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IAR Systems Software, Inc. v. Superior Court (Nadim Shehayed)

California Court of Appeals, First District, Third Division

June 5, 2017

IAR SYSTEMS SOFTWARE, INC. et al., Petitioners,
THE SUPERIOR COURT OF SAN MATEO COUNTY, Respondent NADIM SHEHAYED et al., Real Parties in Interest.

         Superior Court, County No. SC083255A of San Mateo Hon. Joseph Scott Judge

          Counsel for Petitioners IAR Systems Software, Inc.: Antonio Valla, Michael Purcell VALLA & ASSOCIATES, INC.

          Counsel for Petitioners Valla & Associates, Inc.: William D. Rauch LAW OFFICES OF WILLIAM RAUCH

          Counsel for Real Parties in Interest Nadim Shehayed: Thomas J. Nolan, Serenity Wang NOLAN BARTON BRADFORD & OLMOS LLP

          Counsel for Real Parties in Interest State of California: Kamala D. Harris, Attorney General, Gerald A. Engler, Chief Assistant Attorney General, Jeffrey M. Laurence, Senior Assistant Attorney General, Laurence K. Sullivan, Supervising Deputy Attorney General, Bridget Billeter, Deputy Attorney General

          JENKINS, J.

         In these writ proceedings, petitioners IAR Systems Software, Inc. (IAR) and Valla and Associates, Inc. (Valla), seek a writ of mandate ordering the trial court to vacate its finding of June 30, 2016, that Valla, a law firm, should be deemed part of the “prosecution team” prosecuting Nadim Shehayed for embezzlement. In addition, petitioners request that we set aside the related order granting the motion of defendant and real party in interest, Nadim Shehayed (defendant) to order Valla, as part of the prosecution team, to disclose material, exculpatory evidence in its possession in accordance with Brady v. Maryland (1963) 373 U.S. 83 (Brady). For reasons addressed below, we agree the trial court erred, first, in imposing a duty under Brady to disclose material, exculpatory evidence directly on Valla, as opposed to on the prosecution, and, second, in finding Valla to be part of the prosecution team. Accordingly, we grant the requested relief.


         Defendant served as Chief Executive Officer of IAR for nearly 20 years.[1] Sometime around 2012, IAR discovered evidence that defendant had embezzled large sums of money from the corporation by, among other things, paying personal debts from the corporation's bank accounts and paying salary and retirement benefits to his wife, who was not an IAR employee. Accordingly, on September 7, 2012, IAR, represented by Valla, filed a civil lawsuit against defendant in San Mateo County Superior Court. In October 2012, Valla, on behalf of IAR, made contact with the Foster City Police Department to report the suspected crime(s). Trial in the civil case was then set for September 9, 2013. Just days before this first trial date, the San Mateo District Attorney (district attorney) charged defendant with felony embezzlement.[2]

         On May 18, 2015, following an extensive preliminary hearing, the People filed this criminal action, charging defendant by information with six counts of embezzlement (Pen. Code, § 504), enhanced with allegations of excessive taking within the meaning of Penal Code sections 1203.045, subdivision (a), and 12022.6, subdivision (a).[3]

         On July 19, 2015, defendant served its first subpoena on Valla, requesting 19 categories of documents. On August 12, 2015, at a scheduled hearing, Valla responded in part to this subpoena by producing over 600 documents in electronic form, while moving to quash other document requests on attorney-client privilege grounds. The motion to quash was ultimately resolved when defendant agreed to narrow his document requests. He then filed a second subpoena on September 29, 2015, that demanded production of documents relating to a February 6, 2014 email from the district attorney to Valla. Valla, in turn, responded by moving for a protective order with respect to documents protected by either the attorney-client or work-product privilege.

         On December 2, 2015, defendant filed the motion at the heart of these writ proceedings, seeking an evidentiary hearing to determine whether Valla was part of the prosecution team and, as such, subject to the Brady disclosure requirement of producing any material and exculpatory evidence in its possession notwithstanding the attorney-client privilege. The previously-filed motion for protective order was thus taken off calendar and a new hearing was scheduled on February 8, 2016, to permit the People to file a written opposition. At this hearing, the court summarily scheduled an evidentiary hearing with respect to the Brady issue for April 18, 2016.

         On March 21, 2016, petitioners filed a petition in this court requesting that we set aside and vacate the February 8, 2016 order for an evidentiary hearing, arguing that this hearing would violate the constitutional right of a victim (to wit, IAR) to reasonably confer with the prosecutor regarding the charged offenses, as well as IAR's right to the protection of the attorney-client and work-product privileges. In addition, petitioners argued that, as a matter of law, the attorney for a crime victim cannot be deemed part of the prosecution team. We denied this writ petition without prejudice, advising petitioners of their right to renew it if appropriate after the scheduled evidentiary hearing.

         The evidentiary hearing was thus held on May 4 and June 13, 2016. Among other things, Antonio Valla, the founder of Valla, testified that the firm did not conduct legal research or investigate the charged offenses solely at the request of the police or district attorney or take any action with respect to defendant other than in its role as attorneys for IAR. To the contrary, Valla merely turned over information to law enforcement that it had independently obtained in discovery in the civil action brought against defendant. Further, Michael Purcell, a legal associate at Valla, testified that the firm did not ask the police or district attorney for assistance in the civil discovery process or in its legal research in the civil matter, nor did the firm have any sort of agreement with these agencies. Rather, the firm arranged and scheduled meetings between the police and district attorney and its client, IAR, and provided these agencies with information that was already in its or its client's possession.

         Both Elizabeth Nardi and Kimberly Perrotti, San Mateo County deputy district attorneys, confirmed this testimony. While it was standard procedure for the district attorney's office to communicate with a crime victim (here, IAR) through its attorneys, they did not ask Valla in this case to gather evidence, interview witnesses or find specific witnesses on its behalf. Similarly, Detective William Beck of the Foster City Police Department testified that the police conducted its own investigation without guidance from Valla, and did not ask Valla to gather specific evidence, make specific discovery requests or talk to specific witnesses. Valla did, however, forward a copy of defendant's deposition transcript to the police.

         With respect to IAR's selection and hiring of a forensic accountant, deputy district attorney Nardi wrote an email to Valla on June 20, 2013, noting the financial complexity of the case against defendant and describing the impediments her office faced in determining whether to bring charges against him:

         “Obviously, an embezzlement case of this magnitude which spans nearly a decade involves a lot of paperwork and financial analysis. Our office does not have the resources to interpret the voluminous financial documents nor is that our role. Our role is [sic] take what documents and/or other evidence a police agency presents to our office (in any criminal matter - murder, embezzlement, DUI, etc.) and determine if there is enough evidence to prove to a jury of twelve beyond a reasonable doubt that a crime has been committed.

         “As such, a case of this complexity is impossible to prove without an independent financial audit. I cannot compel you to hire an auditor nor can I direct Foster City PD to hire an independent financial auditor. While our office works with police agencies, we are not their boss and cannot direct them on how to conduct a criminal investigation. The District Attorney's role is to take the information that is presented to us and make a determination if we can pursue criminal charges. That being said, if IAR does go forward with an independent financial audit, the company needs to hire someone who will be available to testify in San Mateo County. While IAR is a global company the forensic auditor would be our ‘star witness' at the Preliminary Hearing stage as well as a jury trial (should the case come to that) and needs to be available to testify.”

         At the hearing, Mr. Valla testified his understanding of deputy Nardi's email was that the district attorney was requesting that IAR provide information and expertise from an independent financial auditor retained by IAR. Detective Beck, in turn, testified that the responsibility for obtaining and paying a forensic accountant was “delegated to IAR via Valla....” IAR asked Steven Smith, who had provided basic accounting and tax services to IAR since 2012, to provide the needed information and expertise to understand defendant's crimes. Subsequently, IAR, not Valla, retained Smith to serve as expert witness in the civil action against defendant.[4] Smith testified at the preliminary hearing in this matter, after being prepared to do so by the district attorney. IAR paid Smith for ...

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