Hearing Transcript On Motion To Disqualify in SCIF v. Drobot

1 UNITED STATES DISTRICT COURT
2 CENTRAL DISTRICT OF CALIFORNIA
3 HONORABLE ANDREW J. GUILFORD, JUDGE PRESIDING
4 STATE COMPENSATION INSURANCE )

FUND, )
5 )
)
6 )
Plaintiff, )
7 )
)
8 ) No.
Vs. ) SACV13-0956-AG(JCGx)
9 ) SACV15-1279-AG(CWx)
)
10 )
MICHAEL D. DROBOT, SR., ET AL, )
11 )
)
12 )
Defendants. )
13 )
________________________________
14
15
16 REPORTER'S TRANSCRIPT OF PROCEEDINGS
17 STATUS CONFERENCE AND MOTION HEARING HELD IN
18 CASES 13-0956 AND 15-1279
19 SANTA ANA, CALIFORNIA
20 MONDAY, MAY 9, 2016
21
22
23 MIRIAM V. BAIRD, CSR 11893, CCRA

OFFICIAL U.S. DISTRICT COURT REPORTER
24 411 WEST FOURTH STREET, SUITE 1-053
SANTA ANA, CALIFORNIA 92701
25 (714) 894-5384
MVB11893@aol.com
UNITED STATES DISTRICT COURT

1 A P P E A R A N C E S
3 IN BEHALF OF THE PLAINTIFF, MUNGER TOLLES & OLSON

STATE COMPENSATION INSURANCE BY: JOHN W. SPIEGEL
4 FUND: 355 SOUTH GRAND AVENUE
35TH FLOOR
5 LOS ANGELES, CA 90071
6
IN BEHALF OF THE DEFENDANT, SAMUEL A. KEESAL, JR.
7 DR. BERNADETT: CHRISTOPHER FARNSWORTH
STEFAN PEROVICH
8 400 OCEANGATE
LONG BEACH, CA 90802
9
10 IN BEHALF OF THE DEFENDANT, LATHAM & WATKINS

DR. HAIDER: BY: MANUEL ABASCAL
11 355 SOUTH GRAND AVENUE
LOS ANGELES, CA 90071
12
13 IN BEHALF OF THE DEFENDANT, CARLSON & JAYAKUMAR

DR. IVAR: BY: JEHAN N. JAYAKUMAR
14 2424 S.E. BRISTOL STREET
SUITE 300
15 NEWPORT BEACH, CA 92660
16 IN BEHALF OF THE DEFENDANT, THE ARMENTA LAW FIRM

DR. TANTUWAYA: BY: CRIS ARMENTA
17 1230 ROSECRANS AVENUE
SUITE 300
18 MANHATTAN BEACH, CA 90266
19 ALSO APPEARING: DONALD G. NORRIS

DAWN COULSON
20 MARC INDEGLIA
BRIAN KLEIN
21 LILLIAN CHU
STEVEN GOLDSOBEL
22 JASON BURROWS
GRANT GELBERG
23 JAMES RUMM
C. KENDIE SCHLECHT
24 JOHN RICE
JAMES DUFF
25 ADAM BRAUN
AARON MAY

1
CONTINUED APPERANCES: LINDA PLATISHA
2 KENDRA LOUNSBERRY
JONATHAN TANG
3
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

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1 SANTA ANA, CALIFORNIA; MONDAY, MAY 9, 2016; 10:45 A.M.
2 ---
4 THE CLERK: SACV13-0956-AG State Compensation
10:44AM 5 Insurance Fund v. Michael D. Drobot, Sr. Et al. And
6 SACV15-1279-AG State Compensation Insurance Fund vs. Daniel
7 Capen, et al.
8 THE COURT: Now, Ms. Bredahl, where are you on
9 checking folks in? What do you recommend or shall I have
10:44AM 10 people make their appearances now?
11 THE CLERK: I have all their cards.
12 THE COURT: Let me say, as people come forward, I'm
13 seeing lots of people here. Ms. Bredahl informs me that she
14 has the names of all who want to make an appearance. So my
10:44AM 15 question now will be, if you're not on Ms. Bredahl's list and
16 you would like to make an appearance, speak up now. Anyone
17 not on Ms. Bredahl's list who would like to make an
18 appearance? No one seems to be stepping forward. We will
19 rely on Ms. Bredahl's list.
10:45AM 20 The three things we have to discuss here are the
21 good-faith settlement issue, status conference concerning the
22 progress of settlement, and the motion to reconsider. Let's
23 begin with the good-faith motion, which is where we left off.
24 MR. KEESEL: Good morning, Your Honor.
10:45AM 25 Samuel Keesel -- Skip Keesel appearing for

5
1 Dr. Bernadett. I'm here with Chris Farnsworth and Stefan
2 Perovich to the extent that they can be helpful.
3 THE COURT: Okay. Let's see, you're here for
4 Dr. Bernadett?
10:45AM 5 MR. KEESEL: Yes, we are, Your Honor. We're the
6 moving party.
7 THE COURT: Who are the other attorneys you
8 identified?
9 MR. KEESEL: Chris Farnsworth, an attorney from our
10:45AM 10 office, as is Stefan Perovich.
11 THE COURT: Okay. So three people from your office
12 on behalf of Dr. Bernadett. So let me just understand what
13 has happened here. You have settled on behalf of
14 Dr. Bernadett?
10:45AM 15 MR. KEESEL: We have subject to this Court --
16 THE COURT: If I -- if the settlement goes through,
17 you will no longer be with us?
18 MR. KEESEL: That's right, Your Honor.
19 THE COURT: We'll miss you, but that's not a factor
10:46AM 20 to consider here. What made you decide to bring an 877.6
21 motion? I'm sure you're aware you don't have to bring the
22 motion to have the protection? You bring the motion to get
23 an early review about whether 875 protection is provided.
24 Did you feel it necessary to bring the motion to
10:46AM 25 have the protection?

6
1 MR. KEESEL: We did, Your Honor. The issue that we
2 saw as looming large here is if we reach the resolution which
3 the Court knows about, which because we may have some people
4 who were not subject to the confidentiality clause, I won't
10:46AM 5 mention, in order to do what we did, we felt we had to ask
6 this Court to determine at this point that this was a good
7 faith -- it should be subject to the good-faith
8 determination.
9 There are so many parties involved here, some of
10:47AM 10 whom may want to cause additional difficulty, and we wanted
11 to prevent that to the extent that we could.
12 THE COURT: Fair enough. That's good practice. In
13 these concerns, the fact that it is uncontested brings in
14 case law that says, take a fast look if it's uncontested. To
10:47AM 15 do that in a case like this, my opening question is: Who
16 knows about this and who has been served? I previously have
17 wondered about even service on people who are not involved in
18 any way in the litigation and whether you get protection? I
19 believe it's 875. 875 protection from non-parties in any of
10:47AM 20 the matters who aren't served.
21 I'll just ask here, who has been served? Who has
22 knowledge of this?
23 MR. KEESEL: All parties in the Drobot and Capen
24 actions.
10:48AM 25 THE COURT: All right. For example, would that

7
1 include Mr. Randall?
2 MR. KEESEL: No.
3 THE COURT: He has not been served? Hold on.
4 Oops. Where are we --
10:48AM 5 MR. PEROVICH: Mr. Randall has been --
6 THE COURT: Step forward. All the way to the
7 microphone. Give your name again.
8 MS. ARMENTA: Stefan Perovich on behalf of
9 Dr. Bernadett. Mr. Randall was served, as he is a party to
10:48AM 10 the SCIF vs. Drobot action.
11 THE COURT: Okay. So he has been served.
12 MR. KEESEL: Apparently so. I'll keep the
13 knowledge man at the podium also.
14 THE COURT: Okay. So we have an interesting
10:48AM 15 situation right here and right now where Mr. Randall's
16 indemnification and contribution rights are going to be
17 adversely affected if I grant a good-faith settlement.
18 Would you agree with that?
19 MR. KEESEL: Yes, I do.
10:49AM 20 THE COURT: Do we know what lawyer on behalf of
21 Mr. Randall would step forward here today and say this is not
22 a good-faith settlement or it is not enough money or
23 Dr. Bernadett's involvement is far greater.
24 Do we know what lawyer would step up and make those
10:49AM 25 arguments?

8
1 MR. KEESEL: I don't think we do, Your Honor.
2 THE COURT: We do have a declaration here submitted
3 by Mr. Randall's former attorney before I made my conflict
4 ruling?
10:49AM 5 MR. KEESEL: No. It's the subsequent attorneys,
6 Mr. Julian and the Manatt Phelps firm, the interim counsel.
7 THE COURT: Didn't it --
8 MR. KEESEL: I had that wrong, Your Honor.
9 THE COURT: Ms. Plessman submitted a declaration.
10:50AM 10 MR. KEESEL: Mr. Julian and his firm filed a
11 joinder.
12 THE COURT: Yes. So we have a declaration
13 submitted by a Hueston Hennigan lawyer. In these good-faith
14 settlements, particularly where they are uncontested
10:50AM 15 following California case law, I'm entitled not to do an
16 in-depth analysis. It also seems to me in that setting, I do
17 have to make sure that people who are going to be affected
18 have proper notice and have been properly represented. Here,
19 we found out that all parties to the various complaints,
10:50AM 20 amended complaints, third-party complaints, et cetera have
21 received notice. I have an issue about what lawyer would
22 have received that notice on behalf of Mr. Randall and made a
23 determination whether this is suitable for attack or
24 opposition.
10:51AM 25 MR. KEESEL: I can understand that.

9
1 THE COURT: Okay. I will say that having looked at
2 it and understanding Tech-bilt, ballparks, etcetera -- I
3 think it's Tech-bilt, ballparks, et cetera, this would be a
4 good-faith settlement. There's -- there's real money in
10:51AM 5 response to the situation.
6 So we'll issue an order on it shortly. I need to
7 address the issue which I just raised in my order. I think
8 you can anticipate that a good-faith settlement will be
9 found.
10:52AM 10 MR. KEESEL: Thank you very much.
11 THE COURT: I appreciate your arguments here.
12 MR. KEESEL: Thanks to you and thanks to counsel
13 with whom we've worked with now with for now over a year.
14 THE COURT: I appreciate your involvement. Perhaps
10:52AM 15 with you at the podium there, I should go to the next issue,
16 which is the conference -- the status conference re
17 settlement conference and scheduling. Would you like to
18 address that or are you on your way out with a smile?
19 MR. KEESEL: First of all, I'm happy to help the
10:52AM 20 Court any way I can. We did at the Court's the, try to put
21 the settlement discussions in motions and did that until we
22 got to the point where we had reached an accomodation, and
23 then others have assumed that responsibility. I think
24 Mr. Julian might be the person best qualified to advise of
10:52AM 25 recent developments.

10
1 THE COURT: All right. Then, Mr. Julian, please
2 step forward. I do see at page -- page -- page 1 of
3 Document 1071, State Fund respectfully requests that the
4 Court order all defendants who have not reached a tentative
10:53AM 5 settlement with State Fund to participate in individual
6 mediator-led settlement meetings to be held over the next
7 45 days.
8 Is that State Fund's request?
9 MR. JULIAN: It is, Your Honor.
10:53AM 10 Good morning. Ken Julian on behalf of State Fund.
11 THE COURT: Yes, Mr. Julian. I'm inclined to do
12 that.
13 Does anyone have any opposition to my granting that
14 order?
10:53AM 15 MR. ABASCAL: Yes, Your Honor.
16 Manny Abascal on behalf of Dr. Haider.
17 THE COURT: All right.
18 MR. ABASCAL: We submitted a different status
19 report, Your Honor, objecting to Mr. Julian's
10:53AM 20 characterization of the settlement progress. We don't think
21 there was effective progress that was made. We also didn't
22 think it was appropriate to comment on confidential mediation
23 discussions. I don't think -- at least from my client, I can
24 only speak for my client, that the mediation was not
10:53AM 25 productive. We don't think it would be -- continue to be

11
1 productive to order us to individually mediate with State
2 Fund. I don't mean to be difficult, but the problem we have
3 is we have a complaint with no facts. We've received no
4 discovery. So we can't conceivably settle a matter when
10:54AM 5 we're not told what we did wrong, and there's no evidence
6 about our client. We've been --
7 THE COURT: Well, I'll contest that. If you did
8 something wrong, you likely know what you did wrong. You
9 know what the risks are. You know what they may discover or
10:54AM 10 may not discover. You know what their corresponding theories
11 will be. All good business people make decisions on less
12 than perfect information. I realize your information is
13 right now is substantially less than perfect. That still may
14 not preclude an early settlement. I'm just saying. It's the
10:54AM 15 speech I give regularly in business litigation.
16 MR. ABASCAL: Your Honor, you gave that speech in
17 the first hearing. We heard it loud and clear. We've done a
18 very thorough investigation. Your Honor, on our side, to all
19 of the facts we've seen, it would not support any settlement
10:55AM 20 here. I don't want to be difficult, but I just don't think
21 it would be productive given the way the mediation was
22 handled for -- to have further mediation.
23 I would suggest, Your Honor, in the filing, I
24 submitted, we would consent to the Court speaking directly to
10:55AM 25 the mediator to get details as to what happened during the

12
1 mediation, to see whether further mediation would be
2 productive.
3 THE COURT: Who is the mediator?
4 MR. ABASCAL: Liz -- and Judge Daniel Weinstein.
10:55AM 5 We would consent to you speaking with either or both of them
6 before making this decision. I don't want to further my
7 client's costs or other defendant's costs in an unproductive
8 process.
9 THE COURT: Who else wants to speak to this issue?
10:55AM 10 MS. ARMENTA: Good morning, Your Honor.
11 Cris Armenta on behalf of Dr. Tantuwaya. The only
12 issue, Your Honor, is that we would not want the order to
13 continue to mediate in this case to delay the further
14 administration of this case. It's our belief that the
10:56AM 15 defendants have been damaged enough by the delays of recent.
16 We'd like to proceed forward. We'd like State Fund not to
17 use the event of continuing to engage in good-faith
18 settlement efforts as a tool to delay anticipated motion for
19 summary judgement.
10:56AM 20 MR. BURROWS: Jason Burrows for the Nelson --
21 THE COURT: Hold on. Get to the microphone.
22 MR. BURROWS: Jason Burrows for the Nelson parties
23 in the Capen case. I'm not going to repeat comments from
24 Mr. Abascal. I agree with them. Your Honor mentions that we
10:56AM 25 have less than perfect information at times. As to my

13
1 client, we have no information as to why my client is a
2 defendant in this case. We have the complaint which is
3 ambiguous at best. I do not have any documents. I do not
4 have any information as to why my client allegedly engaged in
10:57AM 5 fraud. I don't even have a settlement demand.
6 Nevertheless, I defer to the mediator in having an
7 independent individual session. At the settlement conference
8 that we had, I said if you think it's worthwhile, we'll do
9 it. I don't have any demand but we'll talk. It was not
10:57AM 10 productive. I mean, there's some headway made, but, again,
11 no number. I was told a settlement demand would be coming
12 next week. I haven't received it. I'm willing to discuss
13 settlement, but SCIF has to do its part too.
14 Negotiating in a vacuum is not a way to get this
10:57AM 15 case settled. I think that is where we're headed. If the
16 Court orders mediation on the status quo, particularly if
17 clients have to show up without understanding what SCIF
18 has -- what SCIF claims they did wrong in this case. The
19 complaint doesn't cut it in terms of providing that notice
10:57AM 20 and why we should engage in settlement negotiations further.
21 THE COURT: Mr. Julian?
22 MR. JULIAN: Your Honor, in addressing the comments
23 of Mr. Abascal and other counsel, the actual global
24 settlement meeting where everybody is all together in the
10:58AM 25 same room, that really was not that effective in terms of

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1 getting settlements done. Where we made progress -- we've
2 got eight tentative settlements so far all in the Drobot
3 action. Where we made progress is one-on-one time.
4 What we're proposing to do is have half-day or
10:58AM 5 full-day sessions with each of the remaining defendants that
6 we haven't tentatively settled with. Their clients show up.
7 We do -- it is correct. Counsel are asking questions, what
8 evidence do you have, you know, what -- against our client.
9 We will bring that to the mediation or provide it ahead of
10:58AM 10 time so we'll have a full discussion about -- maybe based on
11 imperfect information, but we'll have a very full discussion
12 about what the evidence is.
13 THE COURT: All right. How many more are going to
14 speak to this issue? Anybody else? Hold on. Wait a minute.
10:59AM 15 Raise your hand if you want to speak to this issue. Wait.
16 You've already spoken.
17 Folks, we need to proceed efficiently here. This
18 is kind of not the most important issue facing us right now.
19 Bring the microphone next to you and respond. Turn it on.
10:59AM 20 MR. BURROWS: I believe it's on.
21 THE COURT: Nope. Is there a button there? There
22 you go. Speak.
23 MR. BURROWS: Simply waiting until -- to get
24 information from SCIF as to the evidence it has in support
10:59AM 25 for the claims against my client, either providing the day of

15
1 or shortly before isn't going to cut it. Again, it's too
2 close. We need to take a look at what they have. They are
3 very serious claims. We need to look at that and discuss
4 with the client and figure out if it is even worthwhile to
10:59AM 5 mediate.
6 THE COURT: Understood.
7 MS. COULSON: Your Honor, Dawn Coulson with Epps &
8 Coulson representing Jason Bernard and Progressive in the
9 Capen matter.
10:59AM 10 My concern is this: We are in settlement
11 negotiations with SCIF. The one settlement that has been
12 brought to the Court under the good-faith settlement had a
13 protective order that was used in order to file the
14 settlement under seal in this joint and several liability
11:00AM 15 allegation case. So when the Court asked if third parties
16 had information or notice about the case, unless they agreed
17 to keep the information secret, most people did not get the
18 information about the --
19 THE COURT: Are you addressing now whether I should
11:00AM 20 order further settlement or are you objecting to the
21 good-faith determination that was presented earlier?
22 MS. COULSON: I'm asking for the Court to make some
23 sort of analysis on whether submitting motions for good-faith
24 settlement under seal, keeping secret the amount of the
11:00AM 25 settlement in this good faith -- in this joint and several

16
1 liability case gives proper notice to everyone.
2 THE COURT: Okay. Who else wishes to speak?
3 MR. INDEGLIA: Very quickly, Your Honor. Marc
4 Indeglia on behalf of Dr. Geoffrey Gross. I wish to -- if
11:01AM 5 the Court is going to order further mediation, I'd like a
6 clarification whether it's going to be plaintiff versus
7 defendant or what the third-party defendants are. We are one
8 of the few -- like Mr. Randall, one of the few third-party
9 defendants only. SCIF does not have a claim against us. So
11:01AM 10 for us to be forced to mediate with a party not seeking money
11 from us would seem to be an inefficient use of our time.
12 THE COURT: Understood. We need to be getting to
13 the merits. I need to do this: I'm going to ask my law
14 clerk to -- I think I need to do this. Take this chart and
11:01AM 15 put it on the ELMO, please.
16 Go ahead.
17 MR. ABASCAL: Thank you, Your Honor. I just want
18 to respond to Mr. Julian's comments. We've been through the
19 process twice. They have produced documents to us. We don't
11:01AM 20 think there's anything there. That's why we think it's not
21 productive. We would encourage the Court to talk to the
22 mediator as well.
23 Thank you.
24 THE COURT: I'll issue an order on the request for
11:02AM 25 further settlement discussions. There also was an offer, I

17
1 believe, by SCIF to provide unredacted engagement letters if
2 the Court requests. The Court does the request. The request
3 is there.
4 Does anyone need to address that? I mean, it was
11:02AM 5 one line, if the Court requests, they will be provided. I'm
6 now requesting.
7 Ms. Bredahl, perhaps -- now we're ready to roll.
8 Good. On the ELMO screen. So I do wish that they be
9 provided.
11:02AM 10 MR. SPIEGEL: John Spiegel, Your Honor.
11 Good morning. Munger, Tolles, & Olson appearing
12 for State Fund with my client Linda Platisha. We have those
13 unredacted letters. They will be lodged with Your Honor in
14 camera.
11:02AM 15 THE COURT: Does anyone have anything else to say
16 about that? It seems to me one of the papers said there were
17 conditions being put on that lodging.
18 Pull up further down, Mr. -- there we go. Thank
19 you.
11:03AM 20 Anyone else have anything to say about the
21 provision of unredacted engagement letters to us at this
22 time? That will be the order of the Court. Provide them.
23 Now, before we move deeply into the motion for
24 reconsideration, let me say, there's a few things about this
11:03AM 25 case that I think make it unique. Considerations that I am

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1 considering in ruling on the disqualification motion. One is
2 the complexity of this case. We've been cited to a lot of
3 cases, cases involving disqualification in various scenarios.
4 As I look at -- I counted them -- 40 lawyers in my courtroom
11:03AM 5 and as I look at this chart on the screen, this is a complex
6 case. It obviously is a complex case. This is a chart that
7 we put together a while ago to try to keep track of the
8 players and the actions.
9 Let me just say that one of many dozens -- one of
11:04AM 10 dozens of factors in ruling on the disqualification is the
11 complexity. I have now taken this chart and on my own
12 overlaid it with the potential implications of Mr. Randall's
13 interference or involvement in various issues in this scheme.
14 This scheme is already complex, but when I overlay it with
11:04AM 15 Mr. Randall's interests or participation at various points
16 along the way, it gets extremely complex.
17 One example was just now, motion for good-faith
18 settlement. Are we precluding Mr. Randall from seeking
19 indemnity and contribution? What is the role of that? Do I
11:05AM 20 have confidence that he has a lawyer who read the proof of
21 service and made a determination whether to respond or oppose
22 the motion for good-faith settlement? It's but one of
23 literally dozens of interfaces. Many of those interfaces, I
24 think, we're about to hear in the next 55 minutes.
11:05AM 25 Interfaces where the Court and the parties are presented with

19
1 very difficult questions as to the full and adequate
2 representation of Mr. Randall and State Fund in this context.
3 I can spend countless hours analyzing each of them
4 in this case which is already extremely complex. You've
11:05AM 5 heard the Court's concern each time there's been a motion to
6 file an amended complaint or third-party complaint or these
7 parties or those parties, my great frustration that this case
8 filed long ago is still out there pending with no end in
9 sight partly due to now the complications of this potential
11:06AM 10 conflict.
11 Not even on that chart is the criminal matter.
12 Some of the cases cited to this Court have involved criminal
13 defendants, but that really complicates things to my way of
14 thinking in this case. Let me give a few examples as to why
11:06AM 15 the existence of a conflict with a criminal defendant
16 complicates this case. These are just some.
17 First of all, of course, a criminal defendant has a
18 Sixth Amendment right to counsel. That is extremely
19 important. That is a concern that doesn't exist when you're
11:07AM 20 citing me cases where the conflict exists in simply civil
21 matters. Here is a really important point: If they are --
22 if there are two civil matters and they are very similar,
23 they get joined into one matter. If you have a criminal
24 matter and a civil matter, they don't get joined even though
11:07AM 25 they involve exactly the same issues. That's what we have

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1 here. A criminal matter and a civil matter with a criminal
2 matter involving the same issues that will be addressed in
3 the civil matter. What I'm saying is if it were a civil
4 matter, they would be joined together, consolidated, or some
11:07AM 5 other method of joining them together. The only reason they
6 are not joined together here -- the only reason the Court
7 isn't considering consolidating them is because it's a
8 criminal matter. What does that mean? The facts developed
9 in the criminal matter have obvious relationships to the
11:08AM 10 facts to be developed in the civil matter. Obviously.
11 We've already gone through a complicated and
12 difficult discovery motion on access to information the
13 prosecutor has, which is what one would expect because they
14 are the same set of facts. So the fact that we have a
11:08AM 15 criminal matter here most importantly to me causes me concern
16 about the representation of a criminal defendant facing the
17 great power of the United States Government prosecuting him,
18 as well now as the complication of his victim spending lots
19 of money to a powerful law firm who at the same time is
11:09AM 20 representing him. This just concerns me greatly. The
21 adequate representation of this criminal defendant.
22 I'm also aware that this is not the first time this
23 Court has been asked to devote substantial energy to the
24 issue of a conflict. We went around before early in this
11:09AM 25 case. I will tell you if it wasn't obvious, it was a very,

21
1 very difficult decision for this Court to make to allow State
2 Fund's attorney to continue as their attorney, despite some
3 difficult conflicts raised. We invested so much time and so
4 much energy. There was a lot of acrimony. I think the
11:09AM 5 losing party in that case made accusations to this Court
6 about the integrity of the process, which concerned me at the
7 time and remains in my memory.
8 We now have another issue coming up. When I was a
9 lawyer, it didn't take me long to realize that in ethical
11:10AM 10 issues, if it's a close question, don't do it. In ethical
11 issues, if it's a close question, don't do it. It's not
12 worth the trouble. It's not worth the heartache. Now, I
13 can't really say that's an applicable standard here. So it's
14 not a standard I'll be applying here, but I only note that
11:10AM 15 twice now we've come across an issue and expended an
16 incredible amount of time analyzing and reanalyzing and reams
17 of paper. Having nothing to do with the core issues involved
18 here, which are number one, is State Fund entitled to money
19 and number two, is Mr. Randall going to be treated fairly in
11:10AM 20 his criminal prosecution?
21 So those are just some of the concerns I have.
22 We'll start now, I guess, hearing first from State Fund on
23 the motion for reconsideration.
24 MR. SPIEGEL: Thank you, Your Honor.
11:11AM 25 John Spiegel, again, Munger, Tolles, & Olson

22
1 appearing with my partner Melinda Lemoine and our client
2 Linda Platisha from State Fund.
3 I should start, Your Honor, by acknowledging the
4 tremendous effort and thought that Your Honor has put into
11:11AM 5 this issue.
6 THE COURT: Be careful. I don't want you to create
7 a record that will hurt you on appeal. Of course, I'm not
8 offended, but you can't say tremendous effort and thought.
9 You said I'm clearly erroneous and my decision is manifestly
11:11AM 10 unjust. You said I failed to consider material facts. I
11 don't mind you saying that. Just don't make a record that
12 will hurt you.
13 MR. SPIEGEL: Your Honor, the record I'm trying to
14 make today is to speak to you as directly as I can as to why
11:11AM 15 we do sincerely believe that there's been a clear error made
16 in the ruling that this is a non-waivable conflict situation.
17 I've been practicing for 30 years. I can't remember ever
18 bringing a motion for reconsideration. I get the standard
19 that we face with you today, but please let me try.
11:12AM 20 THE COURT: Can I just ask in that regard -- again,
21 I understand it's an important issue. You have to bring a
22 motion for reconsideration. You have to say those issues. I
23 thought you handled it very discretely and honorably in your
24 papers. Really, I do want to get this right. What material
11:12AM 25 fact did I fail to consider? We had a very long argument.

23
1 We had a long tentative. It's hard for me to scratch my head
2 and for myself say, what material fact did I fail to
3 consider? Can you name one or is it kind of milieu of I must
4 have failed to consider something because I got it so wrong?
11:13AM 5 What material fact did I fail to consider?
6 MR. SPIEGEL: Your Honor, I think in frankness,
7 the -- the failure to consider material fact and the Ninth
8 Circuit's standard of clear error manifest injustice really
9 merge here. I'll give you the material fact that we believe
11:13AM 10 qualifies under the rule. It's the simple proposition that
11 there is no actual existing conflict between the two Hueston
12 Hennigan clients in the same proceeding. I recognize that
13 was discussed. I'm not denying that, but given the central
14 importance of that fact, under the Klemm case, we feel it
11:13AM 15 meets the -- it meets the standard.
16 THE COURT: You just used the phrase, "same
17 proceeding." Is that the phrase, proceeding, matter,
18 hearing, trial? Since you say that's the material fact,
19 let's get right down to Klemm. Are you saying that Klemm
11:14AM 20 applies only if there's an actual conflict at a hearing or a
21 trial? The opposition claims that's what you're saying.
22 That's hard to square with a lot of the case law out there.
23 I specifically asked the question -- one of my questions --
24 it might have been the most important question which goes to
11:14AM 25 the core that you just identified, does it matter whether we

24
1 use the word proceeding, matter, litigation, lawsuit? And in
2 your response, you seem to say, for it to be unwaivable, it
3 must be only a contested hearing or trial. The opposition
4 then says, your only support for that is clinging to the
11:14AM 5 expert declarations you provided. They kind of suggest that,
6 but I'm not sure that's where they're at.
7 Is it the position of SCIF that the conflict is
8 unwaivable only in the limited circumstances described in --
9 in Klemm of contested hearing or contested trial? Is that
11:15AM 10 your position?
11 MR. SPIEGEL: Yes, and by --
12 THE COURT: If that's your position, I'm going to
13 wonder why you got separate lawyers in -- last count, four
14 different areas? Is the deposition a contested hearing or a
11:15AM 15 trial?
16 MR. SPIEGEL: Well, it's part of a litigated
17 proceeding.
18 THE COURT: Yeah, but that's my whole point. I'm
19 confused what your position is here.
11:15AM 20 MR. SPIEGEL: Let me --
21 THE COURT: Let me just for the record say, this is
22 a fact that I am doing my very best to consider. I did my
23 very best to consider it at the earlier hearing. The fact
24 that my conclusion came out wrong, in your view, doesn't mean
11:15AM 25 I didn't fully consider this. As I'm trying to consider it,

25
1 and I asked the question to you, in my many questions and I
2 don't think you answered it.
3 So go ahead.
4 MR. SPIEGEL: Let me try.
11:16AM 5 So the situation in Klemm is you have one lawyer
6 for a couple getting a divorce. You have the wife here, the
7 husband over here, and one lawyer representing them. The
8 Court says that's okay as long as you have informed written
9 consent that addresses potential conflicts that can come up.
11:16AM 10 The Court goes on to say what would not be okay is if you
11 actually have in the same hearing or trial a contested
12 proceeding between those two clients.
13 THE COURT: By that statement in that case, is it
14 your position they intended to limit unwaivable conflicts to
11:16AM 15 those two limited situations? I don't think so. Your papers
16 are a little unclear. The defense says that's exactly what
17 you're saying.
18 MR. SPIEGEL: Your Honor, I -- I do believe that
19 position is supported, for example, by the discussion
11:17AM 20 associated with Rule 3-310C where this issue gets -- is
21 addressed in black-and-white. There are -- there are --
22 there's a paragraph that says, you know, we're not saying
23 that every situation is -- is unwaivable. The -- the example
24 given is the -- is the Klemm situation.
11:17AM 25 So, of course, Your Honor, I'm not saying is that

26
1 the only situation in the world where you could ever decide
2 that it's an unwaivable conflict. It's pretty strong
3 guidance from our appellate court. The language of the rule,
4 Your Honor, is very strong on this. It says, unless you have
11:17AM 5 an informed written consent, you can't represent somebody
6 with potential conflict. Then it says, if you have a
7 potential conflict and ripens into an actual conflict, you've
8 got to get another written waiver. Then it says -- this is
9 what is applicable here -- in a separate proceeding -- in a
11:18AM 10 separate proceeding, which I do believe -- excuse me,
11 Your Honor, separate matter. In a separate matter, which I
12 do believe we have here, you can with informed -- with
13 informed written consent represent parties with adverse
14 interests.
11:18AM 15 Now, the rule uses the language "matter." So I
16 think it's fair to stick with that. That's what 3-310 says.
17 Sub three of that rule says in a separate matter, which is
18 what the criminal investigation and prosecution of Randall is
19 here, you can represent parties with adverse interests.
11:18AM 20 THE COURT: Well, is it a separate matter or is it
21 all of the same matter? A matter that would have been joined
22 were it not for a criminal case? Here on a whole different
23 issue, the quality of the informed consent, I have trouble
24 that you say in an unrelated matter; that the criminal matter
11:19AM 25 is unrelated? How could you possibly claim to have informed

27
1 consent when you're telling your client that the criminal
2 matter is unrelated?
3 MR. SPIEGEL: Well, I don't think, Your Honor, that
4 the waiver depends on that issue. Your Honor, if -- if the
11:19AM 5 matter is related, criminal and civil are related, and I
6 recognize the argument that it is related, there is
7 nonetheless clear waivers from Randall here that don't
8 depend on --
9 THE COURT: We'll take up the clear waivers in --
11:19AM 10 after we finish whether a waiver is required. I do not find
11 the waivers at all clear. We'll take that up later.
12 MR. SPIEGEL: Fine, Your Honor.
13 THE COURT: Let me also say, it was Question 21
14 that perhaps was the core question that you highlighted just
11:20AM 15 now. Are there any meaningful distinctions between same
16 lawsuit, same litigation, same matter -- same matters with an
17 "S," same case, in analyzing whether concurrent
18 representation of parties is appropriate? You answered that
19 at 2.6. Your answer seems to say that if it isn't a
11:20AM 20 contested hearing or trial, there's not an issue. That would
21 raise the question about whether in a deposition proceeding
22 you could cross-examine your own client. That wouldn't be a
23 hearing. That wouldn't be a trial. That would be a
24 deposition. I'm just not accepting that Klemm in that
11:20AM 25 statement intended to be all inclusive rather than simply be

28
1 giving some examples.
2 It's clear to me Klemm was giving some examples.
3 It was not all inclusive, yet your answer at 2.6 seems to be
4 saying it was all inclusive. That's what the defendants
11:21AM 5 interpret. That's what the defendants said your experts are
6 saying. I'm not sure that is what your experts are saying,
7 so I'm trying to get at what you're saying right now.
8 MR. SPIEGEL: Your Honor, in the deposition
9 Mr. Randall is separately represented by Anthony Graham not
11:21AM 10 represented by Hueston Hennigan. We don't have the issue at
11 all --
12 THE COURT: What I'm asking is hypothetically,
13 under your analysis, he wouldn't have to have been
14 represented by independent counsel. Someone apparently
11:21AM 15 thought he needed independent counsel, which cuts against
16 your argument. Apparently he didn't need it. It wasn't a
17 contested hearing or trial.
18 MR. SPIEGEL: Well, Your Honor, we always do things
19 as lawyers for avoidance of doubt, to be conservative --
11:21AM 20 THE COURT: Fair argument. You erred on the side
21 of conservative --
22 MR. SPIEGEL: Of course, we did. We don't have to
23 reach the question of whether Hueston Hennigan could have
24 represented him in his deposition. That was never
11:21AM 25 contemplated. It didn't come up. He had an experienced

29
1 lawyer, a Harvard Law School graduate who has been practicing
2 in this state for 25 years who has represented him civilly.
3 The same with the good-faith settlement issue. Why are we
4 talking about angels on the head of a pin here when we don't
11:22AM 5 need to be facing that issue. We got plenty of tough ones in
6 this case. I grant you. That one we don't have, nor do we
7 have the issue of Mr. Randall's sentencing.
8 At his sentencing -- first of all, my client has
9 said Hueston Hennigan is not going to be there. They're not
11:22AM 10 going to be arguing for SCIF at his sentencing as SCIF's
11 lawyers.
12 THE COURT: They will be arguing as his lawyers.
13 MR. SPIEGEL: They'll be arguing as his lawyer --
14 THE COURT: We have --
11:22AM 15 MR. SPIEGEL: If I can finish, Your Honor. Excuse
16 me --
17 THE COURT: No. Please, please.
18 MR. SPIEGEL: With the assistance of a very
19 experienced criminal defense lawyer who is now co-counsel
11:22AM 20 with Mr. Randall. John Rice, who is here in the courtroom
21 today, a 16-year veteran prosecutor now an experienced
22 defense lawyer. I understand Your Honor's concern about Paul
23 Randall's rights and being protected. They are so well
24 protected here, Your Honor, he has not only his long-time
11:23AM 25 counsel Brian Hennigan who has been with him since 2011, he

30
1 has Mr. Rice there beside him. So if there's any issue of
2 conflict that comes up at all, he doesn't have to turn to Mr.
3 Hennigan. He's got Mr. Rice by his side to protect his
4 rights.
11:23AM 5 THE COURT: Okay. But do you know that every time
6 I sentence someone, I say words to the following effect:
7 Pursuant to Section 5E1.2E, all fines are waived including
8 cost of imprisonment and supervision. The Court finds that
9 the defendant does not have the ability to pay. That is a
11:23AM 10 finding I must make on behalf of the people of the
11 United States.
12 So I previously talked about restitution. You've
13 just brought up restitution. It goes far deeper than simply
14 restitution. I will tell you, I don't know what other
11:24AM 15 district judges do. Perhaps because I went so long as a
16 commercial litigator representing victims of fraud, I
17 regularly wanted that issue to be explored in depth. Perhaps
18 the strongest matters in Ms. Armenta's papers is her
19 extensive recitation of potential financial shenanigans.
11:24AM 20 That is something -- if you sit in here any Monday afternoon
21 when I'm sentencing people, I'm always exploring whether a
22 defendant who has made off with millions of dollars has it in
23 the Cayman Islands or some other place. I do not believe you
24 can explore that question too little.
11:25AM 25 On pages 6 through 9 of document 1062, we have the

31
1 Evergreen retainer of $50,000, which is probably something I
2 can't consider. I always wonder about hiring an attorney at
3 970 an hour with an Evergreen retainer of $50,000 while
4 claiming indigency. The Bernadett/Randall settlement, the
11:25AM 5 use of strawmen to hide assets, possible beneficial interest
6 in real property, misrepresentations in bankruptcy petitions,
7 earnings.
8 Something that often comes up, when I see a
9 defendant living in an 8,250 square foot five-bedroom
11:25AM 10 residence that some have called a palatial estate, and he
11 stands before me and says he has no money. Boy, I look at
12 that carefully. I look at that on the behalf of the victims
13 of the crime both for restitution and to come to a finding
14 that I'm required to come to on the fee issue -- I'm sorry,
11:26AM 15 on the fine issue.
16 How is that going to possibly be handled at
17 sentencing?
18 MR. SPIEGEL: Your Honor, none of those questions
19 that Your Honor is raising are a reason to deny State Fund
11:26AM 20 its choice of Hueston Hennigan in the civil actions. State
21 Fund is perfectly capable without any assistance from Hueston
22 Hennigan of showing up if they choose to show up. They're
23 entitled to make their own decision about that. They can
24 decide that having looked at all of this, having said it to
11:26AM 25 outside counsel, having reviewed it on their own, they can

32
1 make their own decision about whether there's blood in that
2 turnip or not. They get to make that decision on their own.
3 Hueston Hennigan is not part of it.
4 THE COURT: What if they read these papers and
11:27AM 5 decide yeah, we're going to make that determination. Let's
6 check Cayman Islands.
7 MR. SPIEGEL: They have the papers. They can --
8 THE COURT: Who is gonna show up and do that?
9 MR. SPIEGEL: Hueston Hennigan is not gonna have
11:27AM 10 any part of it, Your Honor. We've made that absolutely
11 clear. Hueston Hennigan has nothing to do with recovery of
12 assets from -- on behalf of State Fund.
13 THE COURT: So like in about four or five other
14 areas, that hot potato is being passed to other counsel?
11:27AM 15 MR. SPIEGEL: Hueston Hennigan never had the
16 responsibility to -- on behalf of State Fund, seek a
17 financial recovery from Randall. They said we -- we are not
18 taking that on. They have -- excuse me, Your Honor. In my
19 zeal, I'm talking over you, which my kids are always
11:27AM 20 complaining about.
21 THE COURT: Sir, you're being a gentleman. I
22 appreciate it. I spoke for quite a while. Your turn. Go
23 ahead.
24 MR. SPIEGEL: I -- I can't emphasize strongly
11:27AM 25 enough, Your Honor, that whatever thoughts Your Honor has

33
1 about Paul Randall and his financial situation, those are
2 matters which State Fund can choose to address if it thinks
3 there's any money after they collect on a $10.2 million
4 judgment against Randall. After they've gotten 10.2 million
11:28AM 5 out of him somehow, if they decide it's worth spending some
6 more money checking him out in the Cayman Islands, they can
7 do that. That has nothing to do with Hueston Hennigan. It's
8 never had anything to do with Hueston --
9 THE COURT: The question is can Mr. Hennigan defend
11:28AM 10 against that?
11 MR. SPIEGEL: Of course, he can. Why can't he?
12 THE COURT: Because it's inconsistent with his duty
13 of loyalty to State Fund.
14 MR. SPIEGEL: That's why we have a waiver,
11:28AM 15 Your Honor. State Fund has said it's okay for you to
16 represent Mr. Randall in his criminal sentencing even though
17 the law firm also represents us in the civil action.
18 THE COURT: Does the waiver specifically address
19 the issue of fines or -- did the waiver letter specifically
11:29AM 20 address the issue of fines. The issue of fines may come up.
21 The Court may be interested in the gentleman's financial
22 conditions, and did you discuss that with State Fund?
23 MR. SPIEGEL: We're now going over to the issue of
24 the adequacy of the waiver, Your Honor, which I'm happy to go
11:29AM 25 to.

34
1 THE COURT: We'll get to that later.
2 MR. SPIEGEL: Okay. I'm happy to go there. I'm
3 not ducking that at all. I've got lots to say about it. If
4 you want me to get into that, I'm happy to. I do believe the
11:29AM 5 waiver letters are fully accurate, including the fact that
6 State Fund has read all this stuff from the defendants about
7 how there's certain -- Randall is living a life of luxury.
8 They've got that information. They can decide what they want
9 to do with it. They're still saying under oath by
11:29AM 10 declaration and here in this courtroom they actually want
11 Hueston Hennigan to be their lawyers so they can move this
12 case forward and not be -- not suffer the prejudice of having
13 their counsel for three years taken away. They know all this
14 information.
11:30AM 15 THE COURT: Was that fully explained to
16 Mr. Randall, our criminal defendant who has a Sixth Amendment
17 to counsel? Was it fully explained to him?
18 MR. SPIEGEL: Well, yes. He was told that Brian
19 Hennigan is going to be your lawyer in the criminal case.
11:30AM 20 State Fund is a current client of the firm. State Fund is
21 not going to be represented by Hueston Hennigan at your
22 sentencing. Your Honor, there's -- the -- the representation
23 by Mr. Hennigan and John Rice -- I've got to say that again,
24 Your Honor -- and John Rice, who not even these defendants
11:30AM 25 can accuse Mr. Rice of having a conflict.

35
1 THE COURT: They can maybe accuse him of grabbing a
2 hot potato.
3 MR. SPIEGEL: Your Honor, there is no hot potato
4 here. There is absolutely no hot potato here. To have
11:30AM 5 conflicts counsel -- Your Honor, I mean -- Your Honor has
6 practiced in -- in major litigation for years. This comes up
7 all of the time when a client will bring in conflicts counsel
8 in a case. I'll give you an example.
9 Our law firm doesn't represent the big accounting
11:31AM 10 firms. We get hired from time to time when a client is going
11 to trial in a case, and the accounting firm is going to have
12 to testify. We get hired to cross-examine them. We come in
13 for that purpose as conflicts counsel. No defendant would in
14 that case say, oh, I get a get-out-of-jail-free card. I'm
11:31AM 15 going to fire the lawyers from Davis Polk or whatever who
16 have been working on this case for five years and have 16
17 lawyers trying the case. I'm going to use the fact that
18 Spiegel is coming in to cross-examine the audit partner as an
19 excuse to throw Davis Polk off the case. You'd be laughed
11:31AM 20 out of the courtroom if you did that. That's essentially
21 what they're doing here.
22 THE COURT: Since you brought up my practice, let
23 me say, if I were to be involved in this situation and I
24 don't think I would have considered it to be waivable, but my
11:32AM 25 waiver letter would be about ten pages long. Sort of like

36
1 the waiver letter that the defense cited to me in the
2 DeCinces case.
3 One of my reasons in the DeCinces case for not
4 disqualifying the firm was an incredible intensive disclosure
11:32AM 5 letter supported by individual counseling from a former
6 United States Attorney now at Gibson Dunn & Crutcher. Again,
7 that goes to the quality of the conflict waiver. It probably
8 wasn't fair for me to bring it up.
9 What I want to bring up now --
11:32AM 10 MR. SPIEGEL: No. I think Your Honor, we -- we
11 have done the same thing here by taking all this stuff from
12 the defendants, piles of it, having my client read all of
13 that --
14 THE COURT: Which client? Your client State Fund?
11:32AM 15 MR. SPIEGEL: My client is State Fund.
16 THE COURT: Okay.
17 MR. SPIEGEL: My client has read all of that, has
18 understood all of the things that the defendants are saying,
19 all these ways they're trying to protect State Fund
11:33AM 20 supposedly by disqualifying the lawyers, and said okay, I get
21 it all. I've read it all. I'm as informed as I can possibly
22 be. I have had access to every fantasy that the defendants
23 can cook up about things that may happen or things Randall
24 may be doing. Still, my client State Fund is saying I want
11:33AM 25 Hueston Hennigan.

37
1 Mr. Randall is saying the same thing. I don't
2 represent him, but he's saying the same thing. Your Honor
3 can ask John Rice, who is here in the courtroom here today,
4 not Brian Hennigan. You can ask John Rice about that.
11:33AM 5 With all of this information spread out just like
6 Ms. Yang did from Gibson Dunn in your other case, with all of
7 that other information spread out for the clients to see, the
8 clients are saying I still believe I'm better off with
9 this -- with my lawyers.
11:33AM 10 THE COURT: Is Mr. Randall here in the courtroom?
11 MR. SPIEGEL: I don't believe so, Your Honor.
12 THE COURT: As I said, one of my -- it's
13 interesting that Mr. Randall isn't here in the courtroom. In
14 the lawsuit involving -- in the issue involving Ms. Wang
11:34AM 15 [sic], she was here. The person she advised was here. I
16 could inquire whether he was fully informed. We're getting
17 off now to the quality of the waiver, which we'll still get
18 to.
19 Here I want to ask, my Question Number 5, whether
11:34AM 20 Randall's counsel at Hueston Hennigan would be required to
21 disclose information to SCIF? I didn't get an answer to that
22 in your papers. I read it very carefully. It seems to me
23 that if this criminal defendant stuck out there facing
24 imprisonment comes up with a scenario -- I gave two. I admit
11:34AM 25 they're not likely. An inheritance or some fact that wasn't

38
1 specifically asked of him. The plea agreement says you'll
2 answer questions. What about volunteering information? I
3 don't know what my requirements if I were a criminal
4 defendant would be to volunteer information. It wasn't
11:35AM 5 specifically asked. What if I needed advice about that?
6 That doesn't seem to me to be so unlikely.
7 So I say to Mr. Hennigan, you know, crazy FBI they
8 didn't ask me about this. Do I have to volunteer it? Does
9 Mr. Hennigan have to run to State Fund and say, boy have I
11:35AM 10 got some information that I must inform you of with my duty
11 of loyalty? You didn't answer that question.
12 MR. SPIEGEL: Well, I -- I tried, Your Honor. Let
13 me try --
14 THE COURT: Show me on pages 7 and 6 where the
11:35AM 15 answer came? Page five references my question five, six,
16 seven, and eight.
17 MR. SPIEGEL: Let me do it from the podium then,
18 Your Honor. First of all, in that situation, I guess -- I'm
19 repeating here the papers. John Rice is available if for any
11:35AM 20 reason there's a conflict situation. Set that aside.
21 Second point, the -- the understanding in the
22 waiver letter to Mr. Randall is his information is kept
23 confidential. Okay. State Farm -- my client understands
24 that, just as Mr. Randall understands that State Fund's
11:36AM 25 information that they develop about the case is not shared

39
1 with him. Nobody says to him we -- we have developed, you
2 know, all of this information. We'd like you to know about
3 it.
4 THE COURT: It's your view that if Mr. Randall says
11:36AM 5 to Mr. Hennigan, you know, those guys didn't ask about my
6 terminally ill aunt worth $10 million. That inheritance is
7 coming in. With that, Mr. Hennigan doesn't have to pass it
8 on to State Fund? Isn't that consistent -- doesn't he have
9 to under his duly of loyalty?
11:36AM 10 MR. SPIEGEL: That's what waivers are for,
11 Your Honor. That's why I keep coming back to -- that's why
12 what matters in these cases is if you have a waiver, you can
13 waive a conflict like that. That's what the rule says in
14 black-and-white, 3 --
11:37AM 15 THE COURT: No. I don't believe that rule
16 countervails the requirement for full disclosure. Your
17 papers don't specifically say that. If you're saying that
18 rule implies that you can have information that you're not
19 telling your client, I wish you had developed it more in your
11:37AM 20 papers. That's a huge issue for me.
21 MR. SPIEGEL: Subsection E says that, Your Honor.
22 Let me come back to why I feel your hypothetical is
23 so contra factual, Your Honor. Why it doesn't meet the
24 requirement of the rule to be a reasonably foreseeable
11:37AM 25 adverse consequence. That's what A of the rule defines as

40
1 the duty of disclosure.
2 We all know -- as a former U.S. Attorney, and there
3 are a bunch of them here in the courtroom -- Mr. Randall
4 faces the most draconian consequences were he not to honestly
11:38AM 5 reveal his financial situation to the probation office, et
6 cetera, et cetera.
7 THE COURT: It's got to be the right question.
8 That's my whole point.
9 MR. SPIEGEL: No, Your Honor. He has a duty of
11:38AM 10 giving up his financial information to --
11 THE COURT: What about a terminally ill aunt with
12 $10 million? So you're giving me that legal advice, yes,
13 that has to be disclosed? That's not part of his assets.
14 He's not sure what the will is gonna say. You're saying that
11:38AM 15 has to be disclosed. I'm glad you're sure of that; I'm not.
16 And if I were a criminal defendant, I might want to ask about
17 that.
18 MR. SPIEGEL: He's certainly entitled to get legal
19 advice. He has available to him John Rice to ask him about
11:38AM 20 those questions. I'm just saying --
21 THE COURT: Mr. Hennigan -- Mr. Hennigan doesn't
22 have to pass that on. Mr. Hennigan and his firm can have
23 long discussions with State Fund about collecting the
24 $10 million judgment and have in the back of their mind, he's
11:38AM 25 coming into $10 million, but I can't tell State Fund that.

41
1 That's the state of the law, you think?
2 MR. SPIEGEL: With a waiver, yes. Yes, Your Honor,
3 it is the state of the law.
4 THE COURT: Was that explained to State Fund in the
11:39AM 5 waiver letters? I mean, will look at the letters. I don't
6 think it was. I'll take a look.
7 MR. SPIEGEL: Your Honor, this takes me to the
8 adequacy of the waiver point. Not every conceivable
9 hypothetical, like the possibility of a non-existent very
11:39AM 10 rich aunt who is gonna bestow money on Mr. Randall. You
11 wouldn't write that into your waiver letter. You wouldn't
12 write the possibility. You know, by the way, if you have any
13 rich relatives and they love you and you might get an
14 inheritance, we got to -- we got to deal with that situation.
11:39AM 15 THE COURT: You should've seen the DeCinces letter.
16 It got pretty doggone specific, which is one of the reasons I
17 ruled in their favor.
18 MR. SPIEGEL: Understood, Your Honor. I come back
19 to the point that now that the clients have seen all of --
11:39AM 20 all of Your Honor's 90 minutes of tough questions, all of the
21 hard questions, all of the these adverse consequences that
22 might happen, what are the clients saying? We want to stick
23 with our lawyer.
24 THE COURT: That's not true. That's what one
11:40AM 25 client is saying. The client I'm most concerned about with

42
1 the Sixth Amendment right to counsel in a criminal
2 proceeding, he hasn't heard the 90 minutes. I don't know if
3 he's been given the transcript. I don't know. He's not
4 here. He was here in the DeCinces matter.
11:40AM 5 MR. SPIEGEL: The -- the most recent declaration
6 for Mr. Randall is from late April, at which point many of
7 these matters had been -- excuse me, late March, had been
8 raised and gone over. We also have Mr. Rice available here
9 who can represent Mr. Randall's position and what he's been
11:40AM 10 told. I obviously haven't been talking to him. I represent
11 State Fund.
12 THE COURT: I already have some very disturbing
13 material about what Mr. Randall was told. Very disturbing to
14 this Court, as in to declarations under penalty of perjury
11:41AM 15 inconsistent with other statements. We'll get to that too.
16 Let me ask here on the issue of disclosure. So
17 you've said if Mr. Randall takes the stand at trial, Hueston
18 Hennigan will not cross-examine him; correct?
19 MR. SPIEGEL: Correct.
11:41AM 20 THE COURT: Will Hueston Hennigan consult with the
21 cross-examiner to tell the cross-examiner their theory of the
22 case, what they intend to say in closing argument? I teach
23 trial advocacy. One of the things I say is cross-examination
24 is all about getting information that supports your closing
11:41AM 25 argument.

43
1 Is it your position that it's viable for one person
2 to cross-examine without the ability to communicate fully
3 with the trial team, without the ability to communicate fully
4 with the closing argument attorney, and that's the way this
11:41AM 5 process should proceed?
6 So let me ask you this question: Will the person
7 cross-examining Mr. Randall on the trial have full and
8 complete access to the trial team, their theories, and
9 thoughts?
11:42AM 10 MR. SPIEGEL: When we cross-examined that audit
11 partner from Price Waterhouse in exactly this situation, as
12 conflicts counsel, we don't get -- we get access to public
13 information about the case. We do not get information that
14 would create a conflict for the counsel we're standing in
11:42AM 15 for.
16 THE COURT: So you think it is fair for State Fund
17 to have the person doing the closing argument have very
18 limited input in the person doing the cross-examination?
19 That's a viable situation for me -- for you consistent with
11:42AM 20 our adversary system of justice and our mutual duties of
21 loyalty? Is that your position? If that is, I just need to
22 know. If it's not, I need to know what the solution is.
23 MR. SPIEGEL: When you say "very limited input," I
24 think adequate input for counsel who would be performing this
11:43AM 25 cross-examination can be accomplished within the ambit of the

44
1 waivers that we've talked about.
2 Your Honor, again -- again --
3 THE COURT: I have to say this: So you're saying,
4 that Hueston Hennigan will be able to give some information
11:43AM 5 slash ammunition to the cross-examiner of Hueston Hennigan's
6 client? That's okay with you?
7 MR. SPIEGEL: I'm saying my client State Fund can
8 provide that information. They have the --
9 THE COURT: To the cross-examiner who will
11:43AM 10 cross-examine Hueston Hennigan's client?
11 MR. SPIEGEL: Yes. Hueston Hennigan will be out of
12 it. My client which is well staffed with inside counsel will
13 be participating in the trial can assist conflicts counsel in
14 doing the cross-examination.
11:43AM 15 Your Honor, let me come back to our simple point
16 here. These hypothetical potential conflicts are ones which
17 the rule says can be waived. They are -- they haven't
18 happened yet. That's what is important. We don't know that
19 Mr. Randall is ever going to be called at trial. In fact, it
11:44AM 20 seems really unlikely that he will be. I recognize it's not
21 impossible. But if --
22 THE COURT: Defense has said otherwise, but I'm
23 looking at them now.
24 MR. SPIEGEL: Of course, they're trying to get a
11:44AM 25 disqualification, not because they care about Mr. Randall.

45
1 They hate him. They say he's a liar. He's making up all
2 this stuff about their innocent clients. Not that they are
3 looking out for Mr. Randall. They're looking for a DQ to
4 help them in the case, which is why the case law keeps saying
11:44AM 5 when you have opposing counsel bringing a DQ motion when it's
6 not one of the clients who says, hey, I'm not being treated
7 fairly this isn't right, when opposing counsel is saying big
8 ethics problem here, you've got to really scrutinize that
9 because the purpose of that -- you've seen it right here in
11:44AM 10 this courtroom -- is to take advantage in the litigation to
11 the benefit of the defendants and the detriment of my client.
12 Your Honor, I -- I come back to the point that
13 conflicts counsel works in major litigation. I won't say all
14 of the time, but it works. It is never a pretext for kicking
11:45AM 15 off the -- the -- the trial counsel who has been on the case
16 for years.
17 THE COURT: All right. In document 1068 at page 6,
18 line 22 it says, "finally, State Fund says it will not have
19 Hueston Hennigan examine Randall at trial, but it already
11:45AM 20 cross-examined him at his deposition."
21 Did Hueston Hennigan cross-examine Randall at his
22 deposition?
23 MR. SPIEGEL: No. That's not true, Your Honor. I
24 don't know what document Your Honor is reading from.
11:45AM 25 THE COURT: 1068.

46
1 MR. SPIEGEL: Anthony Graham represented Mr. --
2 THE COURT: Okay. Continue.
3 MR. SPIEGEL: So I -- I -- I headed a couple of
4 times in the direction of the adequacy of the waiver,
11:46AM 5 Your Honor. Your Honor has brought me back to your
6 concern --
7 THE COURT: So maybe now we should get to the
8 waiver. Just one moment. Oh, I'll also say, you talked
9 about your years of practice, my years of practice. I did
11:46AM 10 have a very valuable judgment set aside once because there
11 was a conflict on the other side. The judge just said I'm
12 setting it aside. I'm not going to let this stand. I
13 thought that judge was wrong. Maybe that won't happen here.
14 I think you underestimate the -- I -- respectfully, you are a
11:46AM 15 former AUSA. I think you underestimate the ease with which
16 the Ninth Circuit will set aside a guilty plea. The ease
17 with which it has been set aside in this courtroom in this
18 courthouse in other high-profile cases. I think we're
19 setting that plea agreement up to be set aside quite easily.
11:46AM 20 MR. SPIEGEL: Your Honor, I think it's virtually
21 impossible. I will even say it's impossible, given the
22 waivers here, the representation that Mr. Hennigan has
23 provided, the fact that Randall chose to cooperate with the
24 government a year -- more than a year before State Fund ever
11:47AM 25 showed up. His course was already set here to cooperate with

47
1 the government undercover.
2 And the consequence of him trying to set aside his
3 plea agreement is absolutely catastrophic for him. I'm not
4 giving him legal advice about it --
11:47AM 5 THE COURT: Not if he comes up with a star witness
6 for his defense. He decides he wants a do-over, or he
7 decides the judge is going to lay into him far stronger than
8 he had hoped. It happens all of the --
9 MR. SPIEGEL: All of the information that he's
11:47AM 10 provided the government in -- in three years of cooperation
11 can be used against him according to the terms of the
12 agreement.
13 THE COURT: That's a good point. That is a good
14 point.
11:47AM 15 MR. SPIEGEL: Thanks, Your Honor. I'm making a
16 little progress here.
17 THE COURT: No. It's a helpful discussion,
18 Counsel. I appreciate your input here. It's a difficult --
19 MR. SPIEGEL: Don't encourage me too much,
11:48AM 20 Your Honor. I'll just speak longer.
21 THE COURT: No, we're --
22 MR. SPIEGEL: I do want to get to the things that
23 are really bothering you, Your Honor. I want to be sure I've
24 had my shot at each one.
11:48AM 25 THE COURT: The quality of the waiver. This was

48
1 not addressed in your papers either. It's -- it -- when I
2 ask specific questions and they aren't addressed, I have to
3 assume it's because you don't have answers. I asked, what
4 about the -- did I say suspicious circumstances? What
11:48AM 5 happens when the criminal -- what happens when there's a
6 statement that the criminal defendant received full advice
7 from independent counsel, and the independent counsel files a
8 declaration saying no, I did not? To me, that's the end of
9 the analysis on effective informed consent. You're furrowing
11:48AM 10 your brows. You want me to give you the specific facts? It
11 wasn't addressed in your papers. Frankly, it was only
12 addressed at the very end of one of the defense papers, which
13 makes me think I'm barking up the wrong tree to hold you to
14 my concern about this.
11:49AM 15 My concern -- again, let me find the papers.
16 MR. SPIEGEL: I know what Your Honor is speaking
17 to. Let me respond --
18 THE COURT: Okay. And by the way, it was also
19 something not addressed by the experts. Not addressed at
11:49AM 20 all. I specifically posed the question to you. You didn't
21 tell me how to respond to we told him this; I swear to God I
22 didn't tell him that. That is so powerful for me because I
23 don't like misstatements to this Court. There is a
24 misstatement there. Let me put it bluntly. Someone is
11:49AM 25 lying. Someone is either lying not under penalty of perjury

49
1 or someone is lying under penalty of perjury.
2 You're expecting me to find a fully informed
3 consent when I have a statement under penalty of perjury
4 directly contradicting what was said about the information
11:50AM 5 provided to him. That is so far from the DeCinces case or
6 any other case. How can I possibly find informed consent and
7 waiver when there is a misstatement made to the Court? What
8 about the conflict that that lawyer himself had? How can I
9 find informed consent?
11:50AM 10 MR. SPIEGEL: Let me respond to that, Your Honor.
11 I -- I get that it's bothering you. So please let me have a
12 chance to respond. I've got four things I want to say.
13 First of all, we made a decision not to submit every possible
14 declaration we could submit in response to claims and
11:50AM 15 allegations from the defendants. Maybe that was a poor
16 choice on our part. There -- there is a conflict in -- in
17 the testimony. Randall says he consulted with Sparks.
18 Sparks says that's not true. We believe there were two
19 people present for that conversation when he did consult with
11:51AM 20 Sparks, as I recall.
21 The reason we don't feel that's -- it's critical
22 for the Court to resolve that factual dispute -- and it is a
23 dispute. It's not fair to just say I don't believe Randall;
24 I believe the lawyer.
11:51AM 25 THE COURT: I said someone is lying to me either

50
1 under of penalty of perjury or otherwise.
2 MR. SPIEGEL: Again, so why is it that we didn't
3 wade into that factual dispute and try to resolve it --
4 THE COURT: Let me just answer quickly. Because
11:51AM 5 of -- because if the lawyer is the one lying, if Sparks is
6 the one lying, that's the lawyer in whose basket you put the
7 eggs of informed consent.
8 MR. SPIEGEL: No.
9 THE COURT: And he's lying.
11:51AM 10 MR. SPIEGEL: The reason we -- Your Honor, as the
11 experts, we submitted to you say, it is not necessary -- it
12 is not a requirement for Randall to have independent counsel
13 to advise on the waiver. It's not required.
14 THE COURT: Yeah. But when you give independent
11:51AM 15 counsel and say he was informed of the following, and the
16 independent counsel swears to -- under penalty of perjury, he
17 didn't, you've got a problem.
18 MR. SPIEGEL: If that issue is material to the
19 informed consent. In our view, Randall has waived multiple
11:52AM 20 times since that issue came up in, I believe, it was 2013,
21 okay. Number one.
22 Number two, independent counsel is not required for
23 a waiver under the rules. It is just not.
24 THE COURT: Well, if it wasn't by independent
11:52AM 25 counsel. It wasn't by Hueston Hennigan. They didn't claim

51
1 they provided it.
2 MR. SPIEGEL: No. The lawyer who has the conflict
3 can get an informed consent waiver from a client without
4 going to a third-party independent counsel. That's -- that's
11:52AM 5 the law. That's the rule.
6 THE COURT: I'm not contesting that rule. I keep
7 saying that is the basket you chose to put the eggs in.
8 MR. SPIEGEL: But -- but, because it's not a
9 necessary part of the showing for informed consent, we didn't
11:53AM 10 wade into the factual dispute along with probably 50 others
11 that defendants' papers have triggered with a bunch of
12 declarations about what happened.
13 I would say, Your Honor, it's often the case
14 reasonably that people have different understandings about a
11:53AM 15 conversation they have. Sparks may not have thought he was
16 giving legal advice, and Randall may have thought he was
17 getting legal advice.
18 THE COURT: All right. Let me just say, if
19 Mr. Randall had a misunderstanding about the information he
11:53AM 20 was getting, this Court does not consider that to be informed
21 consent. He made his consent on a misunderstanding. That's
22 not informed consent.
23 MR. SPIEGEL: It -- it -- first of all, we don't
24 need that waiver from 2013, Your Honor, to sustain informed
11:53AM 25 consent. Randall has given updated waivers as recently as

52
1 March of this year, April of last year.
2 THE COURT: Why were those provided to me so late
3 in the litigation process? There was a good argument made
4 from the defense that this motion for reconsideration is
11:54AM 5 simply an effort to further bolster the file with information
6 that, frankly, I'm shocked was not in the file previously.
7 By in the file, I mean, given to me. I mean, I've considered
8 did -- did Hueston Hennigan consider this such a slam dunk
9 they didn't need to provide me with the waiver letters? Did
11:54AM 10 they --
11 MR. SPIEGEL: Let me answer, Your Honor --
12 THE COURT: Let me just say, here's the important
13 takeaway for me: Can I have confidence that Hueston Hennigan
14 is taking seriously its requirement and obligation to get
11:54AM 15 informed consent when I get letters trickling in far after
16 the appropriate date -- far after the appropriate date, much
17 to my frustration. Then I get follow-up declarations by the
18 alleged informer who says I didn't so inform.
19 Can I have confidence that the criminal defendant
11:55AM 20 here is being protected with such, frankly, sloppiness?
21 MR. SPIEGEL: Let me respond to that, Your Honor.
22 I -- I need a minute to respond. We did address this in our
23 papers. This -- these motions that are brought in -- in my
24 view for tactical -- page 13 -- that are brought by third
11:55AM 25 parties, not by clients or former clients, are not an

53
1 invitation to share with those hostile parties all of the
2 attorney-client communications that may exist on the subject
3 of waiver.
4 So if you look at the papers that my client filed
11:55AM 5 in opposition, their principal argument was this is a
6 third-party disfavored motion with no standing. Your Honor
7 rejected that argument.
8 THE COURT: Let me just say, there's also case law
9 that says if I find out about a conflict, I need to explore
11:56AM 10 it. I'm not really focused on whether they brought it or
11 what their situation is. I have found out about a conflict
12 which egregiously affects the ability to prosecute a case
13 which is already a challenge, as reflected on the ELMO. If I
14 know about it, I need to explore it. I now know about it.
11:56AM 15 I'm exploring it.
16 MR. SPIEGEL: I'm not criticizing that at all,
17 Your Honor. What I'm trying to defend -- I'm trying to
18 respond to Your Honor's comments about sloppiness, which I
19 think is not fair. When I respond to motions like this, my
11:56AM 20 opposing counsel wants to knock me off the case based on some
21 claimed conflict. I don't open my files up and say, here's
22 all of the correspondence I've had on waivers with my client.
23 Hueston Hennigan and State Fund put in a current
24 February 2016 waiver from SCIF. In retrospect, they should
11:57AM 25 have put in more, but it is a reasonable response to a third

54
1 party opposing counsel litigation tactical motion to say I'm
2 not going -- I'm not going to give them more of my client
3 information than I think is appropriate or necessary to
4 respond to the motion.
11:57AM 5 As I say, in retrospect, of course, Your Honor, I
6 wish all of those waivers had been put in front of you from
7 the outset. I'm really sorry that they weren't.
8 THE COURT: I still don't have them. I mean, I had
9 to start off this hearing by saying I don't have the
11:57AM 10 unredacted waivers.
11 MR. SPIEGEL: No. You have the waivers,
12 Your Honor. What you don't have -- what has been redacted is
13 the contingent fee arrangement that the defendants are
14 smacking their lips to get. Every settlement conference I'm
11:57AM 15 in with plaintiffs' lawyers, I love to know what their fee
16 arrangement is. That's great for strategy in settlement. So
17 I can be like Mr. Abascal up here and say, I don't think
18 there's any point to talk about settlement. They want to
19 know how Hueston Hennigan is being paid in the case. Just
11:58AM 20 like I do in every defense case I have, I want to know what
21 the contingency arrangement is. That's why we redacted the
22 information.
23 As Your Honor will see, it has nothing to do with
24 the waiver. The waiver piece was put in for defendants to
11:58AM 25 see. They're clambering to get the fee arrangement. That's

55
1 why it's redacted.
2 I -- I want to come back to the point that while in
3 retrospect, I wish we had given Your Honor a binder with, you
4 know, all nine waivers. I brought one today with all of them
11:58AM 5 assembled. You know, the reason for doing that is not to
6 hide the ball. The reason is those of us who get these
7 motions feel appropriately that -- that it is not okay to
8 release a lot of attorney-client communications just because
9 somebody says I'd love to knock you off the case because
11:59AM 10 maybe I can get out cheaper.
11 THE COURT: Okay. I mentioned earlier. There are
12 four maybe five situations where the response of State Fund
13 is oh, we have independent counsel for that. Isn't that a
14 hot potato issue?
11:59AM 15 MR. SPIEGEL: No. It's not, Your Honor.
16 THE COURT: Let me ask you this: Which would be
17 better? Hueston Hennigan completely dropping out of the case
18 and having to answer possible remaining issues of successive
19 representation, which is more easily waivable, or the present
11:59AM 20 mongrel situation where they weave in and weave out. There
21 will be separate counsel needed at the sentencing hearing.
22 There will be separate counsel if needed at the
23 cross-examination trial. There will be separate counsel --
24 you know, I -- I think that creates a worse situation than
12:00PM 25 the disallowed hot potato situation. I don't know if you're

56
1 understanding what I'm saying? Hot potato is you dump
2 everything to a new person and you move on. That's called a
3 hot potato. You can't do it.
4 What we have here is kind of a mongrelized hot
12:00PM 5 potato where it's in and out. I will, for the rest of this
6 litigation, be having to determine whether there's adequate
7 representation for a criminal defendant as we move in and out
8 on separate counsel here. Separate counsel there. I've
9 already said I -- I am very uncomfortable with whether State
12:00PM 10 Fund will be adequately represented if cross-examination
11 occurs by someone without access to information, and I'm more
12 concerned if they have access to information.
13 So back to the hot potato issue. Why is this
14 mongrelized situation where you are cutting out at least four
12:01PM 15 situations -- why is that -- why is that more palatable than
16 a straight successive representation which the hot potato
17 rule precludes.
18 MR. SPIEGEL: Because these conflicts situations --
19 conflict counsel situations are being presented to Your Honor
12:01PM 20 to deal with -- unlikely factual scenarios. I'm -- I think
21 it's really --
22 THE COURT: That's a good answer. I understand
23 your point.
24 MR. SPIEGEL: Okay.
12:01PM 25 THE COURT: It's -- I'm not saying it's a winning

57
1 answer, but it's a good answer.
2 MR. SPIEGEL: Well, it's important, Your Honor,
3 because every time we get -- we get the latest fantasy from
4 the defense bar about some conflict situation, we say, okay.
12:01PM 5 We can deal with that if it happens, and by the way, it's not
6 going to happen. Paul Randall isn't going to inherit a
7 hundred million dollars or win the lottery, but if Hueston --
8 THE COURT: That wasn't a crazy fantasy from
9 defense counsel, in all fairness. It was a --
12:01PM 10 MR. SPIEGEL: The lottery part, Your Honor.
11 THE COURT: It was a crazy fantasy for me --
12 allegedly a crazy fantasy for me. What is not a crazy
13 fantasy is the Court having to make a finding that the
14 defendant has insufficient assets to pay a fine or the
12:02PM 15 restitutionary order. We haven't even gotten into the
16 restitutionary amount.
17 Let me just say, in a case like this of kickbacks,
18 right now on my brain I can think of previous cases I've had
19 on kickbacks. The incredible challenge -- Mr. Julian
12:02PM 20 probably had some in front of me. The incredible challenge
21 is determining the restitutionary amount. Not only the
22 restitutionary amount, the Sentencing Guideline amount, which
23 is what controls the offense level.
24 MR. SPIEGEL: But kicking Hueston Hennigan of my
12:02PM 25 client's representation doesn't change your job at all in

58
1 that regard.
2 THE COURT: No. It does. It means that -- that I
3 can have confidence he will have full and fair representation
4 at his sentencing hearing.
12:03PM 5 MR. SPIEGEL: Because --
6 THE COURT: And that the Court will have an
7 adversary in front of him who will tell him why in
8 calculating the offense level the amount in controversy under
9 the Sentencing Guidelines should be this amount instead of
12:03PM 10 that amount. In a kickback case where I don't know what the
11 Sentencing Guidelines are going to say about the amount of
12 loss or the amount in controversy, and I hope folks are -- if
13 you're not criminal lawyers, I hope you're writing this down.
14 I -- I won't have adequate -- I will not have
12:03PM 15 adversaries in front of me telling me those --
16 MR. SPIEGEL: You'll have Brian Hennigan advocating
17 for Paul Randall, along with his conflicts counsel --
18 THE COURT: So Brian Hennigan will be arguing that
19 the amount in controversy is low.
12:03PM 20 MR. SPIEGEL: Right.
21 THE COURT: That the -- the offense level should be
22 low and that the restitutionary amount should be low.
23 MR. SPIEGEL: The prosecutors will be there arguing
24 the government's position, which they're pretty good at
12:04PM 25 doing, at least since I left the office. My client State

59
1 Fund can be there as well if they want to with --
2 THE COURT: But their lawyer will be arguing for
3 low damages. I just --
4 MR. SPIEGEL: Why will State Fund -- State Fund's
12:04PM 5 lawyer won't be arguing for low damages.
6 THE COURT: Boy, are we not -- Mr. Hennigan will be
7 there arguing for low damages.
8 MR. SPIEGEL: Hennigan will.
9 THE COURT: You seem to forget that. I keep
12:04PM 10 reminding you that --
11 MR. SPIEGEL: What is wrong with that?
12 THE COURT: There's been a few times today when I
13 have reminded you that Mr. Hennigan will be representing the
14 defendant at that sentencing hearing --
12:04PM 15 MR. SPIEGEL: That's what I was saying.
16 THE COURT: He will be arguing for a low amount.
17 By the way, it raises another issue -- and I'll say
18 for the record I haven't bought into this issue. The defense
19 have said that Mr. Hennigan on a contingency-fee basis has a
12:04PM 20 personal financial interest in the amount. It's a
21 contingency-fee case as opposed to an hourly case.
22 So Mr. Hennigan has his own personal assets
23 involved in determining things like restitution or -- or not
24 amount of the fine, but restitution or the amount involved to
12:05PM 25 calculate the offense level. It's his own pocket book

60
1 because he has the civil case on a contingency fee.
2 Actually, as I read it in the papers, I wasn't that
3 impressed. As I expressed it just now, it's impressing me a
4 little more. He's got a financial stake.
12:05PM 5 MR. SPIEGEL: This is all outside the realm of
6 reality, okay. My client --
7 THE COURT: Wait. Why outside the realm of
8 reality?
9 MR. SPIEGEL: Let me explain. My client has a
12:05PM 10 $10 million judgment against this person, okay. That is
11 where they can collect a lot of money from. They're not
12 going to get, you know, another 10 million out of this guy at
13 sentencing. You know, whatever speculation the defense has
14 about he's living in a big house or whatever, come on. It --
12:06PM 15 if my client could get the 10 million, they would be doing a
16 jig in the courtroom here.
17 THE COURT: What about questions from a judge --
18 the guy is usually sitting right there. Forgive me, sir.
19 That is where the defendant is sitting. Two weeks ago I
12:06PM 20 cross-examined a defendant on his assets. He's now spending
21 extra time in jail because his answers were not satisfying to
22 this Court.
23 So there is Mr. Randall. The judge -- I don't know
24 what Judge Staton will do. She certainly has the right to
12:06PM 25 say, sir, you're living in an 8,000 square foot house.

61
1 You're claiming this level of income. Now, tell me why you
2 don't have enough assets to pay a fine? You say that's never
3 going to happen. That's unreasonable. That is out of the
4 realm. It happens all of the time in --
12:06PM 5 MR. SPIEGEL: I didn't say that.
6 THE COURT: -- my courtroom.
7 Is Mr. Hennigan going to stand up and stop the
8 Court from inquiring as to the assets of the defendant? By
9 the way --
12:07PM 10 MR. SPIEGEL: Of course not. It's his job to
11 represent Randall. That's what he's going to do. That's
12 what I've been saying.
13 THE COURT: He can do that consistent with his
14 obligation to Hueston Hennigan and his obligation to State
12:07PM 15 Fund and consistent with his own personal financial
16 interest --
17 MR. SPIEGEL: Absolutely.
18 THE COURT: -- and having the Court discover that
19 yes, I made a trip to the Cayman Islands. Sometimes
12:07PM 20 questions from the Court -- especially a Court about to
21 sentence someone have more impact than judgment debtor exams.
22 By the way, did Hueston Hennigan schedule a judgment debtor
23 exam and then cancel --
24 MR. SPIEGEL: They had nothing to do with it,
12:07PM 25 Your Honor. That's my client. State Fund is doing that on

62
1 their own. They're not using Hueston Hennigan for any of
2 that.
3 THE COURT: I thought I read in the papers that
4 Hueston Hennigan had scheduled a judgment debtor exam and
12:07PM 5 then canceled it? Maybe I didn't get that --
6 MR. SPIEGEL: Even the defendants haven't accused
7 them of that, Your Honor.
8 THE COURT: I see head shaking. Okay. Good.
9 MR. SPIEGEL: So there's no reason that Brian
12:08PM 10 Hennigan can't represent Mr. Randall and will represent
11 Mr. Randall along with John Rice at that sentencing hearing
12 when he's asked tough questions. There's absolutely no
13 reason he can't do a first-rate job, as he's been doing for
14 criminal defendants for decades now, sitting right there
12:08PM 15 representing Mr. Randall.
16 There's no -- there's no -- the notion that
17 Mr. Hennigan might not do his job because of a contingent-fee
18 agreement with State Fund, you know, that is so contrary to
19 the rules of ethics that we all are engaged in.
12:08PM 20 THE COURT: Well, I'm sorry. Your papers want me
21 to spend a lot of time trusting Mr. Randall. I mean, I could
22 read for you right now the jury instruction on cooperating
23 witnesses. You're a former AUSA. I don't have to read it.
24 MR. SPIEGEL: I used to hate that instruction,
12:09PM 25 Your Honor.

63
1 THE COURT: I bet you did. It's pretty strong.
2 Some of your arguments require me to say, oh, he said it. He
3 wouldn't lie to the government. But I -- I don't accept
4 that. Nor do I accept the notion that trust me, that would
12:09PM 5 violate ethical rules.
6 MR. SPIEGEL: I'm -- I'm not saying that you have
7 to take -- that Judge Staton has to take Mr. Randall's
8 representations, you know, as -- at face value. That's not
9 what I'm saying at all.
12:09PM 10 THE COURT: You just suggested that I shouldn't
11 consider the possibility that an attorney would be interested
12 in his own financial well-being over his representation of a
13 client.
14 MR. SPIEGEL: A guy who already owes $10 million on
12:09PM 15 a default judgment, okay, and the notion that he -- that some
16 extra money is going to flow to Mr. Hennigan on top of the --
17 once the 10 million is satisfied. On top of that, from
18 something that is said in a sentencing hearing where he -- he
19 admits that he, you know, owns a house or has another bank
12:10PM 20 account. I think that's really, really remote. The rule --
21 there I go talking over you.
22 THE COURT: I was interrupting you.
23 MR. SPIEGEL: The rule says it's got to be
24 reasonably foreseeable before it's a disclosable conflict
12:10PM 25 situation.

64
1 THE COURT: It was just two weeks ago that the
2 gentleman sitting in that defendant table on -- under
3 examination from the judge proved to be hiding assets.
4 MR. SPIEGEL: That doesn't mean that Mr. Hennigan
12:10PM 5 would in any way be impaired for doing his job. That's all
6 I'm saying. There is no reason he can't do his job just as
7 well as any other criminal defense lawyer here.
8 THE COURT: Okay. I must say it's now a bit into
9 the lunch hour. I think my staff needs to go to lunch. So
12:10PM 10 we need to break. Let me ask, does the defense have any
11 arguments they wish to offer? Remain seated.
12 MS. ARMENTA: Your Honor, we've pretty much
13 coordinated. I will be speaking for the group. I think
14 there will be one or two very short speakers. We've
12:11PM 15 coordinated. I have the arguments. I have actually spent
16 some time timing it. It should be less than ten minutes. I
17 will try to address the Court's answers -- questions that
18 came up this morning.
19 THE COURT: I think I need to have you come back at
12:11PM 20 3:00 much to my dismay. I think that's what I need to do. I
21 think this is the second time I've done that in ten years.
22 It's an important matter.
23 Thank you for your argument.
24 MR. SPIEGEL: Thank you for your time.
12:11PM 25 THE COURT: You've done a fine job. Over lunch

65
1 hour, if you come up with anything you want to say in
2 conclusion, you may say it in conclusion before we turn it
3 over to the defense.
4 MR. SPIEGEL: That's a really dangerous invitation.
12:11PM 5 THE COURT: Yeah, it is.
6 Let me also just say, I have a change of plea at
7 1:30 and a change of plea at 2:30. You'll see me find or not
8 that a fine is not imposed because the Court has determined
9 there is insufficient assets to justify a fine or not. We'll
12:12PM 10 see how that comes out. I'm sorry to call you all back.
11 There are so many people here. If you can't come back, you
12 know who the players are. We will hear from them.
13 Thank you. We'll see you all at the conclusion of
14 the change of plea hearing now set for 2:30.
12:12PM 15 Ms. ARMENTA: Thank you, Your Honor.
16 (Proceedings adjourned at 12:12 p.m.; resumed at 3:03 p.m.)
17 THE COURT: This is a continuation of the hearing
18 this morning. Ms. Bredahl, have you made a separate list of
19 those appearing this afternoon?
03:03PM 20 THE CLERK: Yes, Judge.
21 THE COURT: Is there anyone that is not on that
22 list that would like to be on that list. If so, stand up and
23 identify yourself.
24 All right. So you've assumed -- hello?
03:03PM 25 MR. JAYAKUMAR: Jehan Jayakumar for Dr. Ivar and

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1 South Coast and Griffin.
2 THE COURT: So do you need to take that down?
3 THE CLERK: I have it.
4 THE COURT: Okay. Anybody else? All right. I
03:03PM 5 assume over the lunch hour you did come up with some things
6 to discuss?
7 MR. SPIEGEL: Just several clarifications,
8 Your Honor.
9 THE COURT: All right. Good.
03:04PM 10 MR. SPIEGEL: Good afternoon. John Spiegel for
11 SCIF. First, I want to clarify that the State Fund
12 contingency-fee arrangement with Hueston Hennigan does not
13 include any -- in any way, shape, or form any moneys that
14 might be recovered, paid by Randall in a restitution or other
03:04PM 15 proceeding. Has no bearing whatsoever on the compensation to
16 Hueston Hennigan and Mr. Hennigan, point number one.
17 THE COURT: What about money recovered from
18 Mr. Randall under the $10 million default judgment that's
19 already been entered?
03:04PM 20 MR. SPIEGEL: That's not in the contingency.
21 Hueston Hennigan has no part in that case, Your Honor.
22 They're not representing SCIF in that matter. Totally
23 separate. Nothing to do with Hueston Hennigan.
24 THE COURT: Okay. Now I realize this is quite a
03:05PM 25 stretch, but if that inheritance were to come in, and Hueston

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1 Hennigan -- and SCIF were to immediately recover all 10
2 million off of the inheritance, thereby reducing the recovery
3 that SCIF would get in this pending action, SCIF would be
4 able to deny Hueston Hennigan the percentage of that 10
03:05PM 5 million that they would have otherwise gotten if it had been
6 recovered through this action?
7 MR. SPIEGEL: Hueston Hennigan has no interest in
8 any moneys recovered from Randall. The restitution amount is
9 not included in any contingency calculation that is made to
03:06PM 10 the firm.
11 THE COURT: That's not my point. My point is let's
12 just say -- let's say Hueston Hennigan succeeds in this case
13 and gets a total judgment against defendants of say
14 $10 million. Let's say that particular defendant, not a
03:06PM 15 defendant in actions brought by State Fund, which is a little
16 bit curious, but that particular defendant recovers 10
17 million somewhere, wins the lottery, State Fund could then
18 elect to recover its full $10 million off of Mr. Randall's 10
19 million and thereby deny Hueston Hennigan a percentage of the
03:06PM 20 recovery?
21 MR. SPIEGEL: No. Your Honor, forgive me if I'm
22 not understanding your point clearly enough, but whatever
23 State Fund gets from their separate $10 million judgment
24 against Randall, Hueston Hennigan has no interest in.
03:07PM 25 THE COURT: No --

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1 MR. SPIEGEL: Randall --
2 THE COURT: It would be an interesting case whether
3 the recovery against that $10 million for the fraud that is
4 part of the action now pending before this Court --
03:07PM 5 MR. SPIEGEL: It's not, Your Honor. It's a totally
6 separate case. Doesn't involve Pacific Medical. The
7 $10 million judgment has nothing to do with this case. That
8 brings me to a second --
9 THE COURT: Hold on. Hold on. It has nothing to
03:07PM 10 do with this case?
11 MR. SPIEGEL: It's a totally separate case against
12 Randall. Does not involve the Pacific Hospital allegations
13 that are subject before you.
14 Similarly, the criminal case, Your Honor -- this is
03:07PM 15 a point I really want to stress. The criminal case against
16 Mr. Randall does not involve Pacific Hospital. It involves
17 Tri-City Medical Facility. Different hospital. Different
18 location. It's a separate --
19 THE COURT: That's the first time I've heard that
03:07PM 20 argument.
21 MR. SPIEGEL: No, Your Honor. It's in our papers.
22 It's in our papers. Forgive me if it wasn't properly
23 emphasized. It's explained -- it's -- it's in defendants'
24 papers too. They attached the November 2015 press release
03:08PM 25 from the Department of Justice in which the Department of

69
1 Justice says the Randall criminal plea is a separate --
2 that's the word they use -- separate similar scheme. So it
3 involves a different victim. It doesn't involve SCIF. It
4 doesn't involve Pacific Hospital, and SCIF hasn't sued based
03:08PM 5 on the Tri-City Medical fraud.
6 So it's not correct to say that these are exactly
7 the same facts in the criminal case as in the civil case.
8 Indeed, the Department of Justice said so -- so the -- the
9 point that Your Honor started with this morning which was to
03:09PM 10 say well, really, aren't these two identical cases just one
11 criminal and one civil? I want to be really clear with
12 Your Honor. That's not the case. Tri-City is a different
13 case from Pacific -- from Pacific Hospital. I think that we
14 can argue about similarities and so forth, but it -- it's --
03:09PM 15 it's simply not correct to say that -- that these are
16 identical facts; that this is the same case. It's not.
17 THE COURT: Well, when Mr. Hennigan was arguing
18 this previously, I believe my opening question -- one of my
19 opening questions to him was, on the issue of restitution,
03:09PM 20 what are you going to argue? Why didn't he argue that's a
21 different 2.5 million than any 2.5 million in the pending
22 case?
23 MR. SPIEGEL: Your Honor, I -- I don't have in my
24 mind right now, forgive me, Mr. Hennigan's argument about
03:10PM 25 restitution. I -- I thought the principal point that was

70
1 being made is Hueston Hennigan is not going to appear for
2 SCIF in any restitution process. So whatever it is, it's not
3 a Hueston Hennigan argument for restitution against Randall.
4 The -- Mr. Hennigan will be representing Randall in
03:10PM 5 that -- in that process. They are separate matters. That's
6 in our papers. If you look in the plea agreement,
7 Your Honor, you won't see the words Pacific Hospital.
8 THE COURT: I will see -- I will see the words that
9 we're not necessarily indicting you for everything, but we
03:10PM 10 still retain the right to argue from other illegal activity.
11 MR. SPIEGEL: Well, but -- but, Your Honor, to the
12 extent Mr. Randall's cooperation caused him to provide
13 information about Pacific Hospital, which is the subject of
14 the civil actions, his plea deal means that -- gives him
03:11PM 15 the -- the protection from being assessed for damages from --
16 from that -- from that fraud that he's providing information
17 about.
18 THE COURT: Specifically, the plea agreement says,
19 "defendant agrees that at the time of sentencing, the Court
03:11PM 20 may consider the uncharged conduct in determining the
21 applicable Sentencing Guideline range, the propriety and
22 extent of any departure from that range, and the sentence to
23 be imposed after consideration of the Guidelines."
24 So wouldn't this be uncharged conduct that would
03:11PM 25 still be relevant at the sentencing stage?

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1 MR. SPIEGEL: Your Honor, I will defer to criminal
2 counsel actually representing Mr. Randall, but I believe that
3 the -- that information you give up as a cooperator does not
4 come around to hit you when the dollar amount is being
03:12PM 5 calculated under the Guidelines.
6 THE COURT: All right. Go ahead.
7 MR. SPIEGEL: And then lastly, Your Honor, I
8 would -- Your Honor raised the question of why wasn't
9 Mr. Randall here. He's now here. He's here with his
03:12PM 10 independent conflicts counsel, John Rice. He's prepared to
11 answer any questions, as is Mr. Rice. Mr. Rice has gone
12 through with him an update of all of the various allegations
13 from the defendants that have been raise, and we're prepared
14 to ask Mr. Rice to respond to any questions Your Honor has.
03:12PM 15 THE COURT: Anything else?
16 MR. SPIEGEL: Lastly, I -- I mentioned that
17 Ms. Platisha is here as counsel for State Fund. She also is
18 available to answer any questions Your Honor has about the
19 adequacy of conflict waivers, as well as I think to tell
03:13PM 20 Your Honor in plain terms the tremendous prejudice that will
21 be visited on State Fund if their choice of counsel is denied
22 here.
23 Thank you for your time.
24 THE COURT: Let's hear from the defense.
03:13PM 25 MS. ARMENTA: Thank you, Your Honor.

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1 Cris Armenta for Dr. Tantuwaya.
2 THE COURT: Okay. What about the last point just
3 made by Mr. Spiegel that it's a different conspiracy even
4 charged in the criminal matter?
03:13PM 5 MS. ARMENTA: Well, first of all, there is
6 obviously uncharged criminal conduct. Secondly, the
7 Department of Justice press release makes clear that
8 Mr. Randall's cooperation was sought not both with respect to
9 the Tri-City kickback scheme that he masterminded there, but
03:13PM 10 also with the one that he masterminded at Pacific Hospital.
11 It's been the position all along of Hueston Hennigan and
12 State Fund that Mr. Randall was a criminal defendant with
13 respect to those matters as well.
14 In fact, the Court heard and granted a motion to
03:14PM 15 intervene saying that the defendants should not be entitled
16 to communications between Mr. Randall and the government
17 because those would impact their government investigation of
18 the Drobot Pacific Hospital related matter. So it's a bit
19 like picking up mercury when we follow the arguments, because
03:14PM 20 this is one we've never heard before. It's never been
21 offered before. Mr. Hennigan made it abundantly clear on
22 March 21st that it was all part and parcel of the same scheme
23 and items being either charged or not charged, but his
24 representation certainly extended to criminal defense and
03:14PM 25 serving the Pacific Hospital matter.

73
2 MS. ARMENTA: Okay. Your Honor, first of all,
3 there's a point that wasn't raised in the papers that I
4 wanted to bring to the Court's attention. It's another
03:15PM 5 point -- the Court mentioned there's many, many conflicts and
6 permutations of conflicts. This one has to do with the fact
7 that we all now know that by 2010, Mr. Randall was
8 represented by Mr. Hennigan and was out shopping his idea of
9 immunity in order to get out of the situation he had gotten
03:15PM 10 himself into.
11 Now, when it comes to the criminal court -- I won't
12 purport to know criminal law. I do remember when Professor
13 Levinson was a professor at Loyola 20 years ago, the issue of
14 entrapment. The issue here in the civil RICO case is this:
03:15PM 15 Dr. Tantuwaya has pled the tenth affirmative defense in his
16 answer. It involves the plaintiff's duty to mitigate. In a
17 civil RICO case, the plaintiff has a duty to mitigate, a duty
18 not to cause any more losses, not to take actions that would
19 increase its damages.
03:15PM 20 Now, at this point in 2010, Mr. Randall is out
21 introducing new doctors into this supposed alleged web of
22 deceit and fraud, kickbacks, whatever you want to call it.
23 Mr. Randall is actively taking actions to increase SCIF's
24 damages. Bring more doctors into the scheme. Bring more
03:16PM 25 surgeries to Pacific Hospital. All the while, SCIF is

74
1 sitting there pre-authorizing these surgeries and paying on
2 the surgeries knowing full well that with Randall, who is
3 representing Mr. Hennigan, at least one can suspect that they
4 then know they're going to ask for a three-times kickback
03:16PM 5 later using the civil RICO statute, and apparently benefit
6 both State Fund and its contingency fee lawyers.
7 It seems that every dollar that State Fund is now
8 claiming is a loss attributable to Dr. Tantuwaya's conduct
9 and that of many of the other defendants was incurred after
03:16PM 10 this alliance was created by Mr. Randall, the government, and
11 State Fund.
12 THE COURT: Okay. Now, you're saying that's an
13 argument not in the papers?
14 MS. ARMENTA: It's not. I bring it as an example
03:17PM 15 of a conflict to the Court's attention.
16 The other thing is there's a lot of focus from the
17 Klemm case on what side of the V the parties are. I know the
18 Court mentioned this in the March 21st hearing. I think it's
19 clear that it really doesn't matter where the V is. As we
03:17PM 20 saw in Klemm, on there, the parties were on opposite sides of
21 the V. There's a case called American Airlines versus
22 Sheppard Mullin at 96 Cal App. Fourth 1017 where the Court
23 says it's not whether you're on the opposite side of the V.
24 It is whether the interests are adverse. It is whether the
03:17PM 25 duty of loyalty is divided.

75
1 THE COURT: That was a case involving, I believe,
2 expert witness testimony.
3 MS. ARMENTA: Correct, Your Honor.
4 THE COURT: They went so far as to say that expert
03:17PM 5 witness testimony in that case created adversity.
6 MS. ARMENTA: So, again, not a V issue. Positional
7 conflicts also come up in other contexts, such as where a
8 party or attorney might have to propound third-party
9 discovery against their own other existing or current client.
03:18PM 10 This is raised in a California State Bar opinion found at
11 2011, 0182. It is a 2011 case.
12 So positional conflicts come up in a variety of
13 contexts. It doesn't necessarily mean that you have to be on
14 opposite sides of the V in the exact same case. The question
03:18PM 15 is a duty of loyalty. Now, talking about the duty of
16 loyalty, State Fund makes much of claiming that their waiver
17 letters have this blanket waiver of the duty of loyalty
18 potentially impacting any hypothetical situation that came up
19 or any of the actual situations that have come up.
03:18PM 20 But the duty of loyalty is not waivable. There are
21 specific interests and conflicts where you can help the
22 client make a decision being informed fully of the
23 consequences, pros and cons, and make a specific waiver as to
24 a specific conflict or even a positional conflict. But as
03:19PM 25 the Rules of Professional Conduct say in the notes, quote,

76
1 "There are some matters in which the conflicts are such that
2 written consent may not suffice. This is one of those."
3 I will admit, Your Honor, the California Rules of
4 Professional Conduct are a bit more liberal than other
03:19PM 5 states. Other states like Montana, for instance, which has a
6 duty to report. Other states might not allow certain kinds
7 of actual conflicts. California is more liberal.
8 In that extent, in a limited scope,
9 Dr. Chemerinsky -- Dean Chemerinsky and Professor Levenson
03:19PM 10 are correct. What they didn't address is the third factor in
11 the Colyer case, which is there are some conflicts that so
12 infect a matter that they destroy public trust. This,
13 Your Honor, is one of them.
14 In fact, we would submit that the breach of ethics
03:19PM 15 which began we believe as early as 2010 and has extended and
16 permeated this entire case has infected the entire case,
17 especially the filing of the third amended complaint. When
18 we look at the evidence in the record where Mr. Hennigan and
19 the attorneys of record for State Fund met with Mr. Randall
03:20PM 20 and others and found out all of the information they needed
21 to bring the third amended complaint, one has to ask whose
22 interests was Mr. Hennigan representing at that meeting? Was
23 he representing Mr. Randall's interests as his criminal
24 defense attorney? Were they representing SCIF's interest
03:20PM 25 getting information from Randall? Was Randall, by talking in

77
1 front of others, waiving his Fifth Amendment right not to
2 incriminate himself? Did he, in fact incriminate himself?
3 THE COURT: Let me stop you for a moment on waiving
4 Fifth Amendment rights. I wasn't sure I understood
03:20PM 5 everything in your papers document 1062.
6 Now I'm looking at page 9. You say, "SCIF
7 explained that this is because we think he will invoke the
8 Fifth Amendment. We have been told that he is going to do
9 that." Then it says that SCIF is not planning on calling
03:21PM 10 Mr. Randall.
11 What are Mr. Randall's Fifth Amendment rights after
12 signing a plea agreement?
13 MS. ARMENTA: That's a good question, Your Honor.
14 My understanding is that once he pled guilty, that his rights
03:21PM 15 were limited, but, again, I'm not one --
16 THE COURT: On page 12 of your papers, document
17 1062, page -- line 12, it says, "However, the Supreme Court
18 has been clear on this issue. Once Randall is sentenced, he
19 loses his Fifth Amendment right against self-incrimination."
03:22PM 20 I'm wondering why it is at sentencing and not at
21 the plea agreement? Can you shed any light on that?
22 MS. ARMENTA: Your Honor, I can only surmise that
23 there are a lot of things that can happen between the plea
24 agreement and the sentencing. As in the case, Your Honor,
03:22PM 25 just had, someone has an obligation to continue to obey the

78
1 law. There are lots of things they can do between the time
2 they enter their plea and they get sentenced that might
3 impact what their ultimate sentence is. Presumably, they
4 have an interest in not affecting their ultimate sentence.
03:22PM 5 So I would imagine that that would account for that gap
6 period where they still have certain rights until their plea
7 of guilty.
8 Certainly, in this case, Mr. Randall's plea of
9 guilty has been extended a number of times. Therefore, it
03:22PM 10 was always our belief that we would never get any evidence
11 from Mr. Randall. In fact, it was represented to us not only
12 by Mr. Graham, his civil attorney, but Mr. Graham represented
13 to Mr. Armstrong that when Mr. -- that when Mr. Randall came
14 to his deposition, Mr. Hennigan's advice was that he would be
03:23PM 15 taking the Fifth. We have it in writing two different ways.
16 He's going to be taking the Fifth based on Mr. Hennigan's
17 advice. Sure enough, he comes to the deposition and he
18 starts speaking substantively, much to everyone's surprise.
19 So it's interesting because one has to wonder well,
03:23PM 20 who was it that was giving Mr. Randall advice at that point.
21 Advice where he ultimately decided not to waive his Fifth
22 Amendment rights -- or to waive his Fifth Amendment to speak
23 substantively to really pin himself down as the mastermind of
24 the scheme. Is that evidence that the U.S. Attorney then can
03:23PM 25 use at the sentencing hearing to affect what the

79
1 recommendation would be on sentencing now that he's spoken
2 more? Did he commit perjury while he testified? These are
3 questions that -- that, you know, are worth answering, but
4 more importantly, it highlights the conflict. It has a
03:23PM 5 direct effect on the defendants. Who was giving Mr. Randall
6 advice to testify substantively? Did that benefit
7 Mr. Randall? No. Did that benefit State Fund? Arguably,
8 since it appears to be the only witness they have that has
9 any evidence against Dr. Tantuwaya and many of the other
03:24PM 10 defendants.
11 Now, in a complete turnaround from March 21st,
12 Hueston Hennigan attorney stood here and said, Mr. Randall
13 will not be a witness we will not call him. Now, the only
14 key witness they've identified for the defendants is
03:24PM 15 Mr. Randall. He's now the whole case. So it's a very
16 curious situation. One has to wonder if State Fund is now
17 using Randall to bring in evidence to Mr. Randall's own
18 detriment where he may face a greater penalty at the
19 sentencing phase.
03:24PM 20 Did I answer the Court's question?
21 THE COURT: Yes. Let me go on here and say. You
22 make -- now that I have document 1062 in front of me.
23 Did you sign that? That's your document; right?
24 MS. ARMENTA: I did, Your Honor.
03:24PM 25 THE COURT: It says here on page 23, "Mr. Hueston

80
1 also incorrectly advises SCIF that it will hold confidential
2 all information."
3 Now, you heard me ask this morning an issue that is
4 very key to me. And that is if Mr. Hennigan or Hueston &
03:25PM 5 Hennigan receives information from Mr. Randall, must that be
6 passed on under their duty of loyalty to SCIF?
7 MS. ARMENTA: Absolutely.
8 THE COURT: Can you give authority for that because
9 I think I heard differently?
03:25PM 10 MS. ARMENTA: I will have to grab the authority and
11 give it to you in a few minutes, but yes, I can provide the
12 Court authority. It's my understanding from researching is
13 that you do not waive the duty of loyalty. You can certainly
14 waive the duties of confidentiality. In other words, by
03:25PM 15 saying in a joint representation context, the information is
16 going to flow freely from one client to the other. When you
17 get material information that is significant to the other
18 client, you don't get to hold it back.
19 So, for instance, in the Court's example of the
03:26PM 20 inheritance. That shipped has already sailed. On
21 January 15th, Mr. Hennigan found out that Mr. Randall got
22 $400,000 with others off Dr. Bernadett. Did Mr. Hennigan go
23 to State Fund and say, hey, you know that $10 million
24 judgment you got, my other client over there has $400,000 in
03:26PM 25 his client's trust account or with some partners or who not.

81
1 You should get it. No. What he did instead was he told
2 Mr. Randall you should give the money back. I don't want to
3 the touch this. I don't want to be involved in that.
4 That was a direct violation of his duty of loyalty
03:26PM 5 to State Fund. They could have gone in and pounced on that
6 $400,000. Perhaps, paid a lot of the cost of this
7 litigation. I don't know that Mr. Hennigan --
8 THE COURT: I'm not sure 400 would pay a lot.
9 MS. ARMENTA: Well, it might pay some minor costs.
03:26PM 10 THE COURT: Which, I guess, is humorous, but it is
11 a concern of mine. The cost of this litigation.
12 Now, in that regard, in your document 1062 on pages
13 6 through 8, my goodness, you set forth some troubling
14 information, I believe, concerning the sentencing of
03:27PM 15 Mr. Randall.
16 MS. ARMENTA: Yes, Your Honor. To be clear under
17 the press of time, it was all we could come up within a short
18 amount of time. I do believe that there is more. You know,
19 at an appropriate time if it comes up again, we will do a
03:27PM 20 better job of providing more information to the Court.
21 THE COURT: Well, is that information that you
22 would present at the sentencing of Mr. Randall?
23 MS. ARMENTA: I don't believe that we're a victim,
24 Your Honor. So I don't think that --
03:27PM 25 THE COURT: Well, you are a victim to the -- you're

82
1 not a victim, but if he's testifying against your client,
2 perhaps you have some interest in this whole matter.
3 MS. ARMENTA: I suppose that would be up to
4 Judge Staton. That actually brings up an interesting issue,
03:28PM 5 which is Randall and, therefore, Mr. Hennigan, have an
6 interest in the restitution award being as low as possible as
7 against Mr. Randall. Whereas presumably State Fund might
8 have an interest and the defendants might have an interest in
9 the restitution award against Mr. Randall being much higher.
03:28PM 10 So there becomes this --
11 THE COURT: By the way, the restitution award as
12 opposed to the $10 million judgment, the restitution has the
13 advantage that the plea agreement prevents an assertion of
14 bankruptcy discharge against the restitutionary award, which
03:28PM 15 the $10 million judgment may or may not have; right? Maybe
16 it does. I don't know. I know the plea agreement says you
17 can't seek a bankruptcy discharge on the 10 million.
18 The restitutionary award -- look, I deal with
19 restitutionary awards all of the time with the goal of
03:29PM 20 getting victims paid and getting the laws of the
21 United States vindicated. The statutes say I need to look at
22 restitution. Another difference between a restitutionary
23 amount and a $10 million judgment is that the government puts
24 its resources in the collection of the restitutionary amount
03:29PM 25 where it wouldn't put its resources behind a civil judgment.

83
1 So the restitutionary amount does have more significance
2 than, I think, perhaps some are recognizing here.
3 In this list of financial issues concerning
4 Mr. Randall, you say that Mr. Randall appears to have some
03:30PM 5 ownership interest in an 8,200 square foot nine-bedroom
6 residence. You cite your declaration, Exhibit 6 and Exhibit
7 E. Mr. Randall claims to live there for 5,000 a month in
8 rent. So you have all of the background sources for that,
9 that is found in your declaration, Exhibit 6 and Exhibit E?
03:30PM 10 MS. ARMENTA: I would say, Your Honor, with respect
11 to that fact that with more time, we would be able to develop
12 more evidence. I have witnesses who have given me
13 information about that, but I wasn't able to get them under
14 declaration in time. So I could only give the Court what I
03:30PM 15 had. I do note that he's been living there for some time.
16 That address appeared on Hueston Hennigan Irell's engagement
17 letter. That's where we served him with a subpoena.
18 Everyone you talk to says that he says it's his house. It's
19 his house and got it in other people's name. That would
03:31PM 20 take a little more bit more forensic --
21 THE COURT: It's your understanding that this
22 white-collar criminal defendant is now living in an 8,200
23 square foot home.
24 MS. ARMENTA: Yes.
03:31PM 25 THE COURT: I'll tell you that is the sort of thing

84
1 that drives me crazy at sentencing.
2 Continue.
3 MS. ARMENTA: Okay. The other item on that that I
4 think is important, Your Honor, at some point -- we gave the
03:31PM 5 Court the documents that Mr. Randall had indicated to
6 Mr. Luna to go ahead and give any money he owed him and put
7 it in the name of Farzin Morena with a d.b.a. That evidence
8 is, Your Honor, before the Court. Mr. Randall's past conduct
9 in terms of using strawmen to hold his assets.
03:31PM 10 On the restitution, if I could just go back to
11 that, Your Honor, I heard Mr. Spiegel say that Mr. Hennigan
12 was never going to -- Hueston Hennigan was never going to
13 have a role in the criminal proceeding on representing State
14 Fund as a victim. However, I would like to --
03:31PM 15 THE COURT: Well -- okay.
16 MS. ARMENTA: He said something like that.
17 THE COURT: He did. He did. But someone has to
18 help the Judge determine the very difficult question of the
19 offense level. That offense level calculation in the plea
03:32PM 20 agreement comes out of the Sentencing Guidelines. Like I've
21 said before, that gets very difficult to analyze in a
22 kickback situation. What is the amount of the loss? Who was
23 hurt by the kickback? What was it? How do you calculate it?
24 It's very difficult.
03:32PM 25 I just know as a judge, I want two sides vigorously

85
1 debating that. I, like many judges, have been reversed at
2 the Ninth Circuit for miscalculation of the amounts involved
3 in calculating offense level. This is, perhaps, what
4 prompted me to ask am I not entitled to two full-blown
03:32PM 5 adversaries competing vigorously in front of me to tell me
6 no, it's higher. No, it's lower. No, here are the
7 arguments.
8 If the man representing the criminal defendant has
9 some loyalty to State Fund, can he really argue it should be
03:33PM 10 lower?
11 MS. ARMENTA: I would have to --
12 THE COURT: This is for a criminal defendant who
13 has a Sixth Amendment right to adequate counsel. If the
14 judge comes out and says I am sorry I find that my offense
03:33PM 15 level calculation -- I can look it up. I can show you the
16 cutoffs. The judge says I find the offense level calculation
17 here does not adequately protect the laws of the people of
18 the United States of America and I'm going to find a much
19 higher loss, can Mr. Randall then say I want out of the plea
03:34PM 20 agreement?
21 MS. ARMENTA: Sure. Sure. In fact, he has a
22 better chance of getting the plea agreement undone than a
23 judgment over here because exactly that because of the
24 constitutional concerns. The other item is, of course,
03:34PM 25 Judge Staton if she's learns of the conflict, which I would

86
1 submit Mr. Hennigan has a duty to report, she has a duty
2 under the law of this Circuit to inquire.
3 It's curious that Mr. Randall now has criminal
4 conflict counsel. Mr. Hennigan has been effectively so far
03:34PM 5 disqualified, but yet Mr. Hennigan still appears on
6 Judge Staton's docket and Mr. Rice does not.
7 THE COURT: Well, I will tell you also. Reference
8 has been made -- did you bring up the DeCinces case? Someone
9 brought up the DeCinces case --
03:34PM 10 MS. ARMENTA: We did, Your Honor.
11 THE COURT: -- and quoted me as saying it was the
12 most extraordinarily informed consent I'd ever seen. I did
13 say that. It went a long way in helping me decide a very
14 difficult case. I could be wrong, but I think that conflict
03:35PM 15 was totally brought up by the prosecutor who said,
16 Your Honor, maybe yes; maybe no. We do not want our ultimate
17 convictions tainted by any conflict. We want you to put your
18 stamp that there is no conflict, and if you don't, we could
19 go through a two-month trial and find that our conviction is
03:35PM 20 set aside because there was a possibility of a conflict and
21 no ruling on it.
22 So here, do you have any understanding, knowledge,
23 opinion, about whether the prosecutor against Mr. Randall
24 knows, should know, should bring a motion in front of
03:35PM 25 Judge Staton saying there's a conflict here; do something

87
1 about it?
2 MS. ARMENTA: Yes, Your Honor. In fact, there
3 are -- certain information we have relayed to the U.S.
4 Attorney's Office including -- we provided them with the Luna
03:36PM 5 declaration and the Luna documents showing the January 15th
6 meeting. We've also reached out and explained some of the
7 situations with respect to what our belief is with
8 Mr. Randall's assets.
9 We also consulted with the -- there's a handbook on
03:36PM 10 Prosecutors Guidelines on how they should conduct themselves.
11 In there it lays out a protocol for what the prosecution
12 should do when they become aware of a defense counsel
13 conflict. The first thing they're supposed to do is go to
14 their superior in the U.S. Attorney's Office. The next thing
03:36PM 15 they're supposed to do is inform either the Bar or the
16 tribunal. As to whether they have taken those steps, we
17 wouldn't know.
18 THE COURT: Well, there's a lot of moving parts in
19 this case, but, again, it might boil down to something as
03:36PM 20 simple that Mr. Randall's Sixth Amendment criminal defense
21 attorney is in a firm that also represents the victim of his
22 fraud.
23 Is that a truthful statement, an accurate
24 statement?
03:37PM 25 MS. ARMENTA: Yes, absolutely.

88
1 THE COURT: So we can talk and talk and talk, but
2 as, I think, my tentative, which still remains tentative,
3 sets forth, it's very difficult to be representing the victim
4 of the fraud and the fraud even after a cooperation
03:37PM 5 agreement. I have more suspicion of cooperation agreements
6 and cooperators as reflected in jury instructions than
7 counsel for Mr. Randall -- oh, nope. Counsel for SCIF -- oh,
8 which is it? Maybe as counsel for Mr. Randall, he can't
9 express the scepticism that he might express if he were
03:37PM 10 counsel for SCIF. I don't know. Hard to say.
11 MS. ARMENTA: Well, it comes up everywhere. Like
12 the Court asked the question of who between Mr. Sparks, Mr.
13 Hennigan, and Mr. Randall is lying about the independent
14 counsel? That's what we said. Somebody is lying. We don't
03:38PM 15 know who it is.
16 THE COURT: Okay. Correct.
17 MS. ARMENTA: You asked why didn't they tell us
18 more; right? The answer is this: If they tell us more,
19 there's a conflict. What are they going to do say
03:38PM 20 Mr. Hennigan is lying. Say their own client Mr. Randall is
21 lying. Mr. Sparks put his declaration in. Those are the
22 only two choices left. It puts them in an undeniable
23 conflict to call their own client a liar. To say, Randall,
24 it turns out you didn't talk to Mr. Sparks, did you. You
03:38PM 25 lied to us. There's no way out of this. It's literally a

89
1 complete --
2 THE COURT: Well, then let me ask you this
3 challenging question: Why didn't you emphasize that in your
4 papers, document 1062? I had to really look at further
03:38PM 5 opposition papers not yours, document 1068 filed by -- well,
6 I'm not sure where I found it. No. Exactly, found on page 9
7 of document 1068, emphasizing this argument about the highly
8 suspicious circumstances of informed consent where one
9 attorney is saying he said it and the other attorney is
03:39PM 10 saying I didn't say it.
11 Why isn't that in your papers?
12 MS. ARMENTA: We thought Your Honor already
13 completely got it on the March 21st hearing. The discussion
14 there was very, very clear --
03:39PM 15 THE COURT: It was in my tentative. Fair enough.
16 MS. ARMENTA: There was no reason we didn't think
17 to repeat it, although I always take constructive criticism
18 of papers. Noted, Your Honor.
19 THE COURT: It made me think you're not serious
03:39PM 20 about that argument.
21 MS. ARMENTA: I am serious about that argument.
22 Very.
23 I also want to address the issue of there's a lot
24 in the reply brief and a lot in Mr. Spiegel's argument about
03:39PM 25 this allegation that either Dr. Tantuwaya or the defense all

90
1 lumped in together somehow using this tactically and/or that
2 we want a do-over of the case. It's really important to talk
3 about that because I will tell --
4 THE COURT: I'm not sure it is. If you read my
03:40PM 5 tentative, there's one revealing line that probably everyone
6 missed. I'm going from memory.
7 MS. ARMENTA: This tentative, Your Honor?
8 THE COURT: No. The tentative of --
9 MS. ARMENTA: Yes.
03:40PM 10 THE COURT: The tentative that brings us here. It
11 was something like, the Court has considered its previous
12 rulings and is confident it got it correct. I don't know if
13 you read that or if in reading it, you realized what I was
14 saying. I was saying, I'm not revisiting stuff. You
03:40PM 15 understand what I'm saying? That's why I put it in there.
16 You're now telling me it's a possibility of revisiting stuff.
17 I will say, as I've gone down this path, I thought about it.
18 Put that line in. I'm confident that up to this point,
19 despite what conflicts there may have been, rulings to this
03:40PM 20 point are correct.
21 I'm just telling you because you're now going to
22 proceed about do-overs, et cetera, or not. I'm just telling
23 you I've thought a lot about that too.
24 Go ahead.
03:41PM 25 MS. ARMENTA: No. In fact, that's our point.

91
1 Dr. Tantuwaya doesn't want a do-over. Our discovery was set
2 to close on March 7th. We were extremely tortured about
3 bringing this motion not only because of the difficulty it
4 would cause on the Court and on all of the parties, and the
03:41PM 5 fact that it would cause our client to incur unnecessary
6 fees.
7 THE COURT: Not to mention the threat of sanctions.
8 MS. ARMENTA: Then there was that. We were being
9 told that we were going to get sanctioned. Frankly, as a
03:41PM 10 solo practitioner, I can't afford a $23,000 sanction award
11 against me. We were not really happy about that.
12 We felt that given Mr. Armstrong duties, given our
13 feeling about this situation that we had to bring it to the
14 Court's attention. The Court will notice we were not overly
03:41PM 15 aggressive in our papers. Our goal was to give the Court the
16 facts and let the Court make the decision. We tried to avoid
17 as much as we could hyperbole and rhetoric and accusations
18 and just give the Court facts and let the Court make the
19 decisions.
03:42PM 20 THE COURT: Attorney English is not in court today,
21 is he? I don't see him. He was a little aggressive in his
22 declaration.
23 MS. ARMENTA: I don't know who that is?
24 Attorney English?
03:42PM 25 THE COURT: Charles English. I am misremembering

92
1 this?
2 MS. ARMENTA: No. Our declarant --
3 THE COURT: First of all, he took an unnecessary
4 shot at Mr. Hueston. Then he went after the expert
03:42PM 5 declarations.
6 MS. ARMENTA: Oh, not us, Your Honor. Must have
7 been somebody on the defense.
9 MS. ARMENTA: So, you know, I will say we don't
03:42PM 10 want a do-over. That is part of the comments I made earlier
11 about not wanting State Fund to use the settlement conference
12 to continue to delay and extend these proceedings. Even
13 though we met with Ms. Plessman on January 26th regarding our
14 anticipated motion for summary judgement, we waited until
03:42PM 15 discovery closed. We were getting ready to file it. Now we
16 find ourselves in the position of having to re-meet and
17 confer again, and Mr. Julian won't give us a meeting. No
18 promises of a meeting this week. Maybe next week. We've
19 been asking for three months.
03:43PM 20 So at some point, we'd like to move the case
21 forward. We don't want a do-over. Our belief is if anybody
22 is using this tactically and wants a do-over, it's State Fund
23 because they've finally realized after we pointed out in
24 extensive meet-and-confers that the only witness they have is
03:43PM 25 Randall. They haven't been able to identify a page of

93
1 admissible of evidence despite six years of investigation and
2 three years of discovery. So do we want a do-over? No, we
3 want to move forward as quickly as possible, frankly, once
4 the issues are ironed out by the Court.
03:43PM 5 There was one thing I wanted to mention when we
6 talked about the duty of loyalty, Your Honor. There's
7 a wonderful quote in Flatt, the California Supreme Court
8 case, which talks about the suggestion that Mr. Randall or
9 State Fund can somehow give some blanket waiver of the duty
03:43PM 10 of loyalty. Flatt was clear that until the conclusion of the
11 representation, the client has the right to undivided loyalty
12 of the one upon whom he looks upon as his advocate and his
13 champion. Flatt at 286.
14 So I don't know how that can be squared with the
03:44PM 15 argument that you can waive a duty of loyalty --
16 THE COURT: Flatt has two T's?
17 MS. ARMENTA: Yes.
18 THE COURT: Two T's with Flatt.
19 How do you reconcile Flatt and Klemm, K-L-E-M --
03:44PM 20 two M's?
21 MS. ARMENTA: Two M's.
22 THE COURT: Yeah, Flatt and Klemm.
23 MS. ARMENTA: Easily. In Flatt, the Court talks
24 about the adversity of the parties. In Klemm, the parties
03:44PM 25 looked like they might be adverse. They were on opposite

94
1 sides of the V's, but yet because they did not have adverse
2 interest. They had the same interest in getting their
3 settlement agreement approved by the Court, they were
4 extremely aligned.
03:44PM 5 So that's how they reconcile. The question is not
6 one of what side of the V you're on. The question is, are
7 your duties of loyalty to your client conflicting. That's
8 the rule that comes out of both of those cases. That's how
9 they're reconciled.
03:45PM 10 THE COURT: All right. One of the experts said
11 pretty bluntly that no matter how hard you try, this is not
12 Klemm. What was that expert comment?
13 MS. ARMENTA: Well, it's certainly not Klemm. Was
14 it Ms. Pansky?
03:45PM 15 THE COURT: Well, let's -- that's all right. Let's
16 move on. What is your comment about my question 21? Are
17 there meaningful distinctions among same lawsuit, same
18 litigation, same matter, same matters, some case, et cetera
19 in analyzing this issue?
03:45PM 20 MS. ARMENTA: There may be, but I will say,
21 Your Honor, that all of the cases say the same thing. It
22 depends. The issue of an ethical breach --
23 THE COURT: I'm going to waivability here.
24 MS. ARMENTA: Yes, it goes to waivability. It goes
03:45PM 25 to the conflicting duties of loyalty. If you can, without

95
1 violating your duty of loyalty, perform your functions
2 loyally to both clients, maybe you can get informed consent
3 of an actual conflict. That's the -- the California rules
4 are liberal to that extent. I think that is what
03:46PM 5 Dean Chemerinsky and Professor Levenson are speaking about.
6 The cases are very clear that you have to look at
7 the very specific facts involved in that case. So that's why
8 the Court's chart is so useful to see where Mr. Randall sits
9 on that chart and what kind of impact this conflict has on
03:46PM 10 the other defendants.
11 Now, remember this is a case too of a joint and
12 several liability. Every dollar that Randall does not get
13 stuck with, the other defendants get stuck with. State Fund,
14 by not suing Randall and putting him in the pool of the joint
03:46PM 15 and several defendants, is kind of giving him a free pass
16 out.
17 THE COURT: You've talked about the expense of
18 having to file a separate action rather than a cross-action
19 for indemnity or contribution.
03:46PM 20 MS. ARMENTA: Right. We shouldn't have to do that.
21 THE COURT: Yes.
22 MS. ARMENTA: If you have any further questions,
23 Your Honor, otherwise I will yield.
24 THE COURT: All right. Anything else from the
03:47PM 25 defense side?

96
1 Yes, sir?
2 MR. NORRIS: Good afternoon. Donald Norris for
3 Healthsmart Pacific, Inc., defendant in the first case, the
4 Drobot case for Mr. Drobot, Sr., and for related entities
03:47PM 5 such as Pacific Specialty Management, Inc., International
6 Implants LLC, First Medical Managment, Inc., and Long Beach
7 Pain Medical Center, Inc. I'll try to be brief, Your Honor.
8 Quickly, you asked a little while ago about when
9 the Fifth Amendment privilege is waived. I'm not a criminal
03:47PM 10 lawyer, but I remember we cited a U.S. Supreme Court case to
11 Your Honor earlier in this case when we sought a stay. There
12 was a Supreme Court case that said precisely that. I don't
13 remember the name now.
14 THE COURT: Wait. Precisely which?
03:48PM 15 MR. NORRIS: That a criminal defendant does not
16 waive his or her Fifth Amendment right against testifying
17 until he or she is sentenced in the criminal case.
18 THE COURT: Sentenced not pled guilty.
19 MR. NORRIS: After a plea, the defendant maintains
03:48PM 20 that right until sentencing. That was what the Supreme Court
21 case said. Unfortunately, I don't have it at my fingers now.
23 MR. NORRIS: I was surprised to hear Mr. Spiegel
24 say that Mr. Randall's criminal case does not involve the
03:48PM 25 allegations concerning kickbacks at Pacific Hospital. It

97
1 certainly started -- and the plea addressed specifically
2 Tri-City's Medical Center, which is another medical facility,
3 and alleged kickbacks at that facility. Again, I'm not the
4 criminal lawyer. I talked to Mr. Drobot, Sr.'s criminal
03:49PM 5 lawyers every week.
6 That case has expanded to include, in terms of
7 Mr. Randall's role, the alleged kickbacks in connection with
8 Pacific Hospital. I don't think there's any real dispute
9 about that. Mr. Drobot, Sr.'s criminal case is with
03:49PM 10 Judge Staton as well. It's related to the original case that
11 resulted in the plea agreement for Mr. Randall. I mean,
12 perhaps Your Honor could inquire of Mr. Hennigan if there's
13 any confusion about what I'm saying. That's my
14 understanding.
03:49PM 15 THE COURT: Okay. Let's identify the two hospitals
16 involved.
17 MR. NORRIS: The first is Tri-City Medical Center
18 or Hospital -- Medical Center.
19 THE COURT: The next is?
03:49PM 20 MR. NORRIS: Pacific Hospital of Long Beach, which
21 was owned by Michael Drobot, Sr., for a period of time. Then
22 Dr. Bernadett and then Mr. Drobot, Sr., again.
23 THE COURT: And the plea agreement, of course, goes
24 to Tri-City; right?
03:50PM 25 MR. NORRIS: Mr. Randall's, I believe went to

98
1 Tri-City. Mr. Drobot's went to Pacific Hospital. My
2 understanding is that the Tri-City plea by Mr. Randall. In
3 terms of his cooperation and what the U.S. Attorney's Office
4 is examining in connection with his criminal case, includes
03:50PM 5 Pacific Hospital and Mr. Drobot's alleged kickback scheme.
6 THE COURT: Okay.
7 MR. NORRIS: Yeah. There's a part of Mr. Randall's
8 plea agreement that has nothing to do with Mr. Drobot,
9 perhaps, or the same subject matter. They overlap as to
03:50PM 10 Pacific Hospital. Again, perhaps Mr. Hennigan -- you can
11 inquire of Mr. Hennigan to clarify that. That's my
12 understanding.
13 A little while ago Your Honor said that -- let me
14 back up. Mr. Spiegel kept saying the conflicts that are
03:51PM 15 being discussed in this case are potential not actual.
16 Your Honor said how can you represent the victim and the
17 perpetrator of the fraud against the victim at the same time.
18 The way we see it is it's just that basic. That's
19 why these conflict issues just permeate this complex case. I
03:51PM 20 mean, you're raising so many at different levels. That's
21 because the -- the actual conflict is so basic in our view
22 that it permeates the entire case.
23 So related to that, first Mr. Spiegel would not
24 concede that a conflict is not waivable beyond the Klemm
03:51PM 25 situation, but then I think you backed down and conceded

99
1 there could be other situations that are not waivable. But
2 certainly, in a situation this complex that raises, as
3 Your Honor said at the very beginning the argument, so many
4 issues and aspects. If you can have an informed consent, it
03:52PM 5 should be very detailed. I think that follows. These
6 consents simply were not detailed or complex. They didn't
7 match the complexity.
8 THE COURT: Okay. So did you hear Mr. Spiegel
9 saying that it is only unwaivable in the context of Klemm's
03:52PM 10 statement about contested trials and hearings?
11 MR. NORRIS: I heard him to first say yes. Then
12 Your Honor kind of kept battering him a bit on that, for lack
13 of a better word, and then, I think he, after a couple
14 minutes, relented on that point.
03:52PM 15 THE COURT: Well, again, that was --
16 MR. NORRIS: And said, no. Then he didn't say --
17 THE COURT: That was in reference by the expert
18 saying pretty much this is not a contested hearing or a
19 trial, pound stone.
03:53PM 20 MR. NORRIS: Right.
21 THE COURT: What is your view on that?
22 MR. NORRIS: My view is, as prior counsel just
23 argued, it's not limited to the Klemm situation. You have to
24 look at the substance of the conflict, not the procedural
03:53PM 25 form it takes. Are they precisely both parties in a

100
1 particular proceeding? Are they appearing in a particular
2 trial or hearing? You have to look at the substance.
3 I think in our opposition to this motion, we cited
4 a Ninth Circuit case Jelco. It was applying Oregon -- I
03:53PM 5 think Oregon or Washington's rules. The Ninth Circuit there
6 explained under the ABA, the old ABA canon on this issue, the
7 ABA said flat-out, clients with conflicting interest could
8 through informed consent waive the constrict. The Ninth
9 Circuit said well, Courts repeatedly have said despite the
03:54PM 10 language of that canon, the Courts say no to situations where
11 it's unwaivable. This is one of those situations. That has
12 been drawn out very clearly.
13 THE COURT: If Mr. Randall were put on the stand in
14 the civil trial that will be in this court, and SCIF finds it
03:54PM 15 necessary to cross-examine him, would that be a contested
16 hearing or trial?
17 MR. NORRIS: It certainly would be. I agree with
18 Your Honor's comment earlier -- suggestion that, you know,
19 just because you get another lawyer other than someone from
03:54PM 20 Hueston Hennigan to conduct the examination, you can't ignore
21 that Hueston Hennigan is going to be advising whatever lawyer
22 conducts the examination.
24 MR. NORRIS: Mr. Spiegel used the word, well, they
03:54PM 25 only have to talk to them to the extent adequate. Well,

101
1 what's that extent? I mean, that's --
2 THE COURT: Well, even if they talk to the extent
3 adequate --
4 MR. NORRIS: Yeah. What does that mean?
03:55PM 5 THE COURT: It's Mr. Randall's attorney talking to
6 his victim to get information to cross-examine Mr. Randall.
7 MR. NORRIS: Precisely. It's just that basic in
8 our view, at least.
9 THE COURT: What is your view on full disclosure?
03:55PM 10 We've heard differing views. We -- we heard just a moment
11 ago the notion that yeah, whatever information you get, your
12 duty of loyalty requires disclosure except for the ability to
13 waive confidentiality. What is your view on that?
14 MR. NORRIS: That you have a duty of loyalty if you
03:55PM 15 obtain information that will benefit your client to divulge
16 it even if it came from another client. That is what
17 adequate representation is. So when you're talking about
18 informed consent, I think it's extremely hard to waive around
19 that duty. I agree with what counsel said a moment ago.
03:56PM 20 THE COURT: All right.
21 MR. NORRIS: Just a couple more points, Your Honor.
22 Mr. Spiegel emphasized when discussing this $10 million
23 judgment that SCIF has against Mr. Randall, well, ignore
24 that. It's not collectible. Your Honor talked about the
03:56PM 25 inheritance from the aunt. Well, everybody knows judgements

102
1 last for ten years. They're renewable. So it doesn't strike
2 me as a very significant or strong argument to say, well,
3 SCIF can't find his assets right now. Of course, we have the
4 record provided by the other defendant Dr. Tantuwaya about
03:56PM 5 calling into question whether Mr. Randall, in fact, has
6 substantial assets.
7 I wanted to follow --
8 THE COURT: Let me just say -- I am now starting to
9 be concerned about time. We dedicated much this morning.
03:57PM 10 I've come this afternoon. We've dedicated much this
11 afternoon. I need to be wrapping up around 4:00. I did give
12 your opposition so much time. I feel compelled to give you
13 time.
14 MR. NORRIS: Thank you. Let me try to wrap it up.
03:57PM 15 It seems to me if we follow the logic about whether a
16 judgment is collectible at this time against a defendant, we
17 get into all sorts of strange areas. For example, if my
18 client, Mr. Drobot, Sr., is now judgment proof -- becomes
19 judgment proof, could I then go represent SCIF in the second
03:57PM 20 case, the Capen case against the other doctors who might one
21 day want to bring an indemnity claim against Mr. Drobot, my
22 client? I mean, it kind of seems to me they're just ignoring
23 such considerations when they say oh, this judgment is not
24 collectible, so we can crash through and continue our
03:58PM 25 representation despite these conflicts.

103
1 Just a couple more points, Your Honor. Mr. Spiegel
2 said, well, whatever the inadequacies of any of the prior
3 waivers, you know, the current waiver is what counts. Now we
4 have a more detailed waiver. So let's not worry about what
03:58PM 5 happened before. We don't think the current waiver --
6 so-called current waiver is nearly as adequate or sufficient
7 in terms of providing informed consent.
8 Put aside the Jerry Sparks issue that has been
9 discussed earlier, which is very troubling, I don't think you
03:58PM 10 can unring the bell. I don't think you can go for two years
11 and infect the case with an inadequate conflict waiver. Even
12 assuming it's waivable --
13 THE COURT: That's a very interesting point. To
14 say otherwise would mean that in all these cases about
03:59PM 15 conflict, one of the parties was continuing to assert the
16 conflict. Because otherwise they would simply waive it and
17 it would all go away after the fact. You're saying it can't
18 be waived after the fact?
19 MR. NORRIS: No. The damage is done. The case is
03:59PM 20 infected. I think that's a word that Your Honor used in the
21 tentative ruling before. I don't think you can unring that
22 bell and put that Pandora back in the box.
23 THE COURT: Okay.
24 MR. NORRIS: The case is tainted.
03:59PM 25 Finally, Your Honor -- well, two more points.

104
1 There were --
2 THE COURT: By the way, you included, I believe, in
3 your papers the -- I guess my phrase was "suspicious
4 circumstances."
04:00PM 5 MR. NORRIS: Yes.
6 THE COURT: Why do you suppose it happened? Do you
7 have any ruminations or theories?
8 MR. NORRIS: I don't want to speculate, Your Honor.
9 THE COURT: Fair enough.
04:00PM 10 MR. NORRIS: I could. I don't want to.
11 THE COURT: It doesn't give the Court comfort that
12 everyone's interest is being represented here.
13 Go ahead.
14 MR. NORRIS: As to the so-called expert
04:00PM 15 declarations that State Fund provided on the reconsideration
16 motion, I think what is raised here is issues of law. I
17 don't think it's proper to have those sorts of expert
18 opinions. I think it's different when you have a negligence
19 case, a malpractice case against an attorney, which is what
04:00PM 20 SCIF discussed in its reply brief, then you do have a factual
21 situation and you want to have an expert discuss what the
22 attorney should have done or didn't do. I don't think it's
23 proper in this case. They are questions of law for Court,
24 not for an expert, not for Ms. Pansky, who I have dealt with
04:01PM 25 over two decades and have a lot of respect for.

105
1 THE COURT: I have respect for the three experts.
2 MR. NORRIS: Yeah. Sure.
3 THE COURT: I dealt with Ms. Pansky a lot when I
4 was president of the State Bar, and I believe she was on
04:01PM 5 COPRAC, C-O-P-R-A-C, all caps. I have respect for them all.
6 You're saying we don't need experts because they're just
7 telling us what the law is. Somehow the judge is supposed to
8 decide the law.
9 MR. NORRIS: You're supposed to do that.
04:01PM 10 Ms. Pansky said things like, well, in my experience I haven't
11 said cases like this where disqualification was ordered.
12 Doesn't mean it doesn't happen. Doesn't mean it's not
13 appropriate. It's just her experience.
14 THE COURT: Okay.
04:01PM 15 MR. NORRIS: I think that's kind of a back-door
16 attempt to say what the law is. I don't think it's proper.
17 Final point, Your Honor -- if I can read what I
18 scribbled here. Mr. Spiegel was talking about the defendants
19 are pursuing disqualification for tactical advantage. That's
04:02PM 20 not why I'm here arguing right now against reconsideration.
21 Originally, we did not join -- my clients did not join in the
22 motion to disqualify. Why not? We had a pretty good
23 relationship going with the Hueston Hennigan lawyers. You
24 know, we were handling things, I think, pretty well. We
04:02PM 25 don't want a redo. We don't want to redo everything either.

106
1 It was very expensive. It was very time consuming. We don't
2 want to do that.
3 However, then the Court issued its tentative
4 ruling. We were convinced that this case has an unwaivable
04:02PM 5 conflict that permeates the whole thing. We're worried about
6 continuing on with Hueston Hennigan, and then on appeal, the
7 conflict is litigated whether it -- whether Hueston should
8 have been disqualified. The whole thing is overturned at
9 that point. We'd rather get it resolved now.
04:03PM 10 So we have joined -- we haven't joined, but we've
11 opposed the motion to reconsider for that reason. We want to
12 get it resolved now. We think the conflict is, again, just
13 permeates this whole thing in substance. Actual conflicts
14 not potential and not waivable. Certainly, the waivers here
04:03PM 15 were not sufficient.
16 THE COURT: Thank you. Anything else from the
17 defense? Oops. They keep coming.
18 MS. COULSON: It's just me.
19 THE COURT: Well, let's just ask, will there be any
04:03PM 20 other defendants who wish to speak? I'm now over the time I
21 had alloted. We've given this matter more oral argument than
22 extremely significant matters before the United States
23 Supreme Court.
24 Are there any other defense counsel who will wish
04:03PM 25 to speak? Okay. The floor is yours.

107
1 Ms. COULSON: Thank you, Your Honor.
2 THE COURT: Begin by telling us who you are.
3 MS. COULSON: Dawn Coulson with Epps & Coulson
4 appearing on behalf of Jason Bernard, and in the Capen
04:03PM 5 matter, Progressive.
6 I'd like to specifically address the Court's
7 Question Number 21 about the same matter/same case and how it
8 affects the defendants, because so far, we've been talking
9 about how it may affect Mr. Randall.
04:04PM 10 How it affects the defendants is that we've heard
11 about secret meetings between different attorneys at Hueston
12 Hennigan where Mr. Randall, along with Mr. Luna being
13 present, came in and gave documents and information to
14 Hueston Hennigan. The defendants have been prohibited from
04:04PM 15 asking about that because of attorney-client privilege.
16 The defendants would like to have all of that
17 information. Do we now depose the Hueston Hennigan attorneys
18 that were there other than Mr. Hennigan, because he was
19 representing Mr. Randall at the time? I don't know. We have
04:05PM 20 been told that we cannot even ask about things that
21 Mr. Randall told the AUSA's Office even though he allegedly
22 made tapes of some of the parties in this case. And those
23 tapes have the potential of being used by the U.S. Attorney's
24 Office and possibly even the SCIF counsel, but we don't have
04:05PM 25 access to them.

108
1 Does the SCIF counsel have information about it?
2 Are they going to use that? Have they used it to develop
3 their case? We don't know. The defendants don't have the
4 ability to get that information.
04:05PM 5 What if the defendants ask for equitable indemnity
6 against Mr. Randall? We then have this other issue about why
7 wasn't he sued by SCIF in this case. So the representation
8 comes back to affect the other defendants in this case as
9 well. The Court's ruling about you cannot ask even
04:06PM 10 Mr. Randall about certain things that he talked with his own
11 counsel about -- SCIF's counsel that he might have waived the
12 Fifth Amendment right for, but yet the U.S. Attorney's Office
13 might be using it.
14 So with that, besides the issue about we want to
04:06PM 15 get down to the statute of limitation issue of when did
16 Mr. Randall go first talk with SCIF's counsel? We know that
17 Mr. Randall went approximately May of 2010 to talk with
18 Irell. We also understand that Irell was representing SCIF
19 at that time. Whether it was in this matter or not, we don't
04:07PM 20 know.
21 THE COURT: Wait. How do we know that? They were
22 representing SCIF on another matter?
23 MS. COULSON: They've admitted that. It's in
24 pleadings that they were representing them in other
04:07PM 25 litigation.

109
1 THE COURT: Okay. By the way, I don't accept the
2 argument about wording processing codes and documents and
3 numbers.
4 MS. COULSON: I agree.
04:07PM 5 THE COURT: Okay. But you're saying representing
6 in another matter at that time. Okay.
7 MS. COULSON: We all know how those document filing
8 systems work. It overlays it when you save it again.
9 THE COURT: Go ahead.
04:07PM 10 MS. COULSON: On the statute of limitations matter,
11 we would like to get to that information. It very well could
12 affect the defendants in this case, and it could be a
13 complete defense. Yet, we're not able to do that because of
14 this artificial, you know, I represent him and no, I don't,
04:07PM 15 and the other people in the Hueston Hennigan firm represent
16 Mr. Randall.
17 So those issues and their loyalties shifting from
18 one to the other, and whether the Fifth Amendment was waived
19 by sharing information among the attorneys at SCIF, are
04:08PM 20 things that are causing the defendants to have to spend great
21 time and effort on to try to get to the bottom of. So
22 because of that, we would ask for the Court to understand
23 that we don't see any new facts here. We don't see a basis
24 for reconsideration. The only thing that we've seen so far
04:08PM 25 is a change in the hot potato attorneys, which I think the

110
1 Court decided was a hot mashed potato.
2 We doubt that Mr. Rice is not counsel of record for
3 Mr. Randall in this case either. So even though he's a hot
4 potato, he's not here.
04:09PM 5 THE COURT: Wait. Who is not here?
6 MS. COULSON: Mr. Rice. He's not appeared in this
7 case.
8 THE COURT: Nor has Hueston nor has Hennigan.
9 Okay.
04:09PM 10 Anything else?
11 MS. COULSON: No.
13 Mr. Spiegel, do you wish to close? We are running
14 short on time now. I am anxious to hear any further insights
04:09PM 15 you have.
16 MR. SPIEGEL: I would ask Your Honor to take
17 whatever time you have left -- and I know it's very slight --
18 to inquire of Mr. Rice, who is here in court, and Mr. Randall
19 as to any questions that the Court may have.
04:09PM 20 THE COURT: Do you have any further argument you
21 want to make?
22 MR. SPIEGEL: Yes, Your Honor.
23 THE COURT: We're now ten minutes after my closing
24 time. I think I've given more than enough time to this
04:09PM 25 matter today and previously.

111
1 MR. SPIEGEL: You have.
2 THE COURT: You need to wrap up your argument.
3 MR. SPIEGEL: The defense position is based on
4 fundamental errors of law. The assertion that a fiduciary
04:10PM 5 duty cannot be waived in the State of California is flatly
6 contradicted by 3-310. The proposition that confidential
7 information from one client must be shared with another
8 client, despite a waiver, is flatly contradicted by 3-310.
9 At the heart of it, that's what the defendants are telling
04:10PM 10 you, Your Honor.
11 Thank you.
12 THE COURT: I'm sorry. We're now ten minutes over
13 my -- I've got another matter I need to address. I need to
14 bring this to a conclusion.
04:10PM 15 I'll end where we began. I'm not sure I've heard
16 new arguments today. I'm not sure my previous opinion was
17 clearly erroneous or manifestly unjust. I'm not sure that I
18 failed to consider material facts. I do believe this is
19 obviously important. I still see many, many people still in
04:11PM 20 this courtroom with clocks ticking, no doubt.
21 So the matter remains under submission. I still
22 haven't issued my final order because I've given previous
23 time for activity that apparently has proved largely
24 unfruitful as we have worked up on the motion for
04:11PM 25 reconsideration. I will get my final order one way or the

112
1 out as soon as I can.
2 In the meantime, my two preliminary statements:
3 One, turn over the unredacted engagement letters. That
4 remains in effect. Two, I'm inclined to order further
04:11PM 5 settlement, but there's been various questions about the
6 parameters of it and such. So I'll give that some thought
7 and issue an order very shortly on that.
8 With that, I believe we're adjourned. Thank you.
9 MS. COULSON: Thank you, Your Honor.
10 MS. ARMENTA: Thank you, Your Honor.
11 MR. SPIEGEL: Thank you, Your Honor.
12 (Proceedings concluded at 4:11 p.m.)
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25 CERTIFICATE

113
1 I HEREBY CERTIFY THAT THE FOREGOING IS A TRUE AND CORRECT
2 TRANSCRIPT OF THE STENOGRAPHICALLY RECORDED PROCEEDINGS IN
3 THE ABOVE MATTER.
4 FEES CHARGED FOR THIS TRANSCRIPT, LESS ANY CIRCUIT FEE
5 REDUCTION AND/OR DEPOSIT, ARE IN CONFORMANCE WITH THE
6 REGULATIONS OF THE JUDICIAL CONFERENCE OF THE UNITED STATES.
8 /s/ Miriam V. Baird 05/12/2016
9 MIRIAM V. BAIRD DATE

OFFICIAL REPORTER
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Hearing Transcript On Motion To Disqualify in SCIF v. Drobot

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Hearing Transcript On Motion To Disqualify in SCIF v. Drobot

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1 UNITED STATES DISTRICT COURT

2 CENTRAL DISTRICT OF CALIFORNIA

3 HONORABLE ANDREW J. GUILFORD, JUDGE PRESIDING

4 STATE COMPENSATION INSURANCE )

16 REPORTER'S TRANSCRIPT OF PROCEEDINGS

17 STATUS CONFERENCE AND MOTION HEARING HELD IN

18 CASES 13-0956 AND 15-1279

19 SANTA ANA, CALIFORNIA

20 MONDAY, MAY 9, 2016

23 MIRIAM V. BAIRD, CSR 11893, CCRA

UNITED STATES DISTRICT COURT

3 IN BEHALF OF THE PLAINTIFF, MUNGER TOLLES & OLSON

10 IN BEHALF OF THE DEFENDANT, LATHAM & WATKINS

13 IN BEHALF OF THE DEFENDANT, CARLSON & JAYAKUMAR

16 IN BEHALF OF THE DEFENDANT, THE ARMENTA LAW FIRM

19 ALSO APPEARING: DONALD G. NORRIS

UNITED STATES DISTRICT COURT

UNITED STATES DISTRICT COURT

1 SANTA ANA, CALIFORNIA; MONDAY, MAY 9, 2016; 10:45 A.M.

4 THE CLERK: SACV13-0956-AG State Compensation

10:44AM 5 Insurance Fund v. Michael D. Drobot, Sr. Et al. And

6 SACV15-1279-AG State Compensation Insurance Fund vs. Daniel

8 THE COURT: Now, Ms. Bredahl, where are you on

9 checking folks in? What do you recommend or shall I have

10:44AM 10 people make their appearances now?

11 THE CLERK: I have all their cards.

12 THE COURT: Let me say, as people come forward, I'm

13 seeing lots of people here. Ms. Bredahl informs me that she

14 has the names of all who want to make an appearance. So my

16 you would like to make an appearance, speak up now. Anyone

17 not on Ms. Bredahl's list who would like to make an

18 appearance? No one seems to be stepping forward. We will

19 rely on Ms. Bredahl's list.

10:45AM 20 The three things we have to discuss here are the

21 good-faith settlement issue, status conference concerning the

22 progress of settlement, and the motion to reconsider. Let's

23 begin with the good-faith motion, which is where we left off.

24 MR. KEESEL: Good morning, Your Honor.

10:45AM 25 Samuel Keesel -- Skip Keesel appearing for

UNITED STATES DISTRICT COURT

1 Dr. Bernadett. I'm here with Chris Farnsworth and Stefan

2 Perovich to the extent that they can be helpful.

3 THE COURT: Okay. Let's see, you're here for

10:45AM 5 MR. KEESEL: Yes, we are, Your Honor. We're the

7 THE COURT: Who are the other attorneys you

9 MR. KEESEL: Chris Farnsworth, an attorney from our

10:45AM 10 office, as is Stefan Perovich.

11 THE COURT: Okay. So three people from your office

12 on behalf of Dr. Bernadett. So let me just understand what

13 has happened here. You have settled on behalf of

10:45AM 15 MR. KEESEL: We have subject to this Court --

16 THE COURT: If I -- if the settlement goes through,

17 you will no longer be with us?

18 MR. KEESEL: That's right, Your Honor.

19 THE COURT: We'll miss you, but that's not a factor

10:46AM 20 to consider here. What made you decide to bring an 877.6

22 motion to have the protection? You bring the motion to get

23 an early review about whether 875 protection is provided.

24 Did you feel it necessary to bring the motion to

10:46AM 25 have the protection?

UNITED STATES DISTRICT COURT

1 MR. KEESEL: We did, Your Honor. The issue that we