Tribe, Bank Rebuked Over Embezzlement Suit Discovery Row

(Law360)  A California federal magistrate judge on Thursday called behavior during a discovery dispute between the Paskenta Band of Nomlaki Indians and a bank it has asserted claims against in its lawsuit accusing former tribal officials of a sprawling embezzlement scheme “unacceptable.”

The Paskenta Band of Nomlaki Indians alleged that Cornerstone Community Bank, CEO Jeffrey Finck, and parent company Cornerstone Community Bancorp aided and abetted ex-tribe leaders in misappropriation, and that the bank and its parent company are liable for breach of contract.

The parties have been clashing over discovery issues for the past few months, with the tribe having brought a motion to compel the bank to produce a slew of documents and answer interrogatories, and the bank asking to push back a hearing on the tribe’s motion, saying the date had been scheduled without its agreement and that its lead defense counsel will be out of town at the time.

On Thursday, U.S. Magistrate Judge Craig M. Kellison entered an order rescheduling the hearing from Dec. 14 to Jan. 11, but included in it a reprimand of the parties for their behavior with respect to the discovery issues.

“The undersigned finds that the parties involved in this dispute are not being forthright and cooperative with each other or the court, which is unacceptable,” the magistrate judge wrote, after detailing for several paragraphs the back and forth that had occurred between the tribe and the bank over the scheduling conflict.

Judge Kellison added that the parties’ counsel have not communicated well or cooperated with each other about the scheduling conflict, and that if they had, the court would not have needed to intervene.

In the order, the magistrate judge also revised the deadline for the parties to file a joint statement about the ongoing discovery issues, giving them until Dec. 21 to do so.

The Paskenta Band and the bank had already filed a joint statement with the court, but it will now be withdrawn, according to Andrew M. Purdy of Joseph Saveri Law Firm Inc., who represents the tribe.

That version of the joint statement was roughly 130 pages, and in it, the bank had accused the tribe of taking “extreme and uncompromising positions with respect to its document requests.”

In November, tribe opposed a summary judgment request by the Cornerstone defendants, calling it a “revisionist telling” of a situation wherein a tribal faction that was in control of bank accounts and a faction that claimed to have ousted the other faction from leadership competed for authority, which led to the bank recognizing the second faction but requiring it to sign a release of liability and agree to indemnify Cornerstone.

While the Cornerstone defendants had asserted that the bank “made the bold decision” to keep the tribe’s accounts open and its “revenues flowing during a tumultuous period,” placing the “needs of the tribe as a whole ahead of the desires of competing factions,” the tribe questioned the bank’s painting of itself as a selfless savior.

“There is substantial evidence that the Cornerstone defendants were not saviors, but rather opportunists, who, upon recognition of the leverage they held over the tribe, wrongfully exploited that leverage and, based on a misrepresentation of CCB’s right to cut the tribe and its businesses off from their money extracted a broad release of liability from the tribe for past wrongdoing of which CCB was aware but which had nothing to do with any purported risk that CCB was facing at the time,” the Paskenta Band had responded.

The tribe had also argued that the Cornerstone defendants’ affirmative defense of release is “entirely dependent” upon whether the agreement is valid, and that any issues of material fact as to its validity would bar judgment in the defendants’ favor.

There are indeed several material issues of fact concerning whether the bank attained that agreement through duress, “any one of which, if decided in plaintiffs’ favor, would result in the agreement’s invalidity,” the tribe said in November.

The lawsuit is part of a long-running dispute between two tribal factions over control of the tribe’s casino revenue and came in the wake of a 2014 leadership scuffle that included an armed standoff.

The Paskenta Band claimed in its original complaint in March 2015 that an investigation by WilmerHale found a “widespread and systematic failure to comply with tribal laws and a dissipation of tribal assets,” and named former officials, family members, associates, and other entities as defendants. The third amended complaint, filed on May 20, clocks in at 197 pages.

Specifically, the tribe alleges that former officials Ines Crosby, John Crosby, Leslie Lohse, and Larry Lohse “corrupted and manipulated the electoral process” through vote-rigging, bribery and extortion to seize control of the tribe and Paskenta Enterprises Corp., spending millions of dollars on lavish lifestyles.

The Paskenta Band and Paskenta Enterprises Corp. are represented by Stuart G. Gross and Rachel River of Gross & Klein LLP, and Joseph R. Saveri and Andrew M. Purdy of Joseph Saveri Law Firm Inc.

The former tribal leaders are represented by Elliot R. Peters, Matthew Werdegar, and Benedict Y. Hur of Keker & Van Nest LLP, and Mark Joseph Kenney and Rebecca S. Saelao of Severson & Werson.

The Cornerstone defendants are represented by John H. McCardle and Martha Evensen Opich of Kraft Opich LLP and John N. MacLeod, John F. Friedemann, and Kyle M. Fisher of Friedemann Goldberg LLP.

The case is Paskenta Band of Nomlaki Indians et al. v. Crosby et al., case number 2:15-cv-00538, in the U.S. District Court for the Eastern District of California.

(Reporting by Christine Powell. Additional reporting by Andrew Westney, Adam Lidgett, and Jack Newsham. Editing by Catherine Sum.)