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Securities and Exchange Commission v. Arvco Capital Research, LLC

United States District Court, D. Nevada

October 10, 2014

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
ARVCO CAPITAL RESEARCH, LLC, et. al., Defendants.

ORDER RE: MOTION TO COMPEL THIRD PARTY WITNESS, DUSTIN FOX, TO ANSWER QUESTIONS AT DEPOSITION (DOC. # 76)

WILLIAM G. COBB, Magistrate Judge.

Before the court is the Motion to Compel Third Party Witness, Dustin Fox, to Answer Questions at Deposition filed by defendants ARVCO Capital Research LLC, ARVCO Financial Ventures, LLC (collectively, ARVCO) and Alfred J.R. Villalobos (Villalobos). (Doc. # 76.) Dustin Fox (Fox) filed a response. (Doc. # 82.) ARVCO and Villalobos filed a reply. (Doc. # 84.) The United States filed a memorandum weighing in on this issue. (Doc. # 87.) Counsel for ARVCO and Villalobos, Marc E. Rohatiner filed a declaration in response to the United States' memorandum, requesting that the court not consider the memorandum or continue the hearing so that he had a chance to file a formal response. (Doc. # 88.) The Securities and Exchange Commission (SEC) also filed a document briefly stating its position and requested that the court consider the United States' memorandum. (Doc. # 90.)

The court held a hearing on this motion on October 7, 2014, and concluded that Fox had not waived his right to invoke the Fifth Amendment privilege against self-incrimination at his deposition in this proceeding when he represented at a June 27, 2014 hearing in this case that he would not be invoking the privilege. As such, the court denied the motion to compel (Doc. # 76) filed by ARVCO and Villalobos. The court issues the instant Order setting forth the relevant background as well the rationale for its decision.

I. BACKGROUND

A. Litigation History Leading Up to This Motion

The SEC filed this civil enforcement action against defendants ARVCO, Villalobos, and Federico ("Fred") R. Buenrostro (Buenrostro). (Doc. # 1.) The complaint alleges an allegedly fraudulent scheme perpetrated by Buenrostro, the former Chief Executive Officer of the California Public Employees' Retirement System (CalPERS), and his close friend, Villalobos, an agent who places investment funds, who convinced CalPERS and other public pension funds to invest in his clients, mostly private equity funds, through his two companies, ARVCO Capital Research, LLC and ARVCO Financial Ventures, LLC. The SEC avers that Villalobos developed a longstanding and lucrative relationship with one particular investment manager, Apollo Global Management (Apollo), and in 2007, Apollo began to require signed investor disclosure letters from investors such as CalPERS from whom it raised money with the assistance of a placement agent (such as ARVCO) before Apollo would pay that placement agent any fees.

The SEC contends that ARVCO first agreed to this contractual provision in its placement agreement regarding Apollo Fund VII in the summer of 2007. Just before CalPERS' investment in the Apollo Fund VII was closed in August 2007, ARVCO's general counsel emailed CalPERS' investment office to request that it sign the investor disclosure letter. CalPERS informed ARVCO it had been advised by counsel not to sign the letter. That was the last CalPERS heard from ARVCO about investor disclosure letters. Apollo's counsel then requested the signed CalPERS disclosure letter for the Apollo Fund VII from ARVCO, and refused to pay ARVCO any placement fees on the investment until it received the letter. On January 2, 2008, Apollo's counsel discussed with ARVCO's counsel whether Apollo should contact CalPERS directly to request the signed disclosure letter; however, instead of this occurring, Villalobos allegedly generated a letter using the CalPERS logo on Buenrostro's business card and, at Villalobos' request, Buenrostro signed what appeared to be an Apollo Fund VII disclosure letter purportedly on behalf of CalPERS.

The SEC claims that Villalobos and Buenrostro carried on this scheme to create the false impression that the disclosure letters were properly reviewed and approved by CalPERS, when in fact its procedures had been bypassed. Upon receipt of the fabricated letters, the SEC contends that Apollo paid ARVCO about $3.5 million in placement agent fees. In addition, the SEC contends that Villalobos and Buenrostro created fabricated CalPERS documents regarding at least four more Apollo funds, inducing Apollo to pay ARVCO more than $20 million in placement agent fees it would not have paid without the disclosure letters.

On March 14, 2013, a grand jury sitting in the Northern District of California returned a multi-count indictment against Villalobos and Buenrostro in United States v. Alfred J. Villalobos and Federico Buenrostro, Jr. (aka Fred Buenrostro), CR 13-0169 CRB. (Doc. # 187 at 5.) Both men initially pled not guilty to all charges. ( Id. ) Buenrostro has since pled guilty to a superseding information charging him with conspiracy to commit bribery and honest services fraud and to defraud the United States, in violation of 18 U.S.C. § 371. ( See Doc. # 71 at 2:23-26; Doc. # 87 at 6.) The criminal case is proceeding to trial on February 23, 2015 as to Villalobos. ( See Minutes at Doc. # 73; Doc. # 87 at 6.)

On June 20, 2013, the United States of America (United States) filed a motion to permit it to intervene in this action to request an order staying discovery and sought an order temporarily staying discovery until the conclusion of the pending criminal case. (Doc. # 41.) The court held a hearing on the motion on July 10, 2013, and issued its written order on July 16, 2013. (Docs. # 51, # 53.) The court granted the United States' motion to intervene for the limited purpose of seeking a stay of discovery; however, the court denied the motion to stay discovery pending conclusion of the criminal action. ( Id. ) The United States filed objections to the court's order. (Docs. # 54, # 56.) The court temporarily stayed discovery pending resolution of the objections. On January 6, 2014, District Judge Miranda M. Du, overruled the objections. (Doc. # 58.)

Fox is a non-party witness who was employed by ARVCO and Villalobos during the time the investment disclosure letters were allegedly prepared and has personal knowledge about their preparation, execution and disposition. (Doc. # 82 at 7, 18 ¶ 12.) This issue is central to this action as well as the pending criminal action. He has provided various interview statements to the United States Attorney's Office and California Attorney General's Office, as well as grand jury testimony in connection with the criminal proceeding related to the preparation of the investor disclosure letters. ( See Doc. # 82 at 3; Doc. # 87 at 4.) He was given limited use immunity for his grand jury testimony. (Doc. # 87 at 4.) He has not yet received additional immunity for the interviews given to the United States Attorney's Office (Doc. # 82 at 17); however, he has apparently been given an offer of immunity related to statements he made to the California Attorney General's Office, but has not yet accepted the offer. (Doc. # 84 at 12 n. 1.)

Villalobos and ARVCO sought to depose Fox in this civil action. Counsel for Villalobos and ARVCO, Mr. Rohatiner, began his efforts to schedule Fox's deposition in May 2014, and Fox's counsel, Mr. Bitzer, originally agreed that Fox would appear for his deposition in Sacramento, California, on June 9, 2014, and that a subpoena would not be necessary. (Doc. # 76 at 2.) Then, to accommodate the schedule of counsel for the SEC, Mr. Rohatiner arranged through Mr. Bitzer to take Fox's deposition on June 19, 2014 instead. ( Id. ) At that time, Mr. Bitzer informed Mr. Rohatiner for the first time that Fox intended to invoke the privilege against self-incrimination under the Fifth Amendment and would not testify as to the relevant issues, i.e., preparation of the investor disclosure letters. ( Id. at 3.) In addition, Mr. Bitzer indicated that Fox would be playing in the World Series of Poker and was unavailable on June 19, 2014. ( Id. ) Mr. Rohatiner told Mr. Bitzer that if Fox intended to invoke the Fifth Amendment, he would argue that Fox had waived that privilege. ( Id. )

Understandably, Mr. Rohatiner did not want to wait several weeks to take Fox's deposition only to have him invoke the Fifth Amendment which would result in Mr. Rohatiner filing a motion to compel. ( Id. ) It was agreed, therefore, that Fox's deposition would be continued to July 1, 2014 to allow Fox to file a motion for protective order. On June 24, 2014, Fox filed a motion to quash and/or modify the subpoena. (Docs. # 68, # 68-2, # 68-3.) In his motion, Fox asserted that he was not available to appear and testify on July 1, 2014, because he would be playing in the main event of the World Series of Poker in Las Vegas, Nevada. (Doc. # 68-2 at 2.) In addition, he indicated that he had previously agreed to appear and testify at a deposition on August 8, 2014, in this action and a companion California civil action, People of the State of California v. Alfred Robles Villalobos, et. al., SC107850 (pending in the Los Angeles County Superior Court). ( Id. ) Fox also mentioned that he is a witness in the pending criminal case. ( Id. at 3.) As such, he sought an order that Villalobos and ARVCO proceed with his deposition on August 8, 2014. ( Id. at 2.) He argued that there was no reason to depose him prior to August 8, 2014 in this action as discovery remained open, and posited that the only reason Villalobos and ARVCO wanted to depose him prior to this time was to attempt to improperly cross-examine him in advance of the criminal trial (which was then set to commence on July 21, 2014). ( Id. at 3.) Notably, the motion did not mention any intention to invoke the Fifth Amendment privilege against self-incrimination at his deposition, whenever it was scheduled to occur.

The court held an expedited hearing on Fox's motion on June 27, 2014. ( See Minutes at Doc. # 70.) At the hearing, the court asked Mr. Rohatiner why the deposition could not wait until August 8, 2014, and Mr. Rohatiner then informed the court that Fox had indicated he was going to invoke the Fifth Amendment, and Mr. Rohatiner did not want to wait until August 8, 2014 to begin the process of filing a motion to compel Fox's testimony. As a result, the court inquired of Fox whether he intended to invoke the Fifth Amendment on August 8, 2014, and Fox expressly stated that he would not assert his Fifth Amendment privilege against self-incrimination during his deposition. Based on that representation, Mr. Rohatiner indicated that he would have no problem rescheduling the deposition to August 8, 2014. In view of this, Fox's motion was denied as moot. (Doc. # 70 at 2.)

In the interim, the court held a status conference to discuss scheduling matters. ( See Minutes at Doc. # 73.) In light of a continuance of the criminal trial and the time commitment the criminal proceeding would require of the parties and counsel, the court extended the discovery deadline in this action to April 17, 2015, with dispositive motions due on May 15, 2015, and a trial date of August 25, 2015. ( Id. )

Subsequent to the June 27, 2014 hearing but prior to the August 8, 2014 deposition date, Mr. Rohatiner was informed by Mr. Bitzer that contrary to Fox's representation at the June 27, 2014 hearing, Fox did intend to invoke the Fifth Amendment at his deposition. This resulted in the filing of the instant motion by Villalobos and ARVCO to compel Fox to attend his deposition and to answer questions without invoking the Fifth Amendment on the basis that he waived this privilege at the June 27, 2014 hearing. (Doc. # 76.) Villalobos, ARVCO and Fox stipulated that it was unnecessary for Mr. Rohatiner to wait and appear at the deposition where Fox would invoke the Fifth Amendment before filing this motion to compel. (Doc. # 81.) Fox has agreed to appear and testify at his deposition, but contends he has the right to assert all objections at his deposition, including his Fifth Amendment privilege against self-incrimination. (Doc. # 82 at 3.)

B. Instant Motion (Doc. # 76)

In their motion, Villalobos and ARVCO argue that Fox expressly waived his Fifth Amendment privilege against self-incrimination when he represented at the June 27, 2014 hearing that he would appear for his deposition on August 8, 2014, and would not invoke his Fifth Amendment privilege against self-incrimination. (Doc. # 76 at 2.) As such, Villalobos and ARVCO request an order that Fox be required to appear for his deposition and answer questions posed without invoking the Fifth Amendment. ( Id. ) Villalobos and ARVCO rely on United States v. Anderson, 79 F.3d 1522 (9th Cir. 1996), for the proposition that the Fifth Amendment privilege against self-incrimination is waived when an express assertion to do so is made. ( Id. at 4-5.)

C. Fox's Opposition (Doc. # 82)

Fox argues that the Ninth Circuit supports his position that his statement at the June 27, 2014 hearing that he did not intend to invoke his Fifth Amendment privilege against selfincrimination at his deposition cannot form the basis of a blanket waiver of his Fifth Amendment rights. (Doc. # 82 at 2.) Preliminarily, Fox notes that his statement at the June 27, 2014 hearing was based on his assumption that he would receive derivative use immunity prior to the deposition from both the United States Attorney's Office and the California Attorney General's Office; however, to date, he has not received any additional immunity from either governmental agency. ( Id. n. 1.)

Fox argues that he has the right to invoke the Fifth Amendment privilege against self-incrimination with respect to questions elicited at his deposition regarding the preparation, execution and disposition of the investment disclosure letters, and that he did not waive that right prospectively. ( Id. at 7.) Fox relies on both United States v. Anderson, 79 F.3d 1522 (9th Cir. 1996) (also relied on by Villalobos and ARVCO) and Tennenbaum v. Deloitte & Touche, 77 F.3d 337 (9th Cir. 1996), for the proposition that a mere promise or intention to subsequently waive a privilege, without an actual subsequent disclosure of privileged communications, does not waive the right to assert the privilege, including the Fifth Amendment. ( Id. at 2.) In other words, it is the disclosure and not the mere promise to disclose that results in a waiver of rights. Here, in order for Fox to have waived his right to invoke the Fifth Amendment, he argues that he must have actually testified at his deposition related to the investment disclosure letters. ( Id. at 7.)

Finally, Fox argues that the statements he made in interviews with the United States Attorney's Office did not waive his right to assert the Fifth Amendment at a subsequent deposition in this civil action because of the "single proceeding" rule which provides that a waiver of the Fifth Amendment is limited to the particular proceeding in which the waiver occurs. ( Id. at 14.)

D. Reply of ARVCO and Villalobos (Doc. # 84)

ARVCO and Villalobos maintain that Fox expressly waived his right to invoke the Fifth Amendment with his express statement at the June 27, 2014 hearing. (Doc. # 84 at 2.) Citing United States v. Jenkins, 785 F.2d 1387, 1393 (9th Cir. 1986) and Davis v. Fendler, 650 F.2d 1154 (9th Cir. 1981), ARVCO and Villalobos argue that an individual may waive a privilege inadvertently. ( Id. ) ARVCO and Villalobos point out that in Davis, the court found a waiver of the Fifth Amendment rights when the defendant failed to timely raise an objection based on the Fifth Amendment in response to a set of interrogatories, and contend that Fox's express statement that he would not be invoking the Fifth Amendment surely constitutes a waiver. ( Id. )

ARVCO and Villalobos also contend that the concept of "judicial estoppel" requires that Fox be compelled to testify without relying on the Fifth Amendment in this case. ( Id. at 3.) They reason that Fox agreed to waive his right to invoke the Fifth Amendment in exchange for the benefit of having his deposition delayed, and having received such benefit, he should be estopped from reversing his position at this time. ( Id. ) ARVCO and Villalobos rely on Ah Quin v. County of Kauai Dept. of Transp., 733 F.3d 267, 270 (9th Cir. 2013) and Hiott v. Superior Court, 16 Cal.App.4th 712, 720-21 (1993) to support this position. ( Id. )

Next, ARVCO and Villalobos claim that Fox may not rely on the fact that he was unrepresented at the June 27, 2014 hearing to support his argument, and point out that it is apparent that each of Fox's filings in this case were drafted by counsel, and in fact Fox has had access to counsel with respect to this issue all along. ( Id. ) In a footnote, ARVCO and Villalobos point out that the State Bar of Nevada has issued an opinion that prohibits "ghost lawyering." ( Id. at n. 2, citing State Bar of Nevada Formal Opinion 34, dated December 11, 2006.)

ARVCO and Villalobos then address the Tennenbaum case, relied on by Fox, and argue that case is distinguishable because it arose in the attorney-client privilege context, where the focus is on the holder's disclosure and not on the intent to waive the privilege. ( Id. at 4.) ARVCO and Villalobos maintain that under Anderson, Fox's express statement that he intended to waive his ...


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