United States Of America v. Stratics Networks Inc. et al

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA,
Plaintiff,
v.
STRATICS NETWORKS INC., et. al,
Defendants.
Case No. 23-cv-00313-BAS-KSC
ORDER GRANTING IN PART,
DENYING IN PART DEFENDANTS’
MOTION TO WITHDRAW AS
COUNSEL AND STAY ACTION
(ECF No. 259)
Presently before the Court is a motion for Sean Flynn of Gordan Reese Scully
Mansukhani (“GRSM”)—as counsel of record for Defendants Atlas Marketing Partners,
Inc., Atlas Investment Ventures, LLC, Tek Ventures, LLC, Eric Petersen, and Todd
DiRoberto 	(“Atlas 	Defendants”)—to 	withdraw 	as 	counsel 	and 	to 	stay 	proceedings
(“Motion”). 	(ECF No. 259.) 	For the reasons discussed below, the Court GRANTS IN
PART and DENIES IN PART the Motion. (Id.)
I. 	DISCUSSION
A. 	Request to Withdraw Attorney
“An attorney may not withdraw as counsel except by leave of court.” Darby v. City
of Torrance, 810 F. Supp. 275, 276 (C.D. Cal. 1992). The trial court has discretion whether
to grant or deny an attorney's motion to withdraw in a civil case. See La Grand v. Stewart,
133 	F.3d 	1253, 	1269 	(9th 	Cir. 	1998); 	Stewart 	v. 	Boeing 	Co., 	No. 	CV 	12-5621
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RSWL(AGRx), 2013 WL 3168269, at *1 (C.D. Cal. June 19, 2013). 	Courts should
consider the following factors when ruling upon a motion to withdraw as counsel: (1) the
reasons why withdrawal is sought; (2) the prejudice withdrawal may cause to other
litigants; (3) the harm withdrawal might cause to the administration of justice; and (4) the
degree to which withdrawal will delay the resolution of the case. 	Curtis v. Illumination
Arts, Inc., No. C12-0991JLR, 2014 WL 556010, at *4 (W.D. Wash. Feb. 12, 2014); Deal
v. Countrywide Home Loans, No. C09-01643 SBA, 2010 WL 3702459, at *2 (N.D. Cal.
Sept. 15, 2010).
Courts routinely permit counsel to withdraw when a client refuses to pay attorneys'
fees. 	See, e.g., Holandez v. Ent., LLC, No. EDCV 21-1755 JGB (SHKx), 2023 WL
8114882, at *3 (C.D. Cal. Sept. 7, 2023) (“[I]t is true that the failure of a client to pay
attorney's fees will serve as grounds for an attorney to withdraw.”); see also Medina v.
Boeing Co., No. SACV20304JVSJEMX, 2022 WL 16949670, at *3 (C.D. Cal. May 9,
2022) (“[T]he Court cannot require [counsel] to continue representation when . . . a client
is not paying her bills.”).
Here, Atlas Defendants have not paid GRSM. (ECF No. 259-1 at 3:13-28.) GRSM
was retained by Vela Insurance to represent Atlas Defendants, and the insurance policy
paying fees to GRSM has eroded. 	(Id.) 	GRSM made numerous efforts to enter into an
agreement with Atlas Defendants for payment of outstanding invoices—which Atlas
Defendants have refused. (Id.) Thus, good cause exists for GRSM to withdraw.
In addition, withdrawal is unlikely to cause harm to other litigants and the
administration of justice. See Deal, 2010 WL 3702459, at *2. Plaintiff states:
Neither Plaintiff nor the Ace Defendants (Defendants Ace Business
Solutions, LLC and Sandra Barnes together) [who are the remaining
litigants in this action] take any position on the withdrawal request
itself, except Plaintiff notes that any withdrawal by GRSM should
not prevent it from being found responsible for paying Plaintiff’s
attorney’s fees in connection with spoliation sanctions, and that . . .
Atlas Defendants would need to engage new counsel to represent
them in this case if GRSM withdraws.
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(ECF No. 263 at 2:10-15.) 	As pointed out by Plaintiff, this Court has adopted Judge
Crawford’s Report and Recommendation, which explains that Rule 37(b)(2)(C) provides
for “the disobedient party, the attorney advising that party, or both to pay the reasonable
expenses, including attorney’s fees, caused by the failure.” 	(See ECF No. 263 at 9:1-11
(quoting ECF No. 256 at 19).) 	The Court agrees and further finds that—as a matter of
law—granting withdrawal does not relieve GRSM of any obligation to pay attorney’s fees
in connection with sanctions issued prior to GRSM’s withdrawal. See Holgate v. Baldwin,
425 F.3d 671, 677 (9th Cir. 2005) (“The fact that [an attorney] was allowed to withdraw as
counsel ... does not protect him from sanctions based on a filing that he made before that
withdrawal.”) 	Since GRSM is still liable for paying fees associated with sanctions
regardless of withdrawal, allowing GRSM to withdraw is unlikely to cause harm to other
litigants and the administration of justice.
The Court is also aware that withdrawal of counsel at this late stage (with pending
motions for summary judgment) could delay the resolution of the case and cause prejudice
to other litigants in this action. 	However, given that other litigants in this action have
indicated that they do not have a position on GRSM’s request to withdraw and that the
Court separately evaluates other litigants’ interests in deciding on Atlas Defendants’
request to stay the action below, “this is a situation where the good cause for withdrawal
outweighs other considerations.” 	Medina, 2022 WL 16949670, at *3 (finding the same
despite attorney withdrawal at late stage in proceeding). 	Thus, the Court GRANTS
GRSM’s request to withdraw. (ECF No. 259.)
B. 	Request to Indefinitely Stay Proceedings
The decision to grant a stay is “generally left to the sound discretion of district
courts.” Ryan v. Gonzales, 568 U.S. 57, 74 (2013) (quoting Schriro v. Landrigan, 550 U.S.
465, 473 (2007)). A court's power to “stay proceedings is incidental to the power inherent
in every court to control the disposition of the causes on its docket with economy of time
and effort for itself, for counsel, and for litigants.” 	Landis v. N. Am. Co., 299 U.S. 248,
254 (1936). 	When a party seeks to stay the proceedings, the court must weigh “the
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competing interests which will be affected by the granting or refusal to grant a stay,’ ”
including:
(1) the possible damage which may result from the granting of a stay,
(2) the hardship or inequity which a party may suffer in being required to go forward,
and
(3) the orderly course of justice measured in terms of the simplifying or complicating of
issues, proof, and questions of law which could be expected to result from a stay.
Lockyer v. Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005) (quoting CMAX, Inc. v. Hall,
300 F.2d 265, 268 (9th Cir. 1962)). 	“The proponent of a stay bears the burden of
establishing its need.” Clinton v. Jones, 520 U.S. 681, 708 (1997) (citing Landis, 299 U.S.
at 255). A stay must be of a fixed duration unless a “pressing need” for a more indefinite
period is demonstrated. Landis, 299 U.S. at 255.
Here, the request for stay in the Motion implies that, absent the Court staying this
action, Atlas Defendants may suffer hardship or inequity if the case were to proceed and
they are unable to retain successor counsel in the event the attorney withdrawal request is
granted (ECF No. 259-1 at 4–5). See Lockyer, 398 F.3d at 1110 (courts must consider the
“hardship or inequity” the movant may suffer in being required to go forward).
On the other hand, Plaintiff’s opposition points out that stay will hurt other
litigants—as Plaintiff could be delayed in obtaining monetary and injunctive relief, other
Defendants in the case wish to resolve the case (e.g., by filing their motion for summary
judgment early and opposing Defendants’ motions to extend briefing schedule), and both
Plaintiff and other Defendants have invested considerable resources into pursuing this
litigation for years (ECF No. 263 at 6:10–7:9). See Lockyer, 398 F.3d at 1110 (courts must
consider the “possible damage” that would result from granting stay); see also Perez v.
Cnty. of Los Angeles, No. CV1509585SJOFFMX, 2016 WL 10576622, at *3 (C.D. Cal.
May 3, 2016) (“Plaintiffs have a significant interest in obtaining resolution of their claims
and receiving compensation if they prove they are entitled to it.”).
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In addition, Atlas Defendants have not presented any reasoning why the “orderly
course of justice” would require staying the present action. See Lockyer, 398 F.3d at 1110.
Atlas Defendants have made clear their request to stay is primarily driven by a need to find
a successor counsel, not to simplify legal or evidentiary issues in the case or to conserve
judicial resources.
Relatedly, staying the present action—especially an indefinite stay—would hinder
judicial efficiency. 	Cf Fed. Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 903 (9th
Cir. 1980)) (the district court “ha[s] an interest in clearing its docket.”); see also Landis,
299 U.S. at 254 (“[T]he power to stay proceedings is incidental to the power inherent in
every court to control the disposition of the causes on its docket with economy of time and
effort for itself, for counsel, and for litigants.”).
In sum, the Court finds that the only factor favoring stay is hardship suffered by
Atlas Defendants due to lack of counsel. However, staying the action does not outweigh
the possible damage to other litigants that may result from granting stay and does not serve
the orderly or efficient administration of justice.
As such, the Court denies Atlas Defendants’ request for infinite stay and instead,
GRANTS IN PART stay for two weeks until March 27, 2026 to permit Atlas Defendants
to retain successor counsel. (ECF No. 259.)
II. 	CONCLUSION
For the reasons above, the Court GRANTS IN PART and DENIES IN PART Atlas
Defendants’ Motion. (ECF No. 259.)
GRSM’s request to withdraw as counsel is GRANTED. (Id.) Additionally, Atlas
Defendants’ request for staying the case is GRANTED IN PART until March 27, 2026
to permit Atlas Defendants to retain successor counsel.
IT IS SO ORDERED.
DATED: March 13, 2026
Hon. Cynthia Bashant, Chief Judge
United States District Court
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