Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-06405/USCOURTS-caed-1_04-cv-06405-1/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 31:3731 Fraud

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

JOE FLORES, et al., )

)

)

)

Plaintiff, )

)

v. )

)

DENNIS HAGOBIAN, et al., )

)

)

)

Defendants. )

 

1:04cv6405 OWW DLB

ORDER GRANTING TRUSTEES’ 

MOTION TO INTERVENE

(Document 27)

On April 25, 2006, Trustees Beth Maxwell Stratton and James E. Salven filed the instant

joint motion to intervene in this action pursuant to Federal Rule of Civil Procedure 24. On

August 11, 2006, the matter was heard before the Honorable Dennis L. Beck ,United States

Magistrate Judge. Joe Flores, appearing pro se, was present. Henry Nunez appeared on behalf of

the entity Plaintiffs. Thomas Armstrong appeared on behalf of Trustee Salven and Jeffrey Wall

appeared on behalf of Trustee Stratton. 

BACKGROUND

On October 15, 2004, Plaintiffs Joe Flores (“Mr. Flores”), Connie Flores (“Ms. Flores”),

in pro se, along with several agricultural corporations and limited liability companies (collectively

“Plaintiffs”), filed suit against a number of individuals, trusts and corporations (“Defendants”) for

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alleged fraudulent transfers under the Uniform Fraudulent Transfer Act, Cal. Civ. Code § 3439,

and for alleged improper distributions made in violation of the California Corporations Code. 

On November 14, 2004, Defendants filed a motion to dismiss for lack of subject matter

jurisdiction, or, in the alternative, to stay Plaintiffs’ complaint. On January 18, 2005, the Court

issued an order explaining that involuntary bankruptcy proceedings were initiated against two

corporate Plaintiffs, DDJ, Inc. and DDJ, LLC, on January 3, 2005, and that an automatic stay was

in effect. During the hearing, Mr. Flores and Ms. Flores stated their intent to amend the

complaint to assert a federal claim and to encourage the trustees to pursue the claim in federal

court. The Court deferred ruling on Defendants’ motion until receiving notification as to whether

the case would proceed in bankruptcy court.

On March 1, 2005, the Court issued an order regarding Plaintiffs’ status report and

indicated that James Salven is the Chapter 7 Trustee for DDJ, Inc., and the Beth Maxwell

Stratton is Chapter 7 Trustee for DDJ, Inc. (“Trustees”). 

On March 9, 2005, Ms. Flores filed another status report indicating that she and Mr.

Flores met with both Trustees and discussed the fraudulent transfers, and that the Trustees

indicated that they were in favor of proceeding with the action. Ms. Flores requested 60 days to

substitute counsel, review the case, prepare summaries for the Trustees and file an amended

complaint. 

There were no significant filings until the Trustees filed the instant joint motion to

intervene on April 25, 2006. Trustees move for intervention pursuant to Federal Rule of Civil

Procedure 24(a), or in the alternative, Rule 24(b).

Mr. Flores filed his opposition on May 23, 2006. Mr. Flores questioned the timeliness of

the Trustees’ motion and opposes the Trustees’ argument that the causes of action are property of

the bankruptcy estates.

Ms. Flores filed her opposition on May 30, 2006, arguing that the remaining unsecured

creditors are time-barred from pursuing tort claims and that the Trustees’ avoidance powers are

valid only against an unsecured creditor. Ms. Flores also argues that allowing the Trustees to

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pursue alter ego allegations relative to other creditors will result in a denial of due process to the

proposed defendants.

///

DISCUSSION

A. Legal Standard

Federal Rule of Civil Procedure 24 provides for intervention as of right and permissive

intervention. The Trustees seek leave to intervene on both grounds. Rule 24 provides:

(a) Intervention of Right. Upon timely application anyone shall be permitted to

 intervene in an action: (1) when a statute of the United States confers an

unconditional right to intervene; or (2) when the applicant claims an interest relating to the

property or transaction which is the subject of the action and the applicant is so situated

that the disposition of the action may as a practical matter impair or impede the applicant's

ability to protect that interest, unless the applicant's interest is adequately represented by

existing parties.

(b) Permissive Intervention. Upon timely application anyone may be permitted to intervene

in an action: (1) when a statute of the United States confers a conditional right to

intervene; or (2) when an applicant's claim or defense and the main action have a question

of law or fact in common. When a party to an action relies for ground of claim or defense

upon any statute or executive order administered by a federal or state governmental officer

or agency or upon any regulation, order, requirement, or agreement issued or made

pursuant to the statute or executive order, the officer or agency upon timely application

may be permitted to intervene in the action. In exercising its discretion the court shall

consider whether the intervention will unduly delay or prejudice the adjudication of the

rights of the original parties.

Where, as here, no federal statute provides an unconditional right to intervene, Rule 24(a)

provides for intervention as a matter of right. The Ninth Circuit has adopted a four part test for

intervention “of right” under Rule 24(a): (1) the application for intervention must be timely; (2)

the applicant must have a significantly protectable interest relating to the property or transaction

that is the subject of the action; (3) the applicant must be so situated that the disposition of the

action may, as a practical matter, impair or impede the applicant’s ability to protect that interest;

and (4) the applicant’s interest must not be adequately represented by the existing parties in the

lawsuit. See League of United Latin American Citizens v. Wilson, 131 F.3d. 1297, 1302 (9th

Cir. 1997); Cabazon Band of Mission Indians v. Wilson, 124 F.3d 1050, 1061 (9th Cir. 1997). 

The four part test is interpreted broadly in favor of intervention. 

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If intervention is not otherwise a matter “of right,” the Court may still allow intervention

under Federal Rule of Civil Procedure 24(b)(2), which allows a third party to intervene in an

action when its “claim or defense and the main action have a question of law or fact in common.” 

The existence of a “common question” is liberally construed. Stallworth v. Monsanto Co., 558

F.2d 257, 265 (5th Cir.1977). If these conditions are met, the question of whether a party will be

allowed to intervene is within the sound discretion of the trial court. See Donnely v. Glickman,

159 F.3d 405, 409 (9th Cir. 1998); Venegas v. Skaggs, 867 F.2d 527, 530 (9th Cir.1989)

(quoting Securities and Exchange Comm'n v. Everest Management Corp., 475 F.2d 1236, 1240

(2d Cir.1972)) (“Rule 24(b) necessarily vests ‘discretion in the district court to determine the

fairest and most efficient method of handling a case....’”). “In exercising its discretion the court

shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights

of the original parties.” Fed.R.Civ.P. 24(b). In addition, a court may consider other factors,

including whether the movant’s interests are adequately represented by existing parties and

judicial economy concerns. Venegas, 867 F.2d at 530-31.

B. Analysis

Trustees move for intervention on the ground that the disposition of the action will

directly affect their ability to protect the property of their estates. In order for them to protect the

estates, they contend that they need to intervene and assume control of this lawsuit. Trustees

explain that based on Plaintiffs’ allegations that money and property were wrongfully taken by

Defendants and the estates therefore wrongfully depleted, all creditors have been hurt rather than

only the Flores creditors. In re Folks, 211 B.R. 378, 387 (9th Cir. B.A.P. 1997). 

In opposition, Mr. Flores contends that the action involves proceeds and property that

were illicitly and fraudulently converted by the DDJ entities from the Perishable Agricultural

Commodities Act (“PACA”) trust. As such, Flores argues the causes of action regarding the

fraudulent transfers are personal and not the property of the bankruptcy estate. Ms. Flores filed a

similar opposition.

After reviewing the parties’ arguments, including the submissions made subsequent the

hearing, the Court finds that the Trustees must be allowed to intervene in this action to protect the

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property of the bankruptcy estates. In so ruling, the Court is not making a finding as to whether

the assets are or are not property of the bankruptcy estates. However, because there is at least an

argument that the assets may be part of the bankruptcy estates, the Trustees must be allowed to

intervene to protect their respective estates. 

Accordingly, the Trustees motion to intervene is GRANTED.

IT IS SO ORDERED. 

Dated: September 12, 2006 /s/ Dennis L. Beck 

3b142a UNITED STATES MAGISTRATE JUDGE

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