Rather than just give you the highlights on this slow day I thought I’d let you share the reading with me on this recent court hearing on the Johnson Law Group case in Nevada. For the past stories on this matter, click here.
The transcript contains allegations against attorneys involved, financial sanctions issued against another attorney and more slow rolling court action.
THE COURT: We now have Mr. Ganley on the phone. Ms. Lee is here. Ms. de Diego is here, and we have Mr. Constantinou present in the courtroom.
Can you hear us okay, Mr. Ganley?
MR. GANLEY: I can, Judge, thank you.
THE COURT: All right. If you have any difficulties, please let us know.
This is the continuation date for the motions that were filed and styled as, or at least commonly referred to them as, motions first and second for NRCP 11 sanctions.
As I started to say before we got you on the horn, Mr. Ganley, the dilemma here of course is how to move past this part of the dispute in this case is to get some of these issues resolved once and for all so that we can actually proceed to where we need to go and with things hanging over our head — these things being certain assertions of factual statements in a complaint that argument is being made aren’t factual, and some further argument being made that obviously it has been well-stated that counsel was not only aware that they were not factual but pursued them anyway.
I think we are even past the point of arguing for lack of investigation. I think the allegation that has been put forward is that there was perhaps no pursuit of these even with investigation, but I do not want to overstate it.
When we were here last, there was some indication that there might be an opportunity to get together and see if this case could be resolved. I take it since we are all sitting here, we could not resolve those issues; is that correct? Let me ask Mr. Ganley on the phone first.
MR. GANLEY: That is correct, Judge, in the sense that we have not reached a summary resolution.
But I would like to report to the Court, and I think Ms. de Diego would agree, that we have had progress. When I think about how far apart the parties were before and where we are now — we have been communicating an offer and there has been a counteroffer, which is where we stand now, and that ball is in our court, Judge.
We still have some time, but limited time. And the last time we were in, the Court expressed an opinion that if we needed help along the way that you would be willing to offer that, and I have not had a chance to discuss with Ms. de Diego what I am about to propose because of my travel schedule, but that is, Judge, if there is a possibility that the case could be referred over to a settlement conference, I think that would be helpful for these parties. So that is something that we would suggest or requesting of the Court at this point, and I think it would be fruitful. I think we are making progress. I think there is a real chance for a resolution of the whole case and that is why I proffer that.
THE COURT: Ms. de Diego, you were both open to some discussions, it sounds like it wasn’t all that. I understand things may not have been completely resolved. We are prepared to proceed today with at least the matters that were continued on the calendar, maybe not the case management conference because that would make sense to be something that perhaps got delayed if there was an opportunity to have a meaningful settlement conference, and I do not know how many settlement conferences you may have participated in here in our jurisdiction, but there are certainly some judges that are spot on sometimes when it comes to cases like this, where they can really get to the heart of it and get a resolution. And there are other judges where maybe it’s kind of a, if settlement comes, settlement comes. If we get somewhere, we get somewhere. If not, we don’t. So depending on if we had the right person involved, do you think there is an opportunity here to further discuss settlement; how would you say that that opportunity, if you see it, would impact you with how we would proceed today. We still have some leverage and we still have some benefit maybe to resolving some issues before. My concern, which is depending on how we proceed with these motions what might explode this case into something I don’t think any of us really want it to be.
MS. DE DIEGO: Your Honor, I actually was not aware that we made any progress. This is news to me. We did submit a counteroffer and we received an e-mail a couple days later that went to his client and he would get back to me, and no one got back to me. So if there is some progress and they are willing to take our offer and to move forward on that, I was not aware of that. He has my e-mail and he has my phone number, he could have easily contacted me before the hearing at anytime if there really was some progress on that.
THE COURT: The way I understood the progress, Mr. Ganley was stating was really up to the point where you made the counteroffer. I did not understand him to say that they were ready to give you a counteroffer back, or anything other than they were digesting and reviewing your counteroffer.
But I think that is what they meant by “some progress” that there was an offer and there was a counteroffer. And maybe if we can head into a meaningful settlement conference there would be some value to it. I think the question becomes, is there still value if we proceed substantively with today’s hearing. I tend to think, yes. But I wanted to get your take on that before Mr. Ganley or Ms. Lee.
And then is there more value perhaps is the better way to put it if we get you set up for a meaningful settlement conference somewhere, and it would be with one of the two business court judges because this is a business court case. And so we are usually more readily able to pick a date, put you in there and have something firm for you all to look at. Would there be more value for us waiting on these matters to do that.
And so I appreciate we are sort of in a vacuum here as to where value might be or not be, but I also don’t want to waste your folks’ time.
These kinds of determinations here, though, with your motions for Rule 11 sanctions, I do not know that they necessarily go to the heart of the case in terms of what is going to happen with the case, so in that respect they can kind of can be addressed at anytime.
On the other hand, maybe there is some value in putting them to bed and letting the dust settle and see where we go.
MS. DE DIEGO: Your Honor, I would disagree with you, though, on that. We do believe that these go to the very heart of the case and things really got blown out of proportion, had moved along in a way that you would not have wanted so it ended in somewhat of an unusual course because of the largeness of the allegations that are made, you know, saying that my client stole millions of dollars. It was something that wasn’t that out of proportion. And we do believe that these statements do go to the heart of the case. We would not be here in the first place if these statements hadn’t been made.
With regard to a settlement conference, we are of course always open to meaningful settlement discussions and we don’t have a problem with setting a time and a date for a settlement conference; however, we would ask that this court go forward with preferably setting the evidentiary hearing.
I am fine with having a Rule 11. I am fine with having the settlement conference before then, that doesn’t bother me. But we also do not want to stall on this and we agreed to push your determination on it a week and a half ago to today to allow us time; however, in my opinion, we did not really get anywhere. We did not get the order that we were promised from our hearing in September. It is not going anywhere and I do not want to keep stalling and stalling the case with some hope of settlement. So we are fine with doing a settlement conference, setting that or even setting before we would ask that the Court go forward with their ruling on the motions on our calendar today or setting those for an evidentiary hearing in the future.
THE COURT: Thank you, Ms. de Diego. Ms. Lee, is standing, Mr. Ganley, so I want to see what Ms. Lee has to say first.
MS. LEE: Your Honor, I was not here last time but I have been filled in by Mr. Ganley on what had transpired. And I just wanted to bring this Court’s attention back to Rule 11 itself. The rule itself that they are referring to is Subsection 3, specifically. It has nothing to do with the claims that were brought. It is the factual allegations underlying the claim. Subsection 3 of Rule 11 says that factual contentions must have evidentiary support, or they are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.
The rule itself contemplates that Rule 11 motions will not be brought to the parties even if your claim does not have reasonable basis that they will have evidentiary support once an investigation and discovery is done.
Rule 11 is such a big deal, Your Honor. I know you do not see them very often. I have been practicing in this jurisdiction for eight years and I have never seen one come across my desk. It is very rarely used. It is the last bow in the quiver, usually, that the attorney will shoot out, and that is usually after there’s been some kind of summary adjudication on the claims and the claims were so outrageously frivolous that they are entitled to summary judgment.
There has been no summary judgment granted to these parties. There have been no motions in limine granted to these parties. There has not even been any discovery done. So to jump right out of gate and say you lied in your affidavit and you lied in your complaint; therefore, we need to now go and do a Rule 11 evidentiary hearing to parse out the factual disputes that are now coming to light. I mean, we have a process for that and it’s called trial.
It just seems so strange to me that we would be at this stage of the litigation trying to have an evidentiary hearing when they have submitted numerous affidavits, those people we need to have their depositions taken to figure out what kind of bias they may have in favor of these people testifying. There are former ACS employees that we would also like to interview and/or depose because they may have different opinions and different facts, factual allegations, and a lot of the things that they are alleging, Your Honor, they are just evidence to the contrary. It’s not dispositive proof that anything wrong has happened here, it is just evidence to the contrary, and that is what litigation is. They present evidence to the contrary, we present evidence to the contrary.
And I would also like to point out, importantly, we have asked for a jury in this matter and if we are to accelerate the litigation of all these claims because they are actually disputing every material allegation in the complaint and in the affidavit supporting various motions, if we are to have a trial on that right now, which is basically what this evidentiary hearing would be, it deprives us of the right to have these matters heard by a jury. And I think it is important that a jury judge the demeanor of the parties that are willing to testify, reviewing the evidence that we still have not obtained because no discovery has happened. I just think it is premature, Your Honor.
And as to my law firm and the particular claims that have been brought against Mr. Ganley and Ms. Perkins, I would ask that, Your Honor, just immediately dismiss those. There is no evidence that my firm had any knowledge, even if what they say is true, that these allegations were false, and to investigate those claims, we would have to go talk to the people that submitted affidavits in this action in their favor.
Mr. Constantinou and Mr. KK are not going to be people that are going to talk to validate our claims. A reasonable investigation was. Spoke to our client. We got daily reports from our client.
This is an ongoing contentious situation where daily there were these threats happening, threats of everything from shutting down the company to other types of threats, which will all be parsed out in this litigation. And if at the end of the day the jury does not believe the factual allegations brought by our client, then they can weigh that credibility at the time of the trial.
It is still premature and within the number of witnesses that have submitted affidavit, as well as the documentary evidence that we would like to subpoena in preparation for the evidentiary hearing, and depositions that we want to take, I anticipate this will be a very lengthy evidentiary hearing akin to a trial, 10 to 12 days it could be.
This is just not the stuff that Rule 11 is made of, and I think it is being brought by overly sensitive, overreactions to allegations that were made and they have not proven dispositively that those allegations are false. They have just presented evidence to the contrary, which is what litigation is.
THE COURT: Taking that last point that you just made, I would agree with you on a number of the asserted false allegations in these motions. We’re just talking about contrary things, and I think the one that is at the heart of one that is so troubling to Ms. de Diego and Mr. Constantinou is this idea of what happened to the 185,000? Perhaps there has been other monies taken for whatever use.
Truthfully, the evidence that has been put forward so far to support Rule 11 sections is too weak, in my opinion, to support Rule 11 sanctions, but there are other facts that are asserted. And the point that you just made about it is too early and maybe we need to wait until we go to trial to look at these things — oh, no. That there is no evidence to support that these are false, that is not true for at least one of the areas and that is Mr. Eldredge’s knowledge of the circumstances of these arrangements.
I mean some of the alleged unsupported frivolous statements talking about Mr. Eldredge not becoming aware of the services agreement until a certain date and not understanding how a deal worked, and the fact that he was not sure what was happening on the accounts, the fact that he did not have access to the accounts, the fact that he didn’t get any profit because they never ran at a profit, there is pretty overwhelming evidence that has been supported provided by Ms. de Diego in support of her Rule 11 motion for at least some of those facts.
Now, contrary affidavits saying that there was an accounting error, there wasn’t any malfeasance, that stuff is he said, he said. That is up in the air kind of thing. That is not going to support a Rule 11 sanction. But I am concerned about certain allegations being put forward that don’t appear to have any factual basis and don’t appear through reasonable discovery to be able to have a factual basis to assert them because here is what is going to go happen on some of these; what did Mr. Eldredge’s know and when, that is all in his head, and there is going to be him saying I did not know.
And then there is going to be all of this documentation and communications and e-mails and different things that say he absolutely did know. And I think those are some things that have to get put to bed before we proceed.
So what I said I was going to do at the last hearing, and I did do that, is I went through as detailed as possible as I could the approximately 18 to 20 false allegations, alleged false allegation, or frivolous statements that were put forward in the complaint and I have only come up with maybe three or four where I think that the evidence asserted to support them as being unsupported, false or frivolous, is sufficient to possibly warrant a sanction against Mr. Eldredge.
And I think those really go to the heart of what is troubling to Ms. de Diego and Mr. Constantinou. I don’t find are going to be subject to sanction because it really is just a he said he said, or there is some sort of accounting error, or are there people who are going to say certain things?
I did contemplate an evidentiary hearing depending on how many of these facts really were potential to support a Rule 11 sanction, and honestly, I backtrack on that thought process because I do not think it serves us any purpose.
I think the issue before us is, is there enough evidence to support Rule 11 sanctions on one or more of these facts that were asserted under Rule 11(d)3 that the allegations or the other factual contentions to support Rule 11 do not have evidentiary support or are not likely to have evidentiary support or to have reasonable opportunity for further investigation.
I think there are a handful, less than a handful, honestly, of facts that fall into that category that would warrant sanctions. And I think the remainder, there is not enough to grant Rule 11 sanctions. I do not think on any level that there are enough to grant Rule 11 sanctions against the attorney, but I think with regard to Mr. Eldredge I think there is some basis.
So it is my intent to today, but I am going to hear from both counsel, now that I have sort of foreshadowed my thought process, I am going to want to hear from both counsel on whether you want me to proceed on and actually issue a final decision for purposes of settlement conference, or some other alternative that you may want to seek.
I appreciate Ms. de Diego was willing to pursue the offer of an evidentiary hearing, but at this point, I am not inclined to set one of those. I think it would essentially take this case off track and take us down a path where we do not need or want to go. But I do think there is factual allegations that need to be resolved as we proceed. They may not be the ones that Ms. de Diego or Mr. Constantinou would like resolved, but there are some that need to be resolved. So let me hear from Ms. Lee, and then I will hear from Ms. de Diego.
MS. LEE: Thank you, Your Honor.
Well, certainly, what Mr. Ganley proposed the most was the settlement conference. We fully endorse that and staying everything until the settlement conference. If Ms. de Diego would like to move forward, irrespective of whether or not there is going to be a settlement conference.
And along those lines, I would just say that with regard to the specific allegations that Your Honor is concerned with there has to be an opportunity to do –there has to be reasonable opportunity for further investigation or discovery. And I just think that the rule itself says that, so we don’t have the situation we have now where you have these allegations being made at this point and I understand Your Honor’s concern, there were e-mails produced where the contract was supposedly attached and said to Mark Eldredge, what you don’t see is anything from Mark Eldridge going back to these people accepting a contract.
We don’t know if they selectively handpicked certain e-mails and omitted others. We need to do further discovery even on issues which Your Honor seems to be convinced that that is absolutely a false statement. And that statement that Mark Eldridge made was that he didn’t know about this agreement to the extent that he did not become aware that KK and ACS was not just a firm administrator but controlled JLG’s administrative and nonadministrative personnel among other things. So even if he saw the contract, it doesn’t mean that he appreciated that magnitude of it, or appreciated the level of control that was exerted over the company that he was buying into.
And, again, Mark Eldridge has not been deposed. I cannot speak for Mr. Eldridge in terms of what was in his mind. But there should be an opportunity to explore that to also get into some electronic discovery so they can produce all of the e-mails, not just selectively handpicked and choose the ones that favor their side, but do a complete e-mail discovery, electronic discovery, talk to Mr. Crowther (phonetic), test his memory. There are things that should happen before just simply issuing Rule 11 sanctions.
I think that the rule itself that you have to have a reasonable opportunity for further investigation or discovery before you can issue Rule 11 sanctions. That is just the most extreme position to take. There are other mechanisms and tools that they can use to parse out these issues that fall short of the Rule 11 sanctions.
And I would also endorse Your Honor’s foreshadowing that the attorneys absolutely have no business in this motion for Rule 11 sanctions. Cami Perkins and Joe Ganley have been practicing in this — Joe Ganley particularly has been practicing in this jurisdiction forever and a day. I think his ethics are above reproach. There is no way that they have alleged anything that would implicate either Cami Perkins or Joe Ganley of any type of wrongdoing other than counseling their client, speaking with their client, and getting information to put in their complaint, which is what we all do as attorneys when we draft these pleadings.
THE COURT: Ms. de Diego I want your response, but I know that you have a belief that we would not be where we are in this case if certain things hadn’t been alleged. But I will tell you that I don’t agree with that assessment on one level. If why you say that is a belief that you think that somehow these folks portrayed your clients as bad guys, and therefore, because this court may have thought they were bad guy is why it did what it did, that is just not why the Court did what it did.
I am a firm believer and I guess this is apropos of nothing other than I am a firm believer of you don’t prevail in your cases because you make the other side look like the bad guys. I know a lot of lawyers think that is a good way to go and they like to pursue in especially in trial, but it never works in my opinion.
But ultimately, that is just not what I look at. I look at what I looked at, which was the agreement and the terms and conditions of the agreement. I ultimately made my conclusion that the agreement was void, but all the other circumstances up to this point were not made because the Court believes any wrongdoing on anybody’s part, but because of the circumstances of the relationship between Mr. Eldredge and his firm and what was going on with it at the time of its dealings with the public.
So for what it’s worth, I just wanted you to have that. But by no stretch of the imagination, from what I can see in your motion, do you have sufficient evidence on the more troubling of the allegations, the disappearance of the 185,000, the taking of monies and using them for personal things. I just do not see enough evidence that would show that those are absolutely false statements for purposes of a Rule 11 sanction motion.
Now, that does not mean that there can’t be down the road another motion which deals with those issues, if in fact, through discovery that is not further deduced, but having an affidavit that says no, and having affidavits that it is an accounting error, that is just not enough.
The only areas where I see potentially troubling factual allegations in terms of if we go forward with those, and they are not true, then, again, what did Mr. Eldredge know or not know at a given time with regard to his relationship with his company, whether or not he received profits out of the circumstances when he said he didn’t. And basically that financial aspect of the accounts and Mr. Eldredge’s role in those accounts.
So with that said, what is your take on where we go from here and whether or not you would like me to make a ruling on your motion and put that issue to bed once and for all, with the understanding that I am not inclined at this time to have an evidentiary hearing.
MS. DE DIEGO: Your Honor, just to clarify, I did hear your point that was in relation to the last time we were here. I am not referencing why we are here in this court or how this proceeding has gone forward and not the issue for summary judgment. Rule 11 would require before we even received a motion for summary judgment that was something that we are already contemplating on submitting. And we were planning it when Your Honor mentioned before to do them for those misstatements in each of the pleadings sent beyond these ones as well.
What that was in reference to was the very first hearing, the court had entered the original temporary restraining order, I don’t believe that that would have ever happened if they had not come into court and said that my client stole millions of dollars, that this court did not know anything about the services agreement, they have taken $185,000 out of his trust account, threatening to beat him up, horrible, horrible things, that the court would not have issued that original temporary restraining order if it had not been privy to those things.
It is not just that the client might be lying; I understand that clients lie, that is something that we unfortunately deal with quite often. It is maybe not quite telling you the whole truth or telling you the whole story, and that is why there is rules for reasonable investigation. That if you put forth the facts in the beginning and you don’t have anything to support it at that time, you have to find more support.
But if you don’t find support for those, you also need to correct whatever you said in the first place. And in this case, it’s not just that the client said something wrong, as part of that original application for TRO, Ms. Cami Perkins stated that they have already stole large sums of money and they are going to abscond the jurisdiction. They have stolen millions of dollars. Millions of dollars. Not $185,000, not $20,000, not anything that they, you know, maybe think that they can prove at trial, but millions of dollars. That is a huge allegation. That’s not some little thing that we are disputing a fact about. There is nothing about millions of dollars missing since then. There have been discussion of maybe it’s $165 or $185 supposedly missing from the trust account, but the other attorney stated in her affidavit to the court that they stole millions of dollars and that is a lie, and that is something that we are asking the Court to address, statements like that maybe not to this court, but to the previous court and then kind of set the tone for this whole case.
In regards specifically to whether or not Eldredge new about the services agreement, Ms. Lee stated, you know, well, he just didn’t know about it, or if he knew about it he did not appreciate the full scope of it. Again, that is not what we are talking about here. Ms. Perkins said after Eldredge became a 99 percent owner of JLG California, he became aware of the services agreement. They are not saying that maybe he knew about it, or maybe he didn’t understand it, or he wasn’t fully aware of the consequences, or a 2 million dollar termination fee, or all these claims. They are saying that he never knew anything about it.
And they came into this court and got a temporary restraining order against my clients’ company. And then you know the series of events that came after that based on misrepresentations to the court and flat out lied. And as much as I know that this is unusual, I have never filed a Rule 11 motion before, but I have never seen a case where it is warranted, and especially not against other attorneys; however, in this case we do feel that it’s warranted. They lied on behalf of their client and they haven’t retracted it and they have had a reasonable opportunity to do it. And since that time it has continued in each pleading and each hearing.
And as I mentioned earlier in the month that we were planning to put forth more requests for sanctions, or maybe a motion to strike as other things have come out, besides taking over the bankruptcy and being able to read some of the transcripts of the depositions that were taken in that, we could come up with just tons of other things that they stood here in court and lied about. And not just from their client either, it is his attorneys and that is a huge problem and that is not an appropriate way to ask of this court or to act in or put forward to my client, to my client that has to defend this over and over again, and it has been nine months.
This is what I want to point out: They have had ample time, more than reasonable time to find the facts to support these statements. They have their complete books. They have a forensic accounting firm that they have had well before the trial even started — well, before they have filed the Complaint. They have had months and months and months to go through the books to do their accounting and figure out where these millions of dollars are. If there is millions of dollars, I welcome them to show that but it is just not true. They have had plenty of time to figure that out. It has been nine months. That is plenty of time to figure that out and plenty of time to come up with the facts to support these allegations that they made.
THE COURT: Thank you. Anything further, Ms. Lee?
MS. LEE: And I would also just like to point out to the court that the only remaining claims that are remaining after Your Honor’s last ruling from our standpoint, really, is just the accounting, which has not been done. I mean, we had five causes of action with the declaratory relief that was granted and knocked out, three of the other causes of action and preliminary injunctive relief is moot at this point.
So from our end, all we have is the accounting cause of action left. On their end on their counterclaim they have fraud against Eldredge and misrepresentation of fraud against Eldredge. But I think it is important because of the absolute specific allegations that are concerning to Your Honor whether or not Mark Eldredge knew about the contract before he became a partner.
And just to correct one of the quotes that Ms. de Diego brought up, the specific quote actually says: “After Eldredge became a 99 percent owner of JLG California, now JLG, he became aware of a services agreement JLG California had entered with ACS in October of 2006.”
But the first time Eldridge became aware that KK, via ACS, was not simply the firm administrator but controlled JLG’s administrative and non-attorney personnel, among other things, so I think we should have the court read that whole quote into the record so we have a clear record of what exactly the allegation is.
At this point when Mr. Eldredge knew about the service agreement certainly needs to be explored; however, it is not germane to the many allegations of the Complaint, at least not from our end. Our only remaining allegation is an accounting, which we need to do for discovery and then we could figure out whether or not the numbers that are being locked in by ACS on their end are valid, had been manipulated, that don’t match up. There is an accounting that needs to be done, and we have not done a forensic accounting because no one has done discovery yet.
And Ms. de Diego implied that we have been doing nothing for nine months, I think Your Honor knows that we have been doing a lot in nine months. We have gone through, not just her but another law firm that we sought to disqualify with a 45-page motion to disqualify the day before the hearing they file a motion to withdraw and then Ms. de Diego shows up.
I mean, there has been a lot of action going on in this case in the last nine months. It is not like we have been sitting idly on our hands not trying to do anything. That there had been numerous attempts to settle, not with just Ms. de Diego, but with the prior firm, so when she says she has nine-months, they also had nine months. That first thing that we filed right out of the gate was the TRO. They had that affidavit from day one. They didn’t file Rule 11 sanctions back then because it does not prejudice them to bringing it later.
It does not prejudice them to wait now to go forward in the litigation and do some discovery to figure out whether or not these Rule 11 sanctions would be warranted. If they can wait nine months, they can wait longer. There is absolutely no prejudice whatsoever to allow us to go do some discovery. So when she brings up the period of the nine months, I think that cuts both ways. They had nine months knowing about this affidavit and just bring it up for the first time in the last few months. And I think that just evidences that there is no it is their burden to show it. They have to prove it, and it is a very, very high standard. And all inferences have to be drawn in favor of Mr. Eldredge, just like a summary judgment motion, only even a higher standard than that.
All favorable instances that can be drawn in favor of Mr. Eldredge have to be drawn in favor of Mr. Eldredge in considering Rule 11 sanction motions. And I just don’t think at this time there has been enough discovery, enough production, not even one deposition has been taken of this action to warrant Rule 11 sanction motion.
I think that we should err on the side of caution with these types of motions because we do not want to encourage, and this being the first motion out of the gate to address what they believe to be false allegations.
THE COURT: Thank you, Ms. Lee.
Your point at the end is well taken. The last thing in the world this court wants to do is encourage further motions like this; however, I think that this case has an issue that needs to be addressed, and I think the court’s concern exists that there have been statements put forward by Mr. Eldredge that do not have factual support and are not going to have factual support upon further investigation and evidence coming to light, and those are not all of the allegations that have been claimed by Ms. de Diego on behalf of her clients, but they are some of them. And I think that for some of them, some minimal sanction is appropriate, and I am going to award such. And then I hope what we will do is put this to bed and we will now try this case for whatever remains of the claims and we will go through the discovery process.
I am not going to be terribly amenable to future motions such as this, because now that we will be going forward through the discovery process in this case, I will certainly be amenable for the motions of the dispositive in nature down the road. But I think what we have here and what concerns this court, although, again it is not all the matters pointed to by Ms. de Diego, and that there is evidence that this court can adduce from what has been put forward to indicate that Mr. Eldridge did receive a profit from these arrangements, even though he asserted that JLG never had a profit and that he wasn’t entitled to and never did get a profit, but he did in fact receive a profit out of his cut of profit, if you will, and that he asserted through his attorneys that he was not able to see details of expenses, even though there is overwhelming evidence that he was provided with those pieces of information with regard to the handling of the account, and specifically talking about the monies that were deposited into the JLG accounts first, and the fact that he indicates that he was not aware of the circumstances of the service agreement and how it operated, all which I find disturbing and troubling in terms of how they were asserted and from the evidence that I can see being put forward by Ms. de Diego.
Anything beyond that I think is, again, as said, it is necessary to further explore not for purposes of Rule 11 sanctions as part of this case. That there is reasonable dispute as to what might be the operative fact under these other assertions including the missing monies, et cetera, or the lack of accounting for monies, that is one of the causes of action that still exist.
So what I am going to do — and I am not going to hold an evidentiary hearing. I am going to grant the first motion for Rule 11 sanctions in part, deny in part. I am going to deny the second motion for Rule 11 sanctions on the matters that I am finding in favor of the defendant. So we will have one order as to the first motion for Rule 11 sanctions. The only aspect is I will grant the sanctions, and it is only as to Mr. Eldredge, I do not find sufficient evidence to warrant finding any wrongdoing on the part of the counsel, but as to Mr. Eldredge. I don’t do the sanctioning lightly. I have only done it in one other case that I can think of, but I think in this circumstance it is appropriate. I am going to issue sanctions against Mr. Eldredge for false statements with regard to his obtaining a profit, his ability to see those account details of what is happening with the JLG account and his knowledge of the time and circumstances of the services agreement and its operation, if you will, and on those basis I will issue a $1,000 sanction that is to be paid to the defendants in part to defray their attorney’s fees and costs for having to defend those matters.
Ms. de Diego, I will ask you to be very particular in how you draft the order. Just talk about those few matters. Obviously, you will have to run it by Ms. Lee and Mr. Ganley. There may be a dispute as to what this order should look like.
For the sanctions, Mr. Eldredge will have 30 days to pay them. And I hope that that puts to bed once and for all the issues where the court can see that there was simply false statements being put forward, and that the remainder of this case will be tried in the normal course, and we’ll go from there.
Now, I do have a couple of dates that I could look at and possibly give you for a settlement conference. Neither Department 11 or Department 13 is available before the month of February for a date certain, but I think it is not a bad idea to have a date out there by which you work towards. If you can’t resolve it yourself in advance, then the last thing in the world I want to do is incur the wrath of my fellow business court judges because you end up going to a settlement conference that you are not prepared for, so I guess I would ask you to self-police. If you really feel that there is no basis for it, then call it off.
But I am going to set something so that you have something to work towards, and perhaps, you will be able to even resolve it prior to that, but at least you’ll know that you will be expected to come forward with all parties and their counsel in good faith here at a date in February where hopefully you can get this resolved. And if you can’t do that and you are not going to make it meaningful, then, again, pull the plug or call it off.
MS. DE DIEGO: Your Honor, before you do that, I would just like to ask, could you please get a specific ruling on the other very important part of the attachment of Mr. Constantinou’s felony conviction and whether or not that was —
THE COURT: I honestly thought I ruled on that last time, but I thought it was appropriate to be included in that it should be stricken. If I did not communicate that, then that is not a basis for sanctions, but I do believe that is inappropriate and that it should be stricken.
MS. DE DIEGO: Thank you.
THE COURT: The date that I would like to give you is February 18th for Department 13. I will make sure my clerk and my staff advises Department 13 that we are setting this, but it will be set on their calendar and what will happen is they will notify you at some point in advance on what their requirements are for the settlement conference is. If you have any specific questions of them, you should contact them directly. But it will be February 18th, which is a Friday, at 9:30 a.m., and that will be the settlement conference for this case.
Again, make a date to check in with each other and make sure that you still are thinking it is going to be meaningful to do it before you do bring everybody together for it. Cancel it otherwise. But I do think it is appropriate to have some date that we are working towards in the future.
Ms. de Diego, you will prepare the order. I am granting the first of the Rule 11 sanction motion. I am denying the second one in its entirety because the basis for the granting would be redundant and the other matters will not be granted. The denial of the Rule 11 sanctions as to the attorneys and as to the other matters is that it is substantial or appropriate evidentiary basis to find those sanctions.
MS. LEE: Can I ask just —
MR. GANLEY: Your Honor, if I may —
THE COURT: Yes, Mr. Ganley.
MR. GANLEY: Respectfully, I understand the Court’s decision here, and I understand the Court has made its ruling, and this may just be for purposes of the record, I am not sure, but I proffer it anyway. We would ask that the party against whom Rule 11 sanctions is being issued that we are entitled to an evidentiary hearing on that. We think that the case law supports that. It is discretionary with the court, if I understand the case law on that. I am not sure you were briefed on that particular issue, but we could certainly brief that if you want, Judge.
But as to the party against whom Rule 11 sanctions is being awarded we would ask that we are entitled to a evidentiary hearing and could do some discovery before that hearing. Alternatively, or in conjunction, we ask that the Court stay implementation of the sanction until the deposition of Mr. Crowther, Mr. KK, Mr. Carrelli (phonetic), the e-mails, the Carrelli notes to explore in discovery. Because we think after that happens, that the Court will not be of mind to think that there is overwhelming evidence against the statements of Mr. Eldredge once that due process right to flush those things out and present that to the Court at another time, in fact those sanctions then would be lifted.
And then, Judge, as far as the other points of the motions that were brought by the opposing party, we ask that we have the right to come back later on after discovery shows that what they put in their Rule 11 motion as the Court understands, they will have to be held to the same standard. That’s the law. That we be allowed to bring sanctions for them for bringing that motion in a frivolous manner.
THE COURT: Is there anything that you want to add to that, Ms. Lee?
MS. LEE: I was just going to ask you a technical question in terms of the 30 days, but I will let you respond to Mr. Ganley first because that will address it.
THE COURT: Okay. Mr. Ganley, the thing that concerns me the most about what you just said is this idea that we are going down some tit-for-tat road here. I am not inclined to do it. If I see it happening I will nip it in the bud, I promise you, on both sides.
But looking at these motions at face value with those few matters that I do believe that the evidence is clear are not factual and will not ever be able to be determined to be factual. I am going to grant that sanction and I am going to deny your request for the evidentiary hearing and I am going to deny your request to stay it. But what I do not want to see here, and one of the reasons why I did not go for an evidentiary hearing at this stage, and one of the reasons why I am trying to resolve what I think are concerning issues, but resolve them in a way that removes counsel from the allegations because that is clearly not supported, and removes hopefully, the impetus or the desire, or whatever, to bring more of these types of motions and to make it clear that I think at this point I think the case needs to proceed in the normal course.
For the most part, Mr. Eldredge did prevail in his opposition but there were a couple of areas that I just thought that there was no way around it, even at the highest possible standard the facts are there. So down the road, if you can think of a procedural mechanism to rechallenge it, I’m certainly never going to say no to any motion that somebody wants to bring that is properly brought before this court. But I am not going to grant an evidentiary hearing on these matters. I can see what I need to see from the records. I think it is sufficient. I am not going to stay it.
I am going to strongly discourage either side from any of these types of motions regardless of what the Court ordered right now.
And we had a technical question with regard to that 30 days.
MS. LEE: Is that 30 days from the notice of entry?
THE COURT: Notice of entry.
MS. LEE: And then also with regard to the three points that Your Honor has ruled on today. I just want to clarify, this does not serve as a motion in limine, meaning, if we do find evidentiary support for it later, we can present it to the jury or the finder of fact at the time, or are you completely striking those allegations from the pleadings and we would have to move to amend to replead them.
THE COURT: At this stage, in order to plead that there was never a profit, that Mr. Eldredge could not do anything with these accounts or see these accounts the way these specific three matters are alleged in order to have those, you will have to come up with some evidentiary support to bring them back in because at this point I do not see them. I see overwhelming evidence to the contrary to them and I think that Mr. Eldridge knew what he knew when he knew it, and I think that trying to position this thing as he is the innocent party in this is not flying with this court. It has not flown with this court before and it is not flying with this court now.
Beyond that, however, we still have these issues to deal with what remains in this case, which is this accounting. We also have these issues in terms of the counterclaims, and we will deal with them in the normal course. But I believe the Court in making the finding today to award sanctions show that these allegations are frivolous and they are out of the case unless and until there is something to support bringing them back in.
THE COURT: Mr. Ganley.
MR. GANLEY: Just one final point, Your Honor, and then you reminded me it in the comments you just made. There was an allegation against the attorneys personally and we think that that was a reckless allegation, and the reason we think that, Judge, is that the parties bringing that and the counsel bringing that needs to have, like you said, overwhelming evidence that the attorneys lied to this court.
Now, Ms. de Diego has said that multiple times to this Court that the attorneys, Cami Perkins and Joe Ganley lied to the Court. The law firm lied to the Court. And what she needs, Judge, is evidence that shows that Mr. Eldredge came to us and said, hey, I knew about this service agreement since I was ten years old. I have known about this all along, but I don’t write. Write something directly contrary to that and put that in our pleading.
That is the type of evidence that Counsel needs to be able to bring that, and she could never have that, will never have that, it never happened, it would never happen. And she is not even close to coming to that type of evidence, Judge, but she made the allegation and it is improper and Rule 11 said it is improper.
And if the moveant under Rule 11 comes with that type of allegation without the evidence to support that, then that is sanctionable. And you know, Judge, we have a countermotion for sanctions and I would ask the Court to rule on that because we think that there should be sanctions for that behavior.
MS. LEE: I’m sorry. If I could just interject in terms of that, and this is just kind of par for the course, I know when Ms. de Diego first got into this litigation one of the first things she did was she tried to disqualify Cami Perkins from being an attorney on this case because she submitted an affidavit in support of an OST motion followed by — we submitted a letter from discovery commissioner Mr. Beecroft to support one of our positions and there were allegations that we could have doctored that letter ourselves on the discovery commissioner’s letterhead. I will just address this.
I think that the level of zealousness on the other side I think is a bit far fetched and I think that is what Mr. Ganley is going for is that there has to be some care taken when you are going against counsel who has done nothing inappropriate in the case other than be advocate for the client.
THE COURT: Mr. Ganley, I am growing tired of this argument. You have already prevailed on this issue. I did not see in the record a countermotion for sanctions on that issue. I know you very strongly argued for that. I have found that it wasn’t substantiated but I am not going so far as to find it itself, meaning, the allegations against you and Ms. Perkins are subject to its own Rule 11 sanction at this stage. I am simply granting you the relief that you are seeking.
I have found that it was not substantiated enough to grant Rule 11 sanctions. I want to put this to bed, but I m growing weary of this being about the attorneys on this case. I have put it to bed. You want to bring it up again, file it in motions. But at this time, I am granting the sanctions I am granting. I am denying any other request for sanctions. Again, I don’t see the countermotion, but if it’s there, so be it. It is denied.
Let’s move on with this case, okay.
MR. GANLEY: Thank you, Your Honor.
THE COURT: Anything further, Ms. de Diego?
MS. DE DIEGO: Your Honor, I have a question about the order for the September 30th hearing, I have not received that to review and I would like to get that in and my question is actually on that and I think the plaintiffs are planning to appeal that, however, with the stay being in place against the other plaintiffs, I wanted to ask the Court’s opinion on that. How does this work?
I know we obviously have a limited time to file the appeal once that is entered. When we see you again it will be past the deadline to stay the issue. I know we have had some back and forth on the stay and I want to make sure we don’t miss the deadline.
THE COURT: Well, I certainly haven’t crunched those numbers or looked at that for that specific person. I mean JLG itself are on, for all intents and purposes, because of the bankruptcy is not moving forward in this matter, it cannot be asked to move forward on this matter.
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But we do have Mr. Eldredge and I think in terms of the decision, as far as the fact that the contract was void, we do need to get that order in and I did beg the indulgence of the plaintiff’s attorney to prepare that order absent further written documentation from the Court that was going to be done.
I trust that it is still forthcoming, in fact I think Mr. Ganley represented the last time he was here that they had already started the process of drafting that, and I would like to get that in. But I am not prepared today to tell you whether or not you are precluded from appealing that or not. And I have not really looked at it so I really can’t say. So take a look at that and see what you need to see as far as that goes. And, honestly, my gut tells me that if it was styled and fashioned correctly it could be done in a way not to implicate the corporation to violate the bankruptcy stay, which you may need to go to the bankruptcy court to get relief in order to be able to do because otherwise it is a little too tricky and you don’t want the bankruptcy court coming over and having a fit.
Now we have had the benefit, until today, of Counsel being here. I excused them for purposes of today. I do think ultimately that is a question that they would best answer.
MS. DE DIEGO: I will discuss it with them.
THE COURT: But you may need to get relief for the stay to challenge it, and it is worthy of the Supreme Court looking at it. I don’t dispute that. I absolutely agree with that, but how and when you get that there –but we do need to get that order in and I trust that we will get that as quickly as possible.
MS. DE DIEGO: Thank you, Your Honor.
THE COURT: Thank you so much. – Source
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