Judge: Michael P. Linfield, Case: 20STCV30142, Date: 2023-05-04 Tentative Ruling
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Case Number: 20STCV30142 Hearing Date: May 4, 2023 Dept: 34
SUBJECT: Motion for
Stay of Civil Discovery Pending Resolution of Related Criminal Matter
Moving Party: Defendants
Speedy Fuel, Inc., Noil Energy Group Inc., and Noil USA, Inc.
Resp. Party: Plaintiff The People of the State of
California ex rel. California Air Resource Board
Defendants’ Motion for Stay of
Civil Discovery Pending Resolution of Related Criminal Matter is DENIED.
BACKGROUND:
On August 10, 2020,
Plaintiff People of the State of California ex rel. California Air
Resources Board filed two Complaints for Civil Penalties and Injunctive Relief:
one against Defendant Noil Energy Group, Inc. (Case Number 20STCV30142) and
another against Defendant Speedy Fuel, Inc. (Case Number 20STCV30292).
On May 6, 2021,
Plaintiff amended its Complaint against Defendant Noil Energy Group, Inc. to
substitute Doe 1 with Noil USA, Inc.
On May 14, 2021,
Plaintiff filed two new Complaints against Defendants: one against Noil Energy
Group, Inc. and Noil USA, Inc. (Case Number 21STCV18270) and the other against
Speedy Fuel, Inc. (Case Number 21STCV18251).
On June 22, 2021, the
Court found that the four cases are related and deemed that 20STCV30142 is the
lead case.
On July 9, 2021,
Plaintiff filed its First Amended Complaint.
On August 10, 2021,
Defendants Noil Energy Group, Inc. and Noil USA, Inc. filed their Verified
Answer to the Complaint in Case Number 21STCV18270.
On August 11, 2021,
Defendants Noil Energy Group, Inc. and Noil USA, Inc. filed their Verified
Answer to the First Amended Complaint in Case Number 20STCV30142.
On August 11, 2021,
Defendant Speedy Fuel, Inc. filed its Verified Answer to the Complaint in Case
Number 21STCV18251 and its Verified Answer to First Amended Complaint in Case
Number 20STCV30292.
On August 18, 2021,
Defendants/Cross-Complainants Noil Energy Group, Inc. and Noil USA Inc. filed
their Cross-Complaint against Cross-Defendants California ex rel. California
Air Resources Board, California Department of Food and Agriculture, Los Angeles
Police Department, and Los Angeles Police Officer Walter McMahon.
On November 29, 2021,
Plaintiff amended its First Amended Complaint to substitute Doe 2 with Noil
Fontana, LLC.
On October 18, 2022,
by Stipulation of the Parties, the Court ordered the consolidation of Case
Numbers 20STCV30142 and 21STCV18270 and that all subsequently filed papers
shall be filed only in Case Number 20STCV30142, with references to Case Number
21STCV18270 as a consolidated action.
On February 1, 2023,
Plaintiff filed its Second Amended and Supplemental Complaint for Civil
Penalties and Injunctive Relief Against Noil Energy Group, Inc. and Noil USA,
Inc.
On February 2, 2023,
Plaintiff filed its Second Amended and Supplemental Complaint for Civil
Penalties and Injunctive Relief against Speedy Fuel, Inc.
On April 26, 2023,
Defendants Speedy Fuel, Inc., Noil Energy Group Inc., and Noil USA, Inc. filed
their Motion for Stay of Civil Discovery Pending Resolution of Related Criminal
Matter (“Motion”).
On May 1, 2023,
Plaintiff filed its Opposition.
The Parties agreed to
hear the Motion on an expedited basis.
ANALYSIS:
I.
Legal
Standard
“[W]hen both civil and criminal
proceedings arise out of the same or related transactions, an objecting party
is generally entitled to a stay of discovery in the civil action until
disposition of the criminal matter. The rationale of the federal cases is based on Fifth Amendment
principles as well as the inherent unfairness of compelling disclosure of a criminal
defendant's evidence and defenses before trial. Under these circumstances, the
prosecution should not be able to obtain, through the medium of the civil
proceedings, information to which it was not entitled under the criminal
discovery rules.” (Pacers, Inc. v. Super. Ct. (1984) 162 Cal.App.3d 686,
690 [citations omitted].)
“It is not enough that the
witness fears incrimination from answering the questions; the fear must
be reasonable in light of the witness's specific
circumstances, the content of the questions, and the setting in which the
questions are asked. In other words, the privilege protects only against ‘real
dangers,’ and not ‘remote and speculative possibilities.’ It is the trial
court's function to determine whether such a ‘real danger’ exists. ‘[Some]
discretion must rest in the court whereby it may prevent the mantle of
protection from being turned into a cloak for fraud and trickery.’ If the
court, in the exercise of its discretion, determines that no threat of self-incrimination
is evident, then the burden of showing the danger of self-incrimination shifts
to the individual asserting the privilege.” (Troy v. Super. Ct. (1986)
186 Cal.App.3d 1006, 1011, quotations and citations omitted, emphasis in
original.)
II.
Discussion
A.
The
Parties’ Arguments
Defendants move the Court to stay
this case pending resolution of the criminal matter in USA v. Grigor
Termendjian, United States District Court for the Central District of Utah,
case number 2:23-cr-00119. Defendants argue: (1) that there are parallels
between the civil and criminal investigations; (2) that the witness (Grigor
Termendjian) is a significant key witness to both sides of the civil
litigation; and (3) that the moving party is generally entitled to a stay of
civil discovery until disposition of a pending criminal matter. (Motion, p.
3:24–25, 4:15–16, 6:6–7.)
Plaintiff opposes the Motion,
arguing: (1) that Defendants are not entitled to a stay of these consolidated
enforcement actions; (2) that Defendants – all of whom are corporations – do
not have Fifth Amendment rights; (3) that the witness’s Fifth Amendment rights
are not clearly implicated; (4) that Plaintiff has a significant interest in
resolving these consolidated enforcement actions expeditiously to minimize
potential prejudice; (5) that denial of a stay would not burden or prejudice
Defendants; (6) that denial of a stay promotes convenience and efficient use of
judicial resources; (7) that non-party witnesses have an interest in testifying
at trial promptly; and (8) that the public has an interest in resolving this
action. (Opposition, pp. 6:17–18, 8:1–2, 9:18–19, 10:23, 12:1–2, 12:15, 13:1.)
B.
Discussion
1.
The
Civil and Criminal Proceedings Do Not Appear Related
First, the evidence presented to
the Court does not indicate that there is the civil and criminal proceedings
arise out of the same or related transactions.
The allegations in the civil case
discuss violations of the California Health and Safety Code on the basis that
Defendants sold, offered for sale, and transport fuels in California that were
greater than 20% biodiesel by volume in certain periods. (See Second Amended
Complaints.)
In contrast, the allegations in the
criminal case involve the violations of defrauding the Internal Revenue
Service, conspiracy to commit money laundering, and money laundering based on
the allegations that Grigor Termendjian created bogus loan agreements, falsely
characterized the transfer of fraud
proceeds as share purchases or investments, and used shell accounts to conceal
and disguise the nature, location, source, ownership, and control of the money.
(See Motion, Exh. B.)
The unrelated nature of the civil
and criminal proceedings does not appear to meet the standard for a stay set
out in Pacers.
2.
Corporate
Defendants cannot Invoke the Witness’ Fifth Amendment Rights
The witness at issue, Grigor
Termendjian, is not alleged to be an alter ego of the Defendants. According to
Defendants, the witness is “the Chief Executive Officer, Secretary, and Chief
Financial Officer of defendant, Speedy Fuel Inc.” (Motion, p. 3:3–5.) The Court
agrees with Plaintiff that the witness’s Fifth Amendment rights cannot be
invoked by Defendants, nor do the witness’s Fifth Amendment rights protect
Defendants.
In Braswell v. United States,
the United States Supreme Court held that the President of a company could not
interpose Fifth Amendment objections to the production of corporate records,
even if the production of those documents might prove personally
incriminating. (Braswell v. United
States, 487 U.S. 99 (1988); see also U.S. v. White (1944) 322 U.S.
694, 699 [organizations are not protected by the Fifth Amendment].)
California Courts agree. “[O]rganizations of any sort, corporate or
otherwise, as well as individuals acting as representatives of the
organization, lack the privilege against self-incrimination.” (People v. Appellate Division of Superior
Court (World Wide Rush, LLC) (2011) 197 Cal.App.4th 985, 994.)
Defendants have not shown the need for
a stay on discovery in this civil matter simply because one of their primary
officers has been indicted. Put differently, at this time, Defendants do
not have a reasonable fear of incrimination by answering questions, even if a
particular witness does have that reasonable fear.
The Court has not been presented
with sufficient evidence to determine that Defendants — and particularly
Defendants Noil Energy Group Inc. and Noil USA, Inc. — would not be able to
continue with discovery in this matter. Except for a possible a stay on
deposition of this witness (which has not been requested), Defendants should be
able to make information, documents, and persons most knowledgeable available
subject to their discovery obligations.
3.
The
Court Declines to Exercise its Discretion to Stay Discovery
Upon considering the arguments and
the evidence presented, the Court exercises its discretion to decline to stay discovery. Further, trial is scheduled in three weeks,
on May 22, 2023. Under the CCP, all but
expert discovery is now closed. It is
not even clear that a stay of discovery would accomplish anything.
III.
Conclusion
Defendants’ Motion for Stay of
Civil Discovery Pending Resolution of Related Criminal Matter is DENIED.