Mystica Fleury vs Byron Richard Tarnutzer et al

Case Number

22CV02886

Case Type

Hearing Date / Time

Fri, 08/23/2024 - 10:00

Nature of Proceedings

Motion to Lift Stay and Sever or Bifurcate

Tentative Ruling

For all reasons discussed herein, the motion of plaintiff to modify or lift the stay and sever or bifurcate causes of action is granted subject to any future procedurally and substantively appropriate motion for a protective order which may be filed by defendants. The stay of this action is vacated.

Background:

Briefly and as relevant here, on July 26, 2022, plaintiff Mystica Fleury (Fleury) filed her original complaint against defendants Byron Richard Tarnutzer aka Rick Tarnutzer (Rick), Vonna Carol Tarnutzer (Vonna), and American Interior (collectively, defendants) alleging nine causes of action: (1) breach of contract (against all defendants); (2) breach of the covenant of good faith and fair dealing (against all defendants); (3) violation of Business and Professions Code section 7000 et seq. (the Contractors State License Law) (against all defendants); (4) negligence – construction defect (against all defendants); (5) fraud (against all defendants); (6) unlawful, unfair, or fraudulent business practices (against all defendants); (7) recission and restitution (against all defendants); (8) accounting (against all defendants); and (9) recission of loan agreements and restitution (against Rick only). (Note: To avoid confusion due to common surnames, the Court will at times refer to defendants by their first names. No disrespect is intended.)

On October 10, 2022, Rick and Vonna (collectively, the Tarnutzers) filed a demurrer to, and a motion to strike claims for punitive damages alleged in, the complaint.

On January 23, 2023, Fleury filed a first amended complaint (the FAC) alleging nine causes of action against defendants: (1) breach of contract - services (against defendants); (2) breach of the covenant of good faith and fair dealing – services (against defendants); (3) violation of the Contractors State License Law (against defendants); (4) negligence – construction defect (against defendants); (5) concealment (against defendants); (6) unlawful, unfair, or fraudulent business practices (against defendants); (7) accounting (against defendants); (8) breach of contract – loan agreement (against Rick only); and (9) false promise – loan agreement (against defendants).

The Tarnutzers filed notices taking their demurrer and motion to strike filed on October 10, 2022, off-calendar. On June 30, 2023, the Tarnutzers filed a demurrer to, and a motion to strike Fleury’s claim for punitive damages alleged in, the FAC.

On August 24, 2023, pursuant to a stipulation by the parties filed on August 22, 2023, Fleury filed a second amended complaint (the SAC) alleging nine causes of action: (1) breach of contract - services (against defendants); (2) breach of the covenant of good faith and fair dealing – services (against defendants); (3) violation of the Contractors State License Law (against defendants); (4) negligence – construction defect (against defendants); (5) concealment/fraud (against defendants); (6) unlawful, unfair, or fraudulent business practices (against defendants); (7) accounting (against defendants); (8) breach of contract – loan agreement (against Rick only); and (9) false promise – loan agreement (against Rick only).

On August 28, 2023, the Tarnutzers filed notices taking their demurrer to, and motion to strike punitive damages claims from, the FAC off calendar. On September 25, 2023, the Tarnutzers filed a demurrer to, and a motion to strike the claim for punitive damages alleged in, the SAC. Fleury opposed the September 25, 2023, demurrer and motion to strike of the Tarnutzers.

On November 3, 2023, the Tarnutzers filed a motion for an order to stay this action (the motion to stay) or, alternatively, for a protective order barring the discovery of all matters for which the Tarnutzers were facing pending or potential criminal prosecution. The motion to stay of the Tarnutzers was based on the results of a purported investigation by the Contractors State License Board (the CSLB) recommending criminal prosecution of the Tarnutzers, the filing of a misdemeanor complaint by the City of Santa Barbara (the City) on September 28, 2023, and notices issued to Vonna from the California Department of Industrial Relations Labor Commissioner’s Office regarding the filing of claims by persons alleging nonpayment of wages. (November 3, 2023, Notice of Motion.) The motion to stay was opposed by Fleury.

On January 12, 2024, the Court issued its Minute Order overruling the demurrer of the Tarnutzers to, and denying the Tarnutzers’ motion to strike claims for punitive damages from, the SAC. The SAC is the operative pleading in which Fleury alleges:

In May 2020, Rick contacted Fleury with a plan for Fleury to purchase real property located next door to Rick at 546 Owen Road in Santa Barbara, California (the property). (SAC, ¶¶ 2, 10.) Though Fleury was skeptical because the property was rundown, Rick assured Fleury that he had a crew that would be able to remodel the property quickly and efficiently. (Id. at ¶ 10.) Rick also told Fleury that because he and Vonna, who does business as American Interiors, have remodeled many homes and Rick is an experienced builder, he would manage and run the project which would be straightforward and not require permits because, according to Rick, permits would slow the process down. (Id. at ¶ 4 & 10.) Rick also coached Fleury to tell anyone who asked that Fleury was an owner/builder when in fact Rick was taking on the project as a general contractor. (Id. at ¶ 10.)

Fleury purchased the property on November 24, 2020, and entered into an oral agreement with defendants (the agreement) under which defendants agreed to perform design and construction work at the property with an estimated completion date of June 2021. (SAC, ¶ 11.) The work to be performed by defendants required a general contractor’s license which defendants did not have. (Ibid.) In addition, Fleury agreed to reimburse defendants for the cost of the work with the understanding that defendants would not charge a fee for acting as general contractor. (Ibid.) Defendants did not provide Fleury with a total price for the work performed even though they represented multiple times that they would provide a budget to Fleury. (Ibid.) Under the agreement, the work was required to be up to code, timely performed, and photographed before walls were closed in. (Ibid.)

On February 24, 2022, a subcontractor informed Fleury that defendants had not paid them for their work and that Vonna had instructed all workers and subcontractors not to speak with Fleury about money. (SAC, ¶¶ 14 & 17.) On March 9, 2022, Fleury asked Rick for photos of the project which were never provided. (Id. at ¶ 15.) Fleury was scheduled to meet with Vonna on March 12, 2022, to review defendants’ invoicing but the meeting never took place. (Id. at ¶ 16.) Though Vonna promised to provide Fleury with backup documentation for the project such as invoices and proof of payments made by defendants, defendants failed to provide the backup documentation. (Id. at ¶ 21.) 

On March 17, 2022, Fleury showed a subcontractor a summary of defendants’ billing rates for hourly workers at the project that Fleury had received from defendants. (SAC, ¶ 18.) This subcontractor told Fleury that, except for himself, the other workers on the job were not being paid at the rates reflected in the summary. (Ibid.) Fleury believes that defendants charged her a fee for acting as general contractor but were failing to pay workers and subcontractors despite Fleury having paid for the work. (Id. at ¶ 22.)

Fleury paid approximately $1,492,066.09 to the defendants for the project, which is still not complete. (SAC, ¶ 25.) Defendants did not disclose to Fleury that they did not hold a valid contractor’s license, failed to obtain necessary permits, improperly charged Fleury a general contractor fee, and charged Fleury on a time and material basis. (Id. at ¶ 24(c)-(d), 46 & 48-49.) In addition, the project was left in a defective condition. (Id. at ¶¶ 24(e) & 41-42.) Though Fleury requested a complete accounting of income and expenses on the project on April 14, 2022, defendants refused to so account. (Id. at ¶ 61.)

In addition, in March 2021, Rick suggested that he had an investment opportunity and requested that Fleury loan him money with “tax free” interest to be earned by Fleury. (SAC, ¶ 65.) On March 15, 2021, Fleury agreed to lend Rick the sum of $1,250,000 at an interest rate of five percent per annum. (Id. at ¶ 66.) On May 6, 2021, Fleury agreed to lend to Rick the additional principal sum of $500,000, at the same interest rate. (Id. at ¶ 67.) On that date, defendants executed a promissory note in favor of Fleury in the sum of $1,750,000 at the same interest rate, with a maturity date of June 30, 2024 (the promissory note). (Id. at ¶ 68 & Exh. 1.) Rick failed to timely make interest only installments under the terms of the promissory note when due. (Id. at ¶¶ 70 & 79.)

On February 2, 2024, the Court issued its Minute Order (the Stay Order) granting the motion to stay and ordering this action stayed until July 26, 2026, or upon further order of the Court. (See also Feb. 7, 2024, Order Granting Stay.)

On June 26, 2024, Fleury filed a motion (the motion to modify) for an order to modify the stay imposed under the Stay Order as to the “remodel” causes of action alleged in the SAC to permit Fleury to take the depositions of third party witnesses and to conduct limited discovery as to defendants. In the motion to modify, Fleury also requests an order to sever or bifurcate, and lift the stay as to, the eighth and ninth causes of action alleged in the SAC.

As ostensible grounds for the motion to modify, Fleury asserts that the misdemeanor complaint filed by the City on September 28, 2023, and referenced in the Stay Order, has been resolved. (Memorandum at p. 1, ll. 14-19.) Fleury further asserts that she has been served with notices from the City regarding unpermitted work on the property and that the City requires information which will necessitate that she conduct discovery. (Id. at p. 1, ll. 20-26 & p. 2, ll. 1-5.) In addition, Fleury contends that any concerns with respect to whether the eighth and ninth causes of action implicate privileged matters can be resolved by bifurcating or severing these causes of action, or amending them to strike references to the remodel of the property. (Id. at p. 2, ll. 6-18.) Fleury also proposes a protective or pretrial order prohibiting Fleury from seeking discovery regarding any alleged unlicensed activity by defendants. (Id. at p. 2, ll. 18-20.)  

In her supporting declaration, Fleury describes the circumstances under which she loaned the sums of $1,250,000 and $500,000 to Rick. (Fleury Decl., ¶¶ 2-5 & Exh. 1.) Fleury states that while the eighth and ninth causes of action reference the remodel of the property, Fleury does not believe she will need to address the remodel to prove either that she loaned the sum of $1,750,000 to Rick, or that Rick stopped making interest payments on the loan. (Id. at ¶ 9.) Fleury also asserts that Rick can be deposed regarding issues relating to the loan agreement without referencing the remodel. (Ibid.)

Fleury also submits the declaration of her counsel, Dimitri P. Gross (Gross), who asserts that allegations appearing in the SAC in which Fleury asserts that defendants would not charge a fee for acting as a general contractor and references the remodel are not necessary to support the causes of action that arise from the promissory note or loans made by Fleury to Rick, and that the SAC can be amended to remove these allegations. (Gross Decl., ¶¶ 11-14.)

Fleury further declares that on April 24, 2024, the City’s Community Development Department sent her a notice requesting access to the property (the City access notice). (Fleury Decl., ¶ 15.) The City access notice, which is attached to the Fleury declaration as exhibit 5, references a complaint involving the property and states that the City must inspect the property “for verification of compliance with the City’s Municipal Code”. (Id. at Exh. 5.)

In addition, on May 21, 2024, Fleury received a notice of violations arising from the remodel project at the property which required permits, and that the City requires plans and drawings in order to issue permits for the work. (Fleury Decl., ¶ 16.) Attached as exhibit 6 to the Fleury declaration is a “Notice of Violation Warning Letter” dated May 21, 2024, from the City’s Community Development Department (the City violation notice). The City violation notice is addressed to Fleury, references the property and purported violations of the Santa Barbara Municipal Code, and describes required corrective actions which include obtaining a building permit to legalize unpermitted work. (Id. at Exh. 6.) Fleury asserts that she will need to obtain designs and plans from Chandler Mitchell (Mitchell), a draftsperson recommended by Rick who submitted invoices and obtained payment through Vonna, but that Mitchell has not responded to Fleury’s communications. (Id. at ¶¶ 17-19.) Fleury also identifies third party subcontractors and workers managed by Rick and Vonna and from whom Fleury will need to obtain discovery to address the City access notice and City violation notice. (Id. at ¶¶ 20-22.)

Fleury also contends that Rick and Vonna hired, managed, and communicated with subcontractors performing work at the property, told Fleury not to communicate with the subcontractors and workers directly, and insisted on being the “gatekeepers” of information and communications with subcontractors. (Fleury Decl., ¶¶ 10-14.) Accordingly, Fleury is concerned that if she cannot conduct discovery until 2026, the subcontractors will be impossible to find or will not remember the work they performed. (Id. at ¶ 14.)

In addition, Gross asserts that, with respect to the City violation notice, one of the items required for a permit are complete plans and drawings. (Gross Decl., ¶ 16.) On May 29 and June 12, 2024, Goss wrote to Mitchell requesting drawings and plans to show to inspectors for the City. (Id. at ¶¶ 16-17 & Exh. 5.) Mitchell responded that he did not have additional plans or drawings. (Id. at ¶ 18.)

The motion to modify is opposed by the Tarnutzers.

On July 26, 2024, the Court issued its Minute Order setting out its proposed ruling to vacate the stay imposed under the Minute Order. To address any due process concerns, the Court continued the hearing on the motion to modify and directed the parties to file and serve supplemental briefs responding to the Court’s proposed ruling.

On August 9, 2024, Fleury and the Tarnutzers each filed their supplemental briefs responding to the Court’s proposed ruling set forth in its July 26, 2024, Minute Order.

Analysis:

Under circumstances where the silence of a defendant in civil action is constitutionally guaranteed, “the court should weigh the parties’ competing interests with a view toward accommodating the interests of both parties, if possible.” (Pacers, Inc. v. Superior Court (1984) 162 Cal.App.3d 686, 690.) Because the Fifth Amendment privilege against self incrimination does not apply to matters which subject a witness to civil liability, accommodation of that privilege made to a defendant in a civil action “is done from the standpoint of fairness, not from any constitutional right.” (Blackburn v. Superior Court (1993) 21 Cal.App.4th 414, 425.) “[C]ourts are [also] guided by the strong principle that any elapsed time other than that reasonably required for pleadings and discovery ‘is unacceptable and should be eliminated.’ [Citation.] Courts must control the pace of litigation, reduce delay, and maintain a current docket so as to enable the just, expeditious, and efficient resolution of cases. [Citation.]” (Fuller v. Superior Court (2001) 87 Cal.App.4th 299, 306-307 (Fuller).)

In civil actions where a defendant is subject to a related criminal prosecution, a variety of procedural mechanisms are available to the court to accommodate such circumstances, each of which are “designed to fairly balance the interests of the parties and the judicial system.” (Fuller, supra, 87 Cal.App.4th at p. 307.) To determine an appropriate procedural resolution in such actions, the court must “ ‘assess and balance the nature and substantiality of the injustices claimed on either side.’ [Citation].” (People v. Coleman (1975) 13 Cal.3d 867, 885; see also Fuller, supra, 87 Cal.App.4th at p. 307-308 [the court should adopt the procedural tool best suited to the circumstances of the case].) In weighing the parties’ competing claims and interests and determining whether a civil proceeding should be stayed pending disposition of a parallel criminal proceeding, the court considers the following factors: “(1) the interest of the plaintiff[] in proceeding expeditiously with [the] litigation or any particular aspect of it, and the potential prejudice to plaintiff[] of a delay; (2) the burden which any particular aspect of the proceedings may impose on defendant[]; (3) the convenience of the 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.” (Avant! Corp. v. Superior Court (2000) 79 Cal.App.4th 876, 887 (Avant!).)

Available information and evidence indicates that the Tarnutzers are not presently subject to any related or pending criminal proceeding. Even if the Court were to assume without deciding that there exists some possibility that a criminal proceeding may be filed based on recommendations made by the CSLB (and the Court presently makes no findings in this regard), the Tarnutzers do not have an absolute right to invoke the privilege against self-incrimination in this action absent any demonstrated prejudice to their rights. (Alvarez v. Sanchez (1984) 158 Cal.App.3d 709, 712; Avant!, supra, 79 Cal.App.4th at p. 882, 885 [“[i]n the absence of substantial prejudice to the rights of the parties involved, simultaneous parallel civil and criminal proceedings are unobjectionable under our jurisprudence”].) Apart from asserting general and conclusory concerns regarding the possibility of future criminal prosecution, presently available information is insufficient to show prejudice to any rights of the Tarnutzers’ should this litigation proceed.

Furthermore, Fleury presents evidence and information sufficient to establish an interest in proceeding expeditiously with discovery in this action. If Fleury is required to wait until any threat of criminal prosecution has passed, and considering that there exists no information or evidence to suggest that the filing of any criminal proceeding is imminent or likely, the attendant and likely substantial delays in discovery that Fleury will encounter “ ‘would increase the danger of prejudice resulting from the loss of evidence, including the inability of witnesses to recall specific facts[.]’ [Citation.]” (Avant!, supra, 79 Cal.App.4th at p. 887.) Furthermore, there is no information to suggest that Fleury should be precluded from obtaining discovery from persons or entities who are not parties to this litigation. (See id. at pp. 882, 885 [a related criminal prosecution does not give a party a “blank check to block all civil litigation on the same or related underlying subject matter. Justice is meted out in both civil and criminal litigation.”].)

Though the Tarnutzers request that the Court issue a protective order preventing the discovery of information relating to any alleged unlicensed work or unpaid wages of subcontractors or laborers, the Court is not inclined at this stage of the proceedings to issue the blanket protective order requested by the Tarnutzers absent a procedurally appropriate motion. Absent a particular discovery request, the Court is unable to make the findings required to issue an appropriate order. (See, e.g., Code Civ. Proc., § 2017.020, subd. (a) [also requiring that a motion for a protective order be accompanied by a meet and confer declaration].) Moreover, there exists no apparent basis for a protective order with respect to third party discovery.

Further, the Tarnutzers’ concerns regarding the nature of the discovery that may be propounded by Fleury are premature. Should the Tarnutzers be confronted with discovery requests that legitimately implicate the privilege against self-incrimination, the Tarnutzers are not without a remedy considering that the Court can address each request or issue on a point-by-point basis as they are presented. (Avant!, supra, 79 Cal.App.4th at p. 888; Warford v. Medeiros (1984) 160 Cal.App.3d 1035, 1045 [noting that it has “long been the rule in California” that the privilege against self-incrimination must be claimed on a particular question and submitted to the court].) For example, the Tarnutzers may interpose appropriate objections during discovery. In addition, the Court can rule on the validity of any invocation of the privilege against self-incrimination with respect to specific discovery requests as they arise and, if appropriate, fashion a reasonable protective order to balance the interests of the parties and the judicial system.

Available information also demonstrates that the claims alleged by Fleury in the eighth and ninth causes of action of the complaint do not arise from and are not dependent on the performance of any unlicensed work by the Tarnutzers. Therefore, to the extent Fleury seeks discovery relating to these causes of action, it would appear, for present purposes only, that the Tarnutzers concerns are not well founded. To the extent discovery relating to these causes of action implicates privilege issues, the Tarnutzers may address any such issues in a procedurally and substantively appropriate manner as further discussed above.

Considering the totality of the circumstances present here, including the absence of any pending or imminent parallel criminal prosecution of the Tarnutzers, the interests of Fleury in an expedient and fair resolution of her claims, and the interests of the Court in the efficient use of judicial resources and avoidance of delay, and upon further consideration, it would appear that the stay imposed under the Stay Order has, at this stage of the proceedings, served its purpose. Therefore, and for all reasons discussed above, the Court will grant the motion to modify and order the stay vacated.

Request for judicial notice:

Fleury requests that the Court take judicial notice of the register of actions for the City’s misdemeanor cases against the Tarnutzers, and a misdemeanor diversion advisement and diversion order issued in Santa Barbara Superior Court case number 23CR06596. (RFJN, ¶ 1 & Exh. 1.) The Court will grant Fleury’s request for judicial notice of these court records. (Evid. Code, § 452, subd. (d)(1).) Judicial notice of these documents does not, however, extend to the truth or proper interpretation of any matters stated in these documents. (Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

Fleury also requests that the Court take judicial notice of the purported fact that Rick is or has been a named defendant in many pending lawsuits. (RFJN, ¶¶ 2-9 & Exh. 2.) Whether or not Rick is or has been a named defendant in other unrelated lawsuits is not relevant to the issues presented in the motion to modify. (See Evid. Code, § 350; Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063, overruled on other grounds in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1276.) Therefore, the Court will deny Fleury’s request for judicial notice of this fact.