Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_07-cv-00481/USCOURTS-casd-3_07-cv-00481-1/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332 Diversity-Fraud

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

FRANK BRAMANTE, et al.,

Plaintiffs,

CASE NO: 07-CV-0481 W(NLS)

ORDER (1) GRANTING

DEFENDANTS’ REQUEST FOR

JUDICIAL NOTICE [DOC. NO.

8] AND (2) DENYING

DEFENDANTS’ MOTION TO

DISMISS [DOC. NO. 5]

 v.

JAMES T. MICELI, et al., 

Defendants.

Pending before the Court is Defendants’ motion to dismiss the Complaint. The

Court decides the matter on the papers submitted and without oral argument. See Civil

Local Rule 7.1(d.1). For the reasons addressed below, the Court GRANTS Defendants’

Request for Judicial Notice, and DENIES the motion to dismiss.

I. BACKGROUND

In August 2001, Plaintiffs filed a securities-fraud lawsuit against Douglas McClain

Sr., among others (the “Underlying Action”). (Compl., ¶11.) Although McClain Sr.

answered the complaint, Plaintiffs allege that he did not defend himself in the case, and

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failed to appear at the pretrial conference. As a result, in June 2005, Plaintiffs obtained

a $4.5 million default judgment against McClain Sr. (Id., ¶12.) 

Approximately two weeks later, Plaintiffs filed a state-court lawsuit to enforce the

judgment against McClain Sr. The case was eventually removed to the Federal District

Court for the District of Massachusetts, and then in December 2005, the case was

transferred to the Western District of Texas. The Texas litigation is still pending. None

of the defendants named in this case are defendants in the Texas litigation

Meanwhile, beginning in October 2002, Plaintiffs allege that McClain Sr.’s

company, F.I.T. Management, LLC, began transferring assets to Argyll Equities, LLC,

and defendant James Miceli. (Compl., ¶17.) Plaintiffs contend that Miceli and

McClain Sr. each had an ownership interest in F.I.T. and Argyll. (Id., ¶¶ 26, 27, 30.)

Among the assets allegedly transferred to Argyll were valuable patents and other

proprietary information for Goat Serum. (Compl., ¶37.) Rights to market the Goat

Serum were then allegedly transferred to defendant Immunosyn. (Id., ¶ 40.) Other

assets transferred to Argyll were then allegedly transferred to defendant Dona Miceli

(James Miceli’s wife) and defendant Thomas Road Company without reasonable

consideration. (Id., ¶¶45–50.) Plaintiffs allege that all of the asset transfers were made

without reasonable consideration, and were done to hinder or prevent Plaintiffs from

collecting on the judgment obtained in the Underlying Action. (Id., ¶¶37, 41– 45, 48.)

Plaintiffs further allege that they delayed in discovering their injury because of

Defendants’ concealment. (Id., ¶52.) 

 

II. LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) tests the complaint’s sufficiency. See

North Star Int’l. v. Arizona Corp. Comm’n., 720 F.2d 578, 581 (9th Cir. 1983). Under

Rule 12(b)(6), a court may dismiss a Complaint in three instances. First, dismissal is

warranted where the Complaint lacks a cognizable legal theory. Robertson v. Dean

Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984); Neitzke v. Williams, 490

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U.S. 319, 326-27, (1989) (“Rule 12(b)(6) authorizes a court to dismiss a claim on the

basis of a dispositive issue of law.”). Second, a Complaint may be dismissed where it

presents a cognizable legal theory yet fails to plead essential facts under that theory.

Robertson, 749 F.2d at 533. Third, dismissal is appropriate where the Complaint pleads

facts that affirmatively establish that the plaintiff has no legal claim. See, e.g., Weisbuch

v. County of Los Angeles, 119 F.3d 778, 783 n.1 (9th Cir. 1997); American Nurses’

Ass’n v. Illinois, 783 F.2d 716, 723 (7th Cir. 1986) (Posner, C.J.) (“A plaintiff who files

a long and detailed Complaint may plead himself out of court by including factual

allegations which if true show that his legal rights were not invaded.”).

In Bell Atlantic Corp. v. Twombly, – – – U.S. – – –, – – –, 127 S.Ct. 1955, 1964

(2007), the Supreme Court recently explained that “[w]hile a complaint attacked by a

Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s

obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels

and conclusions, and a formulaic recitation of the elements of a cause of action will not

do.” Rather, the allegations in the complaint “must be enough to raise a right to relief

above the speculative level.” Id. at 1964–65. Additionally, all material allegations in

the complaint, “even if doubtful in fact,” are assumed to be true. Id. The complaint and

all reasonable inferences therefrom are construed in the plaintiff’s favor. Walleri v. Fed.

Home Loan Bank of Seattle, 83 F.3d 1575, 1580 (9th Cir. 1996). Conclusory legal

allegations and unwarranted inferences, however, are insufficient to defeat a motion to

dismiss. Ove v. Gwinn, 264 F.3d 817, 821 (9th Cir. 2001).

III. DISCUSSION

A. Alter Ego.

Defendants argue that the alter-ego theory must be dismissed because Plaintiffs

failed to plead supporting facts. The Court disagrees.

There are two essential elements to alter-ego liability. First, there must be “such

a unity of interest and ownership between the corporation and its equitable owner that

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the separate personalities of the corporation and the shareholder do not in reality exist.”

Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 526 (2000). Second,

there must be an “inequitable result if the acts in question are treated as those of the

corporation alone.” Id. “Conclusory allegations of ‘alter ego’ status are insufficient to

state a claim. Rather, a plaintiff must allege specifically both of the elements of alter ego

liability, as well as facts supporting each.” Neilson v. Union Bank of California, N.A.,

290 F.Supp.2d 1101, 1116 (C.D. Cal. 2003). 

In Neilson, plaintiffs alleged that defendant Comerica Bank was the alter ego of

its subsidiary, Imperial Management. With respect to the inequitable-result element,

the Complaint alleged that because “Imperial Management is a mere instrumentality of

Comerica Bank-California, an inequitable result would occur if Comerica BankCalifornia is not a defendant in this action.” Id. at 1117. Aside from restating the

second alter-ego element, there were no supporting facts, such as an allegation that

Comerica engaged in bad faith conduct in acquiring Imperial, that Imperial was

inadequately capitalized or that Imperial was drained of its corporate assets. Id. at

1117–1118. And in opposing Comerica’s motion to dismiss, plaintiff conceded that the

only potential inequity was that Imperial Management did not have sufficient funds to

pay a money judgment. Id. at 1118. Because the inability to pay a money judgment

does constitute an inequitable result under the alter-ego doctrine, the district court

granted Comerica’s motion to dismiss without leave to amend. 

Here, Plaintiffs allege that McClain, Sr., is the alter ego of F.I.T. and/or Argyll,

and that defendant James Miceli is the alter ego of Argyll and/or defendant Thomas

Road Company. (Compl., ¶¶57, 60.). Unlike Neilson, however, Plaintiffs’ claim is not

based simply on a restatement of the alter-ego elements. Rather, Plaintiffs allege that

McClain, Sr. and Miceli used the respective corporations to pay their personal expenses,

failed to segregate personal and business assets, and failed to follow corporate formalities

with respect to the corporations. (Id. at ¶¶58, 61.) With respect to the inequitableresult element, Plaintiffs allege that the corporate status of these entities is intentionally

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being used to prevent Plaintiffs from recovering the $4.5 million judgement obtained in

the Underlying Action. (Id. at ¶¶59, 62.) 

While Defendants would like more factual information in the Complaint

regarding the alter-ego claims, Federal Rule of Civil Procedure 8(a)(2) requires only “a

short and plain statement of the claim showing that the pleader is entitled to relief,” so

that defendant will have “fair notice of what the ... claim is and the ground upon which

it rests. Bell Atlantic Corp., – – – U.S. at – – –, 127 S.Ct. at 1964 (citing Fed.R.Civ.P.

8). With respect to the alter-ego theory, the Complaint clearly satisfies this

requirement. Defendants’ motion to dismiss the alter-ego claim is, therefore, denied.

B. Uniform Fraudulent Transfer Act.

Plaintiffs assert a cause of action for violation of California’s Uniform Fraudulent

Transfer Act (the “UFTA”), which provides:

A transfer made or obligation incurred by a debtor is fraudulent as to a

creditor, whether the creditor’s claim arose before or after the transfer was

made or the obligation incurred, if the debtor made the transfer or

incurred the obligation ... [w]ith actual intent to hinder, delay, or defraud

any creditor of the debtor.

 

Cal.Civ. Code, § 3439.04(a)(1). 

Here, Plaintiffs contend that certain money transfers by F.I.T. and Argyll are

subject to the UFTA because those corporations are the alter ego of McClain Sr., the

debtor. Plaintiffs also contend that F.I.T’s transfer of patents and/or other proprietary

information relating to the Goat Serum is subject to the UFTA. Defendants argue that

the UFTA claim is defective for several reasons. The Court disagrees. 

1. The money transfers are subject to the UFTA.

Defendants contend that the money transfers by F.I.T. and Argyll are not subject

to the UFTA because Plaintiffs’ alter-ego theory is defective and, therefore, the 

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transfers cannot be attributed to McClain Sr. Because the Court finds that Plaintiffs

adequately pled alter ego, Defendants’ first argument lacks merit. 

2. Plaintiffs sufficiently pled McClain, Sr.’s ownership of

the Goat Serum.

Defendants argue that the UFTA claim is defective because Plaintiffs failed to

allege that McClain Sr. acquired rights to the Goat Serum and, therefore, he could not

have transferred those rights. But the Complaint asserts that “McClain Sr. claims to

have purchased with his personal funds certain patents and/or proprietary information

in relation to” the Goat Serum. (Compl., ¶34.) This allegation is further supported by

the statement that McClain Sr. spent $2.5 million for research trials relating to the Goat

Serum. (Id. at ¶35.) 

While Defendants appear to dispute that McClain Sr. purchased the rights to the

Goat Serum, on a motion to dismiss, all factual allegations are assumed to be true and

must be construed “in the light most favorable to the nonmoving party.” Gompper v.

VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002). Moreover, the complaint and all

reasonable inferences therefrom are construed in the plaintiff’s favor. Walleri, 83 F.3d

at 1580. Because McClain Sr.’s ownership of the rights to the Goat serum can

reasonably be inferred from Plaintiffs’ allegations, the Court finds Defendants’ argument

lacks merit.

3. The UFTA claim is pled with sufficient particularity.

Defendants next contend that Plaintiffs failed to allege facts sufficient to support

a showing of actual or constructive fraud in connection with the UFTA claim. Rule 8's

notice-pleading standard does not apply to fraud-based claims. Instead, Federal Rule

of Civil Procedure 9(b) provides that “[i]n all averments of fraud or mistake, the

circumstances constituting fraud or mistake shall be stated with particularity.” Fed. R.

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Civ. P. 9(b). Nevertheless, the Court finds that Plaintiffs have satisfied the heightened

pleading standard for the UFTA claim.

A fraudulent conveyance under the UFTA is a transfer by the debtor “of property

to a third person undertaken with the intent to prevent a creditor from reaching that

interest to satisfy its claim.” Yaesu Electronics Corp. v. Tamura 28 Cal.App.4th 8, 13,

(1994). A debtor’s transfer of assets is fraudulent as to a creditor, whether the creditor's

claim arose before or after the transfer, if the transfer was made “(1) with an actual

intent to hinder, delay, or defraud any creditor, or (2) without receiving reasonably

equivalent value in return, and either (a) was engaged in or about to engage in a

business or transaction for which the debtor's assets were unreasonably small, or (b)

intended to, or reasonably believed, or reasonably should have believed, that he or she

would incur debts beyond his or her ability to pay as they became due. [Citations.]”

Kirkeby v. Superior Court of Orange County, 33 Cal. 4th 642, 648 (2004) (quoting

Cortez v. Vogt, 52 Cal.App.4th 917, 928 (1997)); see also Cal. Civ.Code, § 3439.04.

As discussed above, Plaintiffs allege that in June 2005, they obtained a $4.5

million judgment in against McClain Sr. (Compl., ¶12.) Before the judgment was

rendered, Plaintiffs allege that McClain Sr., through F.I.T., began transferring assets to

Argyll and defendant James Miceli. (Id., ¶¶15–17, 22–24, 33, 28–29.) The transfers

were allegedly made without reasonable consideration. (Id., ¶ 21.) 

Among the assets allegedly transferred by McClain, Sr. to Argyll were the

valuable patents and other proprietary information for Goat Serum. (Compl., ¶37.)

Rights to market the Goat Serum were then transferred to defendant Immunosyn. (Id.,

¶ 40.) Similar to the original transfer to Argyll, Plaintiffs contend that the transfer to

Immunosyn was made without reasonable consideration. (Id., ¶41.) Plaintiffs also

allege that other assets transferred to Argyll were then transferred to defendants Dona

Miceli and Thomas Road Company without reasonable consideration. (Id., ¶¶45–50.)

According to Plaintiffs, these transfers – of assets that once belonged to McClain, Sr.

and/or his alter ego, F.I.T – were done in order to hinder or prevent Plaintiffs from

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1

 These allegations are also sufficient to support Plaintiffs’ conspiracy theory and tolling of the

statute of limitations based on delayed discovery. 

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collecting on the judgment. Based on these allegations, the Court finds that the UFTA

claim is pled with sufficient particularity.1

C. Plaintiffs’ Remedies.

Defendants also seeks to dismiss Plaintiffs’ request for attorney’s fees, and

monetary and punitive damages. But a Rule 12(b)(6) motion tests the sufficiency of the

legal theories, not the remedies. Accordingly, a “district court should not grant a Rule

12(b)(6) motion to dismiss for failure to seek the technically appropriate remedy when

the availability of some relief is readily apparent on the face of the complaint.” Doe v.

United States Dept. of Justice 753 F.2d 1092, 1104 (D.C. Cir. 1985). 

A challenge to the remedies sought should be made pursuant to a Rule 12(f)

motion to strike. Defendants did not file a Rule 12(f) motion to strike. Because the

Court has determined that the Complaint states a claim for relief under the UFTA,

Defendants’ motion to dismiss Plaintiffs’ request for attorney’s fees, and monetary and

punitive damages is denied.

IV. CONCLUSION

The Court GRANTS Defendants’ Request for Judicial Notice [Doc. No. 8.]. But

for the reasons outlined above, the Court DENIES Defendants’ motion to dismiss.

[Doc. No. 5.]

IT IS SO ORDERED.

DATED: August 28, 2007

Hon. Thomas J. Whelan

United States District Judge

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