The opinion of the court was delivered by: Cam Ferenbach United States Magistrate Judge
(Motion To Stay Discovery Pending the Court's Ruling on the Motion to Dismiss ) #10)
Before the court is defendants Kirk and Amy Henry's Motion To Stay Discovery Pending the Court's Ruling on the Motion to Dismiss. (#10). Plaintiff filed an Opposition (#13), and defendants filed a Reply (#15).
Plaintiff filed his amended complaint in the Eighth Judicial District Court, Clark County, Nevada on November 13, 2012, against defendants Kirk and Amy Henry. (#1 Exhibit C). Plaintiff's complaint arises out of a settlement agreement (hereinafter "Agreement") entered into between the plaintiff and defendants. Id. The defendants filed a lawsuit against plaintiff Rizzolo and The Power Company, Inc. in October of 2001, relating to injuries Kirk sustained during a September 20, 2011, incident that occurred at a club owned by plaintiff Rizzolo (hereinafter "State Action"). Id. The parties agreed to settle the claims for $10,000,000.00, with $1,000,000.00 due immediately and the remainder to be paid from the proceeds of the sale of plaintiff Rizzolo's club, the Crazy Horse Too, at the time of closing. Id. The Agreement stated that the "obligation to make the remaining payment was not contingent upon the realization of net proceeds from the sale sufficient" to make the $9,000,000.00.
Plaintiff alleges that two months before the entry of the Agreement, on June 2, 2006, the Power Company entered into a guilty plea agreement with the government for the crime of conspiracy to participate in an enterprise engaged in racketeering activity. Id. The Power Company agreed to make restitution in the amount of $10,000,000.00 to the Henrys, with $1,000,000.00 due immediately upon the entry of the Power Company's guilty plea, and the remainder due to be paid from the proceeds of the sale of the Crazy Horse Too. Id. Also on June 2, 2006, plaintiff Rizzolo entered into a guilty plea agreement with the government for the crime of conspiracy to defraud the United States of taxes. Id. The Honorable Judge Pro entered the judgment and commitment order against plaintiff Rizzolo on January 26, 2007. Id. The commitment order stated that plaintiff Rizzolo was to pay restitution to Kirk Henry in the amount of $10,000,000.00. Id.
Plaintiff Rizzolo alleges that when he began serving his sentence, Crazy Horse Too was appraised at $53 Million dollars. Id. On August 21, 2007, the court entered an order granting the government's motion to substitute assets, forfeiture, and sell the substituted assets and distribute the sale's proceeds in accordance with the restitution schedules. Id. Plaintiff alleges that on September 7, 2007, Leonard Briskman provided the US Marshals an appraisal of the Crazy Horse Too of $31,000,000.00. Id. Plaintiff also alleges that as intended beneficiaries of the plea agreements, the Henrys had to authorize the government's action and acquiesce to the same. Id. The Henrys allegedly entered into a petition and settlement agreement regarding the order of forfeiture, whereby the Henrys were placed at the top of the "pay-out" list. Id.
Plaintiff alleges that the Henrys "agreed to abandon their interest in the sale of the Crazy Horse Too to the United States Government, allowing the United States Government to forfeit the property, in consideration that Kirk and Amy Henry would be the first to receive any proceeds of the sale." Id. On May 7, 2008, the government filed and distributed a proposed amended order of forfeiture, reducing the Henrys from first to fifth position, which the Henrys objected to. Id. The court entered the proposed amended order of forfeiture on June 24, 2008. Id. Also in June of 2008, Judge Pro denied the government's motion to stay the expiration of the Exotic Dance Use Permit and Tavern License for the Crazy Horse Too, which plaintiff alleges "caused the extreme devaluation of the asset substituted; the Crazy Horse Too." Id. Plaintiff alleges that since the Marshals refused to make the mortgage payments on the seized property, the Crazy Horse Too building, on February 28, 2011, Judge Pro ordered that the Crazy Horse Too be sold through non-judicial foreclosure. Id.
On July 1, 2011, the Crazy Horse Too was sold to Canico Capital Group, LLC, at the non-judicial foreclosure sale for $3 million, and the Henrys did not receive any proceeds from the sale. Id. The Judge in the State Action issued judgment in favor of the Henrys and against Rizzolo and the Power Company on September 1, 2011, in the amount of $9,000,000.00. Id. The judgment provided that since the foreclosure sale did not net the proceeds required to satisfy the $9,000,000 judgment against Rizzolo and the Power Company, Rizzolo is obligated to make the remaining payment of settlement to the Henrys. Id. The judgment also stated that Rizzolo is in breach of the Agreement, and that the Henrys are entitled to judgment in their favor. Id.
Plaintiff Rizzolo filed the instant action in state court on November 6, 2012, asserting a claim for negligent interference with prospective business advantage relating to the Henrys "assigning their rights to the US Government and abandoning their ability for any recourse against the US Government." (#1 Exhibit A). Plaintiff alleges that the Henry's negligence caused damage in excess of $10,000.00. Id. Plaintiff filed an amended complaint on November 13, 2012, asserting claims for (1) negligent interference with prospective business advantage, and (2) declaratory relief/rescission -force majeure/impossibility. (#1 Exhibit C). The defendants removed the action to this court on November 29, 2012, based on diversity jurisdiction under 28 U.S.C. § 1332. (#1). Defendants filed a motion to dismiss on January 22, 2013. (#7). Plaintiff filed an opposition on February 8, 2013 (#8), and defendants filed a reply on February 19, 2013 (#9).
Defendants filed the instant motion to stay on April 15, 2013. (#10). The parties filed a proposed discovery plan and scheduling order on April 16, 2013. (#11). Plaintiff filed an opposition to the motion to stay on April 23, 2013. (#13). The court entered the parties' discovery plan and scheduling order on April 24, 2013. (#14). Plaintiff filed a reply in support of the motion to stay on April 29, 2013. (#15).
Defendantsask this court to stay discovery in this action pending the resolution of the motion to dismiss (#7). (#10). Defendants argue that "discovery at this stage...is improper as the Court will likely dismiss the Complaint in its entirety and, in turn, render any discovery wholly superfluous." Id. Defendants also argue that no discovery is necessary for the court to decide the pending motion to dismiss (#7). Id. It is defendants' position that plaintiff's claim for negligent interference with prospective business advantage must be dismissed pursuant to binding Nevada law concerning the impropriety of the claim, and that plaintiff conceded to the dismissal of the claim by his failure to address it in his opposition to the motion to dismiss (#8). Id. Defendants assert that plaintiff's second cause of action for rescission of the Agreement is barred by the doctrine of issue preclusion, as the "contractual defense of impossibility was actually and necessarily litigated before the Nevada state court as required for the application of issue preclusion." Id.
Plaintiff argues that the defendants are not entitled to have discovery stayed in this action, as (1) discovery in this matter includes documentation that has been produced in two other cases, (2) defendants' counsel has been counsel on all cases, since 2001, and has easy access to the documentation, (3) most of the discovery in this matter has already been attached as an Appendix to defendants' appeal in the State Action, (4) no extraordinary burden will result from discovery, (5) plaintiff's complaint has merit and is not precluded by the doctrine of res judicata, as the judge in the State Action "had not even contemplated whether the Settlement Agreement was viable or not...[and] simply ...