Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_02-cv-02309/USCOURTS-cand-3_02-cv-02309-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

EUGENE BURGER, et al,

Plaintiffs,

v

MICHAEL KUIMELIS, et al, 

Defendants.

 

No C 02-2309 VRW

ORDER

MICHAEL KUIMELIS, et al,

Counterclaimants,

v

EUGENE BURGER, et al,

Counterdefendants.

_____________________________/

Currently before the court is yet another round of

motions in this case seeking various forms of relief. The court

has set a schedule for dispositive motions, pretrial including

motions in limine and trial. A resolution is in sight.

In this latest cycle of motions, the Burger parties move

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to dismiss portions of Kuimelis’ sixth amended counterclaim

(“SACC”). Doc #373 (SACC); Doc #410 (Mot Dismiss SACC). 

Additionally, the Burger parties move to dismiss Acordia’s

counterclaim (“ACC”). Doc #371 (ACC); Doc #412 (Mot Dismiss ACC). 

Kuimelis also moves to disqualify one of the Burger parties’

counsel, Daniel B Beck of the Beck Law Offices. Doc #346 (Mot

Disq). Next, Kuimelis seeks to intervene as an individual limited

partner of plaintiff Via Hidalgo Associates. Doc #345 (Mot Intv). 

Finally, the Burger parties move pursuant to FRCP 21 the court for

an order dropping Apollo as a plaintiff. Doc #436 (Mot Drop).

The parties and the court are familiar with the facts of

this case so the court will not burden this order with an

unnecessary factual recitation. 

II

Motion to Dismiss Kuimelis’ SACC

On June 28, 2004, the court addressed the Burger parties’

motion to dismiss Kuimelis’ fifth amended counterclaim (FACC). Doc

#368 (Order). The court denied the motion to dismiss as to all

claims in the FACC save five: (1) claims one through three brought

pursuant to 18 USC § 1962 (“RICO”), (2) claim seven brought

pursuant to Cal Bus & Prof Code § 17200 inasmuch as it was based on

events occurring before October 13, 1995, and (3) claim ten for

recovery under an implied contractual indemnity theory. Id at 20,

40, 42. 

As to the three RICO counts, the court concluded that

Kuimelis had simply failed to plead adequately the damages being

sought. Id at 14 (holding that the “conclusory allegations in the

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FACC” regarding RICO damages “did not suffice to withstand a motion

to dismiss under FRCP 12(b)(6).”). As to claim seven, the court

concluded that any claims which accrued prior to October 13, 1995,

were time-barred and Kuimelis had failed to plead any fraudulent

affirmative actions taken by the Burger parties sufficient to toll

the statute of limitations. Id at 39. As to claim ten, the court

held that Kuimelis had failed to “frame the implied contractual

indemnity claim as one for declaratory relief.” Id at 42. All of

the dismissals were without prejudice and Kuimelis was given leave

to amend to remedy the deficiencies. Id.

Kuimelis filed the SACC on July 14, 2004. The SACC was

essentially a carbon copy of the FACC save a few additional

paragraphs specifically addressing the deficiencies enunciated

above. Nevertheless, the Burger parties have filed a new motion to

dismiss the entire SACC (Doc #460), rehashing and duplicating the

vast majority of the first motion to dismiss. The Burger parties

state that they “re-raised” these previously argued grounds for

dismissal “properly [to] preserve” these rejected grounds on

appeal. Doc #460 at 1. There is no need to waste time figuring

out the Burger parties’ motives; the rejected grounds are

preserved. The court will instead focus on the Burger parties’ new

grounds for dismissal.

It should be noted that the SACC, in realleging the

seventh cause action for unfair business practices, limits this

claim to practices that occurred “from October 13, 1995, to October

13, 1999.” SACC at 37, ¶134. Because these claims are not timebarred, the Burger parties do not raise any new grounds for

dismissal of the SACC’s seventh cause of action. Nor do the Burger

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parties challenge the sufficiency of the tenth cause of action as

pled in the SACC. Instead, the Burger parties limit their new

dismissal arguments to the RICO claims, as well as the eleventh

cause of action for money had and received.

A

To remedy the inadequate pleading of damages found in

claims one through three brought pursuant to RICO, the SACC states

that Kuimelis has suffered

concrete financial loss includ[ing], without

limitation, [1] attorney’s fees and other expenses

incurred by [Kuimelis] arising from the HUD

investigation and subsequent criminal trial of Burger,

[2] damage to his business reputation directly

resulting from [Burger]’s targeting and use of

[Kuimelis’] reputation to carry out the fraudulent

conduct, and/or [3] lost business income and

opportunities that [Kuimelis] would otherwise have

realized in the absence of [Burger]’s unlawful conduct.

 SACC at 27, ¶93. 

The Burger parties do not take issue with the “lost business

income” injury allegations. They do, however, attack the other two

alleged RICO injuries. 

The Burger parties first argue that Kuimelis has not pled

a cognizable RICO injury for attorney’s fees arising from the HUD

investigation and Burger trial. Attorney’s fees are special

damages that must be pled with specificity pursuant to FRCP 9(g)

and, according to the Burger parties, Kuimelis has failed to meet

this specificity requirement. Doc #410 at 10-11. Specifically,

the Burger parties argue that Kuimelis is required to plead “the

special circumstances or specific facts giving rise to the special

damages, the specific type of damages [and] the amount of such

special damages.” Id at 11. The Burger parties misunderstand the

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requirements of FRCP 9(g). 

“Special damages are those that, although resulting from

the commission of the wrong, are unusual for the claim in question

and not normally associated with the claim.” James W Moore, 2

Moore’s Federal Practice § 9.08(1)(a) (Bender & Co 3d ed 2000). 

“The goal of Rule 9(g) is to inform defending parties of the nature

of the damages claimed in order to avoid surprise and to inform the

court of the substance of the complaint.” NTBS Storage &

Retrieval, Inc v Kardex Systems, Inc, 2001 US Dist LEXIS 24605, *6

(ND Tex 2001) (citing Great American Indemnity Co v Brown, 307 F2d

306, 308 (5th Cir 1962) (emphasis in original)). Essentially,

“[a]llegations of special damage must be sufficient to permit a

defending party to begin preparing a defense.” Moore, Moore’s

Federal Practice at § 9.08(b). 

Assuming arguendo that the attorney’s fees in this case

can be characterized as “special damages” for the purposes of Rule

9(g), the court concludes that the requirements of the rule have

been satisfied. The SACC informs the Burger parties of (1) the

nature of the damages, (2) how the damages were incurred and (3)

the period when they were incurred. Such allegations clearly

apprise the Burger parties of the “nature” of damages Kuimelis

seeks and permits them to begin preparing a defense.

Next, the Burger parties argue that “damage[] to business

reputation injury is not a cognizable injury under RICO.” Doc #410

at 13. Kuimelis disagrees, stating that “courts have reached the

opposite conclusion” regarding injury to business reputation. Doc

#438 at 10. The “courts” referenced by Kuimelis include the Fifth

Circuit and the United States District Court for the District of

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South Carolina. See Khurana v Innovative Health Care Systems, Inc,

130 F3d 143 (5th Cir 1997), rev’d on other grounds, Teel v Khurana,

529 US 494 (1998); Sadighi v Daghhighfekr, 36 F Supp 2d 279 (D SC

1999). Unfortunately for Kuimelis, courts in this circuit support

the Burger parties’ legal assertion. See Oscar v University

Students Co-op Ass’n, 965 F2d 783 (9th Cir 1992) (en banc); see

also In re Teledyne Defense Contracting Derivative Litigation, 849

F Supp 1369, 1372n1 (CD Cal 1993).

In Oscar, the Ninth Circuit held that injuries to

business or property are not actionable under RICO unless they

result in “tangible financial loss.” Oscar, 965 F2d at 785. 

Future financial loss, future loss of enjoyment of property and

peace of mind, while no doubt injuries, are, according to the Ninth

Circuit, “valuable intangible interests,” and “precisely the sort

of speculative future injury which RICO disdains.” Id at 787

(citing Hecht v Commerce Clearing House, 897 F2d 21, 24 (2d Cir

1990) (emphasis added)). The Ninth Circuit made clear, however,

that it was not denigrating the severity of injury to these

intangible interests and reiterated that a injured party “can

recover for such injuries under a myriad of state law causes of

action.” Id. The party, however, “cannot do so under RICO.” Id.

One year after Oscar was decided, Judge David Kenyon of

the Central District of California faced the question presently

before the court: Is harm to business reputation a cognizable

injury under RICO? Teledyne, 849 F Supp at 1372n1. In Teledyne,

shareholders of Teledyne, Inc (Teledyne) brought a derivative suit

against the board of directors, as well as certain present and

former officers alleging a pattern of criminal and otherwise

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fraudulent conduct. Id at 1370. Plaintiffs purported to state

claims under all four RICO provisions, alleging, among other

injuries, that Teledyne had suffered injury to its “business

reputation.” Id at 1372n1. In analyzing defendants’ Rule 12(b)(6)

motion, Judge Keynon held that injury to business reputation was

not a cognizable injury because “injury to such an intangible

property interest is not cognizable under RICO in the circuit.” Id

(citing Oscar, 965 F2d at 785).

The court agrees with Judge Keynon that Oscar forecloses

a party from pleading a RICO injury based upon injury to business

reputation. Injury to an intangible interest such as business

reputation is simply too speculative under Oscar. While Kuimelis

is correct that other courts have come out differently on the

issue, this court is bound by Ninth Circuit pronouncements. 

Because counts one through three state two cognizable

RICO injuries, the court will simply STRIKE the portions of counts

one through three that allege injury to business reputation. With

these three provisions stricken, counts one through three state a

claim under RICO and thus the Burger parties’ motion to dismiss

counts one through three of the SACC is DENIED.

B

Finally, the Burger defendants request the court,

pursuant to FRCP 12(e), to order Kuimelis to provide a more

definite statement pertaining to the eleventh cause of action in

the SACC, a claim for money had and received. Doc #460 at 11. 

Specifically, the Burger parties assert that because the eleventh

cause of action is premised on Kuimelis’ “mistake” in overCase 3:02-cv-02309-VRW Document 471 Filed 05/11/05 Page 7 of 24
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refunding monies to the Burger parties, Kuimelis is required to

plead this cause of action with particularity pursuant to FRCP

9(b). The court agrees. While it is true, as Kuimelis argues,

that California pleading law does not require pleading specificity

on this state law common count, it is federal procedure, not state

procedure, that govern pleading standards in federal court cases. 

Hanna v Plummer, 380 US 460 (1965).

The eleventh cause of action for money had and received

is devoid of any information regarding the “who, what, where, when

and how of the mistake.” Moore, Moore’s Federal Practice at §

9.02(2). Accordingly, the Burger parties’ motion for a more

definite statement is GRANTED. Kuimelis must serve and file a more

definite statement not later than May 23, 2005. FRCP 12(e). 

III

Motion to Dismiss ACC 

On July 9, 2004, Acordia filed its counterclaim against

the Burger parties. Doc #371 (ACC). The ACC alleges two causes of

action: (1) fraud and (2) declaratory relief/equitable indemnity. 

Id at 12-13, ¶¶52-60. The Burger parties move to dismiss the ACC

in its entirety. Doc #412. Alternatively, the Burger parties

request the court to order Acordia to provide a more definite

statement. Id. The motion is DENIED.

A

The Burger parties seek to dismiss Acordia’s first cause

of action for fraud on several grounds. First, the Burger parties

argue that the fraud claim does not meet the heightened pleading

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requirements of Rule 9(b). Next, they claim the alleged damages

flowing from the fraud are “special damages” and Acordia has not

met the heightened pleading requirements of Rule 9(g). The Burger

parties’ arguments fail to persuade. 

The goal of Rule 9(b) is to give defendants notice of the

particular conduct alleged to be fraudulent so that they can defend

against the charge. Semegen v Weidner, 780 F2d 727, 731 (9th Cir

1985). In addition to the usual “who and when” specifics, in

“cases concerning * * * omission of facts, Rule 9(b) typically

requires the plaintiff to plead the type of facts omitted, where

the omitted facts should have been stated and the way in which the

omitted facts made the representations misleading.” Moore, Moore’s

Federal Practice at § 9.03(b). The ACC meets these requirements in

abundance. The ACC pleads the parties to the fraud (Kuimelis and

Burger parties), the time period of the fraud and the type of facts

omitted by the Burger parties (i e, that they were helping Kuimelis

misappropriate monies due to Acordia). Moreover, the ACC asserts

that if the Burger parties had informed Acordia of these omissions,

it would have taken action against Kuimelis and the Burger parties. 

These allegations are more than sufficient to allow the Burger

parties (who are all intimately familiar with the events

surrounding this cause of action) to answer and prepare a defense

against these allegations of fraud.

Next, the Burger parties assert that the fraud damages

alleged in the ACC, namely the legal costs associated with

defending Acordia during (1) the HUD investigation and (2) the

indemnity claims brought by Kuimelis, are “special damages” and

have not been pled with the required specificity of Rule 9(g). The

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court rejects this argument under the same legal reasoning employed

in rejecting the Rule 9(g) argument offered by the Burger parties

in relation to Kuimelis’ SACC. See supra Part II(A). 

Also relating to damages, the Burger parties argue that

the ACC fraud claim must be dismissed because “it fails to allege a

definite amount of damages” as required by California law. This

argument is unavailing, for, as stated above, California pleading

law does not govern this case; federal law governs. Hanna, 380 US

460. The Burger parties offer no federal case law requiring a

party to allege a definite amount of damages.

B

Next, the Burger parties move to dismiss Acordia’s second

cause of action, which seeks recovery under an implied contractual

indemnity theory. Doc #412 at 15. Specifically, the Burger

parties argue that this claim must be dismissed because it has not

yet accrued. Id (“An indemnity claim does not accrue until after

the alleged indemnitee suffers a loss through a payment of a

judgment or settlement debt.”) (quoting Smith v Parks Manor, 197

Cal App 3d 872, 882 (1988) (emphasis in original)). The Burger

parties, however, overlook the fact that Acordia has framed the

implied contractual indemnity claim as one for declaratory relief. 

See ACC at 12-13 (“Declaratory Relief/Equitable Indemnity”). As

the court stated in its June 28, 2004, order regarding Kuimelis’

claim for implied contractual indemnity: “[A]n indemnity claim may

be brought as a declaratory action in conjunction with the

principal action.” Doc #368 at 41 (citing Allen v Southland

Plumbing, Inc, 201 Cal App 3d 60, 65 (1988)).

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Accordingly, the motion to dismiss Acordia’s second cause

of action is DENIED. Nor is it appropriate to require Acordia to

provide a more definite statement; the allegations surrounding this

claim are sufficient and far from “vague and conclusory,” as the

Burger parties contend. Doc #412 at 16.

IV

Motion to Intervene

One of the 72 property owners named as a plaintiff in the

FAC is Via Hildago Associates (VHA), a limited partnership that was

allegedly overcharged by Kuimelis. Fittingly, given the tangled

web this case presents, Kuimelis is a limited partner in VHA and,

in one more twist, EBMC is the general partner in VHA. 

Five months after the FAC was filed and almost three

months after discovery had closed, Kuimelis filed a Rule 24 motion

to intervene as a limited partner of VHA to bring a derivative suit

“assert[ing] claims on behalf of [VHA] that are not currently being

pursued by it.” Doc #345 at 5. Specifically, Kuimelis claims that

VHA has a cause of action against EBMC (as a property manager of

VHA’s property) because EBMC “converted monies (in the form of

premium returns and surcharges) from” VHA. Id at 2. Additionally,

Kuimelis’ derivative suit will bring claims against EBMC (as the

general partner of EBMC) for “breach of the duty of care and

fiduciary duty of the general partner, among other torts.” Doc

#462 at 8. Whatever the merits of this derivative suit, Kuimelis

cannot intervene to bring such a suit in this action.

The Ninth Circuit has adopted a four-part test for

deciding whether to grant an application to intervene pursuant to

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Rule 24(a):

(1) the applicant’s motion must be timely; (2)

the applicant must assert an interest relating to

the property or transaction which is the subject

of the action; (3) the applicant must be so

situated that without intervention the

disposition of the action may, as a practical

matter, impair * * * that interest; and (4) the

applicant’s interest must be inadequately

represented by the other parties.

Sagebrush Rebellion, Inc v Watt, 713 F2d 525, 527

(9th Cir 1983) (emphasis added).

Assuming arguendo that Kuimelis’ application to intervene is

timely, Kuimelis application fails the second and third Sagebrush

prongs.

First, VHA’s “interest” in the proposed derivative suit

is not related to the property or transaction which is the subject

of the FAC. In the FAC, VHA (along with other property owners)

claim that Kuimelis allegedly overcharged them. The property which

is the subject of this action is the overcharged amount and the

transaction at issue is Kuimelis’ alleged overcharging.

Accordingly, VHA’s interest in the FAC is the return of the

difference between the actual insurance premium amount and the

overcharged amount. 

In the proposed derivative suit, however, Kuimelis wants

VHA to sue EBMC for allegedly converting premium returns and

surcharges in its capacity as a property manager and a general

partner of VHA. Thus, the property at issue in the proposed

derivative suit is money that EBMC (not Kuimelis) allegedly

converted. The transaction at issue is EBMC’s failure to return

such monies to VHA. 

Accordingly, the interest, property and transaction at

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issue in the proposed derivative suit are not related to the

property or transaction at issue in the FAC. In essence, Kuimelis

seeks to introduce an entirely new and unrelated action that could

be litigated in some other suit. This is not the purpose of Rule

24. Rather, Rule 24 would allow Kuimelis to intervene if he did

not believe VHA’s interest in retrieving the overcharges allegedly

charged by Kuimelis were not being adequately represented, as such

a retrieval is the point of the FAC. Kuimelis, however, does not

make such an argument; indeed, Kuimelis appears to contend that

those interests are being represented too well (i e, VHA should not

be suing him for reimbursement at all).

Kuimelis also fails to demonstrate how VHA’s interest in

bringing suit against EBMC will be impaired if Kuimelis is not

allowed to intervene. Rather, Kuimelis explains the egregiousness

of EBMC’s alleged conversion and then jumps to the conclusion that

VHA’s interest “will be foreclosed if he is not allowed to

intervene.” Doc #345 at 15. Kuimelis misunderstands the third

Sagebrush prong. VHA’s interest is not impaired simply because

Kuimelis will have to file a separate derivative suit. To meet the

third Sagebrush prong, Kuimelis is required to demonstrate that

disposition of the current action will (1) prevent a future

derivative suit on behalf of VHA against EBMC or (2) create a

diminution in strength, value or quality of the derivative suit. 

Kuimelis does not address either of these scenarios. In other

words, it is not a “now or never” situation for Kuimelis’ proposed

derivative suit against EBMC. 

Kuimelis’ motion to intervene is accordingly DENIED.

//

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V

Motion to Disqualify

Next, Kuimelis has filed a motion to disqualify Daniel

Beck (“Beck”) as counsel for EBMC and 69 of the property owners,

including VHA. Doc #346. The motion to disqualify is deeply

intertwined with the motion to intervene discussed above. Kuimelis

argues that Beck, who represents both VHA and EBMC, should be

disqualified because he has not brought suit on behalf of VHA

against EBMC for conversion (i e, the suit Kuimelis seeks to bring

through his intervention). 

The argument goes as follows: Beck represents EBMC and

69 property owners in the suit against Kuimelis to retrieve the

alleged premium overcharges. Beck’s representation, however,

presents an actual conflict of interest because the 69 property

owners, and in particular VHA, have causes of action against EBMC

for allegedly converting money (i e, the premium returns and

surcharges). Beck, according to Kuimelis, has failed to provide

his undivided loyalty to the 69 property owners by failing to

pursue any claims against EBMC on their behalf. Id at 2. In

essence, Kuimelis claims that Beck is putting the interests of EBMC

ahead of the property owners’ interests. To be clear, Kuimelis is

seeking to disqualify Beck from representing any of the 69 property

owners; not just VHA.

Additionally, Kuimelis argues that Beck must be

disqualified because he is a percipient witness in this action;

Beck must testify regarding material issues related to Kuimelis’

affirmative defense of statute of limitations as well as alleged

conversations between Beck and Kuimelis during the HUD

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investigation. Id at 2. Neither argument is persuasive.

A

Conflict of Interest

The parties agree that Kuimelis, as a limited partner,

has standing to raise the actual conflict issue on behalf of VHA. 

EBMC argues, however, that Kuimelis lacks standing to raise any

issues regarding conflicts of interest on behalf of the remaining

68 property owners. Kuimelis counters that, although he is a “nonclient” with respect to the remaining 68 property owners, “courts

have recognized that a non-client has standing to bring a motion

[to disqualify] where * * * the attorney’s breach so infects the

litigation that it impacts that moving parties’ interests.” Doc

#407 at 10 (citing Colyer v Smith, 50 F Supp 2d 966, 971 (CD Cal

1999) and Decaview Distribution Co, Inc v Decaview Asia Corp, 2000

US Dist LEXIS 16534 (ND Cal 2000)). Regarding the 68 non-moving

property owners, Kuimelis states that “Beck’s conflict is pervasive

and infects this litigation to an extent that impacts Kuimelis’

interest.” Id. 

Assuming that such third-party standing exists as a legal

proposition, the court concludes that Kuimelis, as a limited

partner in VHA, has failed to demonstrate that he has such

standing. Kuimelis simply makes the conclusory assertion that

Beck’s alleged pervasive breach will “impact Kuimelis’ interest.” 

This conclusory statement, however, is unsupported. Assuming

Kuimelis succeeds in disqualifying Beck from representing VHA and a

new VHA lawyer brings suit against EBMC for the alleged conversion,

Kuimelis has failed to demonstrate how his interest would be

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affected by Beck’s continued representation of the remaining 68

plaintiffs. To be sure, Kuimelis goes on at quite some length

regarding Beck’s alleged wicked motive and desire to prevent these

68 property owners from recovering converted funds from EBMC. But

again, Kuimelis fails to show how this has a sufficient impact on

his interest so as to confer third-party standing upon him. 

Moreover, as discussed below, the evidence offered by Kuimelis to

“prove” that an actual conflict even exists in Beck’s dual

representation of EBMC and the property owners is quite thin.

As mentioned above the parties concede that Kuimelis has

standing to raise any conflict of interests arising from Beck’s

dual representation of EBMC and VHA. This motion is not like an

ordinary motion to disqualify which is based upon a lawyer’s former

representation of a client versus his present representation of a

client. Usually, the existence of a potential or actual conflict

is clear, as the lawyer either did or did not represent a client. 

The inquiry in these cases ordinarily proceeds to other issues such

as possession and disclosure of confidential information or whether

a valid waiver of conflicts has been obtained. 

In this case, however, the existence of a conflict is

hotly disputed. Kuimelis claims that EBMC converted funds from VHA

and thus VHA has a cause of action against EBMC, thus giving rise

to the alleged conflict in Beck’s dual representation on EBMC and

VHA. Beck and EBMC, however, vehemently deny that EBMC converted

funds from the property owners and thus argue that VHA has no cause

of action against EBMC, thus alleviating any concerns about Beck’s

dual representation. In other words, Kuimelis is moving to

disqualify Beck from representing VHA based upon VHA’s right to sue

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EBMC for conversion –- a right that only Kuimelis claims exists. 

Whether to disqualify counsel is a decision committed to

the discretion of the district court. Gas-A-Tron of Arizona v

Union Oil Co of California, 534 F2d 1322, 1325 (9th Cir 1976). 

“Because disqualification is a drastic measure, it is generally

disfavored and should only be imposed when absolutely necessary.” 

Concat LP v Unilever PLC, 350 F Supp 2d 796, 814 (ND Cal 2004)

(Illston, J). As the party seeking disqualification, Kuimelis

bears the burden of proving that disqualification is absolutely

necessary. Id. “A motion to disqualify should be accompanied by

declarations and admissible evidence sufficient to establish the

factual predicate upon which the motion depends.” Colyer, 50 F

Supp 2d at 967. Finally, “[b]ecause a motion to disqualify is

often tactically motivated and can be disruptive to the litigation

process, * * *[it] is generally disfavored.” Concat, 350 F Supp 2d

at 814. Applying these legal principles to the present motion, the

court concludes that Kuimelis has failed to come forward with

sufficient evidence to establish that an actual conflict exists and

thus he has not carried his burden of showing that disqualification

is absolutely necessary. 

Kuimelis claims that an actual conflict exists in Beck’s

representation of EBMC and VHA because “EBMC’s principal and agents

have admitted taking monies belonging to the [p]roperty [o]wners.” 

Doc #346 at 5. First, Kuimelis states that EBMC illegally kept

California worker’s compensation premium returns that were supposed

to be distributed to the property owners. Id. The only evidence

offered by Kuimelis to support this allegation is the deposition

testimony of Maureen Stroub (an EBMC agent). Doc #358 (Pav Decl),

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Ex B (Stroub Depo). 

After reading Stroub’s deposition, however, the court

disagrees with Kuimelis’ assertion that EBMC has “conceded” that it

kept these insurance premium returns. Specifically, when Stroub

was asked whether there was “any effort * * * made by EBMC to try

to allocate the [insurance premium returns] to the specific

projects that had contributed to buying that Worker’s Compensation

coverage,” Stroub responded that she “wouldn’t know about that.” 

Doc #358, Ex B at 155:22-156:3. When asked if she “even kn[e]w if

any effort was made to [allocate these return premiums] by

anybody,” Stroub responded “I don’t.” Tr at 156:7-9. From this

testimony, Kuimelis informs the court that EBMC has conceded that

it did not distribute to VHA (or the other property owners) the

insurance premium returns to which they were entitled. This

grossly exaggerates Stroub’s testimony. Stroub testified that she

“would not know” and “did not know” about any allocations of

premium returns by EBMC to the property owners. Stroub’s lack of

knowledge, however, does not lead to the conclusion that no such

allocation ever occurred.

Next, Kuimelis claims that another EBMC agent, Kristi

Wells, has “acknowledged the existence of a covert surcharge” on

the property owners’ worker’s compensation premiums and that EBMC

converted the funds produced by this surcharge to its own use. Doc

#346 at 5. In her deposition, Wells states that “[t]here was a

period of time in which the rates were adjusted by 10 percent.” 

Doc #358, Ex A (Wells Depo) at 979:13-14. Wells states that “[i]t

was recommended by Mike Kuimelis that we add ten percent on the

payroll to help for anticipated increases that we were going to be

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hit with * * *. [It was done] to assist the properties with the

potential increase that they were going to be having.” Tr at

980:1-7. When asked what became of these “10 percent amounts,”

Wells stated that she did not know. When specifically asked if she

knew if these extra funds were indeed ever “used to assist with

anticipated premium increases,” Wells again stated that she did not

know. Id at 8-16. 

From this testimony, Kuimelis asserts that EBMC has

conceded that it (1) charged a 10 percent “covert” surcharge on all

premiums it charged the property owners and (2) converted this

extra money to EBMC’s own use. Doc #346 at 5. Again, this

conclusion stretches Wells’ testimony beyond recognition; there is

no discussion whether the property owners knew of this 10 percent

adjustment nor is there any indication that Wells knew what was

eventually done with the money produced from the surcharges.

Accordingly, the evidence offered by Kuimelis to prove

that VHA and the other 68 property owners have a cause of action

against EBMC is extremely thin and far from compelling. Moreover,

this evidence is the only evidence offered, apart from Kuimelis’

conclusory allegations of EBMC’s dastardly acts and improper

motive. This evidence does not satisfy Kuimelis’ burden of

demonstrating that the “drastic remedy” of disqualifying Beck from

representing VHA is “absolutely necessary.”

B

Beck as Witness

Finally, Kuimelis argues that even if no conflict exists,

Beck’s disqualification is “mandated by the fact that he is a

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percipient witness to the events in this action.” Doc #346 at 11. 

First, Kuimelis claims that Beck will have to testify regarding

conversations between Beck, Kuimelis and Kuimelis’ then-attorney

that occurred during the HUD investigation and prior to Burger’s

indictment. Specifically, Kuimelis states that he showed Beck

drafts of letter responses to HUD inquiries and that Kuimelis spoke

with Beck concerning “Burger’s state of mind with respect to the

charging of service fees.” Doc #346 at 11. Next, Kuimelis claims

that Beck is a material witness to support Kuimelis’ statute of

limitations defense against the 72 property owners’ claims for

conversion. Id. Kuimelis does have standing to bring this motion,

as it “directly affects his access to evidence and the orderly

conduct of the trial of this action.” Colyer, 50 F Supp 2d at 974. 

The court will address the last argument first. Kuimelis

correctly states that the 72 property owners were not “named”

plaintiffs until the FAC was filed on December 1, 2003; the first

four amended complaints simply named Burger and EBMC and stated

that they were suing on behalf of the 72 property owners. EBMC

claimed it could sue on behalf of the property owners because EBMC

was either the general partner or property manager for each owner. 

Kuimelis claims that because the property owners were not

explicitly “named” until December 1, 2003, all of their claims are

barred by the statute of limitations, which expired in May 2003. 

According to Kuimelis, Beck will have to testify regarding these

“disputed” dates because, “as [the property owners’] purported

attorney, Beck’s failure to name the [property owners] as parties

until after the statute of limitations ran on their claims may be

imputed to the client for statute of limitations purposes.” Doc

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#346 at 14. 

Beck will not need to testify regarding Kuimelis’ alleged

statute of limitations defense, for the court has already decided -

- as a matter of law -- that the substitution of the property

owners in the FAC relates back to the filing of the initial

complaint. See Doc #361 (6/1/04 Order) at 11 (“The court concludes

under FRCP 15(c)(3) that the claims of the [property owners] relate

back to the filing of the original complaint.”).

Finally, Kuimelis claims that Beck will have to testify

regarding alleged conversations between Beck, Kuimelis and

Kuimelis’ previous counsel that occurred prior to the filing of

this lawsuit. It is clear, however, that Kuimelis has waived his

right to object to this potential witness conflict. “It is wellsettled that a [party] who is entitled to object to an attorney

representing an opposing party * * * but who knowingly refrains

from asserting it promptly is deemed to have waived that right.” 

Trust Corp of Montana v Piper Aircraft Corp, 701 F2d 85, 87 (9th

Cir 1983) (citation omitted).

Kuimelis himself rings the death knell on this

disqualification ground by stating that “Beck will be a material

witness at trial [and] [h]e has been on notice of this possibility

since his discussions with Kuimelis during the HUD investigation

leading up to Burger’s indictment” in 1999. Doc #346 at 11

(emphasis added). While this statement was no doubt offered to

support Kuimelis’ disqualification argument, the statement cuts

both ways; if Beck has been on notice of this potential conflict

since 1999, then so was Kuimelis when this action was first filed

in state court in 1999 and removed to this court in 2002.

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Rather then asserting, or even mentioning this alleged

conflict, Kuimelis allowed Beck to take 18 depositions, attend over

20 court proceedings and defend numerous motions to dismiss; all

without a single word about Beck having to testify. This 4 1⁄2 year

delay not only evidences a waiver of Kuimelis’ right to object on

this ground, but it also calls into question the propriety of

Kuimelis’ motive in seeking presently to disqualify Beck. 

Moreover, it goes without saying that disqualifying Beck

less than two months before summary judgment motions are due in

this complicated action would work a substantial hardship on the

Burger parties. Accordingly, Kuimelis’ motion to disqualify Beck

is DENIED.

VI

Finally, the Burger parties move the court for an order

dropping plaintiff Apollo pursuant to FRCP 21. Doc #437. 

Originally, the motion was brought pursuant to FRCP 41(a)(2), but

the Burger parties have sinced realized their mistake and now couch

the motion as a Rule 21 motion. Doc #464. The parties agree that

Apollo is misjoined in the FAC. What the parties disagree on,

however, is how the court should remedy this misjoinder. 

Prior litigation between Apollo, Burger, EBMC, B-C

Housing and other parties resulted in a negotiated settlement. 

Pursuant to that settlement, Apollo made a retroactive assignment

of rights and responsibilities to B-C Housing, a limited

partnership in which Alston Bruner is the general partner. 

Accordingly, both parties concede that the only person authorized

to sue on behalf of Apollo is Bruner. The Burger parties claim

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that: 

[d]ue to inadvertence and innocent mistake, [Beck]

failed to apprehend this transfer of interest [and]

erroneously believed that EBMC remained the

managing partner of Apollo. Acting in accordance

with this misconception, counsel for EBMC named

Apollo as a party to this suit without the

authorization of Mr Bruner * * *. 

Doc #436 at 3.

Kuimelis argues that the court should not drop Apollo. 

Specifically, he claims that in his forthcoming motion for summary

judgment, he intends to argue for the disposition of the FAC based

upon, among other things, EBMC and Beck’s “failure to secure

ratification of the lawsuit by the [property owners] after full

disclosure of the controversies surrounding this litigation before

joining them as parties pursuant to Rule 17(a).” Doc #440 at 5. 

Kuimelis plans to use the misjoinder of Apollo as evidence that

Beck “unilaterally added the [property owners] without their

knowledge or consent.” Id at 7. Dropping Apollo would, according

to Kuimelis, allow Beck and EBMC “to moot the blatant misconduct he

has proven EBMC and Beck have engaged in during this litigation.” 

Id at 8.

To force Bruner to remain in this lawsuit is unwarranted

under these circumstances. The court GRANTS the motion to drop

Apollo as a plaintiff in the FAC. 

VII

In sum, the court DENIES the Burger parties’ motion to

dismiss the SACC (Doc #410) and STRIKES ¶¶ 93, 99 and 105 inasmuch

as they allege injury to Kuimelis’ business reputation. The court

GRANTS the Burger parties’ motion for a more definite statement

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regarding the SACC’s eleventh cause of action (Doc #410), Kuimelis

must serve and file a more definite statement not later than May

23, 2005. The court DENIES the Burger parties’ motion to dismiss

the ACC and DENIES the motion for a more definite statement (Doc

#412).

The court DENIES Kuimelis’ motion to intervene (Doc #345)

and DENIES his motion to disqualify Beck (Doc #346). Finally, the

court GRANTS the Burger parties’ motion to drop Apollo (Doc #436).

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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