Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-06737/USCOURTS-caed-1_04-cv-06737-21/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

AMERICAN EXPRESS TRAVEL )

RELATED SERVICES COMPANY, )

INC., )

)

)

)

Plaintiff, )

)

vs. )

)

)

D&A CORPORATION dba )

BAKERSFIELD WHOLESALE FOODS, )

et al., )

)

)

Defendants. )

)

)

No. CV-F-04-6737 OWW/TAG

MEMORANDUM DECISION AND

ORDER DENYING DEFENDANTS

DAVID AEZAH, BAKERSFIELD

GROCERY WHOLESALE, AND DAVE

AEZAH INVESTMENT, INC.'S

MOTIONS TO DISMISS AND TO

STRIKE (Docs. 254 & 255) AND

DENYING PLAINTIFF’S CROSSMOTION FOR SANCTIONS

PURSUANT TO 28 U.S.C. § 1927

(Doc. 263)

American Express Travel Related Services Company, Inc.

(hereinafter referred to as American Express) has sued Defendants

D&A Corporation dba Bakersfield Wholesale Foods (“Bakersfield

Wholesale”), Abdo Aezah (“Abdo”), Malaka M. Aezeh, David Aezah

(“David”), Bakersfield Grocery Wholesale (“Bakersfield Grocery”),

David Aezah Investment, Inc. (“DAI”), and Does 1 - 100,

inclusive, by the Third Amended Complaint (TAC) filed on February

23, 2007 (Doc. 158). The TAC was filed pursuant to the

Stipulation and Order filed on February 12, 2007, which provided

in pertinent part:

3. [David] Aezah consents to the filing by

American Express of a third amended complaint

in the ... California action without

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American Express’ cross-motion also seeks relief for 1

discovery. This aspect of the cross-motion was resolved at the

hearing.

2

prejudice to Aezah’s rights to move to

dismiss the third amended complaint or any

other substantive rights.

Before the Court are the motions to dismiss and to strike

the TAC filed by David, Bakersfield Grocery Wholesale and David

Aezah Investment, Inc. The motion to dismiss and strike was

denied by oral rulings at the hearing on July 25, 2007 and

Defendants were ordered to file an Answer to the TAC by August 7,

2007. Defendants timely filed their Answer to the TAC (Doc.

351). This Memorandum Decision and Order is intended to amplify

the reasons stated at the hearing for denying the motion.

Defendants move to dismiss the Sixth, Seventh and Ninth

Claims for Relief pursuant to Rule 12(b)(6), Federal Rules of

Civil Procedure, for failure to state a claim upon which relief

can be granted. Pursuant to Rule 12(f), Federal Rules of Civil

Procedure, Defendants move to strike the prayer for attorneys’

fees and the Sixth Claim for Relief on the ground of res judicata

and failure to comply with a Court Order. Also before the Court

is American Express’ cross-motion for sanctions pursuant to 28

U.S.C. § 1927.1

A. MOTION TO DISMISS.

1. GOVERNING STANDARDS.

A motion to dismiss under Rule 12(b)(6) tests the

sufficiency of the complaint. Novarro v. Black, 250 F.3d 729,

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732 (9 Cir.2001). Dismissal of a claim under Rule 12(b)(6) is th

appropriate only where “it appears beyond doubt that the

plaintiff can prove no set of facts in support of his claim which

would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-

46 (1957). Dismissal is warranted under Rule 12(b)(6) where the

complaint lacks a cognizable legal theory or where the complaint

presents a cognizable legal theory yet fails to plead essential

facts under that theory. Robertson v. Dean Witter Reynolds,

Inc., 749 F.2d 530, 534 (9 Cir.1984). In reviewing a motion to th

dismiss under Rule 12(b)(6), the court must assume the truth of

all factual allegations and must construe all inferences from

them in the light most favorable to the nonmoving party. 

Thompson v. Davis, 295 F.3d 890, 895 (9 Cir.2002). However, th

legal conclusions need not be taken as true merely because they

are cast in the form of factual allegations. Ileto v. Glock,

Inc., 349 F.3d 1191, 1200 (9 Cir.2003). Immunities and other th

affirmative defenses may be upheld on a motion to dismiss only

when they are established on the face of the complaint. See

Morley v. Walker, 175 F.3d 756, 759 (9 Cir.1999); Jablon v. th

Dean Witter & Co., 614 F.2d 677, 682 (9 Cir. 1980). When th

ruling on a motion to dismiss, the court may consider the facts

alleged in the complaint, documents attached to the complaint,

documents relied upon but not attached to the complaint when

authenticity is not contested, and matters of which the court

takes judicial notice. Parrino v. FHP, Inc, 146 F.3d 699, 705-

706 (9 Cir.1988). th

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2. SIXTH CLAIM FOR RELIEF FOR COMMON LAW FRAUD.

The Sixth Claim for Relief is for common law fraud against

Bakersfield Wholesale, Abdo and David. 

a. FAILURE TO COMPLY WITH RULE 9(b), FEDERAL

RULES OF CIVIL PROCEDURE.

David moves to dismiss the Sixth Claim for Relief on the

ground that the TAC does not satisfy the specificity pleading

requirements for fraud set forth in Rule 9(b), Federal Rules of

Civil Procedure.

Rule 9(b) requires that, in all averments of fraud, the

circumstances constituting fraud be stated with particularity. 

One of the purposes behind Rule 9(b)’s heightened pleading

requirement is to put defendants on notice of the specific

fraudulent conduct in order to enable them to adequately defend

against such allegations. See In re Stac Elec. Litig., 89 F.3d

1399, 1405 (9 Cir.1996). Furthermore, Rule 9(b) serves “to th

deter the filing of complaints as a pretext for the discovery of

unknown wrongs, to protect [defendants] from the harm that comes

from being subject to fraud charges, and to prohibit plaintiffs

from unilaterally imposing upon the court, the parties and

society enormous social and economic costs absent some factual

basis.” Id. 

Rule 9(b) requires that allegations of fraud be specific

enough to give defendants notice of the particular misconduct

which is alleged to constitute the fraud charged to that they can

defend against the charge and not just deny that they have done

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anything wrong. Celado Int’l., Ltd. v. Walt Disney Co., 347

F.Supp.2d 846, 855 (C.D.Cal.2004); see also Neubronner v. Milkin,

6 F.3d 666, 671 (9 Cir.1993). As a general rule, fraud th

allegations must state “the time, place and specific content of

the false representations as well as the identities of the

parties to the misrepresentation.” Schreiber Distrib. v. ServWell Furniture Co., 806 F.2d 1393, 1401 (9 Cir.1986). As th

explained in Neubronner v. Milken, supra, 6 F.3d at 672:

This court has held that the general rule

that allegations of fraud based on

information and belief do not satisfy Rule

9(b) may be relaxed with respect to matters

within the opposing partys’ knowledge. In

such situations, plaintiffs cannot be

expected to have personal knowledge of the

relevant facts ... However, this exception

does not nullify Rule 9(b); a plaintiff who

makes allegations on information and belief

must state the factual basis for the belief. 

b. ALLEGATIONS CONTRADICTED BY PRIOR PLEADINGS.

David asserts that the allegations in the TAC are “largely

contradicted” by allegations in the Complaint and Second Amended

Complaint and evidence submitted in support of the default

judgment against Abdo. David contends that these pleadings and

evidence show that Abdo was solely responsible for the charges

incurred and that Abdo was the sole owner of the business

incurring the charges:

• ...Abdo is the president and sole

shareholder of defendant Bakersfield

Wholesale, and controls all of the activities

of defendant Bakersfield Wholesale.” (SAC, ¶

6);

• “In or about May 2004, Abdo applied for and

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was granted a corporate credit card account

at American Express on behalf of “Bakersfield

Wholesale.” In September 2004, Abdo applied

for and was granted a corporate purchase card

account on behalf of “D&A Corporation.” (SAC

¶ 15)

• ...Abdo is the president and sole

shareholder of defendant Bakersfield

Wholesale, and controls all of the activities

of defendant Bakersfield Wholesale.” (SAC, ¶

6);

• “In or about May 2004, Abdo applied for and

was granted a corporate credit card account

at American Express on behalf of “Bakersfield

Wholesale.” In September 2004, Abdo applied

for and was granted a corporate purchase card

account on behalf of “D&A Corporation.” (SAC

¶ 15)

• At Abdo’s request, American Express issued

three separate American Express corporate

credit cards for Bakersfield Wholesale, one

in the name of Abdo Aezah/Bakersfield

Wholesale..., one in the name of Malaka

Aezah/Bakersfield Wholesale...and one in the

name of Fahd Aizah/Bakersfield

Wholesale....At Abdo Aezah’s request,

American Express issued a corporate purchase

card for defendants in the name of D&A

Corporation.” (SAC ¶ 16)

• ...Abdo has represented and admitted to

American Express that he made all charges on

the Accounts and that he is the only

individual who used the corporate credit

cards issued to Bakersfield Wholesale. Abdo

is thus responsible for all the charges on

the Accounts. (SAC ¶ 18) [Emphasis added]

• The charges at issue were made on

Bakersfield Wholesale’s corporate credit

cards by Abdo, and were properly reported on

monthly statements of account, which were

mailed to and received by Bakersfield

Wholesale and Abdo. (Pl. Pts & Auth. In

Support of Motion for Summary Judgment

against Abdo Aezah and Bakersfield Wholesale,

3:13-18 (“Pl. MSJ”.)

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• You (Abdo) as the Corporate Cardmember are

responsible for all charges billed to

your account.... To the extent that you, as

the Corporate Cardmember, fail to honor any

of the obligations under the Agreement, we

[American Express] reserve the right to

collect the amount of such Charges directly

from you. (Pl. MSJ 12:11-20)

• Defendant (Abdo) Aezah is the president and

sole shareholder of defendant Bakersfield

Wholesale, which is a California Corporation.

(Pl. Statement of Undisputed Facts ISO Motion

for Summary Judgment, (“Pl. SUD”) ¶ 2.)

• In September 2004, (Abdo) Aezah applied for

and was granted a corporate purchase card

account on behalf of D&A Corporation. (Pl.

SUD ¶ 5)

• Abdo is the only individual who used the

credit cards to make the purchases reflected

on the Accounts. (Pl. SUD ¶ 9)

David argues that, when American Express learned during the

debtor’s examination that Abdo and Bakersfield Wholesale were

judgment proof and that David had independent assets, American

Express seeks to go after David, despite having alleged that Abdo

bore sole responsibility for the charges. In addition, David

argues that prior pleadings filed in this action demonstrate that

David was not a signatory to any of the American Express charge

cards and American Express has not alleged that it issued a

charge card to David. David contends:

Because each of the allegations in the

Plaintiff’s Sixth Claim relate exclusively to

the purchases of cigarettes, and Plaintiff

has never demonstrated that Defendant David

Aezah ... had purchased a single thing or was

otherwise involved in any of the transactions

at issue or made upon the American Express

Cards, Plaintiff has simply failed to

demonstrate that committed [sic] any fraud

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against American Express regarding the

purchase of the cigarettes.

David cites no authority that these evidentiary contentions

have any relevance to whether the Sixth Claim for Relief states a

claim upon which relief can be granted.

David appears to contend that the doctrine of judicial

estoppel precludes the claim of fraud against him. As explained

in Wagner v. Professional Eng’rs in Cal. Gov’t, 354 F.3d 1036,

1044 (9 Cir.2004): th

‘Judicial estoppel, sometimes known as the

doctrine of preclusion of inconsistent

positions, precludes a party from gaining an

advantage by taking one position, and then

seeking a second advantage by taking an

incompatible position.’ ... Judicial estoppel

is an equitable doctrine that is intended to

protect the integrity of the judicial process

by preventing a litigant from ‘playing fast

and loose with the courts.’ ... Judicial

estoppel applies to a party’s stated position

whether it is an expression of intention, a

statement of fact, or a legal assertion. 

The Ninth Circuit restricts the application of judicial estoppel

“to cases where the court relied on, or “accepted,” the party’s

previous inconsistent position.” Hamilton v. State Farm Fire &

Cas. Co., 270 F.3d 778, 783 (9 Cir.2001). If David intends to th

assert judicial estoppel, the defense cannot be advanced in a

Rule 12(b)(6) motion because application of the doctrine is

factual as well as legal, unless the face of the pleadings

establish the defense. 

Further, the allegations of the TAC allow the inference that

American Express subsequently obtained information that

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contradict these prior allegations and representations. Because

of this subsequently discovered information, the inconsistent

allegations and/or representations are not fatal or

irreconcilable and do not negate the Sixth Claim for Relief as a

matter of law.

c. DEFAULT JUDGMENT RES JUDICATA.

David argues that the Sixth Claim for Relief must be

dismissed because the default judgment entered in this action

against Abdo and Bakersfield Wholesale on August 3, 2005, (Docs.

103, 109 & 110), definitively established that Abdo and

Bakersfield Wholesale, were exclusively responsible for the

charges on the American Express cards. David argues that the

default judgment “serves as res judicata (claim preclusion), as

to the allegations made” in the Sixth Claim for Relief. Other

than making this assertion, David provides no legal authority or

analysis.

Res judicata is an affirmative defense. Rule 8(c), Federal

Rules of Civil Procedure. Therefore, this ground for dismissal

may be upheld only if is established on the face of the

complaint. See Morley v. Walker, supra, 175 F.3d at 759; Jablon

v. Dean Witter & Co., supra, 614 F.2d at 682. 

As explained in Headwaters Inc. v. U.S. Forest Service, 399 

F.3d 1047, 1051-1052 (9 Cir.2005): th

‘The doctrine of res judicata provides that a

final judgment on the merits bars further

claims by parties or their privies based on

the same cause of action.’ ... ‘The

application of this doctrine is central to

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the purpose for which civil courts have been

established, the conclusive resolution of

disputes within their jurisdiction.’ ... The

preclusion doctrine encompasses a vindication

of public rights by ‘avoiding inconsistent

results and preserving judicial economy.’

....

The elements necessary to establish res

judicata are: ‘(1) an identity of claims, (2)

a final judgment on the merits, and (3)

privity between the parties.

There is no question that the default judgment is a final

judgment on the merits. With regard to “identity of claims”, the

Court considers:

(1) [W]hether rights or interests established

in the prior judgment would be destroyed or

impaired by prosecution of the second action;

(2) whether substantially the same evidence

is presented in the two actions; (3) whether

the two suits involve infringement of the

same right; and (4) whether the two suits

arise out of the same transactional nucleus

of facts. The last of these criteria is the

most important.

Id. at 1052.

American Express moved for and obtained a default judgment

in the amount of $3,683,320.97 against Abdo and Bakersfield

Wholesale on the claims for breach of contract and account stated

alleged in the First Amended Complaint (Docs. 103 & 109). The

common law fraud claim against the moving Defendants has

different elements and is not identical to these claims against

Abdo and Bakersfield Wholesale.

With regard to privity, the Ninth Circuit in In re

Schimmels, 127 F.3d 875, 881 (9 Cir.1997): th

‘Privity’ - for the purpose of applying the

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doctrine of res judicata - is a legal

conclusion ‘designating a person so

identified in interest with a party to former

litigation that he represents precisely the

same right in respect to the subject matter

involved.’ ... Federal courts have deemed

several relationships ‘sufficiently close’ to

justify a finding of ‘privity’ and,

therefore, preclusion under the doctrine of

res judicata:

First, a non-party who has

succeeded to a party’s interest in

property is bound by any prior

judgment against the party. 

Second, a non-party who controlled

the original suit will be bound by

the resulting judgment. Third,

federal courts will bind a nonparty whose interests were

represented adequately by a party

in the original suit.

... In addition, ‘privity’ has been found

where there is a ‘substantial identity’

between the party and the nonparty ...; where

the nonparty ‘had a significant interest and

participated in the prior action,’ ...; and

where the interests of the nonparty and party

are ‘so closely aligned as to be “virtually

representative,”’ ... Finally, a relationship

of privity can be said to exist when there is

an ‘express or implied legal relationship by

which the parties to the first suit are

accountable to non-parties who file a

subsequent suit with identical issues.’ ....

Even if, arguendo, this element of res judicata were 

satisfied, because the claims are not identical, the default

judgment against Abdo and Bakersfield Wholesale is not res

judicata barring the Sixth Claim for Relief. Res judicata based

on the default judgment does not precludes statement of a claim

upon which relief can be granted on the Sixth Claim for Relief.

The motion to dismiss the Sixth Claim for Relief is DENIED. 

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3. SEVENTH CLAIM FOR RELIEF FOR PIERCING CORPORATE

VEIL.

The Seventh Claim for Relief is for piercing the corporate

veil against David and DAI. 

a. BARRED BY RES JUDICATA.

By Order filed on September 28, 2005 (Doc. 127), the Seventh

Claim for Relief against David for piercing the corporate veil

alleged in the Second Amended Complaint was dismissed with leave

to amend within ten days of service of the Order. In pertinent

part, the Order ruled:

... [A] review of the [second amended]

complaint reveals several alleged facts that

could be construed to support American

Express’ alter ego theory: (a) Abdo Aezah’s

transfer to David Aezah of Bakersfield

Wholesale’s inventory, goodwill, equipment,

records, corporate opportunities, and all

other assets, including the cigarettes and/or

the proceeds derived from the sale of the

cigarettes ...; (b) Abdo Aezah’s transfer to

David Aezah of the property on which

Bakersfield Wholesale is located (i.e., the

Warehouse Property) ...; (c) David Aezah’s

current managemetn, control and/or ownership

over a new d/b/a or a new corporate entity

named ‘Bakersfield Grocery Wholesalers,’

evidenced by the replacement of the sign at

the Warehouse Property that previously read

‘Bakersfield Wholesale’ with the one that now

reads ‘Bakersfield Grocery Wholesalers’ ....

These factual allegations ultimately do not

support David Aezah’s ownership interest in

Bakersfield Wholesale for the purpose of

imposing alter ego liability for the credit

card charges to Bakersfield Wholesale’s

corporate account. These events all alleged

[sic] to have taken place after the allegedly

fraudulent credit card charges were made. 

Plaintiff seeks to hold David Aezah liable on

an alter ego theory for charges made by

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Bakersfield Wholesale before David

purportedly acquired any interest in the

company. No facts are alleged to support a

theory that David had an ownership interest

in Bakersfield Wholesale during the alleged

wrongdoing.

The only facts alleged regarding the

ownership of Bakersfield Wholesale during the

alleged wrongdoing relate to Abdo Aezah. 

Plaintiff alleges that Abdo Aezah is the

‘sole shareholder’ of Bakersfield Wholesale

..., that Bakersfield Wholesale is ‘100%

owned by defendant Abdo’ ..., and that Abdo

Aezah ‘exerted and continues to exert

complete domination and control over the

activities of Bakersfield Wholesale,’ ....

Plaintiff has offered no persuasive argument

as to why Riddle, 51 Cal.2d at 578, Hickey,

322 F.3d at 1128, and Firstmark, 859 F.2d at

94, do not apply here. These cases make it

clear that California law holds that

ownership is a prerequisite for alter ego

liability to attach. Plaintiff has offered

no basis upon which to distinguish these

cases from this case. 

...

For all the foregoing reasons, Defendant’s

motion to dismiss Plaintiff’s seventh claim

for relief (piercing the corporate veil) is

GRANTED with LEAVE TO AMEND. Any amended

complaint shall be filed within ten (10) days

of electronic service of this order. 

American Express did not file a Third Amended Complaint within

the time set forth in the Order. On October 27, 2005, David

filed an Answer to the Second Amended Complaint, alleging with

regard to the Seventh Claim for Relief that “David ... declines

to respond to any such allegations against him, as they have

either been stricken or dismissed or both.”

David contends that the claim for piercing the corporate

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veil has been previously adjudicated and decided and is res

judicata in this action because of the failure to timely amend. 

David argues that the Seventh Cause of Action in the TAC should

be dismissed because of American Express’s “willful failure” to

amend, move for reconsideration, or appeal the September 28, 2005

Order, it’s “intentional election” not to prosecute this action

for more than a year and a half, and because of David’s

intervening Answer to the Second Amended Complaint. David

contends:

[American Express] should be barred from

attempting to resurrect this claim in

violation of the Court’s clear directions and

orders. It is blatantly evident that the

only reason that Plaintiff again seeks to

resurrect and reassert this claim because it

has discovered through its collection

activities against Abdo that Abdo has

insufficient assets to permit full recovery,

and thus the Plaintiff seeks to recover the

amount it irresponsibly advanced to Abdo from

other individuals, which presently consists

of Abdo’s brother.

David cites no authority in support of his contention that

res judicata bars the Seventh Claim for Relief in the TAC and the

Court’s independent research finds none. 

American Express responds that “[i]t is well established

that an order dismissing a claim for failure to state a cause of

action is a dismissal without prejudice.” 

That may be so, but the case cited by American Express,

Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th

Cir.2003), does not so hold.

American Express also refers to Rule 15(d), Federal Rules of

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American Express also contends the Stipulation and Order 2

filed on February 12, 2007, allowing to American Express file the

TAC “without prejudice to [David’s] right to move to dismiss the

third amended complaint or any other substantive rights”, is

limited to “substantive” objections and constitutes a waiver by

David of any procedural objections to the TAC. However, the

Stipulation does not so read and cannot be so construed.

15

Civil Procedure:

Upon motion of a party the court may, upon

reasonable notice and upon such terms as are

just, permit the party to serve a

supplemental pleading, setting forth

transactions or occurrences or events which

have happened since the date of the pleading

sought to be supplemented. Permission may be

granted even though the original pleading is

defective in its statement of a claim for

relief or defense. If the court deems it

advisable that the adverse party plead to the

supplemental pleading, it shall so order,

specifying the time therefor.

American Express argues that ten days to amend set forth in

the September 28, 2005 Order “merely obviated the necessity of

complying with the procedural hurdle of making a motion under

Fed.R.Civ.P. if such an amended complaint could be filed within

ten days ... [and] does not prevent American Express from filing

an amended complaint outside that period if the amended pleading

otherwise complies with Fed.R.Civ.P. 15.”2

Rule 15(a), Federal Rules of Civil Procedure, provides that

“leave [to amend] shall be freely given when justice so

requires.” “The purpose of pleading is ‘to facilitate a proper

decision on the merits’ ... and not erect formal and burdensome

impediments to the litigation process. Unless undue prejudice to

the opposing party will result, a trial judge should ordinarily

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permit a party to amend its complaint.” Howey v. United States,

481 F.2d 1187, 1990 (1973). However, “[t]his strong policy

toward permitting the amendment of pleadings ... must be tempered

with considerations of ‘undue delay, bad faith or dilatory motive

on the part of the movant, repeated failure to cure deficiencies

by amendments previously allowed, undue prejudice to the opposing

party by virtue of allowance of the amendment, futility of

amendment, etc.’ Foman v. Davis, 371 U.S. 178, 182 ... (1962).” 

Schlacter-Jones v. General Telephone of California, 936 F.2d 435,

443 (9 Cir. 1991). th

American Express argues that the Seventh Claim for Relief in

the TAC does not violate any of the factors set forth by the

Supreme Court in Foman.

“Prejudice is the ‘touchstone of the inquiry under rule

15(a) ... Absent prejudice, or a strong showing of any of the

remaining Foman factors, there exists a presumption under Rule

15(a) in favor of granting leave to amend.” Eminence Capital,

LLC v. Aspeon, Inc., supra, 316 F.3d at 1052. “The party

opposing leave to amend bears the burden of showing prejudice.” 

Serpra v. SBC Telecommunications, Inc., 318 F.Supp.2d 865, 870

(N.D.Cal.2004). 

American Express contends that David is not prejudiced by

the TAC and cannot demonstrate prejudice because American Express

asserted similar claims under the same legal theory in the First

Amended Complaint and the Second Amended Complaint and the facts

supporting the alter ego claim are those supporting the claims

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for fraudulent transfer, unjust enrichment and successor

liability. See Serpa, supra, 318 F.Supp.2d at 872 (no prejudice

when proposed amendment depends on same set of facts for other

claims).

American Express contends that the Seventh Claim for Relief

is not alleged in bad faith because it is not “merely seeking to

prolong the litigation by adding new but baseless legal

theories.” Griggs v. Pace American Group, Inc., 170 F.3d 877,

881 (9 Cir.1999). American Express asserts that “the Court has th

already held that the evidence shows ‘clear and convincing’

evidence of David’s wrongful conduct.”

American Express contends that it did not unduly delay in

filing the TAC including the Seventh Claim for Relief. Delay

alone is insufficient to justify denial of leave to amend. DCD

Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9 Cir.1987). If th

discovery is not closed, undue delay does not exist. See Abels

v. JBC Legal Group, P.C., 229 F.R.D. 152, 156 (N.D.Cal.2005). 

American Express argues that the TAC was filed “only because the

facts underlying the cause of action for alter ego were

discovered bit by bit, over the last several months - largely

from third parties and in the face of perjurious testimony by

both Aezah brothers and by Abdo’s strategic use of Fifth

Amendment refusals to testify.” American Express contends that

David’s assertion that American Express elected not to proceed

with this action for more than a year and a half “is an outright

falsehood.” American Express asserts that, with the full

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agreement of David’s former counsel,

it diligently pursued third parties for

massive documentation that ultimately

revealed the attempts to launder money in

Mississippi and Yemen and the scheme to hide

the Costco Cigarettes at the Fortress storage

facility. It is David who has been delayed

[sic] by secreting assets, hiding documents,

refusing to appear for depositions, and

perjuring himself when he does appear. 

In so asserting, American Express submits the Declaration of Ira

Glauber, one of its attorneys. Mr. Glauber avers in pertinent

part:

7. On October 5, 2005, I wrote to David’s

counsel at the time, Douglas Tucker, Esq. of

the firm of Kimble, MacMichael & Upton, and

advised him that American Express could not

amend the complaint until it takes discovery

... I stated in this letter as follows: ‘I am

writing to advise you that American Express

will not be amending the complaint at this

time. We reserve the right to amend the

complaint at a later date should we uncover

facts during discovery which support an

amendment of the complaint.’ 

8. David’s answer to the second amended

complaint (which contained a claim for

fraudulent conveyance against him) was served

in the fall of 2005. In October 2005,

American Express served its initial

disclosures under Fed.R.Civ.P 26. In

November 2005, it served document requests

and interrogatories on David. In December

2005, American Express served David with a

deposition notice for early February, 2006.

9. David did not produce documents

responsive to the document request until late

February 2006, which required that his

deposition be adjourned. David also failed

to produce large quantities of documents,

especially critically important bank

statements. I wrote a letter to David’s

lawyer, Mr. Tucker, about this on March 8,

2006 ....

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10. In the spring of 2006, American Express

served non-party subpoenas on Citibank, Wells

Fargo Bank, and Bank of America for the

checking account statements of David, Abdo,

and Bakersfield Wholesale. Those documents

were not produced until the early summer

2006. Rather than oppose such discovery,

David’s then counsel, Mr. Tucker, wrote

letters to the banks stating that they were

authorized to fully comply with discovery. 

It was from the production of documents by

these banks that we obtained records

indicating that David had transferred more

than $1,300,,000 into his account, all in one

hundred dollar bills (this, in turn, led to

our discovery of his purchase of the

Mississippi Property) and of the transfers of

hundreds of thousands of dollars in cash to

Yemen.

11. Despite the fact that the banks had not

produced their documents, in order to press

forward with discovery, I served David’s

counsel with a deposition notice scheduling

David’s deposition to commence on May 4,

2006. David’s counsel and I had agreed on

this date in late March 2006. However, on

the eve of the deposition, David’s counsel

cancelled the deposition, on the pretext that

David was in Yemen. I wrote a letter to Mr.

Tucker complaining about this on April 28,

2006 ....

12. American Express had to notice David’s

deposition two more times, once in late July

2006, and once again for September 2006,

before David finally agreed to be deposed

....

13. On September 13, 2006, David finally

appeared for his deposition, but after a half

day of questions concerning checks totaling

hundreds of thousands of dollars that David

wrote to unknown persons in Yemen, David’s

counsel, Mr. Tucker, advised me that he was

cutting off the deposition until David had

time to consult with criminal counsel about

the possibly asserting his Fifth Amendment

rights. David then replaced Mr. Tucker as

his counsel with Gary Huss, Esq. of Wild,

Tipton and Carter.

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14. On October 9 and 10, 2006, American

Express continued David’s deposition, and

first had an opportunity to ask him about a

$340,000 cancelled check paid to him from

Traveler’s Insurance Company in the fall of

2005. After pressing David for further

disclosure concerning an insurance claim that

he submitted to Travelers for cigarettes

destroyed in a fire at a storage facility in

July 2005, we learned that David was

personally and intimately involved with the

fraudulent conveyance of the cigarettes

purchased on the American Express card.

15. Following this, we deposed six

additional witnesses in January 2007,

including Abdo, David, the manager of the

storage facility, and a police officer from

the Bakersfield Police Department. These

depositions and the documents obtained from

defendants and from the banks and other third

parties finally enabled American Express to

uncover the entirety of David’s scheme to

defraud American Express. It was on the

basis of this discovery that American Express

amended the complaint for a third time

through the filing of the TAC in late

February 2007. 

...

18. It should be readily apparent to the

Court that American Express could not have

amended the complaint to re-plead the alter

ego claim within 10 days of the September 28,

2005 ruling on David’s first motion to

dismiss. At that point, no discovery had yet

been taken, and American Express did not have

the facts on which to base any additional

allegations of alter ego liability. We

advised David’s counsel in writing that

further amendment of the complaint would have

to await discovery ... and then we diligently

engaged in discovery on the existing claim

(the one for fraudulent transfer). It was

only when discovery was substantially

completed in early 2007, did American Express

have all the facts to allege an alter ego

claim against David.

...

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20. It should also be readily apparent to

the Court that the March 31, 2005 Discovery

Scheduling Order became overtaken by events

and was not applicable to David. That Order

was entered before David had even responded

to the first amended complaint. It set a

discovery cut-off of August 31, 2005. It is

clear that this cut-off only applied to the

defendants who had already appeared in the

action as of the date the order was signed. 

David had not even answered any complaint as

of August 31, 2005, and the court did not

rule on his motion to dismiss until September

28, 2005.

21. Once the Court issued that ruling and

David answered the [second amended] 

complaint, American Express diligently

pursued discovery by serving a document

request and interrogatories on David,

deposition notices on David, and third-party

subpoenas. David’s prior counsel, Mr.

Tucker, ... produced documents, answered

interrogatories, and cooperated in the

production of documents by the non-party

banks. He also attempted to get his client

to appear for deposition despite his client’s

dilatory tactics. At no time did Mr. Tucker

ever state that the action should be

dismissed because American Express failed to

pursue discovery.

22. Moreover, neither Mr. Tucker nor Mr.

Huss ever objected to American Express’

discovery as beyond the Court’s discovery

deadline. David obviously waived any

objection to such discovery, or any amendment

of the complaint that resulted therefrom.

23. In fact, Mr. Tucker and I discussed the

court’s scheduling order on several occasions

in late 2005 and 2006 (before he was replaced

by Mr. Huss following the September 13, 2006

deposition of David). We were both of the

opinion that it did not pertain to David

because his answer was not served until after

the August 31, 2005 discovery cut-off date

contained in the initial Scheduling

Conference Order. We also were both of the

opinion that as long as both sides were not

having discovery fights, and were proceeding

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with discovery in a professional fashion,

there was no need to burden the Court with a

request for a new schedule. We specifically

discussed this at the time of David’s

September 2006 deposition, and agreed that

after that deposition was completed, we would

jointly contact the Court and give it a

status report on where things stood in the

case. Before that could occur, David fired

Mr. Tucker. I was told one of the reasons

for this is that David believed that Mr.

Tucker was being too cooperative with

American Express.

24. Given the above facts, I was shocked to

read David’s most recent motion to dismiss. 

It is obvious that Mr. Huss did not read the

correspondence and discovery requests

exchanged between me and his predecessor

counsel for David, and has no understanding

of the procedural history of this matter. If

he did, he would never have made the

following outlandishly false statement:

‘Following this Court’s granting the

Plaintiff’s Default Judgment against Abdo and

Bakersfield Wholesale, the Plaintiff

essentially abandoned their claim and action

against David and the other defendants. No

action of any kind was taken in this case

involving David from October 2005 through the

filing of the current complaint in March 2007

- approximately a year and a half later.’ 

This statement ignores the document request,

interrogatories, and deposition notice served

on David in late 2005, the document

production engaged in by David in early 2006,

and American Express’ attempts to get David

to produce all of his documents and appear

for a deposition in mid and late 2006.

David objects to consideration of Mr. Glauber’s declaration

in resolving the motion to dismiss. However, while the

declaration cannot be considered in resolving whether the TAC or

the Seventh Claim for Relief state a claim upon which relief can

be granted without converting the motion to one for summary

judgment, Mr. Glauber’s declaration may be considered in

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determining whether the amendment should be allowed for purposes

of Rule 15, i.e., whether American Express unduly delayed in

amending the complaint, and for purposes of determining whether

the failure to timely comply with the September 25, 2005 Order

may be excused or is grounds for dismissal for failure to

prosecute.

With regard to futility, that ground for denial of leave to

amend depends upon whether the Seventh Claim for Relief states a

claim under Rule 12(b)(6).

In the absence of authority that res judicata bars the realleging of the alter ego cause of action, David is not entitled

to dismissal on this ground. If David had not stipulated to the

filing of the TAC, American Express would have had to move for

leave to file it pursuant to Rule 15 or Rule 16, Federal Rules of

Civil Procedure. The fact that American Express could have so

moved negates any bar based on res judicata.

David alternatively argues that the Seventh Claim for Relief

should be dismissed pursuant to Rule 41(b), Federal Rules of

Civil Procedure, for failure to timely comply with a court order.

David relies on Yourish v. California Amplifier, 191 F.3d 983

(9 Cir.1999). th

However, Yourish involved an order dismissing a complaint

with leave to amend. Here, the Second Amended Complaint remained

viable as evidenced by David’s Answer to it when time to amend

the Seventh Claim for Relief elapsed and Mr. Glauber had advised

Mr. Tucker that American Express did not intend to amend. 

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Yourish has been clarified by the Ninth Circuit in Edwards v.

Marin Park, Inc., 356 F.3d 1058, 1065 (9 Cir.2004): th

We believe that Yourish (and Ferdik) can be

understood as limited to circumstances in

which the plaintiff did not, as WMX

Technologies recommends, give the court

‘notice of intent not to file an amended

complaint,’ ... but simply failed to take any

action. Yourish and Ferdik both arose when

plaintiffs, given the opportunity to amend or

be dismissed, did nothing. In that

situation, resources continue to be consumed

by a case sitting idly on the court’s docket. 

The failure of the plaintiff eventually to

respond to the court’s ultimatum - either by

amending the complaint or by indicating to

the court that it will not do so - is

properly met with the sanction of a Rule

41(b) dismissal. Where, however, the

plaintiff makes an affirmative choice not to

amend, and clearly communicates that choice

to the court, there has been no disobedience

to a court’s order to amend; as Yourish

itself noted, the plaintiff has the right to

stand on the pleading ... Hence we understand

the Ferdik-Yourish rule to require a

threatened Rule 12(b)(6) dismissal to ferment

into a Rule 41(b) dismissal only upon the

plaintiff’s inaction. When the plaintiff

timely responds with a formal notice of his

intent not to amend, the threatened dismissal

merely ripens into a final, appealable

judgment.

Although American Express did not formally notify the Court

of its decision not to amend the Seventh Claim for Relief as

required by the September 28, 2005 Order, American Express did

notify Defendants’ then-counsel, Mr. Tucker, who then filed an

Answer to the Second Amended Complaint. To dismiss the Seventh

Claim for Relief in the TAC now pursuant to Rule 41(b) based on

the failure to timely amend pursuant to the September 28, 2005

Order does not make sense because the action remained viable and

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was being prosecuted.

b. INSUFFICIENT FACTS TO DEMONSTRATE EQUITABLE

DOCTRINE SHOULD BE IMPOSED AGAINST DAVID.

One of the required requirements for alter ego liability is

that “there be such unity of interest and ownership that the

separate personalities of the corporation and the individual no

longer exist”. Mid-Century Ins. Co. v. Gardner, 9 Cal.App.4th

1205, 1212 (1992). A threshold question is whether the alleged

alter ego had an ownership interest in the corporation. If there

is no ownership interest, there is no alter ego liability. 

Riddle v. Leuschner, 51 Cal.2d 574, 580 (1959); see also SEC v.

Hickey, 322 F.3d 1123, 1128 (9 Cir.2003)(“Ownership is a th

prerequisite to alter ego liability, and not a mere ‘factor’ or

‘guideline.’”); Firstmark Capital Corp. v. Hempel Financial

Corp., 859 F.2d 92, 94 (9 Cir.1988)(“Ownership of an interest th

in the corporation is an essential part of the element of unity

of ownership and interest. If an individual’s ownership is not

established, the corporation’s obligations cannot be imposed on

him or her.”).

David argues that the Seventh Claim for Relief fails to

state a claim because the only evidence of his ownership of

Bakersfield Wholesale is the allegation in Paragraph 13 that

David and Abdo executed a written “Declaration” dated September

19, 2004, which stated that in exchange for the satisfaction of a

$150,000 loan from David to Abdo, Abdo was transferring the

Warehouse to David, and that “[t]he borrower [Abdo] no longer has

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an interest of any king [kind] in this property or any business

within it.” David argues that this sentence from the Declaration

is taken out of context and does not prove that David gained any

ownership interest in Bakersfield Wholesale, but only that Abdo

attempted to disclaim ownership. David asserts:

This document is a declaration that follows

the close of escrow on the 402 California

property, and the transfer of the property

into David’s name. It states that because of

these events, David’s loan of $150,000 to

Abdo is satisfied, and that David will be

responsible for taking over an existing

mortgage loan against the property in the

amount of approximately $280,000. It further

states that Abdo, as the borrower, is not

free from any liabilities or any loans

against this property, including the loan

which he borrowed from David five months

previously in the amount of $150,000. ‘The

borrower no longer has an interest of any

king [sic] in this property or any business

within it.’ Taken as a whole, this document

was intended to serve the purpose of

providing Abdo with written notice that he

was no longer responsible for the loan he had

received from David, and for the outstanding

mortgage on the property.

David further argues that American Express cannot point to any

concrete evidence of his acceptance of ownership of Bakersfield

Wholesale, contending that American Express does not demonstrate

(1) that any documentation was filed with the California

Secretary of State, the County of Kern or other state agencies

showing change of ownership; and (2) that any changes were made

to required business insurance demonstrating change of ownership. 

California Business and Professions Code §§ 29975 et seq. pertain

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David cited California Business and Professions Code §§ 22972 3

et seq. However, these statutory provisions pertain to licenses

for retailers of cigarettes.

27

to licenses for wholesalers. Section 22975(a) provides that, 3

“commencing June 30, 2004, every distributor and every wholesaler

shall annually obtain and maintain a license to engage in the

sale of cigarettes or tobacco products.” Section 22975(c)

provides in pertinent part:

A license is not assignable or transferable. 

A person who obtains a license as a

distributor or as a wholesaler who ceases to

do business as specified in the license ...

shall immediately surrender the license to

the board.

David contends that American Express has not alleged or provided

proof that Abdo surrendered the wholesaler license following the

execution of the September 19, 2004 Declaration or that David has

applied for and obtained the required license. David argues that

the evidence of ownership alleged in the Seventh Claim for Relief

“is ambiguous at best” and refers to allegations that Abdo

continued to perform acts inconsistent with the disclaimer set

forth in the Declaration:

• “[a]t Abdo’s request, American Express

issued three separate American Express 

corporate credit cards for Bakersfield

Wholesale...At Abdo Aezah’s request,

American Express also issued a corporate

purchase card for defendants in the

name of D&A Corporation...” (TAC, ¶ 26.)

• “Abdo has repreresented and admitted to

American Express that he made all of the

charges on the Accounts and that he is the

only individual who used the corporate credit

cards issued to Bakersfield Wholesale. Abdo

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David argues that, in cases involving alter ego allegations, 4

the allegations of the elements of the claim, including ownership,

must be substantial and supported by some evidence. However,

neither of the cases upon which he relies so holds. Hockey v.

Medbaker, 30 F.Supp.2d 1209, 1211 n.1 (N.D.Cal.1998) and Hokama v.

E.F. Hutton & Co., Inc., 566 F.Supp. 636, 647 (C.D.Cal.1983),

merely hold that a conclusory allegation of “alter ego” does not

suffice to state a claim.

28

is thus responsible for all the charges on

the Accounts.” (TAC, ¶ 28.)

• “From early to mid-November 2004, Abdo

purchased $1,404,348.86 million worth of

cigarettes at Costco on Bakersfield

Wholesale’s American Express cards. From

November 19 through December 2, 2004, Abdo

charged an additional $2,2778,972.11 worth of

cigarettes at Costco.” (TAC, ¶ 37.)

• “During his deposition in this case, Abdo

testified that after Bakersfield Wholesale

purchased the Costco Cigarettes in late 2004,

he personally arranged for their resale to

third parties. He also admitted that he

stored the Costco Cigarettes at the Warehouse

prior to their sale and kept the cash

proceeds at the Warehouse thereafter.” (TAC,

¶ 56.)

• Abdo testified at his deposition herein

that as soon as he learned that American

Express was demanding immediate payment of

the amounts due to it [in December, 2004],

Abdo ceased the operations of Bakersfield

Wholesale and threw away all of its records.”

(TAC, ¶ 64).

David asserts that dismissal of the Seventh Claim for Relief

is required because “as far as all of the appropriate legal

entities were concerned, Abdo continued to be the sole owner of

Bakersfield Wholesale at all points in time during 2004.” 

4

David argues that American Express is attempting to proceed

against him in the Seventh Cause of Action because Abdo is

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judgment proof, that American Express has not demonstrated that

he had any ownership interest in Bakersfield Wholesale and has

merely alleged facts from which it may be inferred that David

“essentially acted as a periodic manager or employee of

Bakersfield Wholesale.” David cites Riddle v. Leuschner, supra,

51 Cal.2d 574, 580:

It is undisputed that he held none of the

stock, and there is no evidence that he had

any interest as an owner in the business

operated by either of the two corporations or

that he had a right to share in any of the

profits they might make. Instead, he

received a monthly salary. Under all the

circumstances, he is to be regarded as having

been a managing employee of the two

companies, and his control over their affairs

must be treated as that which would be

exercised by a managing agent rather than

that of a shareholder or owner. 

American Express responds that David’s motion is based on

the contention that Abdo is the nominal owner of 100% of the

shares in Bakersfield Wholesale. However, American Express

contends, in order to be held liable as an alter ego, the

defendant need only have an equitable ownership in the relevant

entity. See Minton v. Cavaney, 56 Cal.2d 576, 580 (1961):

The evidence is ... undisputed that Cavaney

was not only the secretary and treasurer of

the corporation but was also a director. The

evidence that Cavaney was to receive onethird of the shares to be issued supports an

inference that he was an equitable owner (see

Riddle v. Leuschner, supra, 51 Cal.2d 574,

580), and the evidence that for a time the

records of the corporation were kept in

Cavaney’s office supports an inference that

he actively participated in the conduct of

the business. The trial court was not

required to believe his statement that he was

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only a ‘temporary’ director and officer for

‘accommodation.’ 

See also Roman Catholic Archbishop v. Superior Court, 15

Cal.App.3d 405, 411 (1971)(“The terminology ‘alter ego’ or

‘piercing the corporate veil’ refers to situations where there

has been an abuse of corporate privilege, because of which the

equitable owner of a corporation will be held liable for the

actions of the corporation.”); Sonora Diamond Corp. v. Superior

Court, 83 Cal.App.4th 523, 538 (2000)(“Under the alter ego

doctrine ... the courts will ignore the corporate entity and deem

the corporations acts to be those of the persons or organizations

actually controlling the corporation, in most instances the

equitable owners.”); Tri-State Equipment v. United States, 1997

WL 375264 (E.D.Cal.1997)(“[E]quitable ownership has been

inferred, despite the individual’s lack of actual or substantial

ownership of shares, provided other indicia of control are

present.”).

As American Express argues, the allegations of the TAC,

allow the inference that David was the equitable owner of

Bakersfield Wholesale at the time American Express’ debt was

incurred. David’s arguments concerning the absence of

documentary evidence filed with appropriate state agencies and

the failure to obtain the required cigarette wholesale license go

to ultimate proof, not pleading.

c. EVIDENCE OBTAINED IN VIOLATION OF SCHEDULING

CONFERENCE ORDER.

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David alternatively argues that the Seventh Claim for Relief

should be dismissed because the new evidence to support the

Seventh Claim for Relief was obtained after the August 31, 2005 

discovery cut-off date set forth in the Scheduling Conference

Order filed on April 6, 2005 (Doc. 69). David contends that

American Express was required by Rule 16, Federal Rules of Civil

Procedure, to obtain advance permission from the Court before

conducting any discovery and that American Express did not seek

or obtain any stipulation regarding the conduct of discovery. 

David asserts that the discovery has been conducted in “willful

disobeyance of this Court’s order, as well as of the Federal

Rules of Civil Procedure” and that the Court “should suppress the

evidence as a sanction for Plaintiff’s willful and intentional

disobeyance”. David argues that American Express’ contention

that it discovered this evidence since issuance of the September

28, 2005 Order dismissing the alter ego claim with leave to amend

is irrelevant:

The Plaintiff chose the time and place of

this litigation, and chose when to bring

David Aezah into this litigation as a

defendant. Plaintiff has controlled the pace

and speed of this litigation since it’s

commencement. It is Plaintiff’s

responsibility to ensure that it has it’s

facts lined up, and has sufficient facts to

support its claims at the time they are made

....

Essentially, what the Plaintiff seeks is

permission to ignore and eviscerate the

requirements of the Federal Rules of Civil

Procedure, and more particularly FRCP 12. 

Plaintiff’s apparent position is that it

should be allowed to have the motion decided

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adversely to it, yet still be able to conduct

future discovery, learn additional new facts,

and reassert the cause of action. Under

Plaintiff’s logic and position, FRCP 12 is

converted from a tool to manage proceedings

and allow a defendant to narrow the action

against it and require definite pleadings

into a notification to the Plaintiff that it

needs to conduct further discovery.

As quoted above in the Declaration of Ira Glauber, counsel

for David, Mr. Tucker, and Mr. Glauber conducted the discovery

following the September 28, 2005 Order without objection from Mr.

Tucker and with the understanding that the Scheduling Conference

Order would be amended subsequently. David, through his

attorney, could have sought a protective order precluding further

discovery as being in violation of the Scheduling Order, but did

not. Of course, American Express should have sought modification

of the Scheduling Order, but did not. Rule 16(b) does provide:

“A schedule shall not be modified except upon a showing of good

cause and by leave of the district judge ....” 

This action was commenced on December 21, 2004. David was

not named as a defendant until the First Amended Complaint was

filed on March 22, 2005. At the time of the scheduling

conference on March 31, 2005, David had not yet appeared in the

action. The Scheduling Conference Order was filed on April 6,

2005. The Scheduling Order has since been modified by Orders

filed on March 7, 2007 (Doc. 243) and on June 19, 2007 (Doc.

299). David’s contention that the Seventh Claim for Relief be

dismissed because evidence to support it was obtained in

violation of the March 31, 2005 Scheduling Conference Order and

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in violation of Rule 16 exalts form over substance under the

circumstances of this action and ignores the failure the failure

of David’s then counsel to make any objection to discovery on

this ground. 

The motion to dismiss the Seventh Claim for Relief on this

ground is DENIED. 

4. NINTH CLAIM FOR RELIEF FOR CONSPIRACY TO COMMIT

FRAUDULENT CONVEYANCE.

The Ninth Claim for Relief is alleged against David for

conspiracy to commit fraudulent conveyance. The Ninth Claim for

Relief alleges inter alia that, based on the preceding

allegations of the TAC, “beginning in or about December 2004,

David and Abdo conspired together to fraudulently transfer the

Costco Cigarettes, the proceeds from their sale, and the

Bakersfield Wholesale Assets from Bakersfield Wholesale to one or

more of the following persons: (1) David; (2) Bakersfield

Grocery, David’s wholly owned and unincorporated business; (3)

DAI, or (4) Abdo” and that “David intentionally conspired to

effect such fraudulent transfers with Abdo, and actively

participated in such transfers, in order to defraud American

Express and to hinder American Express’ ability to collect monies

due it as a result of Bakersfield Wholesale’s use of American

Express credit cards.” 

David moves to dismiss the Ninth Claim for Relief, arguing

that the allegations of the TAC do not suffice to satisfy the

heightened pleading requirements applicable to a conspiracy the

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object of which is fraudulent. See Wasco Products v. Southwall

Technologies, 435 F.3d 989, 991 (9 Cir.), cert. denied, ___

th

U.S. ___, 127 S.Ct. 83 (2006)(“Based on these precedents and the

plain language of Rule 9(b), we hold that under federal law a

plaintiff must plead, at a minimum, the basic elements of a civil

conspiracy if the object of the conspiracy is fraudulent.”).

David contends American Express has not pled any facts showing

the existence of an agreement, or the terms of the agreement,

asserting:

A review of the TAC fails to reveal any

description of the terms of the agreement, or

anything to demonstrate that an agreement

even existed. Instead, the Plaintiff relies

on facially neutral facts, and attempts to

combine and cast them to create an [sic]

conspiracy agreement where it cannot show one

exists.

In Alfus v. Pyramid Technology Corp., 745 F.Supp. 1511, 1521

(N.D.Cal.1990), cited with approval by the Ninth Circuit in Wasco

Products v. Southwall Technologies, the District Court explained:

To survive a motion to dismiss, plaintiff

must allege with sufficient factual

particularity that defendants reached some

explicit or tacit understanding or agreement. 

Roberts, 670 F.Supp. at 1484 (proof of a

conspiracy does not require a showing of an

explicit agreement; a demonstration of a

tacit agreement is enough) ... It is not

enough to show that defendants might have had

a common goal unless there is a factually

specific allegation that they directed

themselves towards this wrongful goal by

virtue of a mutual understanding or agreement

....

“‘[T]he existence of a conspiracy “may sometimes be inferred from

the nature of the acts done, the relations of the parties, the

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American Express also refers to evidence presented during the 5

preliminary injunction proceedings and contends that the Court made

findings of fact that American Express had presented clear and

convincing evidence that David and Abdo conspired to fraudulently

transfer assets. David objects to the consideration of this

evidence in resolving the motion to dismiss and further contends

that such a finding is not reflected on the docket. 

David also moves to strike the Seventh Claim for Relief on 6

the same grounds as he moved to dismiss it. Because dismissal of

the Seventh Claim for Relief is denied, the motion to strike is

denied as well.

35

interests of the alleged conspirators, and other

circumstances.”’” Southern Union Co. v. Southwest Gas Corp., 165

F.Supp.2d 1010, 1021 (D.Ariz.2001), citing, In re Sunset Bay

Associates, 944 F.2d 1503, 1517 (9 Cir.1991). th

Given these standards, the allegations of the TAC suffice to

allege the existence of an agreement between Abdo and David to

conceal assets in an attempt to defraud American Express.5

Dismissal of the Ninth Claim for Relief for failure to state

a claim is DENIED.

B. MOTION TO STRIKE.

David moves pursuant to Rule 12(f), Federal Rules of Civil

Procedure, to strike American Express’ request for attorneys’

fees.6

Rule 12(f) provides in pertinent part that the Court “may

order stricken from any pleading any insufficient defense or any

redundant, immaterial, impertinent, or scandalous matter.” 

Motions to strike are disfavored and infrequently granted. Neveu

v. City of Fresno, 392 F.Supp.2d 1159, 1170 (E.D.Cal.2005). A

motion to strike should not be granted unless it is clear that

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the matter to be stricken could have no possible bearing on the

subject matter of the litigation. Id. The function of a Rule

12(f) motion to strike is to avoid the expenditure of time and

money that might arise from litigating spurious issues by

dispensing with those issues prior to trial. Fantasy, Inc. v.

Fogerty, 984 F.2d 1524, 1527 (9 Cir.1993), rev’d on other th

grounds, 510 U.S. 517 (1994).

David moves to strike the prayer for attorneys’ fees,

contending that, under California law, a prevailing party is not

entitled to attorneys’ fees unless specifically provided for by

contract or by statute. Shoals v. Home Depot, Inc., 422

F.Supp.2d 1183, 1191 (E.D.Cal.2006), citing California Code of

Civil Procedure § 1021. David asserts that the TAC does not

demonstrate the existence of any contract between David,

Bakersfield Grocery or DAI and American Express or any statutory

basis for attorneys’ fees.

American Express, impliedly conceding that no independent

contractual or statutory basis exists for an award of attorneys’

fees against Defendants, argues that, if it prevails on the

Seventh Claim for Relief, it will be entitled to attorneys’ fees

against David based on the attorneys’ fees provisions in its

charge cards. See Reynolds Metals Co. v. Alperson, 25 Cal.3d

124, 129 (1979):

Had plaintiff prevailed on its cause of

action claiming defendants were in fact the

alter egos of the corporation ..., defendants

would have been liable on the notes. Since

they would have been liable for attorney’s

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fees pursuant to the fees provision had

plaintiff prevailed, they may recover

attorney’s fees pursuant to section 1717 now

that they have prevailed. 

David alternatively argues the Court should consider the

prayer for attorneys’ fees stricken because American Express has

previously waived their right to recover them.

American Express moved for default judgment against Abdo and

Bakersfield Wholesale. In its motion for default judgment,

American Express asserted that the operative agreement “awards

American Express attorney’s fees equal to 15% of the outstanding

balance in the event that litigation is commenced to collect any

amounts due under the agreement.” However, in the Memorandum

Decision granting the motion for default judgment filed on July

15, 2005 (Doc. 103), the Court stated: “Plaintiff’s counsel

waived their right to recover attorneys’ fees at the July 11,

2005 oral argument on the motion for default [sic].”

American Express argues that it never waived or otherwise

forfeited its right to seek attorneys’ fees against David,

Bakersfield Grocery and/or DAI because of the concession made

during the hearing on the motion for default judgment against

Abdo and Bakersfield Wholesale.

American Express argues that the issue of attorneys’ fees

was not actually litigated in the proceedings for default

judgment. American Express cites Pool Water Products v. Olin

Corp., 258 F.3d 1024, 1031 (9 Cir.2001): th

The party asserting collateral estoppel must

show that the estopped issue is identical to

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an issue actually litigated and decided in

the previous action ... Preclusive force

attaches only to issues that were necessary

to support the judgment in the prior action

... Litigants are not precluded from

relitigating an issue if its determination

was merely incidental to the judgment in the

prior action.

Relying on these principles, American Express contends that the

issue of attorneys’ fees was not actually litigated in the

default judgment proceedings:

At no time did this Court ever conclude that

attorneys’ fees were unavailable pursuant to

the underlying Cardmember Agreement as a

matter of law. Rather, attorneys’ fees were

not sought at the election [of] American

Express as a matter of convenience in order

to expedite the entry of a default judgment

and dispense with the need for further

hearings as to the defaulting defendants

only. American Express was certain that

seeking attorneys’ fees would be an exercise

in futility because the defaulting defendants

had denuded themselves of assets and would

not be able to satisfy even a fraction of the

$3.6 million awarded under the default

judgment. 

American Express further contends that “the Court’s finding with

respect to attorneys’ fees was purely incidental, as well as

clearly specific to the defaulting defendants only.” Finally,

American Express asserts, the claims for attorneys’ fees are not

identical:

First, American Express seeks attorneys’ fees

against the Defendants on its claims for

alter ego and successor liability, which are

different from the claims upon which it

obtained a default judgment against the

defaulting defendants. Second, the bulk of

American Express’ legal fees have been

incurred after the entry of the default

judgment, which cannot under any conceivable

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In their reply brief, Defendants assert for the first time 7

that there is no basis for an award of attorneys’ fees against DAI.

Courts generally decline to consider arguments raised for the first

time in a reply brief. See United States v. Bohn, 956 F.2d 208,

209 (9 Cir.1992); United States v. Boyce, 148 F.Supp.2d 1069, 1085 th

(S.D.Cal.2001).

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interpretation constitute a waiver or

relinquishment to seek those subsequently

incurred fees against the Defendants.

Defendants reply that, even if American Express’ claim for

alter ego liability alleged in the Seventh Claim for Relief is

ultimately sustained, American Express is barred by the waiver:

[T]he alter ego doctrine would merely mean

that David is held liable for the actions of

[Bakersfield Wholesale] as the owner of

[Bakersfield Wholesale]. As Plaintiff had

already waived its right to collect from BWF,

this would mean the waiver would apply to

shield David from attorneys fees.

David’s arguments pertain to proof, not pleading. There is

no basis at this juncture to strike the prayer for attorneys’

fees against David.7

C. AMERICAN EXPRESS’ CROSS-MOTION FOR ATTORNEYS’ FEES

PURSUANT TO 28 U.S.C. § 1927.

Because American Express withdrew its cross-motion for

attorneys’ fees pursuant to 28 U.S.C. § 1927 at the hearing, it

is not discussed further in this memorandum decision and is

DENIED.

 CONCLUSION

For the reasons stated above and at the hearing on July 25,

2007,

1. Defendants David Aezah, Bakersfield Grocery Wholesale,

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and Dave Aezah Investment, Inc.’s motions to dismiss and to

strike are DENIED;

2. American Express’ cross-motion for sanctions pursuant to

28 U.S.C. § 1927 is DENIED.

IT IS SO ORDERED.

Dated: August 23, 2007 /s/ Oliver W. Wanger 

668554 UNITED STATES DISTRICT JUDGE

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