Free Memorandum in Opposition - District Court of California - California

Case 3:07-cv-04762-PJH

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JOSEPH P. RUSSONIELLO United States Attorney THOMAS MOORE (ASBN 4305-O78T Assistant United States Attorney Chief, Tax Division 9th Floor Federal Building 450 Golden Gate Avenue, Box 36055 San Francisco, California 94102 Telephone: (415) 436-6935 HUONG T. BAILIE (NYBN 4035739) 300 E. 8th Street, Suite 601 Austin, TX 78701 Telephone: (512) 499-5759 ALLYSON B. BAKER (DCBN 478073) FREDERICK N. NOYES Tax Division U.S. Department of Justice Post Office Box 7238 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 202-353-8031 Facsimile: (202) 514-6770 Email: [email protected]

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION UNITED STATES OF AMERICA Plaintiff, v. CHARLES CATHCART et al. ) ) ) ) ) ) ) ) ) ) ) ) )

Civil No. 07-4762-PJH UNITED STATES' RESPONSE TO CHARLES HSIN'S AND OPTECH LIMITED'S ADMINISTRATIVE MOTION TO CONTINUE THE ENTIRE CASE MANAGEMENT SCHEDULE ORDER

The United States respectfully submits this memorandum opposing Charles Hsin's 24 ("Hsin") and Optech Limited's ("Optech") request for an eleven-month extension of the litigation 25 26 27 28

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schedule. See Charles Hsin and Optech Limited's Motion, Pursuant to Local Rule 7-111 to Continue the Entire Case Management Schedule Order, Dkt. No. 111 (hereinafter "the Mot."). The United States agrees that an extension of the litigation schedule is appropriate. For this reason, the United States agrees that Nagy's proposed continuance of the trial schedule, which is reasonable, should be adopted by the Court. See Robert Nagy's Mot. to Continue the Trial Date and All Associated Deadlines, Dkt. No. 113. Hsin's and Optech's request for an eleven-month extension is unreasonable and without any basis. An eleven-month extension would substantially prejudice the United States, which is seeking to enjoin defendants from promoting an alleged tax-fraud scheme that is believed to have cost the United States millions of dollars in unpaid tax revenue. See First Am. Compl. ¶83, Dkt. No. 57. Hsin and Optech have consistently engaged in delay tactics. The United States served Hsin and Optech with the First Amended Complaint (amended to add them and Franklin Thomason, another party, as defendants) on May 13, 2008. See Affidavit of Service, Dkt. # 74. Hsin and Optech sought two extensions of time for responding to the complaint. They sought and received an initial extension of time on grounds that their counsel needed more time to assess the case and run a conflicts check. See Stip. for Enlargement of Time to File Answer to United States' First Am. Compl., Dkt. No. 69. The United States agreed to a twenty-eight day extension. See id. Right before that first extension was going to run, Hsin's and Optech's counsel moved the Court for a second extension, with the possibility of seeking a third extension, claiming that during the time allotted for the first extension, their ethics counsel had been on vacation and that the conflicts check was still not complete. See Ex Parte Application to Extend Time To Answer and Declaration, Dkt. Nos. 73, 77. Ultimately, the United States agreed to provide Hsin and

Local Rule 7-11 pertains to motions for administrative relief, which relate to instances when "the Court recognizes that during the course of case proceedings a party may require a Court order with respect to miscellaneous administrative matters, not otherwise governed by a federal statute, Federal or local rule or standing order of the assigned judge." Hsin and Optech seek to amend the Court's Case Management and Pretrial Order, Dkt. No. 27. 2

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Optech with a total of sixty-three days for responding to the complaint. See United States' Response to Hsin's and Optech's Mot. for Extension of Time to Answer Compl., Dkt. No. 79. Hsin and Optech then moved to dismiss the case; a hearing on that motion is scheduled for September 10. Now, Hsin and Optech seek eleven more months, because they contend that they have not been able to perform any discovery. See Mot. at ¶6. Hsin and Optech, however, have chosen not to propound any written discovery to date. During an August 26 telephone conversation with counsel for the United States, Edward Ord, apparent counsel for Hsin and Optech, explained that he could not yet propound written discovery, because among other things, a conflicts check is still not complete and he may have to withdraw from his representation of Hsin and Optech. See Baker Decl. ¶4, Ex. A. The Government served Hsin and Optech over three months ago. Hsin's and Optech's counsel have had adequate time to assess whether any such conflicts of interest exist. Their failure to complete this process hardly justifies adding an additional eleven months to the litigation schedule. Ord already has more than a passing knowledge of the relevant facts of this case. Ord represented Derivium Capital before the IRS' investigation that gave rise to this litigation. See Decl. of Edward O.C. Ord In Opposition to the Trustee's Motion to Convert the Chapter 11 Proceeding to Chapter 7 (S.D. N.Y. No. 05-37491 (CGM)), ¶¶ 4-7, Ex. B. Indeed, the bankruptcy proceeding referenced above and now pending in the United States District Court for the District of South Carolina has been the source for nearly all of the documents that the Government has provided to the defendants in this litigation. The overwhelming majority of these documents are from the working files of the defendants in this case, who previously provided these files to the special counsel for the trustee; the United States has produced those files back to the defendants. During their August 26 telephone conversation, counsel for the United States also informed Ord that the United States will be producing to Hsin and Optech imminently all of these very same documents. See Baker Decl. ¶5. Ord indicated that he was authorized to accept this production. See id. 3

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Hsin also apparently anticipated being named as a defendant in this case. Charles Cathcart testified during his recent deposition that he spoke with Hsin about this litigation in September 2007, which is when this case was first filed, because Hsin wanted to retain an attorney to represent him. Cathcart explained: Q: When was the last time you had a communication with him [Charles Hsin]? A: I think last September. Q: Last September 2007? A: Right. Q: And what was the nature of that communication? A: To recommend an attorney for him. Q: For what purpose? A: For this litigation. Q: Who did you recommend? A: Edward Ord. Q: Do you know if Mr. Hsin took your recommendation? A: I believe he did. Cathcart Dep. Tr. 105:4-18, Ex. D.2 Hsin's and Optech's request for an eleven-month extension is unreasonable and without any basis. Conclusion For all of the foregoing reasons, the United States respectfully requests that the Court deny Hsin's and Optech's request for an eleven-month extension of the litigation schedule and adopt Robert Nagy's proposed litigation schedule.

Hsin and Optech also contend that an eleven-month extension of the litigation schedule is necessary, because the Government has not yet served Franklin Thomason, another named defendant. See Mot. at ¶10. Since early May, the United States has employed two sets of revenue officers and a private process server to serve Thomason at his last known address, all to no avail. See United States' Mot for an Extension of Time in Which To Serve Franklin Thomason and for Permission to Serve by Publication; Order Granting United States' Motion, Dkt. Nos. 97,99. The United States should not suffer any more prejudice by having to postpone its litigation schedule for nearly one year because of one defendant who has consistently evaded service. 4

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Dated: September 8, 2008 Respectfully submitted, JOSEPH P. RUSSONIELLO United States Attorney

/s/ Allyson B. Baker ALLYSON B. BAKER FREDERICK N. NOYES Tax Division U.S. Department of Justice Post Office Box 7238 Ben Franklin Station Washington, D.C. 20044 Telephone: (202) 353-8031

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CERTIFICATE OF SERVICE I hereby certify that on September 8, 2008 I electronically filed the foregoing with the Clerk of the Court using the CM/ECF System which will send notification of such filing to the following: Farley J. Neuman ([email protected]) Tom Prountzos ([email protected]) Jenkins Goodman Neuman & Hamilton LLP 417 Montgomery Street, 10th Floor San Francisco, CA 94104 Attorneys for Robert Nagy Matthew Hicks([email protected]) Caplin & Drysdale One Thomas Circle, NW, Suite 1100 Washington, DC 20005 Attorney for Scott Cathcart Eric Webb ([email protected]) Bartsch & Webb 9157 W. Sunset Boulevard, Suite 310 Los Angeles, CA 90069 Attorney for Charles Cathcart Edward O.C. Ord Jenny C. Lin-Alva Ord & Norman 233 Sansome Street, Suite 1111 San Francisco, CA 94104 Attorneys for Charles Hsin and Optech Limited Yuri Debevc (pro se) 1483 Burningtree Road Charleston, SC 29412 [email protected]

s/ Allyson B. Baker ALLYSON B. BAKER

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