Mystica Fleury vs Byron Richard Tarnutzer et al

Case Number

22CV02886

Case Type

Hearing Date / Time

Fri, 07/26/2024 - 10:00

Nature of Proceedings

Motion: Lift Stay and Sever or Bifurcate

Tentative Ruling

For all reasons discussed herein, the Court continues the hearing on the motion of plaintiff to modify or lift the stay and sever or bifurcate causes of action to August 23, 2024. On or before August 9, 2023, the parties shall file and serve supplemental briefs responding to the Court’s proposed ruling as authorized herein.

Background:

The procedural history of this action is extensive. Relevant here, on July 26, 2022, plaintiff Mystica Fleury (Fleury) filed her original complaint alleging nine causes of action: (1) breach of contract (against defendants Byron Richard Tarnutzer aka Rick Tarnutzer (Rick), Vonna Carol Tarnutzer (Vonna), and American Interior (collectively, defendants); (2) breach of the covenant of good faith and fair dealing (against defendants); (3) violation of Business and Professions Code section 7000 et seq. (the Contractors State License Law) (against defendants); (4) negligence – construction defect (against defendants); (5) fraud (against defendants); (6) unlawful, unfair, or fraudulent business practices (against defendants); (7) recission and restitution (against defendants); (8) accounting (against 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 and as necessary 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).

On January 31, 2023, 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 between Fleury and the Tarnutzers 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 off calendar their demurrer to, and motion to strike punitive damages claims from, the FAC.

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 staying the instant litigation (the motion to stay) or, alternatively, for a protective order barring discovery into all matters for which the Tarnutzers were facing pending or potential criminal prosecution. The motion to stay was based on 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 by the California Department of Industrial Relations Labor Commissioner’s Office to Vonna regarding the filing of claims 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. As alleged in the operative SAC:

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.) Though the work to be performed by defendants required a general contractor’s license, defendants did not advise Fleury that they did not have a contractor’s license. (Ibid.) 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.) Fleury requested that defendants provided her with a total price for the work performed, but they did not do so even though they represented multiple times that they would provide a budget. (Ibid.) The agreement also provided that the work would be up to code, timely performed to meet the estimated completion date, and be photographed before walls were closed in as proof that all work was performed according to code. (Ibid.)

On February 24, 2022, a sub-contractor informed Fleury that defendants had not paid them for their work, but when Fleury requested copies of receipts and invoices from the subcontractor, the subcontractor told Fleury 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 defendants never provided. (Id. at ¶ 15.) Fleury was supposed to meet with Vonna on March 12, 2022, to review defendants’ invoicing to Fleury, 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 Fleury with all backup documentation. (Id. at ¶ 21.) 

On March 17, 2022, Fleury showed a subcontractor on the job 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 defendants 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 fee for acting as a general contractor, 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, requested that Fleury loan him money, and stated that any interest Fleury earned would be “tax free”. (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 the same 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 further order of the Court. (See also Feb. 7, 2024, Order Granting Stay.)

On June 26, 2024, Fleury filed a motion for an order to modify the stay imposed under the Stay Order, as to the “remodel” causes of action to permit Fleury to take the depositions of third party witnesses and to conduct limited discovery as to defendants. In the motion, 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 present motion, 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 regarding this work 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 of the Court or defendants 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 a 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 support of the present motion, Fleury submits a declaration in which she 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 reference the remodel to prove either that she loaned the sum of $1,750,000 to Rick, or that Rick stopped making interest payments. (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 stating that defendants would not charge a fee for acting as a general contractor and references to the remodel in the SAC are not necessary to support the causes of action relating to 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 (the City access notice) requesting access to the property. (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.)

Fleury further states that on May 21, 2024, she 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 which she tried to obtain from Chandler Mitchell (Mitchell), a draftsperson recommended by Rick who submitted invoices and obtained payment through Vonna, but that Mitchell did not respond to Fleury’s communications. (Id. at ¶¶ 17-19.) Fleury also identifies third party subcontractors and workers who were 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 of Fleury is opposed by the Tarnutzers.

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 that 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.)

The factors a court must consider when determining whether a civil proceeding should be stayed pending disposition of a parallel criminal proceeding include “(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!).)

Under the totality of the present circumstances which exist here, including the new circumstances described by Fleury and detailed above which, among other things, demonstrate that Fleury will suffer prejudice resulting from delay if the stay is not lifted and the absence of a parallel criminal proceeding arising from the same facts, the Court is presently inclined to vacate the stay imposed under the Minute Order. (See Neary v. Regents of University of California (1992) 3 Cal.4th 273, 276 [courts have inherent power to “do whatever is necessary and appropriate, in the absence of controlling legislation, to ensure the prompt, fair, and orderly administration of justice”]; Code Civ. Proc., § 128, subd. (a)(1)-(3).) Furthermore, the Court is inclined to deny the request of the Tarnutzers for a blanket protective order to the extent the stay is lifted, considering that the Court and the parties may address any discovery issues on a point-by-point basis as they arise. (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].)

As the Court’s proposed ruling is to some extent different and effectively broader than the order requested in the motion of Fleury, the Court will continue the hearing on the present motion to permit Fleury and the Tarnutzers to file and serve supplemental briefs responding to the Court’s proposed ruling as described above. Apart from the supplemental briefs authorized herein, Fleury and the Tarnutzers shall not file any additional papers, including any opposition to supplemental briefing that may be filed by a party. The Court will disregard any additional papers filed in response to the Court’s proposed ruling apart from the supplemental briefs authorized herein.