1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
William A. Cohan, P.C.
William A. Cohan (SBN 141804)
P.O. Box 3448
Rancho Santa Fe, Ca 92067
Tel: (858) 832-1632
Fax: (858) 832-1845
Email: bill@williamacohan.com
Attorneys for Plaintiffs O’HAGIN’S, INC.
and CAROLINA STOLLENWERK O’HAGIN
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
O’HAGIN’S, INC., a California
corporation, and CAROLINA
STOLLENWERK O’HAGIN,
Plaintiffs,
vs.
LGI LLP fka GODDARD LLP and
WILLIAM A. GODDARD, and DOES
A through K,
Defendants.
_______________________________
HARRY T. O’HAGIN, an individual,
Cross-Claimant,
vs.
CAROLINA STOLLENWERK
O’HAGIN, and individual; O’HAGIN
MANUFACTURING LLC, a
California limited liability company;
and ROES 1-10, inclusive,
Cross-Defendants.
Case #16-cv-00716DOC(JEMx)
RESPONSE TO CROSS-
COMPLAINANT HARRY T.
O’HAGIN’S MOTION TO
VACATE SCHEDULING ORDER
AND STAY ACTION
Trial Date: February 27, 2018
Discovery Cut-Off: October 20, 2017
Cross-Defendants Carolina Stollenwerk O’Hagin (“CSO”) and O’Hagin
Manufacturing LLC (“OHM”) by and through undersigned counsel, hereby
Respond to Cross-Complainant Harry T. O’Hagin’s Motion to Vacate Scheduling
- 1 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 1 of 9 Page ID #:4218
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Order and Stay Action (“HOH’s Motion”):
1. HOH’s Motion seeks an order “vacating the Scheduling Order in this
action” and “staying [the Cross Action] until the recently commenced IRS audit is
completed,” claiming that the IRS audit constitutes “good cause,” and citing
F.R.Civ.P. 16(b)(4) and CMAX, Inc. v. Hall, 300 F.2d 264 (9 Cir. 1962). HOH’sth
motion contends the IRS audit provides “good cause:”
At the time the Cross Complaint was filed and the Scheduling Order
was entered, HOH’s damages had fully accrued. That has now
changed. On July 13, 2017, the IRS mailed a notice of audit for tax
year 2015 by regular mail to HOH’s home address in the Kingdom of
Thailand...
The audit resulted from the tortious actions of Cross-Defendants in
misreporting to the IRS the monies paid to HOH as wages...
The costs incurred by HOH in defending against that audit and,
particularly, any taxes due from that audit as a result of the intentional
misreporting by Cross-Defendants, are damages that are recoverable
in this action. HOH therefore requests that, until the audit is
completed and his damages have been fully ascertained, the Court
vacate the Scheduling Order, stay this action, and order HOH to file a
status report...”
I. Procedural History
2. On June 28, 2017, the Court entered its Order dismissing Plaintiffs’
Third Amended Complaint with prejudice and denying leave to file a Fourth
Amended Complaint (Dkt. 182).
3. Thereafter, Cross-Complainant filed an unopposed motion for
clarification (Dkt. 195) because (1) the cross-complaint had not been dismissed;
(2) Cross-Complainant’s Motion to Re-consider Disqualification of undersigned
counsel was, accordingly, not moot; and (3) Plaintiffs’ request for entry of final
judgment pursuant to F.R.Civ.P. 54(b) was pending, precluding Plaintiffs from
pursuing their appeal of the Court’s order dismissing their Third Amended
Complaint with prejudice.
4. On September 21, 2017, HOH’s initial disclosures were provided to
Plaintiffs -- more than eleven (11) months after the due date set by F.R.Civ.P.
26(a)(1)( c) , i.e. “...within 14 days after the parties Rule 26(f) conference...”
- 2 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 2 of 9 Page ID #:4219
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
which was held on September 16, 2016, as required by F.R.Civ.P. 26(f)(1), i.e.
“...in any event at least 21 days before a scheduling conference is to be held or a
scheduling order is due under Rule 16(b).” HOH’s motion concedes at page 2,
line 3: “...the Scheduling Order in this action [was] entered in this action on
October 7, 2016 [Dkt. 79]...”
5. Accordingly, HOH’S claim of “diligence” cannot be taken seriously
for that reason, nor can HOH’s instant motion for a stay be reconciled with HOH’s
notices to take depositions of Cross-Defendants on October 13, 2017 -- also
received September 21, 2017 -- be reconciled with the requested stay or HOH’s
renewed and pending motion to disqualify undersigned counsel who just received
the deposition notices aforesaid without any consultation concerning the
availability of the deponents or counsel on October 13, 2017 or any other date.
6. Furthermore, HOH previously requested and obtained
Plaintiffs/Cross-Defendants’ agreement to withdraw their pending motion to
compel discovery (Dkt. 185) from HOH and his counsel Bradley A. Patterson.
HOH’s dilatory tactics, stonewalling Plaintiffs’ discovery requests, and unilateral
deposition demands are all inconsistent with his claims of diligence and his
motion to stay.
II. Harry’s Arguments
7. HOH makes several false and irrelevant accusations in his motion and
supporting memorandum (HOH Memo”), including:
(1) “[OHI’s] ...operations...were fraudulently transferred into [OHM]...”
(HOH Memo, p. 2, l. 9-10);
(2) [Cross-Defendants] intentionally violated 26 USC §7434(a) by
misreporting payments to HOH that constitute his division of marital
community property as royalty payments (emphasis supplied)(HOH
Memo at 2:11-13);
(3) “[C]osts incurred by HOH in defending against that audit and,
- 3 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 3 of 9 Page ID #:4220
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
potentially, any taxes due from that audit as a result of the intentional
misreporting by Cross-Defendants, are damages recoverable in this
action.” (HOH Memo at 2:25 - 3:1) (emphasis supplied); and
(4) HOH satisfied the good cause requirement to modify the scheduling
order because “...at the time of entry of the Scheduling Order, HOH
was not under audit and had no valid cause for believing he would be
subject to audit. At the time the Scheduling Order was entered,
HOH’s damages were certain. (HOH Memo, 4:7-10) (emphasis
supplied)
* * *
Since the total sum of HOH’s damages are now uncertain, the
Scheduling Order should be vacated until the scope and extent of
HOH’s damages are certain following completion of the audit.”
(HOH Memo at 4:15-17)
III. Cross-Defendants’ Arguments in Response
8. Even assuming ad arguendo that HOH’s claims of “fraudulent
transfer” were not specious, such claims are barred by collateral estoppel as a
result of the April 3, 2015 settlement in Sonoma County Superior Court where
HOH initially alleged and ultimately dismissed those claims with prejudice as an
essential term of the settlement.
9. HOH’s claims that payments to HOH constitute his division of
marital property, instead of royalty payments are likewise barred by collateral as
well as judicial and equitable estoppel on HOH’s motion to modify the judgment
in Sonoma County Superior Court from which the royalty payments arise, which
resulted in an amended judgment classifying OHI’s payments to HOH as royalty
payments. (See attached Exhibit A incorporated herein). Furthermore, as reflected
on the excerpts of HOH’s income tax returns for 2005, 2006 and 2007 admitted
into evidence at the hearing April 10, 2017, in this Court, HOH classified OHI’s
- 4 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 4 of 9 Page ID #:4221
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
payments to him as royalty payments and at the same hearing HOH testified that
OHI’s payments to him were royalty payments. See excerpts of transcript of April
10, 2017 hearing and tax returns attached and incorporated herein as Exhibit B.
10. (a) HOH’s preposterous claim that “...any taxes due from that audit as
a result of the intentional misreporting by Cross-Defendants are damages
recoverable in this action” is an oxymoron. By definition “any taxes due from
HOH – as a result of the IRS audit or otherwise -- cannot be “damages recoverable
in this action” or any action. 26 USC §7434(a) provides a cause of action for
damages against “...any person [who] willfully files a fraudulent information
return with respect to payments purported to be made to any other person...”
(b) First, in the case at bar it is undisputed that Cross-Defendants have
actually -- not “purportedly” -- paid HOH approximately $655,000 since May 1,
2015, based on the settlement in Sonoma County Superior Court reached and
announced in open court on April 3, 2015. See attached Exhibit C incorporated
herein.
(c) Second, HOH offers no authority for the proposition that HOH’s tax
liability could constitute damages recoverable against Cross-Defendants because
HOH’s tax liability cannot be proximately cause by any third party payor. The
existence vel non of HOH’s liability for taxes, interest and penalties will be
determined without regard to whether Cross-Defendants “misreported” the
payments because the amount of such payments cannot be disputed and the IRS
determination of any taxes, interest and penalties owed by HOH based on his
receipt of payments from Cross-Defendants will be based on the proper
classification of those payments irrespective of HOH’s or Cross-Defendants’
opinions.
11. Cross-Defendants invite the Court to consider 26 USC §7623(b)
“Awards to Whistleblowers” for the obvious principle that individuals who bring
information concerning unpaid taxes to the attention of the IRS are eligible for
- 5 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 5 of 9 Page ID #:4222
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
amounts collected based on bringing that information to the IRS. Even assuming
ad arguendo that Cross-Defendants caused the IRS to initiate the audit of which
HOH complains, if HOH owes taxes (and a fortiori penalties and interest on the
unpaid taxes) it beggars reason to claim that HOH’s tax liability could constitute
damages for which Cross-Defendants could be liable regardless whether the
classification of OHI’s payments to HOH was intentionally “misreported.”
12. HOH’s claims that he ”...had no valid cause for believing he would be
subject to audit” are conclusively refuted by his own testimony in this Court on
April 10, 2017, when he admitted he received millions of dollars in royalty
payments over the last fifteen(15) years -- including payments since May 1, 2015 -
- and he had paid no taxes. Accordingly, his contention that his “surprise” in
response to his July 13, 2017, IRS audit notice constitutes “good cause” to vacate
the scheduling order is meritless.
IV. Bifurcating Liability from Damages
13. Should the Court be inclined to grant Cross-Complainant’s motion to
vacate the scheduling order and stay the action, Cross-Defendants suggest the
Court consider bifurcating the case to allow determination vel non of liability,
obviating the need for discovery concerning any damages until and unless Cross-
Complainant can establish liability.
14. (a) "The trial court's decision to bifurcate a trial is reviewed for an
abuse of discretion." Exxon Co. v. Sofec, Inc., 54 F.3d 570, 575 (9th Cir. 1995),
aff'd, 517 U.S. 830 (1996). One favored purpose of bifurcation is to accomplish
just what Cross-Defendants propose to do here -- avoiding a difficult question by
first dealing with an easier, dispositive issue. Hirst v. Gertzen, 676 F.2d 1252,
1261 (9th Cir. 1982).
(b) “Rule 42 of the Federal Rules of Civil Procedure provides in pertinent
part: the court, in furtherance of convenience or to avoid prejudice, or when
separate trials will be conducive to expedition and economy, may order a separate
- 6 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 6 of 9 Page ID #:4223
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
trial of any claim, . . . third party claim, or of any separate issue or of any number
of claims . . . or issues, always preserving inviolate the right of trial by jury.”
Exxon Co. v. Sofec, Inc., 54 F.3d 570, 575 (9 Cir. 1995). th
( c) Under Fed. R. Civ. P. 42(b), a court "in furtherance of convenience or to
avoid prejudice, or when separate trials will be conducive to expedition and
economy, may order a separate trial of any claim." A trial court has broad
discretion in any decision relating to bifurcation. However,
The presumption is that the plaintiff, in a typical case, should be
allowed to present her case in the order she chooses. The burden is on
the defendant to convince the court that a separate trial is proper in
light of the general principle that a single trial tends to lessen the
delay, expense and inconvenience to all parties.
Sensitron, Inc. v. Wallace, 504 F.Supp.2d 1180, 1186 (D. Utah 2007)
V. Cross-complainant Cannot Establish Liability
15. On March 6, 2017, this Court entered its Order (Dkt. 144) denying
HOH’s motion for preliminary injunction (Dkt. 135). That motion and the Order
denying the motion describe the payments made by Cross-Defendants to HOH in
the context of 26 U.S.C. §§1442 and 1461 (See e.g. Dkt. 144 at page 2, line 15
through page 3, line 13 (2:15-3:13)). The issue raised by HOH’s motion for
injunction was limited to whether Cross-Defendants were wrongfully withholding
taxes from the payments to a U.S. citizen. It was undisputed that Cross-
Defendants paying HOH’s foreign corporation were required to withhold and pay
over 37% to the IRS and FTB. (See e.g. 4:21-26; 5:16-24).
16. As shown by the exhibits attached hereto and discussed above, HOH
never previously claimed as he does now that Cross-Defendants’ payments to him
or foreign corporation JIL are “his division of marital property.” Contrary to this
newly minted “marital property” claim, HOH has consistently conceded Cross-
Defendants’ payments to him are taxable royalty payments.
17. Had Cross-Defendants’ payments to HOH been “his division of
marital property” the issue of withholding never would have arisen because such
- 7 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 7 of 9 Page ID #:4224
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
payments are non-taxable and Cross-Defendants never would have faced liability
for failing to withhold pursuant to 26 U.S.C. §§1442 and 1461.
18. Based on the foregoing, even if Cross-Defendants were not protected
by statutory immunity provided by 26 U.S.C. §3403, and §1461, discussed in
detail in Cross-Defendants’ Opposition to HOH’s Motion for Preliminary
Injunction (See Dkt. 137 at 4:19-5:10), HOH cannot establish willfulness as he
must to establish liability pursuant to 26 U.S.C. §7434(a). Accordingly, the Court
should deny HOH’s motion to Vacate Scheduling Order and Stay Action.
Respectfully submitted,
Dated: September 25, 2017 WILLIAM A. COHAN, P.C.
/s/ William A. Cohan
William A. Cohan
California Bar No. 141804
P.O. Box 3448
Rancho Santa Fe, CA 92067
Tel: (858) 832-1632
Fax: (858) 832-1845
E-mail: bill@williamacohan.com
- 8 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 8 of 9 Page ID #:4225
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
CERTIFICATE OF SERVICE
I hereby certify that on this 25 day of September, 2017, I electronicallyth
filed the foregoing RESPONSE TO CROSS-COMPLAINANT HARRY T.
O’HAGIN’S MOTION TO VACATE SCHEDULING ORDER AND STAY
ACTION, with the Clerk of the Court using CM/ECF system.
I certify that all participants in the case are registered CM/ECF users and
that service will be accomplished by the Court’s CM/ECF system.
s/ William A. Cohan
William A. Cohan
- 9 -
Case 8:16-cv-00716-DOC-JEM Document 200 Filed 09/25/17 Page 9 of 9 Page ID #:4226
