Case 9:11-ap DS Doc 299 Filed 06/19/18 Entered 06/19/18 17:52:30 Desc Main Document Page 1 of 8

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1 Main Document Page of 0 0 JOHN P. REITMAN, SBN 0 LARRY W. GABRIEL, SBN ALEKSANDRA ZIMONJIC, SBN 0 STEVEN T. GUBNER, SBN COREY R. WEBER, SBN 0 0 Century Park East, Suite 00 BRUTZKUS GUBNER Los Angeles, CA 00 0 Oxnard Street, Suite 00 Telephone: (0) -000 Woodlands Hills, CA Facsimile: (0) -00 Telephone: () jreitman@lgbfirm.com Facsimile: () -0 azimonjic@lgbfirm.com lgabriel@bg.law cweber@bg.law Special Litigation Counsel for Plaintiff, Bradley D. Sharp, Trustee of the Estate Financial Mortgage Fund Liquidating Trust In re ESTATE FINANCIAL, INC., Special Litigation Counsel for Plaintiff, Thomas P. Jeremiassen, Trustee of the Estate Financial, Inc. Liquidating Trust UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA NORTHERN DIVISION Debtor. THOMAS P. JEREMIASSEN, Chapter Trustee, Plaintiff, vs. BRYAN CAVE, LLP, a California professional limited liability partnership; and KATHERINE M. WINDLER, an individual, Defendants. In re ESTATE FINANCIAL MORTGAGE FUND, LLC, Debtor. BRADLEY D. SHARP, Chapter Trustee, Plaintiff, vs. BRYAN CAVE, LLP, a California professional limited liability partnership; and KATHERINE M. WINDLER, an individual, Defendants. Case No. :0-bk--DS Chapter Adv. No. :-ap-0-ds Case No. :0-bk--DS Chapter Adv. No. :-ap-0-ds PLAINTIFF TRUSTEES REPLY IN SUPPORT OF MOTION TO DETERMINE VALIDITY OF FIFTH AMENDMENT INVOCATIONS OF KAREN GUTH AND JOSHUA YAGUDA AND COMPEL FURTHER DEPOSITION TESTIMONY IF INVOCATIONS ARE IMPROPER Hearing: Date: June, 0 Time: :0 a.m. Place: Courtroom 0 State Street Santa Barbara, CA 0

2 Main Document Page of 0 0 TO THE HONORABLE DEBORAH J. SALTZMAN, JUDGE OF THE UNITED STATES BANKRUPTCY COURT, AND TO ALL PARTIES: Plaintiffs Thomas P. Jeremiassen, the Trustee of the Estate Financial, Inc. Liquidating Trust, the successor to the chapter bankruptcy estate of Estate Financial, Inc. ( EFI ), and Bradley D. Sharp, Liquidating Trustee of the Estate Financial Mortgage Fund Liquidating Trust ( EFMF ), the successor to the chapter bankruptcy estate of Estate Financial Mortgage Fund, LLC (Jeremiassen and Sharp together, the Trustees ), hereby submit this reply in support of their motions (the Motion ) for entry of an order (i) determining the validity of the Fifth Amendment invocations of EFI s owners and former sole directors and officers, Karen Guth ( Guth ) and Joshua Yaguda ( Yaguda ) (Guth and Yaguda together, the EFI Principals ) during their depositions on February and February, 0, respectively; and (ii) compelling Guth and Yaguda s testimony if those invocations were improper. I. INTRODUCTION The Fifth Amendment Privilege against self-incrimination is validly invoked only where the hazards of self-incrimination are real and appreciable and not merely imaginary and unsubstantial. See, e.g., United States v. Brown, F.d, (th Cir. 0). In the civil context, a proper invocation of the Fifth Amendment requires that person invoking the privilege reasonably believe that the answers could be used in a criminal prosecution, or could lead to evidence that could be used in that manner. Doe ex rel. Rudy-Glanzer v. Glanzer, F.d, (th Cir. 000). Thus, in response to the Motion, the EFI Principals were required to demonstrate the real and appreciable hazards of their compelled testimony, or else be required to appear and testify at their depositions. Their Opposition, however, has failed to meet that burden. Instead, what Guth and Yaguda have presented is pure speculation and conjecture, wholly Case :-ap-0-ds, Docket No. ; Case :-ap-0-ds, Docket No. 0. Opposition means and refers collectively to Guth and Yaguda s oppositions to the Motion. Case :-ap-0-ds, Docket No. ; Case :-ap-0-ds, Docket No..

3 Main Document Page of 0 0 unsupported by declarations or other competent evidence. Their invocations of the Fifth Amendment privilege are purportedly based on their belief that the government could argue that the testimony they may give in their depositions is somehow in conflict with prior sworn statements they made in 00, 00, and 00 regarding EFI/EFMF s business operations. Opposition, -0. However, and as reflected in the case law, where the threat of potential prosecution is remote, unlikely, or speculative, the privilege does not apply. United States v. Antelope, F.d, (th Cir. 00). That is why, for example, the Fifth Amendment may not be invoked as to responses where the potential criminal prosecution is time-barred by the relevant statute of limitations. Id. During their depositions, Guth and Yaguda invoked the Fifth Amendment with respect to each substantive question related to Bryan Cave, LLP and Katherine Windler s (together, the Defendants ) representation of EFI/EFMF. But now that those assertions have been challenged, they have failed to show that their disclosure of any information sought by the Trustees presents a reasonable danger of self-incrimination. Among other things, the EFI Principals asserted fear of self-incrimination is apparently based on a 0 story from the local newspaper regarding community outrage at their early release from prison (Opposition, :-). Such community outrage falls woefully short of demonstrating the real and appreciable hazards of their compelled testimony; rather, it is the type of speculative risks upon which a valid Fifth Amendment assertion can not be made. Moreover, the EFI Principals did not (and cannot) demonstrate that they face any risk of prosecution under either California or federal law based on their compelled testimony. Accordingly, the Court should find that Guth and Yaguda s Fifth Amendment assertions were improper and compel them to testify at depositions. While the Opposition suggests Guth and Yaguda answered many questions at their depositions (Opposition, :-0), their responses were limited to answering the parties introductory admonitions and other perfunctory inquiries. As reflected in the transcripts of their depositions (Exhibits and to the Motion), neither answered a single substantive question related to this litigation. Citations to the Opposition refer to the page numbers included in the Court-conforming stamp appearing at the top of each page.

4 Main Document Page of II. ARGUMENT A. The Motion is not Subject to the Meet and Confer Requirement Guth and Yaguda contend that [t]he Trustees motion should be denied because they 0 0 failed to meet and confer in violation of Local Bankruptcy Rule 0-(c)() and that [t]he Trustees motion is thus procedurally improper, and should be denied on that ground alone. Opposition, :- and -0. In support of their position, Guth and Yaguda cite to In re Marti, 0 WL 0 (Bankr. C.D. Cal. 0) (an unpublished opinion). However, the Marti case dealt with compelling discovery responses by a party. Here, Guth and Yaguda are not parties to the adversary proceedings, and are instead third-party witnesses subject to deposition subpoenas. There is no requirement in Local Bankruptcy Rule 0- for the Trustees to meet and confer with counsel for non-parties Guth and Yaguda regarding their improper Fifth Amendment assertions during deposition testimony. See, e.g., Pham v. Golden (In re Pham), B.R., (th Cir. BAP 0) ( We conclude that LBR 0-, as promulgated, imposes obligations, such as meet and confer and joint discovery stipulation on parties but not on nonparties. ). Additionally, the Motion relates to the EFI Principals improper assertion of the Fifth Amendment to avoid providing deposition testimony. Accordingly, the issue before the Court is not a discovery dispute between parties or non-parties, but rather is a request for a determination as to whether a third-party s assertion of a constitutional right not to testify is valid. B. No Realistic Possibility of Prosecution under California Law Exists Guth and Yaguda s contention that they might face criminal prosecution for perjury under California law is not supported by any of the cases cited in the Opposition. In People v. Davis, Cal. th 0 (00), the court found that Cal. Penal Code did not bar a later prosecution when the government, acting with due diligence, has been unable to discover the facts necessary to sustain a conviction on the more serious crime. As this case does not involve the same prosecution scenario contemplated by Section of the Penal Code, Davis does not apply here. The statute bars multiplying punishment, if not conviction, on both greater and necessarily

5 Main Document Page of 0 0 Additionally, Guth and Yaguda have already been convicted of multiple offenses, each one more serious than any hypothetical perjury offense. In People v. Valli, Cal.App.th (00), the government prosecuted the evading charges after the murder prosecution failed, relying on defendant s testimony in the murder case. The court held that the later prosecution was allowed because the two sets of charges did not involve the same course of conduct. Id. at 0. The case is not applicable here because it is neither procedurally nor factually analogous to the present situation and it should be disregarded by the Court. In People v. Aragon, Cal.App.th (), Aragon was tried on two drug-related charges after repudiating his guilty plea. The court upheld the imposition of sentence harsher than the one called for by the plea bargain. The court noted that Aragon relinquished the protection of the original plea bargain when he withdrew the plea, which meant that the prior sentence did not operate as a limit on the sentence that could be imposed after the plea withdrawal. The jury convicted Aragon on one of the charges and found that he testified falsely at trial (although he was not charged with perjury). After the sentencing court remarked that it believed Aragon had perjured himself at trial, Aragon contended his supposed perjury was not properly considered at sentencing because it was punishment for an uncharged perjury offense. The Court concluded that principles of double jeopardy did not apply because, inter alia, there was no identity between the drug charge and the sentencing issues. Id., at. The court noted that double jeopardy would not bar a subsequent prosecution for perjury, notwithstanding defendant's acquittal. Id. The court s gratuitous comment about that hypothetical subsequent prosecution is mere dicta that is not tied to the facts of Aragon and it should be disregarded. Guth and Yaguda s theory that the statute of limitations on a potential perjury charge has been tolled is untenable. As explained in People v. Zamora, Cal.d (), the purpose behind tolling is to avoid the possibility that [criminals] may completely escape punishment for included lesser offenses in the same prosecution. People v. Smith, Cal.App.d 0 ().

6 Main Document Page of 0 0 their acts because they have left no hint that a crime has even been committed. Id. at. The crucial determination is whether law enforcement authorities or the victim had actual notice of circumstances sufficient to make them suspicious of fraud thereby leading them to make inquiries which might have revealed the fraud. Id. at -. Here, the authorities started scrutinizing the EFI Principals related to their operations of EFI/EFMF in or about May 00, when they began investigating EFI/EFMF s violations of state securities laws. Guth and Yaguda s suggestion that California remained unaware of any circumstances that would give rise to suspicions of possible perjury charges after the two pled guilty to securities violations (see Ex. to the Motion) - is not based on realistic concerns or evidence. The government s time to begin prosecuting Guth and Yaguda for perjury expired no later than four years after October, 00, the date on which the San Luis Obispo County District Attorney s Office filed criminal charges against them for violations of the California Corporations Code. C. Guth and Yaguda Cannot Show Fear of Prosecution under Federal Law While Guth and Yaguda are entitled to invoke the Fifth Amendment protection against self-incrimination, their say-so that there is a real and appreciable risk of criminal charges is not, on its own, sufficient to establish the hazard of incrimination. U.S. v. Neff, F.d, 0 (th Cir. 0). Rather, a witness that seeks protection of the Fifth Amendment must demonstrate that the testimony would support a conviction under a federal criminal statute or furnish a link in the chain of evidence needed to prosecute the claimant for a federal crime. United States v. Brown, F.d, (th Cir. 0) (citations omitted). Guth and Yaguda s ability to commit an overt act in furtherance of a purported conspiracy arising from their operations of EFI/EFMF was extinguished in July 00, when they no longer could participate in EFI/EFMF s business activities or direct the entities financial and business affairs. By that time, EFI/EFMF were both in bankruptcy, had ceased their financial activities and the Trustees were the sole representatives of and able to act for EFI/EFMF. Guth and Yaguda s farfetched theory about a never-ending statute of limitation for a conspiracy involving hypothetical investment vehicles and schemes to secure and distribute unspecified profits lacks any factual support and should be disregarded by the Court as pure speculation. The Fifth Amendment

7 Main Document Page of 0 cannot shield Guth and Yaguda against remote and speculative possibilities of prosecution based on an imaginary conspiratorial agreement which has no basis in reality. The EFI Principals also do not face a realistic concern of prosecution for bankruptcy fraud crimes. Namely, the tolling concept tied to a debtor s bankruptcy discharge does not apply to corporate debtors such as EFI and EFMF, which are not subject to discharge as a matter of law. See U.S.C. (a) ( The court shall grant the debtor a discharge, unless [ ] () the debtor is not an individual. ). Accordingly, any federal charges for bankruptcy fraud crimes against the EFI Principals expired on July, 0, five years after the EFI/EFMF bankruptcies. See, U.S.C.. III. CONCLUSION Based on the reasons set forth above and in the Motion, the Trustees respectfully requests that the Court enter an order (a) granting the Motion; (b) determining that Guth and Yaguda s invocation of their Fifth Amendment privilege was improper; and (c) directing both Guth and Yaguda to appear and testify at depositions by the Trustees. Dated: June, 0 0 Dated: June, 0 By: /s/ Aleksandra Zimonjic John P. Reitman Aleksandra Zimonjic Special Litigation Counsel for Plaintiff Bradley D. Sharp, Trustee of the Estate Financial Mortgage Fund Liquidating Trust BRUTZKUS GUBNER By: /s/ Larry W. Gabriel Larry W. Gabriel Corey R. Weber Special Litigation Counsel for Plaintiff Thomas P. Jeremiassen, Trustee of the Estate Financial, Inc. Liquidating Trust Zicarelli v. New Jersey State Comm 'n of Investigation, 0 U.S., ().

8 Main Document Page of PROOF OF SERVICE OF DOCUMENT I am over the age of and not a party to this bankruptcy case or adversary proceeding. My business address is: 0 Oxnard Street, Suite 00, Woodland Hills, California. A true and correct copy of the foregoing document entitled: PLAINTIFF TRUSTEES REPLY IN SUPPORT OF MOTION TO DETERMINE VALIDITY OF FIFTH AMENDMENT INVOCATIONS OF KAREN GUTH AND JOSHUA YAGUDA AND COMPEL FURTHER DEPOSITION TESTIMONY IF INVOCATIONS ARE IMPROPER will be served or was served (a) on the judge in chambers in the form and manner required by LBR 00-(d); and (b) in the manner stated below:. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On June, 0, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the addresses stated below: Michael W Davis mdavis@bg.law, ecf@bg.law Daniel Denny ddenny@gibsondunn.com Michael H Dore mdore@gibsondunn.com, krosen@gibsondunn.com Larry W Gabriel lgabriel@brutzkusgubner.com, nfields@brutzkusgubner.com Thomas M Geher tmg@jmbm.com, bt@jmbm.com;fc@jmbm.com;tmg@ecf.inforuptcy.com Dyke Huish huishlaw@mac.com Thomas P Jeremiassen (TR) tjeremiassen@dsi.biz, ntroszak@dsi.biz;rdizon@dsi.biz David A Juhnke docket@sjmslaw.com Jeffrey L Kandel jkandel@pszjlaw.com David W. Meadows david@davidwmeadowslaw.com Craig Millet cmillet@gibsondunn.com, pcrawford@gibsondunn.com;cmillet@gibsondunn.com Jennifer L Nelson jlnelson@reedsmith.com Christopher A Nowlin cnowlin@gibsondunn.com John P Reitman jreitman@lgbfirm.com, srichmond@lgbfirm.com;emeza@lgbfirm.com;njanbay@lgbfirm.com Christopher O Rivas crivas@reedsmith.com, chris-rivas-@ecf.pacerpro.com United States Trustee (ND) ustpregion.nd.ecf@usdoj.gov Corey R Weber ecf@bg.law, cweber@bg.law Katherine M Windler kwindler@verizon.net Aleksandra Zimonjic azimonjic@lgbfirm.com, emeza@lgbfirm.com Service information continued on attached page. SERVED BY UNITED STATES MAIL: On I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than hours after the document is filed. Service information continued on attached page. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR (state method for each person or entity served): Pursuant to F.R.Civ.P. and/or controlling LBR, on June, 0, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than hours after the document is filed. BY OVERNIGHT MAIL Honorable Deborah J. Saltzman United States Bankruptcy Court Edward R. Roybal Federal Building E. Temple Street, Bin outside Suite Los Angeles, CA 00 BY Michael H. Dore mdore@gibsondunn.com John P. Reitman jreitman@lgbfirm.com James L. Sanders jsanders@reedsmith.com Aleksandra Zimonjic azimonjic@lgbfirm.com Dyke Earl Huish - huishlaw@mac.com Service information continued on attached page I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct. June, 0 NIKOLA A. FIELDS /s/ Nikola A. Fields Date Printed Name Signature This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 0 F 0-..PROOF.SERVICE