Judge Gail Killefer, Case 21STCV43979 2022-09-27 Tentative Ruling

Judge: Gail Killefer, Case: 21STCV43979, Date: 2022-09-27 Tentative Ruling

Case Number: 21STCV43979 Hearing Date: September 27, 2022 Dept: 37

HEARING DATE: September 27, 2022

CASE NUMBER: 21STCV43979

CASE NAME: Yue Ma, et al. v. Linghan “Hank” Cao, et al.

MOVING PARTY: Defendants Linghan “Hank” Cao and Ideal International Investment, Inc. dba Ideal Logistics

OPPOSING PARTY: Plaintiffs Yue Ma, Lihong Zhao, Sunny West Coast Co., and Hua Ming Technology Co.

TRIAL DATE: May 23, 2023

PROOF OF SERVICE: OK

MOTION: Defendants’ Motion for Stay of Proceedings; Defendants’ Demurrer with Motion to Strike for the Third Amended Complaint; Plaintiffs’ Motion for Preliminary Injunction

OPPOSITION: Supplemental Briefing—September 14, 2022

REPLY: Supplemental Briefing—September 15, 2022

TENTATIVE: Defendants’ Motion for Stay of Proceedings is granted. The instant action is ordered stayed pending completion of the criminal proceedings against Defendant Cao. The Motion for Preliminary Injunction and Demurrer with Motion to Strike are therefore rendered moot. Defendants are to give notice.

Background

This is an action alleging breach of contract, fiduciary duty, and corporate dissolution arising from investments made by Plaintiffs Yue Ma (“Ma”), Lihong Zhao (“Zhao”), Sunny West Coast Co. (“Sunny”), and Hua Ming Technology Co. (“HM Tech”) in Defendant Ideal International Investment, Inc. dba Ideal Logistics (“Ideal”), a trucking and logistics business. Plaintiffs allege Ideal also operates several subsidiaries: Defendants E&C Logistics, H&L Logistics, ZW Logistics, JPI Express, Inc., and Ohana Logistics, Inc. (collectively “Subsidiaries”).

Plaintiffs allege Defendant Linghan “Hank” Cao (“Cao”) is the majority shareholder of Ideal, and Defendants Hweisan Liu (“Liu”), Jun Pan (“Pan”), and Xiubin Cao are also involved in the operation of the business. Plaintiffs allege the Subsidiaries are undercapitalized and shells of Ideal and Cao. Plaintiffs further allege Ideal was to operate until October 13, 2021, pursuant to an agreement between the parties, when the parties could decide to continue or dissolve the business. Plaintiffs allege in late September or early October 2021, Cao offered to buy out Plaintiffs’ shares at an unreasonable rate in exchange for 25% of the equipment used. On October 19, 2021, Plaintiffs allege Cao had a discussion with Ma’s husband regarding a disputed $650,000 payment when Cao took out a firearm and threated to kill Ma’s husband and his entire family. Plaintiffs then allege that in November 2021, Cao sold off, used, transferred, or otherwise disposed of Ideal’s corporate assets into Cao’s other businesses. Plaintiffs allege Cao continues to operate Ideal’s business in Atlanta. Plaintiffs bring derivative claims as shareholders and individual causes of action.

Plaintiffs’ Complaint alleges five causes of action: (1) breach of contract (derivatively); (2) breach of fiduciary duty (derivatively); (3) conversion (derivatively); (4) violation of Business § Professions Code § 17200 (derivatively); and (5) involuntary dissolution of corporation (individually).

On December 20, 2021, Plaintiffs filed the First Amended Complaint (“FAC”). The FAC alleges the same five causes of action.

On March 11, 2022, Plaintiffs filed the Second Amended Complaint (“SAC”). The SAC alleges the same five causes of action but amends to include individual claims for the first cause of action.

On June 7, 2022, the court sustained Defendants’ demurrer to the SAC. On July 7, 2022, Plaintiffs filed the operative Third Amended Complaint (“TAC”).

On August 29, 2022, the court continued this hearing on Defendants’ Motion for Stay of Proceedings and Plaintiffs’ Motion for Preliminary Injunction, and ordered the parties to submit supplemental briefs as to why the court cannot stay the entire case when Defendants’ motion had only asked to stay discovery. The court instructed counsel to meet and confer on this issue. Counsel for parties have not explained their meet and confer efforts on this issue.

Defendants’ Motion for Stay of Proceedings now comes before the court.

Request for Judicial Notice

Defendants request that the court take judicial notice of the following in support of its motion:

1. Criminal complaint in People v. Hank Cao, Riverside Superior Court, Case Number RIF2104516 (Exhibit A);

2. Plaintiffs’ Second Amended Complaint, filed in this matter (Exhibit B);

Defendants’ request is granted. The existence and legal significance of these documents are proper matters for judicial notice. (Evidence Code § 452(d), (h).)

Discussion

Pursuant to California law, a Court has the inherent power to control its process. CCP § 128(a) states in relevant part: “[e]very court shall have the power … (3) [t]o provide for the orderly conduct of proceedings before it, or its officers … [and] (8) [t]o amend and control its process and orders so as to make them conform to law and justice….”

Legal Standard

CCP § 187 provides: “When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this Code.” “Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.” (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489; see also Bailey v. Fosca Oil Co. (1963) 216 Cal.App.2d 813, 817-818 [affirming the trial court’s order staying proceedings pursuant to CCP § 187].)

The court is also authorized to limit discovery through protective orders, and such orders may be granted on motion of any party or other person affected by the discovery sought. (CCP §§ 2017.020(a), 2019.020(b), and 2019.030(a).)

Analysis

“The Fifth Amendment of the United States Constitution includes a provision that ‘[no] person . . . shall be compelled in any criminal case to be a witness against himself, . . .’¿ Although the specific reference is to criminal cases, the Fifth Amendment protection ‘has been broadly extended to a point where now it is available even to a person appearing only as a witness in any kind of proceeding where testimony can be compelled.’¿ (Gonzales v. Superior Court¿(1980) 117 Cal.App.3d 57, 62).¿

The Fifth Amendment is codified in Evid. Code § 940, which provides: ‘To the extent that such privilege exists under the Constitution of the United States or the State of California, a person has a privilege to refuse to disclose any matter that may tend to incriminate him.’¿ There is no question that the privilege against self-incrimination may be asserted by civil defendants who face possible criminal prosecution based on the same facts as the civil action.¿ (Pacers, Inc. v. Superior Court¿(1984) 162 Cal.App.3d 686, 688-689 (Pacers).)¿ ‘All matters which are privileged against disclosure upon the trial under the law of this state¿are privileged against disclosure through any discovery procedure.’¿ (CCP § 2016(b).).”¿¿Brown v. Superior Court¿(1986) 180 Cal.App.3d 701, 708.¿¿¿¿¿

“Even where the civil discovery process is directed against an individual defendant who is also a defendant in a related criminal case, the Ninth Circuit has held that ‘[t]he Constitution¿¿ does not ordinarily require a stay of civil proceedings pending the outcome of criminal proceedings.’¿ (Keating v. Office of Thrift Supervision¿(9th Cir. 1995) 45 F.3d 322, 324 (Keating).)

In considering a stay of civil proceedings, the courts have considered 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.”¿ (Avant! Corp. v. Superior¿Court, (2000)¿79 Cal.App.4th 876, 885¿(Avant!), citing¿Keating, supra, 45 F.3d at 324.)

Here, Defendants contend that a stay is necessary because Plaintiffs have “sought out the prosecutor in the Criminal Case, showed up at one of the criminal hearings, and then provided the prosecutor with Defendants’ discovery responses in this civil case.” (Motion, 4.) Defendants cite Pacers, Inc. v. Superior Court (1984) 162 Cal.App.3d 686, 690 to contend at a stay is necessary to protect Defendant Cao’s constitutional rights, which are necessarily implicated as the same set of general allegations form the basis for the civil and criminal actions. (Motion, 4-6.)

In Pacers, bar patrons sued the bar and its employees for assault and battery. (Pacers, supra, 162 Cal.App.3d 686, 687.) The United States Attorney’s Office also sought indictments against defendants for criminal assault and battery. (Id.) At defendants’ depositions in the civil action, defendants asserted their Fifth Amendment privileges and refused to answer any questions unless they were given use and derivative immunity. (Id. at 688.) The trial court granted bar patrons motion prohibiting defendants from testifying at trial. (Id.) The Court of Appeal concluded that the grant of plaintiffs motion was an abuse of discretion and ruled that the trial court should have weighted the parties’ competing interest “with a view toward accommodating the interests of both parties” in reaching its ruling. (Id. at 690.) Thus, the court stated that “[a]n order staying discovery until expiration of the criminal statute of limitations would allow real parties to prepare their lawsuit while alleviating petitioners' difficult choice between defending either the civil or criminal case.” (Id.) The Court of Appeal concluded that while postponing depositions until the expiration of the criminal statute of limitations would cause inconvenience and delay, doing so was required to protect defendants’ constitutional rights. (Id.)

In their supplemental briefing, Defendants further contend “Defendants’ rights are in serious jeopardy given Plaintiffs’ admission they are using Mr. Cao’s discovery responses in this case to incriminate him in the parallel criminal case,” adding that while Fifth Amendment protections are not afforded to corporations, there are implications which reach the corporation’s employees and representatives. (Supp. Brief, 3-4, n.1)

In opposition, Plaintiffs contend Defendants only requested a stay of discovery and suggest that the court cannot grant “different relief” that what is requested in the notice of motions. (Plaintiffs Supp. Brief, 3-4.) Plaintiffs cite People v. American Surety Ins. Co. (1999) 75 Cal.App.4th 719, 726; Luri v. Greenwald (2003) 107 Cal.App.4th 1119, 1124 for this contention. (Id.) However, Defendants in these supplemental briefings correctly point out that the two cases involved a motion to vacate and a motion for relief under the discretionary provision of CCP § 473, respectively. (Defendants Supp. Brief, 4-5.)

As explained above, the court inherently has the authority to amend and adjust the orders and remedies as justice requires pursuant to CCP § 128(a).

The court has reviewed the Complaint in this action and the criminal matter involving Defendant Cao. The court notes with significance that the same allegations made in Plaintiffs’ complaints are those which gave rise to the criminal proceedings against Defendant Cao. Thus, they necessarily involve the same inquiries and discovery, and the possibility of self-incrimination for the individual Defendant, who is also the chief executive of the entity Defendant here, remains concerningly high. As such, the implication of Defendant Cao’s Fifth Amendment rights becomes an overarching concern that this court weighs heavily against the interests of expeditious litigation.

Based on this review of the parties’ moving and opposing papers, as well as their supplemental briefs, and the circumstances of this case, the court finds that the burden of risk of self-incrimination remains high enough to necessitate a stay of proceedings. Defendants have articulated how staying this action is required to protect the Fifth Amendment rights of Defendant Cao. Specifically, the court agrees with Defendants that permitting further discovery about the same set of allegations and circumstances will infringe on Cao’s Fifth Amendment rights in the criminal proceedings because this action and the criminal matter involve substantially the same conduct.

For these reasons, Defendants’ motion is granted. The instant action is ordered stayed pending completion of the criminal proceedings against Defendant Cao.

MOTION FOR PRELIMINARY INJUNCTION & DEMURRER WITH MOTION TO STRIKE OF THE THIRD AMENDED COMPLAINT

As the court has granted Defendants’ motion to stay this instant action, Plaintiffs’ motion for preliminary injunction and Defendants’ demurrer with motion to strike for the TAC are moot. The instant action is stayed pending the completion of the criminal matter.

Conclusion

Defendants’ Motion for Stay of Proceedings is granted. The instant action is ordered stayed pending completion of the criminal proceedings against Defendant Cao. The Motion for Preliminary Injunction and Demurrer with Motion to Strike are therefore rendered moot. Defendants are to give notice.