Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-06737/USCOURTS-caed-1_04-cv-06737-6/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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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

AMERICAN EXPRESS TRAVEL RELATED

SERVICES COMPANY, INC., a New

York corporation,

Plaintiff,

v.

D&A CORPORATION d/b/a

BAKERSFIELD WHOLESALE FOODS, a

California Corporation, ABDO

AEZAH, an individual, MALAKA M. 

AEZAH, an individual, DAVID

AEZAH, an individual, and DOES 1

THROUGH 100, inclusive,

Defendants.

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1:04-cv-06737 OWW TAG

MEMORANDUM DECISION AND

ORDER RE DEFENDANT DAVID

AEZAH’S MOTION TO DISMISS

AND MOTION TO STRIKE

PLAINTIFF’S ALTER EGO CLAIM

(DOC. 101)

I. INTRODUCTION

Defendant David Aezah (“David Aezah”) moves pursuant to

Rules 12(b)(6) and 12(f) to dismiss and strike portions of the

Second Amended Complaint of Plaintiff, American Express Travel

Related Services Company, Inc. (“Plaintiff” or “American

Express”).

//

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1 Plaintiff was granted leave to file a Second Amended

Complaint on June 3, 2005 (Doc. 94, Minute Order), and filed a

Second Amended Complaint by stipulation and with the permission

of the court on June 8, 2005 (Doc. 96, Second Am. Compl.)

2

II. PROCEDURAL HISTORY

This cause of action arises out of the alleged non-payment

of approximately $3.68 million in charges made by certain

Defendants to their American Express credit cards. Plaintiff

filed its original complaint on December 21, 2004. (Doc. 1,

Compl.) The operative complaint is the Second Amended Complaint,

filed on June 8, 2005.1 (Doc. 96, Second Am. Compl.) 

Plaintiff’s claims as set forth in the Second Amended Complaint

are: (1) breach of contract against Bakersfield Wholesale;

(2) account stated against Bakersfield Wholesale; (3) breach of

contract against all individual defendants (except David Aezah);

(4) book account against all defendants (except David Aezah);

(5) unjust enrichment against all defendants; (6) common law

fraud against Bakersfield Wholesale and Abdo Aezah; (7) piercing

the corporate veil against Abdo Aezah and David Aezah; and (8)

fraudulent conveyance against Bakersfield Wholesale, Abdo Aezah,

and David Aezah.

On August 3, 2005, default judgment was entered against

Bakersfield Wholesale and Abdo Aezah in the amount of

$3,683,320.97. The only defendants remaining in this action are

David Aezah and Malaka Aezah. David Aezah moves pursuant to

Rules 12(b)(6) and 12(f) of the Federal Rules of Civil Procedure

to dismiss portions of the Second Amended Complaint. (Doc. 101,

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Def.’s Mot.; Doc. 102, Def.’s Mem.) Specifically, David Aezah

moves to dismiss Plaintiff’s seventh claim for relief, i.e.,

piercing the corporate veil, and moves to strike all allegations

relating to his alter ego liability. Plaintiff opposes the

motion. (Doc. 120, Pl.’s Opp.) Defendant replied. (Doc. 125,

Def.’s Reply)

Oral argument was heard on September 26, 2005. Steven M.

Koch, Esq., appeared on behalf of American Express. Douglas

Tucker, Esq., appeared on behalf of Defendant David Aezah.

III. SUMMARY OF PLEADINGS

Plaintiff alleges that Abdo Aezah obtained several corporate

credit cards on behalf of his corporation, Bakersfield Wholesale. 

Abdo Aezah is the sole shareholder of Bakersfield Wholesale. 

Abdo Aezah and Bakersfield Wholesale purchased approximately

$3.68 million worth of cigarettes from Costco. (Doc. 96, Second

Am. Compl. ¶ 16) Plaintiff further alleges that Abdo Aezah and

Bakersfield Wholesale transferred the cigarettes and/or the

proceeds from the sale of the cigarettes to third parties, and

have secreted the proceeds. (Id. at ¶ 39)

Four credit cards associated with the Bakersfield Wholesale

corporate account were issued to D&A Corporation, Malaka Aezah,

Fahd Aizah, and Abdo Aezah. (Id. at ¶ 16) No card was issued to

David Aezah. As of the end of October 2004, there was a balance

of $109,762 owed on the card issued in Abdo Aezah’s name;

$46,834.26 owed on the card of Defendant Malaka; and $35,033.75

owed on the card of Fahd. (Doc. 96, Second Am. Compl. ¶¶ 23-27) 

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2 American Express does not explain why the accounts were

closed on December 2, 2004, even though the bank did not inform

it of the reversal until two days later, on December 4, 2004.

4

On November 5 and 7, 2004, American Express received electronic

payments by computer of those amounts for each account. However,

approximately one month later, on December 4, 2004, the bank that

issued these payments to American Express reversed the payments

due to insufficient funds, resulting in nonpayment. American

Express closed the accounts on December 2, 2004.2 During the

time between early November and December 2 (when the accounts

were closed), Abdo, Fahd, and Malaka continued to use their cards

and proceeded to charge an additional $2,278,972.11 to the cards. 

The total amount charged by the cardholders was $3,683,320.97. 

On August 3, 2005, default judgment was entered against Abdo and

Bakersfield Wholesale in the amount of $3,683,320.97.

This motion relates to Plaintiff’s alter ego claim against

David Aezah. David Aezah is Abdo Aezah’s brother. (Id. at ¶ 9) 

Plaintiff alleges that, although David Aezah was not a

cardholder, he “was involved with and/or ha[d] knowledge about

Abdo Aezah’s scheme to secrete [sic] the proceeds from the sale

of cigarettes to render Abdo and Bakersfield Wholesale judgment

proof in order to defraud American Express.” (Id. at ¶¶ 40, 45) 

Plaintiff’s substantive claims against David Aezah are

unjust enrichment and fraudulent conveyance. Specifically,

Plaintiff alleges that on August 27, 2004, Abdo signed a Grant

Deed transferring the property known as the “Warehouse Property”

to David for inadequate or no consideration. (Id. at ¶¶ 10, 34) 

Plaintiff also alleges that “according to the Grant Deed recorded

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with the clerk of Kern County on September 14, 2004, the transfer

[of the Warehouse Property] was a ‘gift’ for which Abdo ‘received

nothing in return.’” (Id. at ¶ 35) The Warehouse Property is

and was the principal place of business for Bakersfield

Wholesale. (Id. at ¶ 33) On January 6, 2005, Abdo Aezah

transferred his home residence (“Abdo Residence”) to David Aezah

for no consideration. (Id. at ¶ 10) On March 21, 2005, David

Aezah transferred the Abdo Residence back to Abdo in response to

the motion for contempt. 

The allegations in the Second Amended Complaint that appear

to relate to American Express’ alter ego claim against David

Aezah include the following. On January 3, 2005, David Aezah

signed a “Notice to Creditors of Bulk Sale,” which stated that on

January 21, 2005, Bakersfield Wholesale would transfer its entire

inventory to David Aezah. (Id. at ¶ 10, 46) American Express

alleges that the sale referenced in the bulk sale notice never

took place, but that Abdo Aezah nevertheless transferred the

inventory, goodwill, equipment, records, corporate opportunities,

and all other Bakersfield Wholesale assets to David Aezah for

little or no consideration at some other time. (Id. at ¶¶ 10,

47) Plaintiff alleges that included among the assets transferred

to David Aezah were the cigarettes purchased from Costco and/or

the proceeds derived from the sale or transfer of those

cigarettes. (Id. at ¶ 51)

Plaintiffs also allege that in early 2005, the sign on the

Warehouse property advertising “Bakersfield Wholesale Groceries”

was removed and replaced by a sign reading “Bakersfield Grocery

Wholesalers.” (Id. at ¶ 50) Plaintiff believes that

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“Bakersfield Grocery Wholesalers” is either a new d/b/a for

Bakersfield Wholesale or is a separate corporate entity that

David Aezah manages, controls and/or owns, and which has taken

over all of the assets of Bakersfield Wholesale. (Id. at ¶ 51) 

Plaintiff’s allegations as stated in the seventh claim for

relief are as follows: David Aezah (1) has taken control and

possession of all of the assets of Bakersfield Wholesale; (2) has

created a new corporate entity from which he is operating as

successor to Bakersfield Wholesale; (3) exerts complete control

over the successor corporate entity; (4) failed to maintain

corporate formalities with respect to Bakersfield Wholesale and

the successor entity; and (5) undercapitalized Bakersfield

Wholesale and its successor entity, leaving it with little or no

assets and insufficient cash flow to pay for its expenses. (Id.

at ¶¶ 111-115)

III. LEGAL STANDARD

Fed. R. Civ. P. 12(b)(6) allows a defendant to attack a

complaint for failure to state a claim upon which relief can be

granted. A motion to dismiss under Fed. R. Civ. P. 12(b)(6) is

disfavored and rarely granted: “[a] complaint should not be

dismissed unless it appears beyond doubt that plaintiff can prove

no set of facts in support of his claim which would entitle him

to relief.” Van Buskirk v. CNN, Inc., 284 F.3d 977, 980

(9th Cir. 2002) (citations omitted). In deciding whether to

grant a motion to dismiss, the court “accept[s] all factual

allegations of the complaint as true and draw[s] all reasonable

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inferences in favor of the nonmoving party.” TwoRivers v. Lewis,

174 F.3d 987, 991 (9th Cir. 1999). 

“The court need not, however, accept as true allegations

that contradict matters properly subject to judicial notice or by

exhibit. Nor is the court required to accept as true allegations

that are merely conclusory, unwarranted deductions of fact, or

unreasonable inferences.” Sprewell v. Golden State Warriors,

266 F.3d 979, 988 (9th Cir. 2001) (citations omitted). For

example, matters of public record may be considered under Fed. R.

Civ. P. 201, including pleadings, orders and other papers filed

with the court or records of administrative bodies. See Lee v.

City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). 

Conclusions of law, conclusory allegations, unreasonable

inferences, or unwarranted deductions of fact need not be

accepted. See Western Mining Council v. Watt, 643 F.2d 618, 624

(9th Cir. 1981).

IV. ANALYSIS

A. California Law Regarding Alter Ego Liability.

The alter-ego doctrine allows a court to disregard the

corporate entity in cases where the corporation is used by an

individual or individuals to perpetrate a fraud, circumvent a

statute, or accomplish some other wrongful or inequitable

purpose. 9 Witkin, Summary of California Law, Corporations § 12. 

The purpose of the alter ego doctrine is “to prevent defendants

who are the alter egos of a sham corporation from escaping

personal liability for its debts.” Hennessey’s Tavern, Inc. v.

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Amer. Air Filter Co., 204 Cal. App. 3d 1351, 1358 (1988);

Communist Party v. 522 Valencia, Inc., 35 Cal. App. 4th 980, 994

(1995) (“[A]lter ego is used to prevent a corporation from using

its statutory separate corporate form as a shield from liability

only where to recognize its corporate status would defeat the

rights and interests of third parties.”); Mesler v. Bragg Mgmt.

Co., 39 Cal. 3d 290, 301 (1985) (“‘The law of this state is that

the separate corporate entity will not be honored where to do so

would be to defeat the rights and equities of third persons.’”

(quoting Kohn v. Kohn, 95 Cal. App. 2d 708, 720 (1950))).

Two elements are generally required for alter ego liability

to apply: “‘(1) that there be such a unity of interest and

ownership that the separate personalities of the corporation and

the individual no longer exist and (2) that, if the acts are

treated as those of the corporation alone, an inequitable result

will follow.’” Associated Vendors, Inc. v. Oakland Meat Co., 210

Cal. App. 2d 825, 837 (1962); Mesler, 39 Cal. 3d at 300; MidCentury Ins. Co. v. Gardner, 9 Cal. App. 4th 1205, 1212 (1992);

Talbot v. Fresno-Pacific Corp., 181 Cal. App. 2d 425, 432 (1960).

Alter ego liability is an equitable doctrine. Talbot, 181

Cal. App. 2d at 432; Las Palmas Assocs. v. Las Palmas Ctr.

Assocs., 235 Cal. App. 3d 1220, 1248 (1991). Whether alter-ego

liability will be imposed necessarily depends upon the facts and

circumstances of each case. Talbot, 181 Cal. App. 2d at 432; Las

Palmas, 235 Cal. App. 3d at 1248. 

//

//

//

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B. Whether American Express States a Claim for Alter Ego

Liability as to David Aezah.

American Express seeks to hold David Aezah liable for the

charges made to the corporate credit cards associated with

Bakersfield Wholesale’s American Express account. American

Express does not allege that David Aezah made any credit card

charges himself. The only substantive claims for relief American

Express alleges against David are unjust enrichment and

fraudulent conveyance. At issue here is whether American Express

has alleged sufficient facts to support an alter ego theory of

liability against David Aezah for the charges made by Bakersfield

Wholesale and the other Defendants to the credit cards.

David Aezah initially argued that American Express failed to

allege he had any actual ownership interest in the corporation. 

David Aezah’s initial position was based on the argument that

alter ego liability can only attach where there is actual

corporate ownership. American Express does not dispute the

ownership requirement under California law for alter ego

liability. However, American Express argues that actual

ownership is not necessary, but that instead, equitable ownership

is sufficient. American Express argues it has sufficiently

alleged equitable ownership. David Aezah does not dispute that

equitable ownership could establish the first element, but argues

that American Express nevertheless fails to allege facts to

support any type of ownership on his part in Bakersfield

Wholesale, either equitable or actual, during the time the

allegedly fraudulent credit card charges were made.

The alter ego doctrine in California is an equitable, factCase 1:04-cv-06737-AWI-JLT Document 127 Filed 09/28/05 Page 9 of 13
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specific doctrine. The first prong of the alter-ego test

requires “such a unity of interest and ownership” between the

corporation and the individual “that the separate personalities

of the corporation and the individual no longer exist.” 

Associated Vendors, 210 Cal. App. 2d at 837; see also Mid-Century

Ins., 9 Cal. App. 4th at 1212. The “interest and ownership”

prong turns on a number of different considerations, depending

upon the facts of the case. A threshold question, however, is

whether the individual alter ego has an ownership interest in the

corporation. If there is no ownership interest, then there is no

alter ego liability. Riddle v. Leuschner, 51 Cal. 2d 574, 580

(1959). Two Ninth Circuit Court of Appeals opinions cited Riddle

cited for this principle. Sec. and Exch. Comm’n v. Hickey, 322

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

alter ego liability, and not a mere ‘factor’ or ‘guideline.’”);

Firstmark Capital Corp. v. Hempel Financial Corp., 859 F.2d 92,

94 (9th Cir. 1988) (“Ownership of an interest 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.”). 

American Express’ amended complaint contains few facts that

relate to David Aezah’s purported equitable ownership in the

operations of Bakersfield Wholesale. In its brief, American

Express cites to no portion of its complaint that contains

allegations of an ownership interest. The fact section of

American Express’ opposition is little more than a cut-and-paste

of most of the factual allegations from its complaint, regardless

of whether they relate to the alter ego claim. 

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Nevertheless, a review of the 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 (id. at ¶¶ 10, 47, 51); (b) Abdo Aezah’s transfer to

David Aezah of the property on which Bakersfield Wholesale is

located (i.e., the Warehouse Property) (id. at ¶¶ 33, 35); (c)

David Aezah’s current management, 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 one that now reads “Bakersfield Grocery Wholesalers” (id. at

¶¶ 50, 51).

These factual allegations ultimately do not support David

Aezah’s ownership interest in Bakersfield Wholesale for the

purpose of imposing on him alter ego liability for the credit

card charges to Bakersfield Wholesale’s corporate account. These

events all alleged 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 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

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Abdo Aezah. Plaintiff alleges Abdo Aezah is the “sole

shareholder” of Bakersfield Wholesale (Doc. 96, Second Am. Compl.

¶ 6), that Bakersfield Wholesale is “100% owned by defendant

Abdo” (id. at ¶ 103), and that Abdo Aezah “exerted and continues

to exert complete domination and control over the activities of

Bakersfield Wholesale,” (id. at ¶ 104).

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.

Defendant David Aezah’s motion to dismiss Plaintiff’s alter

ego claim is GRANTED with LEAVE TO AMEND. The motion to strike

is MOOT.

V. CONCLUSION

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.

SO ORDERED. 

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DATED: September 28___, 2005.

/s/ OLIVER W. WANGER

______________________________

 Oliver W. Wanger

UNITED STATES DISTRICT JUDGE

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