Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_14-cv-01092/USCOURTS-casd-3_14-cv-01092-2/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332 Diversity-Breach of Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

THREE RIVERS PROVIDER

NETWORK, INC.,

Plaintiff,

CASE NO. 14cv1092 JM(KSC)

ORDER DENYING MOTION TO

STAY; GRANTING LEAVE TO FILE

vs. THIRD-PARTY COMPLAINT 

JETT INTEGRATION and JEFF OTT,

Defendants.

_______________________________

JETT INTEGRATION,

 Counterclaimant,

 vs.

THREE RIVERS PROVIDER

NETWORK, INC.

 Counterdefendant.

Counterclaimant and Defendants Jett Integration, Inc. (“Jett”) and Jeff Ott

(“Ott”) move to stay this action or, alternatively, to file a Third-Party Complaint to

Name Jeff Sodeman as a third-party defendant. Plaintiff and Counterdefendant Three

1

The court notes that defendants erroneously refer to the motion as one for leave

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to file amended counterclaims. The court notes that the Federal Rules of Civil

Procedure identify that defendants’ motion is properly called a motion for leave to file

third-party complaint. Fed.R.Civ.P. 14(a)(1). The court also notes that the parties

erroneously refer to themselves as cross-complaintant and cross-defendant. Under the

federal rules, these parties are more properly designated as counterclaimant and

counterdefendant. 

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Rivers Provider Network, Inc. (“TRPN”) opposes both motions. Pursuant to Local

Rule 7.1(d)(1), the court finds the matters presented appropriate for decision without

oral argument. For the reasons set forth below, the court denies the motion to stay and

grants the motion to file an amended counterclaim.

BACKGROUND

On October 11, 2013, in the United States District Court for the District of

Nevada, TRPN commenced this action seeking legal, equitable, and injunctive relief. 

On October 30, 2014, the action wastransferred to the present judicial district pursuant

to a forum selection provision in an agreement between the parties. 

The complaint alleges eight claims for relief: declaratory relief, breach of

contract, civil conspiracy to breach fiduciary duty, fraud, civil conspiracy/conversion

of corporate funds, civil conspiracy/conversion of corporate property, civil RICO, and

unjust enrichment. (Ct. Dkt. 1). The following allegations overlap with those in two

related cases, one a federal criminal prosecution pending in thisjudicial district, United

States of America v. Blaine Pollock, Case No. 12cr4599 MMA, (the “Federal Criminal

Action”), and the other pending in the Superior Court of the State of California for the

County of San Diego, Three Rivers Provider Network, Inc. v. Ronson Shamoun, Todd

Breeden, and Law Offices of Ronson Shamoun, Case No. 37-2012-00090505-CU-BTCTL (the “State Action”), as more fully discussed below.

The Complaint

TRPN is a Nevada corporation with its principal place of businessin Henderson,

Nevada. TRPN is in the technology hosting services business. Among other things,

the software used by TRPN “contains highly sensitive data, including medical records

of patients, billing records of providers, rates of repayment with medical providers,

rates of reimbursement to clients, and a wide range ofsensitive, private, privileged and

trade secret data.” (Compl. ¶5). Prior to 2007 TRPN used a third-party hosting

company “to protect and safeguard TRPN’s access to the software and technology

services needed to effectuate the everyday aspects of the business.” Id. 

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In 2007 a former Chief Operating Officer (“COO”) of TRPN, Todd Breeden, and

Jeff Ott, then an employee of the company retained to host TRPN’s technology

services, allegedly represented to TRPN that the hosting company could no longer

provide the services required by TRPN and was unilaterally terminating the servicing

arrangement. (Compl. ¶6). TRPN alleges that the representations were a “lie,” and

that Breeden himself terminated the contract and then conspired with Ott to “use

control over the technology accessed and used by TRPN to loot the company of

millions of dollars, essential trade secrets, and software systems.” Id.

Breeden, Ott, and Jett allegedly “promised to safeguard the trade secrets of the

company by hosting its technology and servers.” TRPN alleges that it was over-billed

by about $1.2 million “in order to fund a competitor business Breeden and Ott would

co-own.” (Compl. ¶7). In order to make the conspiracy work, TRPN alleges that “Ott

needed to misuse his access to the technology to enable Breeden to steal the trade

secrets of the business, including client rate data, client contractual terms, customer

contractual terms, software access terms, and other trade secrets of the business.” 

(Compl. ¶8). 

In order to obtain TRPN’s trade secrets, in 2010, Ott met with Jeff Sodeman,

discussed the objectives ofthe alleged conspiracy, and “used Sodeman to steal the code

of the technology.” ¶9). In 2011, Breeden caused TRPN to hire Sodeman as someone

who could “upgrade” TRPN’s technology but, in reality, Sodeman would

misappropriate the technology. In the summer of 2011, Sodeman left his employment

position with TRPN and began working for the competitor business created by Breeden

and Ott, America’s Choice Provider Network (“ACPN”). Sodeman received a salary

of $200,000 per year and 8% ownership of ACPN - a company that both Breeden and

Ott allegedly believed could be worth about $100,000,000 by 2012.

TRPN alleges that Ott controlled more than 40% of the shares of ACPN. Ott

allegedly used the stolen technology from TRPN to capitalize ACPN and enable

“Breeden to steal trade secrets . . . and practically all of the company’s intellectual

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property and licenses, to put ACPN on ‘equal’ footing with TRPN.” (Compl. 10).

Not only did Ott allegedly conspire with Breeden to misappropriate TRPN’s

trade secrets and technology, but he also allegedly conspired with Breeden’s attorney,

Ronson Shamoun, “to falsify allegations against TRPN, with the intention of causing

TRPN to fail, and promising third party potential investors in ACPN that they could

cause TRPN’s failure and then ‘step in the shoes’ of TRPN.” (Compl. ¶12). At about

thissame time, Jett, through Ott, allegedly “lied to TRPN, telling TRPN officers he had

nothing to do with ACPN or any competitor business.” (Compl. §13). TRPN alleges

that Breeden paid Shamoun more than $373,000 in legal fees from TRPN funds which

“in fact were intended to and did, capitalize a competitor business of TRPN. Shamoun

owns 10% of ACPN through his wife, and further provides office space for ACPN in

a building owned by him, purchased by moneys paid to him from TRPN.” (Compl.

¶15).

Jett’s Counterclaims 

On May 14, 2014, Jett filed a countercomplaint alleging three claims for relief:

breach ofthe Managed ServicesContract, breach ofthe Hosting ServicesContract, and

breach of the covenant of fair dealing and good faith. (Ct. Dkt. 35). Jett alleges that

it entered into two different contracts with TRPN, one called a Managed Services

Contract and the other called a Hosting Services Contract. Jett alleges that it complied

with its contractual obligations and that TRPN owes $14,524 under the Managed

Services Contract and $65,425 under the Hosting Services Contract.

On June 4, 2014, TRPN filed an answer to the counterclaims. TRPN generally

denies the material charging allegations.

The Federal Action

On June 27, 2013, the United States filed a criminal complaint against Blaine

Pollock, principal and founder of TRPN. The Superseding Indictment, filed on June

27, 2013, alleges thirteen counts for filing false tax returns in violation of 26 U.S.C.

§7206(1), aiding and abetting in violation of 18 U.S.C. §2, aiding and assisting in the

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filing of false tax returns in violation of 26 U.S.C. §7206(2), and conspiracy in

violation of 18 U.S.C. §371. 

In broad brush, the Superseding Indictment alleges that Pollock under reported

his personal income for tax years 2006-2009 (Counts 1 to 4), aided and assisted in

preparing materially false and misleading tax returns for TRPN for tax years 2006-2009

(Counts 5 to 8), aided and assisted in preparing materially false and misleading tax

returnsfor ManagedCare Strategies, Inc. for tax years 2006-2009 (Counts 9 to 12), and 

conspired to impede, obstruct, and defeat the functions of the Internal Revenue Service

in the ascertainment, computation, assessment and collection of income taxes. 

The State Action

On June 12, 2012, TRPN commenced an action against Breeden, Ronson

Shamoun, and the Law Offices of Ronson Shamoun. The complaint alleges eight

claims for relief against Shamoun and the Law Offices of Ronson Shamoun:

declaratory relief, breach of contract, breach of fiduciary duty, civil conspiracy, fraud,

civil conspiracy/conversion, civil conspiracy/conversion, and professional malpractice.

The complaint also alleges four claims against Breeden: declaratory relief, conversion,

intentional misrepresentation, and conspiracy to commit conversion. (Exh. A). 

In broad brush, TRPN alleges that Breeden falsely represented that he was

college educated with significant COO skills. In fact, TRPN alleges that Breeden

possessed only a high school education and little experience in accounting. TRPN did

not discover the alleged true facts until Breeden voluntarily departed in 2011; and

TRPN commenced a counseled investigation that discovered Breeden’s alleged

wrongdoing. (State Complaint, “State Compl.” ¶5). During his employment with

TRPN, the complaint alleges: 

After successfully obtaining employment, Breeden, between 2005 and

2011, routinely diverted money fromTRPN to himself personally through

payments to various entities, unilateral acceptance of certain credits,

provisioning of other personal benefits, each of which he failed to report

as personal income, which he further failed to report to TRPN. Breeden

accomplished the scheme by diverting the corporate records ofthese other

entitiesto his personal residence and away from the business, while using

separate accountants other than the corporate accountants for these

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payments, deceiving corporate auditors, attorneys and accountants about

his course of conduct. Breeden then falsified tax returns to avoid paying

tax on the moneys received, perjured the returns, failed to pay the tax due,

and precipitated an IRS inquiry.

(State Compl. ¶6). 

Shamoun and the Shamoun Law Offices purported to jointly represent Breeden

and TRPN in any investigation. TRPN alleges that Shamoun and Breeden, in fact, sold

corporate assets and “sought to create a cash pile from company resources and sale of

corporate assets that Breeden and Shamoun intended to use to enrich themselves from

liquidated assetssecuritizing certain business needs, while promising the company this

was the proper strategy to deal with pending matters, recommending a distressed sale

of substantial assets intended to securitize and collateralize corporate obligations and

business needs.” (State Compl. ¶20). To sell the assets, “Shamoun asked Breeden to

obtain and access corporate and privileged information about Pollock’s intentions and

relations. Recommending Breeden get Pollock to use Shamoun’s personal broker for

such sales and transactions” in order to reap a kickback from the sale of assets. Id. 

After attempting to broker sales of certain assets, Shamoun then allegedly issued false

invoices for work never performed by Shamoun, “some of which was for Breeden’s

personal legal cost and embezzled on Breeden’s behalf and some of which was for

Shamoun’s own self-enrichment.” (State Compl. ¶31). During this period of time,

Breeden was under investigation by the IRS.

In October 2011, TRPN and Pollock retained new counsel to represent them in

all IRS matters. New counsel discovered massive deductions never taken by Breeden. 

In November 2011 Breeden demanded that Shamoun be paid $73,000 or he “would be

negative about TRPN to the public.” One week later, Breeden resigned. 

On October 18, 2013, Breeden moved to stay the State Action on the ground that

there was a threat of a criminal action against him and that he was entitled to stay the

State Action pending the expiration ofthe criminal proceedingsin the FederalCriminal

Action. In that action, the lead United States Attorney, David Leshner, declared that

civil discovery in the State Action posed a risk of adversely affecting the federal

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criminal prosecution. On March 6, 2014, Judge Katherine Bacal stayed the action for

six months noting, based upon the declaration of David Leshner, that civil discovery

would pose a risk of adversely affecting the Federal Criminal Action. (Ott Exh. D). 

DISCUSSION

The Motion to Stay

Defendants move the court to abstain fromexercising jurisdiction pursuant to the

doctrine identified in Colorado River Water Conservation v. United States, 424 U.S.

800 (1976) or, alternatively, to stay the action on grounds that Breeden is facing

possible criminal proceedings and may assert his Fifth Amendment rights. Each

argument is discussed in turn. 

The Colorado River Doctrine

Federal courts have a “virtually unflagging obligation” to exercise the

jurisdiction conferred upon them. Colorado River, 424 U.S. at 817. Therefore, a stay

of an action is appropriate only under exceptional circumstances. Id. at 813. Under the

Colorado River doctrine, a federal court may abstain from exercising its jurisdiction

in favor of parallel state proceedings where doing so would serve the interests of

“[w]ise judicial administration, giving regard to the conservation of judicial resources

and comprehensive disposition of litigation.” Id. at 818; see Moses H. Cone Mem.

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15 (1983). “Exact parallelism” between

the state and federal actions is not required; it is enough if the two actions are

“substantially similar.” Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989). 

Courts consider several non-exhaustive factors in determining whether to stay

or dismiss under Colorado River: (1) whether the state court first assumed jurisdiction

over property; (2) inconvenience of the federal forum; (3) the desirability of avoiding

piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent

forums; (5) whether federal law orstate law providesthe rule of decision on the merits;

(6) whether the state court proceedings are inadequate to protect the federal litigant's

rights; (7) whether exercising jurisdiction would promote forum shopping; and (8)

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whether the state court proceedings will resolve all issues before the federal court. See

Moes H. Cone, 460 U.S. at 15-16; Holder v. Holder, 305 F.3d 854, 870 (9th Cir. 2002); 

R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966, 978–79 (9th Cir. 2011). These

factors should be weighed in a “pragmatic, flexible manner with a view to the realities

of the case at hand” and “with the balance heavily weighted in favor of the exercise of

jurisdiction.” Moses, 460 U.S. at 16, 21. Factors that are irrelevant to the particular

inquiry are disregarded. See Nakash, 882 F.2d at 1415 n.6.

Upon consideration of the high legal standard and the relevant factors, the court

finds that the circumstances surrounding this case are not so exceptional as to warrant

abstaining under Colorado River. The balance already is “heavily weighted in favor

of the exercise of jurisdiction,” Moses, 460 U.S. at 16, and a majority of the relevant

factors support retaining jurisdiction over the action. The court notes that the parties

in the two actions are different. The claims against Breeden and Shamoun in the State

Action will not resolve the claims against Jett and Ott in this action. The State Action

will not afford TRPN relief for the harm allegedly caused by Jett and Ott. While there

is some overlap in the factual circumstances between the two cases, the court has

substantial doubt that the State Action will be an adequate vehicle to grant TRPN

complete and prompt relief. Further, litigating in this forum is as convenient for

witnesses asit isin the Superior Court, located acrossthe street fromthe Federal Court. 

While there is overlap between the two actions, and in this sense may constitute

“piecemeal litigation,” avoidance of piecemeal litigation is not a sufficient reason by

itself for a federal court to refuse to exercise its jurisdiction. In Colorado River, the

Supreme Court found that the McCarran Amendment at issue expressed the clear

federal policy to avoid the piecemeal adjudication of water rights in a river system. Id.

at 819. Here, in contrast to Colorado River, there is no identified federal policy

expressly seeking to avoid piecemeal litigation. TRPN’s claims primarily arise under

state law (the only federal claim is for the alleged violation of civil RICO). This court

is obligated to provide a complete and prompt resolution of all claims, both state and

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federal. See Intel Corp. v. Advanced MicroDevices, Inc., 12 F.3d 908, 915 (9th Cir.

1993). 

Under these circumstances, the court finds that, on balance, factors of “wise

judicial administration” do not favor invoking the Colorado River doctrine.

Potential Future Criminal Proceedings

Defendants argue that criminal charges may be brought against Breeden. 

Moreover, as Breeden will likely invoke the Fifth Amendment, Defendants conclude

that a stay of this action is warranted pending resolution of the Federal Action. 

Defendants present no evidence that Breeden is either a target in any criminal

proceeding or that Breeden would not comply with the discovery obligations of the

Federal Rules of Civil Procedure. 

In the ordinary course, the Constitution does not require a stay of civil

proceedings pending the outcome of criminal proceedings. Keating v. Office of Thrift

Supervision, 45 F.3d 322, 324 (9th Cir. 1995). “In the absence ofsubstantial prejudice

to the rights of the parties involved, [simultaneous] parallel [civil and criminal]

proceedings are unobjectionable under our jurisprudence.” “Nevertheless, a court may

decide in its discretion to stay civil proceedings ... ‘when the interests of justice seem

[ ] to require such action.’” Id. (Citations omitted). 

The decision whether to stay civil proceedings in the face of a parallel

criminal proceeding should be made “in light of the particular

circumstances and competing interests involved in the case.” This means

the decisionmaker should consider “the extent to which the defendant's

fifth amendment rights are implicated.” Id. In addition, the

decisionmaker should generally consider the following factors: (1) the

interest of the plaintiffs in proceeding expeditiously with thislitigation or

any particular aspect of it, and the potential prejudice to plaintiffs of a

delay; (2) the burden which any particular aspect of the proceedings may

impose on defendants;(3) the convenience ofthe court in the management

of its cases, and the efficient use of judicial resources; (4) the interests of

persons not parties to the civil litigation; and (5) the interest of the public

in the pending civil and criminal litigation. 

Id. at 324-25.

Upon consideration of relevant factors, the court finds that it is not in the

interests of justice to stay the action. TRPN has a strong interest in pursuing its claims

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for relief to address alleged wrongs; Defendants cannot demonstrate any prejudice as

Breeden is not a party nor is there any indication that Breeden would invoke his Fifth

Amendment rights to frustrate discovery; this court’s use ofjudicial resources, whether

the action is stayed or not, is neutral at best; and both the parties and the public have

an interest in resolving civil cases expeditiously. 

In sum, the court denies the motion to stay. 

The Motion for Leave to File Third-Party Complaint

Pursuant to Fed.R.Civ.P. 14(a)(1), Defendants move for leave to file a third-party

complaint against Sodeman. Rule 14(a)(1) provides, in pertinent part, that with the

court’s leave, “a defending party may, as third-party plaintiff, serve summons and

complaint on a non party who is or may be liable to it for all or part of the claim against

it.” Accordingly, a third-party claim may be asserted under Rule 14(a)(1) only when

the third-party's liability is in some way dependent on the outcome of the main claim,

or when the third-party is secondarily liable to the defending party. See Stewart v.

American Int'l Oil and Gas Co., 845 F.2d 196, 199–200 (9th Cir.1988). In other

words, a defendant bringing a third-party claim must be attempting to transfer to the

third-party a liability asserted by the original plaintiff against that defendant. Id. at 200;

C. Wright, A. Miller, M. Kane, R. Marcus, 6 Federal Practice and Procedure (3d

ed.2011) § 1446. 

Whether to grant a Rule 14(a)(1) impleader motion rests in the sound discretion

of the trial court. United States v. One Mercedes Benz, 708 F.2d 444, 452 (9th Cir.

1983). In a non-exhaustive list of considerations, the court will seek to balance the

benefits afforded by liberal federal third-party practice against the possible prejudice

to the plaintiff and the third-party defendant, complexity of the issues, likelihood of

delay, and timeliness of the motion to implead. See Irwin v. Mascott, 94 F.Supp.2d

1052, 1056 (N.D. Cal. 2000).

Here, Defendants satisfy the requirements for impleader. With respect to the

Rule’s derivative liability requirement, the substantive basis for TRPN’s complaint is

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that Sodeman wasthe individual that TRPN alleges misappropriated its technology on

behalf of Defendants and himself and received financial benefit for the alleged

misappropriation. Defendants deny having converted TRPN’s property or instructing

Sodeman to do so. The allegations set forth in the proposed third-party complaint

could possibly impose some liability arising in tort or contract. Accordingly, without

addressing the merits or ultimate viability of the third-party complaint, this threshold

requirement is satisfied.

In regard to timeliness and prejudice, the court grants the motion. This case is

still early in the discovery phase, TRPN will not be prejudiced as it alleges that

Sodeman was the party who misappropriated the technology, Sodeman’s joinder will

not substantially complicate the action, and the impact on the timely resolution of this

case will not be seriously compromised. The court concludes that the judicial economy

benefits of allowing Defendants to implead Sodeman outweigh undue delay and

prejudice to TRPN.

In sum, the court denies the motion to stay and grants the motion to implead

Sodeman. Defendants are instructed to separately file the third-party complaint and to

effectuate service within 14 days of entry of this order.

IT IS SO ORDERED.

DATED: February 27, 2015

 Hon. Jeffrey T. Miller

 United States District Judge

cc: All parties

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