607.00, and against Defendant Takushi in the amount of $78,138.55. (ecs, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
)
)
)
)
Plaintiff,
)
)
vs.
)
)
CU PACIFIC AUDIT SOLUTIONS,
)
LLC,
)
)
Defendant/Third)
Party Plaintiff,
)
)
vs.
)
DONA TAKUSHI, JENNY NISHIDA, )
)
NICOLE CHEUNG and OTS
)
EMPLOYEES FEDERAL CREDIT
)
UNION,
)
)
Third-Party
)
Defendants.
_____________________________ )
CUMIS INSURANCE SOCIETY,
INC.,

CIVIL NO. 14-00140 LEK-BMK

ORDER GRANTING DEFENDANT/THIRD PARTY PLAINTIFF’S MOTION FOR
PARTIAL SUMMARY JUDGMENT ON SECOND AMENDED THIRD PARTY COMPLAINT
Before the Court is Defendant/Third Party Plaintiff
CU Pacific Audit Solutions, LLC’s (“CU Pacific”) Motion for
Partial Summary Judgment on Second Amended Third Party Complaint
(“Motion”), filed on September 2, 2015.

[Dkt. no. 136.]

None of

the pro se Third Party Defendants – Dona Takushi (“Takushi”),
Jenny Nishida (“Nishida”), and Nicole Cheung (“Cheung,”
collectively “Former Employee Defendants”) – responded to the
Motion.

On October 8, 2015, this Court issued an entering order

finding this matter suitable for disposition without a hearing

pursuant to Rule LR7.2(d) of the Local Rules of Practice of the
United States District Court for the District of Hawai`i (“Local
Rules”).

[Dkt. no. 164.]

After careful consideration of the

Motion and the relevant legal authority, CU Pacific’s Motion is
HEREBY GRANTED for the reasons set forth below.
BACKGROUND
Plaintiff CUMIS Insurance Society, Inc. (“CUMIS”) filed
this action on March 20, 2014.

The Complaint alleges that CUMIS

insured OTS Employees Federal Credit Union (“OTS”) “under the
conditions of a fidelity bond which provided coverage to OTS for
losses caused by, inter alia, employee dishonesty.”
at ¶ 3.]

[Complaint

According to the Complaint, on or about October 31,

2013, CUMIS made a $993,125.58 payment to OTS on a dishonesty
claim.

[Id. at ¶ 4.]

By virtue of the payment, CUMIS is

subrogated to OTS’s rights to seek recovery for the loss.

[Id.

at ¶¶ 4, 36.]
The Complaint alleges that: Takushi “embezzled and
misappropriated $182,980.26 from OTS” when she was OTS’s chief
executive officer/manager from December 18, 2003 to February 1,
2013; [id. at ¶ 13;] Nishida “embezzled and misappropriated
$651,064.71 from OTS” when she was a Member Service
Representative at OTS from May 15, 2006 to April 3, 2012; [id. at
¶ 19;] and Cheung “embezzled and misappropriated $188,920.59 from
OTS” when she was a Member Service Representative II at OTS from

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October 13, 2003 to February 5, 2014 [id. at ¶ 25].

OTS

discovered the embezzlements on or about December 6, 2013.

It

terminated the employment of each of the Former Employee
Defendants and reported the embezzlement to law enforcement.
[Id. at ¶ 33.]
According to the Complaint, CU Pacific holds itself out
as a certified public accounting firm specializing in auditing,
compliance, and accounting services for credit unions.
CU Pacific was OTS’s independent external auditor for the year
ending December 31, 2006 through the year ending December 31,
2012.

[Id. at ¶¶ 6-8.]

CUMIS alleges that CU Pacific failed to

detect the Former Employee Defendants’ long-term embezzlement and
misappropriations while it served as OTS’s auditing firm.

[Id.

at ¶¶ 18, 24, 32.]
The Complaint alleges the following claims: breach of
the audit services agreements (“Count I”); negligent
misrepresentation (“Count II”); professional negligence
(“Count III”); and violation of Haw. Rev. Stat. Chapter 481A, the
Uniform Deceptive Trade Practices Act (“Count IV”).

CUMIS prays

for the following relief: general and special damages of at least
$933,125.58; pre-judgment and post-judgment interest; reasonable
attorneys’ fees and costs; and any other appropriate relief.
On May 20, 2014, CU Pacific filed its answer to the
Complaint, including a Third Party Complaint against the Former

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Employee Defendants and OTS.

[Dkt. no. 14.]

CU Pacific filed

its Amended Third Party Complaint on May 22, 2014.
18.]

[Dkt. no.

Takushi and Cheung filed their answers to the Amended Third

Party Complaint on July 1, 2014.

[Dkt. nos. 26, 27.]

OTS filed

a motion to dismiss the Amended Third Party Complaint on July 31,
2014, and this Court granted the motion on November 30, 2014.
[Dkt. nos. 39, 59.]
CU Pacific filed its Second Amended Third Party
Complaint on January 7, 2015.

[Dkt. no. 60.]

It alleges the

following claims: a claim for indemnity, contribution,
reimbursement and/or equitable subrogation against the Former
Employee Defendants (“Third Party Count I”); and a claim that OTS
made misrepresentations in the Management Representation Letters
(“Third Party Count II”).

CU Pacific seeks the following relief:

if CUMIS is found to be entitled to any judgment, the judgment be
entered against the Former Employee Defendants; a judgment for
indemnity, contribution and/or reimbursement if CU Pacific and
any of the Former Employee Defendants are found to be joint
tortfeasors; damages; attorneys’ fees and costs; and any other
appropriate relief.

On February 9, 2015, OTS filed a motion to

dismiss the claim against it in the Second Amended Third Party
Complaint, and this Court granted the motion on June 30, 2015.
[Dkt. nos. 78, 110.]

This Court dismissed Third Party Count II

with prejudice.

4

In the instant Motion, CU Pacific presents evidence
that, on April 23, 2014, the United States of America filed a
criminal information against each of the Former Employee
Defendants.

Nishida and Cheung were each charged with one count

of Embezzlement and Misapplication by a Credit Union Employee, in
violation of 18 U.S.C. § 657.

[Concise Statement, filed 9/2/15

(dkt. no. 137), Exhs. N1 (Nishida Information), C1 (Cheung
Information).]

Takushi was charged with one count of

Embezzlement and Misapplication by a Credit Union Employee and
two counts of False Credit Union Entries, in violation of 18
U.S.C. § 1006.

[Id., Exh. T1 (Takushi Information).]

Each of

the Former Employee Defendants pled guilty pursuant to a plea
agreement.

[Id., Exhs. N2 (Nishida Memorandum of Plea Agreement

(“Nishida Plea Agreement”)), N3 (Nishida Judgment in a Criminal
Case (“Nishida Judgment”)), C2 (Cheung Memorandum of Plea
Agreement (“Cheung Plea Agreement”)), C3 (Cheung Judgment in a
Criminal Case (“Cheung Judgment”)), T2 (Takushi Memorandum of
Plea Agreement (“Takushi Plea Agreement”)), T3 (Takushi Judgment
in a Criminal Case (“Takushi Judgment”)).]

Nishida was sentenced

to, inter alia, thirteen months of imprisonment and was ordered
to pay $330,459.99 in restitution to CUMIS.
2, 4.]

[Nishida Judgment at

Cheung was sentenced to, inter alia, twenty days of

imprisonment and was ordered to pay $21,607.00 in restitution to
CUMIS.

[Cheung Judgment at 2, 4.]

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Takushi was sentenced to,

inter alia, fifteen months of imprisonment and was ordered to pay
$78,138.55 in restitution to CUMIS.

[Takushi Judgment at 2, 4.]

None of the Former Employee Defendants filed a notice of appeal.
See United States v. Nishida, CR 14-00458 SOM; United States v.
Cheung, CR 14-00459 SOM; United States v. Takushi, CR 14-00460
HG.
In the instant Motion, CU Pacific seeks partial summary
judgment against the Former Employee Defendants, severally, in at
least the amount of the their respective restitution awards.
DISCUSSION
The Nishida Information alleged that she “knowingly,
willfully and with intent to injure and defraud [OTS], did
embezzle, abstract, purloin and misapply over $1,000 in moneys,
funds and credits which were entrusted to the care and custody of
[OTS].”

[Nishida Information at ¶ 5.]

The Cheung Information

and the Takushi Information contain the same allegation.

[Cheung

Information at ¶ 5; Takushi Information at ¶ 5.]
In her plea agreement, Nishida acknowledged that the
following are the elements of the violation of § 657 in her case:
(a)

the defendant was an employee of [OTS];

(b) the defendant knowingly and willfully stole,
embezzled, or misapplied funds or credits
belonging to [OTS] or entrusted to its care in
excess of $1,000;
(c) the defendant acted with the intent to injure
or defraud [OTS];

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(d) [OTS] was then insured by the National Credit
Union Administration Board;
(e) the amount of money taken was more than
$1,000.
[Nishida Plea Agreement at ¶ 1.]

She admitted the elements of

the offense, in particular, that she “knowingly, willfully and
intentionally embezzled or misapplied funds or credits which were
entrusted to the care and custody of” OTS and that she “falsely
inputted 122 false Visa payments totaling $385,685.”
¶¶ 8.a, b.]

[Id. at

Nishida agreed to pay restitution to CUMIS in an

amount to be determined at sentencing.

[Id. at ¶ 10.f.]

Similarly, in her plea agreement, Cheung acknowledged
the same elements and admitted, inter alia, that she “knowingly,
willfully and with intent to injure and defraud [OTS], did
embezzle, abstract, purloin and misapply over $1,000 in moneys,
funds and credits which were entrusted to the care and custody
of” OTS, and that she “falsely inputted approximately 54 false
Visa payments” totaling $16,732.
8.d, e, f.]
CUMIS.

[Cheung Plea Agreement at ¶¶ 1,

Cheung agreed to pay $16,732 in restitution to

[Id. at ¶ 10.e.]
Takushi acknowledged the same elements of the § 657

offense, as well as the elements of a violation of 18 U.S.C.
§ 1006.

[Takushi Plea Agreement at ¶ 1.]

She admitted, inter

alia, that she: 1) “falsely inputted 6 false Visa payments
totaling $40,970.63”; [id. at ¶ 8.c;] 2) “made 153 false entries

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into the books, reports, and statements of” OTS that enabled her
and an associate, J.Y., to obtain additional loans that they
could not have obtained otherwise, and the loans had an
outstanding balance of $55,188.55 when the false entries were
discovered; [id. at ¶¶ 8.d, e;] and 3) “made false entries into
the books, reports, and statements of” OTS regarding a 2008
Subaru Forester relinquished to OTS – including “a charge off of
this delinquent care loan in the amount of $18,251” – so that she
could transfer title to the vehicle to herself and a family
member [id. at ¶¶ 8.f, g].

Takushi agreed to pay restitution to

CUMIS in an amount to be determined at sentencing.

[Id. at

¶ 10.f.]
This Court finds that there are no genuine issues of
material fact regarding the criminal charges filed against the
Former Employee Defendants and the judgments entered in their
respective cases.

See Fed. R. Civ. P. 56(a) (“The court shall

grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.”).

The issue before

this Court is what legal effect those judgments have in the
instant case.
18 U.S.C. § 3664(l) states:
A conviction of a defendant for an offense
involving the act giving rise to an order of
restitution shall estop the defendant from denying
the essential allegations of that offense in any
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subsequent Federal civil proceeding or State civil
proceeding, to the extent consistent with State
law, brought by the victim.
Each of the Former Employee Defendants has been convicted of “an
offense involving the act giving rise to an order of
restitution.”

Thus, in the instant case, each of them is

estopped from denying “the essential allegations” of the § 657
violation, and for Takushi, the § 1006 violation.

They are

estopped from denying that they “knowingly and willfully stole,
embezzled, or misapplied funds or credits belonging to” OTS.
That fact is sufficient to support a conclusion that either OTS’s
liability to CUMIS is “the legal result of acts and/or omissions
of [the Former Employee Defendants] and not the legal result of
any act or omission of [CU Pacific]” or “is passive and secondary
and liability of [the Former Employee Defendants] is active and
primary.”

[Second Amended Third Party Complaint at ¶¶ 4-5.]

This Court therefore CONCLUDES that, based on the operation of
§ 3664(1), CU Pacific is entitled to judgment as a matter of law
as to Third Party Count I against the Former Employee Defendants.
The final issue raised by the instant Motion is whether
§ 3664(1) also applies to the amounts of the Former Employee
Defendants’ restitution orders.

Although the amounts of the

losses represented in the restitution orders were not essential
allegations of the offenses, § 3664(1) “simply implements issue
preclusion or collateral estoppel principles.”

9

Wiand v. Cloud,

919 F. Supp. 2d 1319, 1329 n.12 (M.D. Fla. 2013).

Whether this

Court follows federal case law regarding issue preclusion because
it is interpreting § 3664(1) – a federal statute – or whether it
follows Hawai`i case law because this Court has diversity
jurisdiction over this action,1 the principles are the same.
Compare Herb Reed Enters., LLC v. Florida Entm’t Mgmt., Inc., 736
F.3d 1239, 1245 (9th Cir. 2013) (stating that issue preclusion
“prohibits ‘successive litigation of an issue of fact or law
actually litigated and resolved in a valid court determination
essential to the prior judgment’” (quoting New Hampshire v.
Maine, 532 U.S. 742, 748–49, 121 S. Ct. 1808, 149 L. Ed. 2d 968
(2001))), with United Pub. Workers, AFSCME, Local 646, AFL CIO v.
Abercrombie, 133 Hawai`i 188, 222, 325 P.3d 600, 634 (2014)
(“[I]ssue preclusion . . . prevents the parties or their privies
from relitigating any issue that was actually litigated and
finally decided in the earlier action.” (alterations in United
Pub. Workers) (citation and quotation marks omitted)).
The amounts of the losses reflected in the restitution
orders were issues of fact that were actually and fairly

1

CUMIS filed this action based on diversity jurisdiction,
pursuant to 28 U.S.C. § 1332, and CU Pacific filed its third
party complaint based on supplemental jurisdiction, pursuant to
28 U.S.C. § 1367(a). [Complaint at ¶ 10; Second Amended Third
Party Complaint at ¶ 2.] “As a federal court sitting in
diversity jurisdiction, the Court is compelled to apply the
applicable law of the State of Hawaii pertaining to former
adjudication.” Wailua Assocs. v. Aetna Cas. & Sur. Co., 27 F.
Supp. 2d 1211, 1217 (D. Hawai`i 1998).
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litigated in the Former Employee Defendants’ sentencing
proceedings, and the resolutions of those issues are memorialized
in final judgments.

This Court therefore concludes that, because

§ 3664(1) implements issue preclusion principles and the
restitution orders also meet the requirements for issue
preclusion, § 3664(1) applies to the Former Employee Defendants’
restitution orders.

Thus, this Court CONCLUDES that CU Pacific

is entitled to summary judgment against the Former Employee
Defendants on Third Party Count I, in the amounts of their
respective restitution orders.2

To the extent that CU Pacific

seeks judgment against the Former Employee Defendants in amounts
beyond the amounts of the restitution orders, it must establish
entitlement to the additional amounts without regard to
§ 3664(1).

2

This Court notes that, although Cheung only admitted to
making false payments totaling $16,732.00 and she agreed to pay
$16,732.00 in restitution to CUMIS, she was ultimately ordered to
pay $21,607.00 in restitution. [Cheng Plea Agreement at ¶ 10.e;
Cheung Judgment at 4.] However, even assuming, arguendo, that
this was an error, Cheung’s failure to file a timely notice of
appeal deprived the Ninth Circuit of jurisdiction to hear any
challenge to the restitution order. See Moran v. Hill, 616 F.
App’x 367, 368 (9th Cir. 2015) (“We lack jurisdiction to consider
Moran's challenges to the order denying his motion for
reconsideration of his motion for new trial because Moran failed
to file a timely notice of appeal of this order.” (citing Fed. R.
App. P. 4(1)(A))). Thus, it is the amount of Cheung’s
restitution order that controls.
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CONCLUSION
On the basis of the foregoing, CU Pacific’s Motion for
Partial Summary Judgment on Second Amended Third Party Complaint,
filed September 2, 2015, is HEREBY GRANTED.

This Court GRANTS

summary judgment in favor of CU Pacific as to Count I of the
Second Amended Third Party Complaint, filed January 7, 2015,
against Defendant Nishida in the amount of $330,459.99, against
Defendant Cheng in the amount of $21,607.00, and against
Defendant Takushi in the amount of $78,138.55.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, November 30, 2015.

/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

CUMIS INSURANCE SOCIETY, INC. VS. CU PACIFIC AUDIT SOLUTIONS,
LLC, ETC; CIVIL 14-00140 LEK-BMK; ORDER GRANTING DEFENDANT/THIRD
PARTY PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT ON SECOND
AMENDED THIRD PARTY COMPLAINT

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