Damian v. Meftah

• Decision Date: 21 December 2022
• Docket Number: 22-cv-02573-JCS
• Parties: MELANIE E. DAMIAN, Plaintiff, v. YAHIA MEFTAH, et al., Defendants.
• Court: U.S. District Court — Northern District of California

MELANIE E. DAMIAN, Plaintiff,
v.
YAHIA MEFTAH, et al., Defendants.

No. 22-cv-02573-JCS

United States District Court, N.D. California

December 21, 2022

ORDER TO SHOW CAUSE WHY MOTION TO DISMISS SHOULD NOT BE CONVERTED TO SUMMARY JUDGMENT AND GRANTED RE: DKT. NO. 118

JOSEPH C. SPERO CHIEF MAGISTRATE JUDGE

I. INTRODUCTION

This dispute stems from another action currently pending in the U.S. District Court for the Southern District of Florida: Commodity Futures Trading Commission v. Atkinson, Case No. 1:18-cv-23992-JEM (the “CFTC Action”). This fraudulent transfer case was also originally filed in the Southern District of Florida, but after dismissing for lack of personal jurisdiction, that court reconsidered its order of dismissal, reopened the case, and transferred the case to this district under 28 U.S.C. § 1404(a).

Plaintiff Melanie E. Damian, acting in her capacity as receiver of All In Publishing, LLC^[1], seeks to recover $1,442,274.93 from Defendants Yahia Meftah (doing business as Yahia Meftah Sole Prop. (“YMSP”)) and Zak Meftah. Plaintiff alleges that Defendants unlawfully transferred profits earned from an illegal binary options marketing scheme and brings one count of fraudulent transfer against them under Florida Statutes section 726.105(1)(a). Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that Plaintiff's claim is time-barred under Florida Statutes section 726.110(1). The Court held a hearing on November 4, 2022.

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It is not clear that Defendants are entitled to dismissal based solely on the allegations of Plaintiff's complaint and public records subject to judicial notice-the sources to which they properly direct their motion to dismiss. Based on Plaintiff's supplemental filings, however, it appears that Plaintiff's claim was untimely. Since that extrinsic evidence cannot be considered under Rule 12(b)(6), Plaintiff is ORDERED TO SHOW CAUSE why the Court should not convert Defendants' motion into a motion for summary judgment under Rule 12(d) and Rule 56, and why the Court should not grant the motion in that converted form.

Plaintiff shall file a response to this order no later than January 13, 2023, which may (but is not required to) include additional evidence or arguments why further discovery is necessary before the matter can be resolved. Defendants may file a response no later than January 20, 2023, but they are not required to do so. While Defendants' response may also include evidence if they so choose, the parties are advised that the Court does not intend to grant pre-discovery summary judgment at this time on any theory beyond what is specifically addressed in this order, i.e., the significance of when Plaintiff possessed the relevant bank records. If (and only if) Defendants file additional evidence with their response, Plaintiff may file a final brief no later than January 27, 2023.^[2]

II. BACKGROUND

Judge Jose E. Martinez has sufficiently explained the background of the CFTC Action and the current disagreement in a number of orders on the docket. Accordingly this order will only briefly summarize the relevant facts.

A. Allegations of the Complaint

In 2012, Timothy Atkinson formed All In Publishing, LLP (“AIP”). Order on Defendants' 2d Motion to Dismiss (“2d MTD Order,” dkt. 93)^[3] at 1. He acted as the sole shareholder and president. Id. at 1-2. The second amended complaint (“SAC,” dkt. 62) alleges that Zak^[4] acted as

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Atkinson's partner immediately upon AIP's formation in 2012 or became involved with AIP shortly thereafter. Id. at 2. Between February 2013 and November 2016, the two of them allegedly used AIP as a digital marketing services front to operate ad campaigns designed to direct and funnel customers to illegal binary options trading websites. Id. The second amended complaint alleges that customers would then open trading accounts on those illegal websites allowing AIP, and in turn Atkinson and Zak, to earn commissions as third-party affiliate marketers. Id.

Zak, a California resident, allegedly created software and email infrastructure that AIP used in its fraudulent scheme. Id. For his work and collaboration, Zak and Atkinson entered into an agreement where Zak would be entitled to half of AIP's net profits. SAC ¶ 10. The second amended complaint alleges that Zak requested that AIP pay the profits to YMSP, his relative Yahia's sole proprietorship. See 2d MTD Order at 2. YMSP would then forward transfers from AIP to Zak. Id. at 2. From February 8 to December 31, 2013, the second amended complaint alleges that AIP conducted thirteen fraudulent transfers, sending a total $1,442,274.93 to YMSP, which YMSP then transferred to Zak. Id.

B. Procedural History of the CFTC Action

The Commodity Futures Trading Commission (“CFTC”) sued Atkinson and AIP, among others (collectively, the “Receivership Defendants”), for injunctive relief in September 2018. SAC ¶ 1. The Florida court granted the CFTC's motion for a restraining order, froze all of the Atkinson defendants' assets, and appointed Melanie E. Damian-the plaintiff in this case-as receiver of AIP on October 5, 2018. Id. ¶ 2. The October 5 order authorized Plaintiff to “take possession, custody and control of all the Receivership Defendants' assets, establish control of the entity Receivership Defendants' businesses (to the extent they exist and continue to operate), prevent the withdrawal or misapplication of the Receivership Defendants' funds, collect funds due to the Receivership Defendants, obtain documents and records pertaining to the Receivership Defendants' assets, transactions and business operations, and perform all acts necessary to preserve the value of the Receivership Estate.” Id. ¶ 3. The Florida court granted a preliminary injunction on November 16, 2018, which extended the injunctive relief and asset freeze, and

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continued Plaintiff's receivership. Id. ¶ 4. And on May 22, 2019, the court granted a permanent injunction against the Atkinson defendants, allowing Plaintiff to bring any fraudulent transfer recovery actions necessary to increase the value of the receivership estate. Id. ¶¶ 5, 6; 2d MTD Order at 3.^[5]

Immediately upon her appointment in October 2018, Plaintiff began collecting financial documents such as bank statements, wire transfer details, and business records, which she promptly forwarded to forensic accountants for analysis. SAC ¶ 27. The accountants discovered and alerted Damian on or around January 21, 2019, to the allegedly fraudulent transfers involving Zak and Yahia. Id.

C. Procedural History of the Current Dispute

Damian sent a demand letter to Yahia in June of 2019. Opp'n (dkt. 121) at 2.^[6] Discussions about the alleged transfers continued for almost four months until November 8, 2019, when the parties signed a tolling agreement that would run until December 23, 2019, tolling the “statute of limitations and any other procedural or substantive defenses based, in whole or in part, on any delay by the Receiver in filing a lawsuit against Defendants that were not otherwise barred” at the date of the agreement. SAC ¶ 28.

Damian initially brought suit against Yahia and YMSP for fraudulent transfer and unjust enrichment on the last day of the tolling period, December 23, 2019, but then amended her complaint in April 2020, asserting only one count against Yahia and YMSP for fraudulent transfer under Florida law. See Original Complaint (dkt. 1); First Amended Complaint (dkt. 27); 2d MTD Order at 3. Yahia and YMSP moved to dismiss the amended complaint for lack of personal

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jurisdiction and on the merits. 2d MTD Order at 3; Order Granting Plaintiff's Renewed Motion to Transfer Venue (“Transfer Order,” dkt. 99)^[7] at 2. The Florida court dismissed the amended complaint on personal jurisdiction grounds because Plaintiff did not satisfy Florida's long-arm statute for two reasons: (1) Yahia and YMSP did not conduct business in Florida, and interaction with a Florida bank account did not further jurisdictional allegations; and (2) Plaintiff failed to assert that Yahia and YMSP conducted any tortious activity in Florida. 2d MTD Order at 3-4.

Plaintiff responded by moving to reopen the case and to file a second amended complaint, or, in the alternative, to transfer venue to the Northern District of California. Id. at 4; Transfer Order at 2. The court granted leave to amend, and Plaintiff filed the operative second amended complaint on March 1, 2021, adding Zak as a defendant and no longer listing YMSP as a distinct defendant separate from Yahia, but instead naming “Yahia Meftah d/b/a Yahia Meftah Sole Prop.” As a single party. 2d MTD Order at 4; see generally SAC. Plaintiff asserts one count of fraudulent transfer under Florida law against both Zak and Yahia, seeking to recover the amount transferred to YMSP from AIP. SAC ¶¶ 40-52. She asserts that she has standing to bring that claim on behalf of both AIP and its creditors. Id. ¶¶ 16-17.

Yahia and Zak moved to dismiss for lack of personal jurisdiction and on the merits, and the court again dismissed the complaint for lack of personal jurisdiction, declining to reach Defendants' other arguments, and denied Plaintiff's request to transfer venue. See generally 2d MTD Order.

Plaintiff renewed her motion for transfer of venue, arguing that she had not fully developed the transfer request because it had been an alternative to dismissal rather than her primary position. See Transfer Order at 2. The court granted the motion to transfer under § 1404(a), stating that Plaintiff's potential inability to re-file her case in this district due to a statute of limitations issue “tip[ped] the scale in favor of transfer.” Id. at 4. At the November 4, 2022 hearing on the present motion, the parties agreed that Judge Martinez's order on reconsideration effectively vacated the order of dismissal, and that Plaintiff's second amended complaint is therefore...