Overland Direct, Inc. v. Aframian

• Decision Date: 07 March 2023
• Docket Number: 2:22-cv-05510-AB-PD
• Parties: Overland Direct, Inc. v. Houshang Aframian et al.
• Court: U.S. District Court — Southern District of California

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Overland Direct, Inc. v. Houshang Aframian et al.

No. 2:22-cv-05510-AB-PD

United States District Court, S.D. California

March 7, 2023

Present: The Honorable ANDRE BIROTTE JR., United States District Judge

CIVIL MINUTES - GENERAL

Proceedings [In Chambers] ORDER DENYING MOTION FOR REMAND [Dkt. No. 18] and GRANTING MOTION TO TRANSFER TO THE SOUTHERN DISTRICT OF CALIFORNIA FOR REFERENCE TO THE BANKRUPTCY COURT [Dkt. No 19]

Before the Court is a Motion for Remand (“Mot. Remand,” Dkt. No. 18) filed by Plaintiff Overland Direct, Inc. (“Plaintiff') and a Motion to Transfer to the United States District Court for the Southern District of California (“Mot. Transfer,” Dkt. No. 19) filed by Defendant Houshang Aframian (“Aframian”). Defendant Firooz Payan (“Payan”) j oined in the Motion for Remand. Oppositions and Replies were filed for both Motions. In response to a Court Order (“Order,” Dkt. No. 38), Payan filed a Notice of Withdrawal as to Affirmative Defense Thirteen (Dkt. No. 40) and Plaintiff and Aframian each filed a Supplemental Brief (Dkt. Nos. 41, 42) on the Motion for Remand. For the following reasons, the Motion for Remand is DENIED and the Motion to Transfer is GRANTED.

I. BACKGROUND

The Court will not recount the long and extremely complicated history of the disputes among the parties, which are being or have been litigated in several cases in state court and federal district court, and, as most relevant, in defendant Homesite Holdings LLC's (“Homesite”) Chapter 7 bankruptcy in the United States Bankruptcy Court for the Southern District of California, In re Homesite Holdings, LLC, Case No. 20-03216-MM7 (“Homesite Bankruptcy”), and adversary proceedings filed in therein that involve all of the parties to this case.

The issues before this Court are simple to state: First, is there subject matter jurisdiction over this action, which Defendant Aframian removed from state court? Second, if the Court does have subject matter jurisdiction, should it transfer the case to the United States District Court for the Southern District of California for referral to its Bankruptcy Court? The answer to both questions is yes.

II. DISCUSSION

A. The Court Has Subject Matter Jurisdiction Over This Action

Plaintiff filed this action in Los Angeles County Superior Court on February 11, 2021, alleging state-law claims for (1) Declaratory Relief; (2) Cancellation of Written Instrument; (3) Voidable Transfer; (4) Common Law Fraudulent Transfer; (5) Conspiracy; and (6) Intentional Misrepresentation and Concealment.^[1] See Compl. (Dkt. No. 1-2). The claims arose out of transactions involving several real properties in the Pacific Palisades area of Los Angeles. Plaintiff originally named Homesite Holdings, LLC (“Homesite”), as a defendant, but dismissed Homesite without prejudice on March 16, 2021. See Dismissal (Dkt. No. 1-6). Defendant Aframian appeared shortly thereafter. On June 3, 2021, Plaintiff filed the currently-operative First Amended Complaint (“FAC,” Dkt. No. 20-16) that asserts the same state-law causes of action. Even though Homesite was previously dismissed, the FAC still names Homesite, still identifies it as a defendant as to the declaratory relief claim, and includes many allegations regarding the Defendants' transactions relative to Homesite's assets. The overall thrust of Plaintiff Overland's allegations appears to be that Payan and Aframian caused Homesite's assets to be fraudulently transferred and/or engaged in other fraudulent transactions to hide Homesite's assets from Overland, which was a creditor of Homesite. See, e.g., FAC ¶¶ 32-34.

Aframian removed this action on August 5, 2022, arguing that “the recently-filed [July 29, 2022] Answer of defendant Firooz Payan (‘Payan') asserts an affirmative defense [Affirmative Defense Thirteen] that seeks to enforce a secret settlement agreement (which was unknown to Aframian during the pendency of the Prior Action) whose terms necessarily require the adjudicating court to determine the validity, applicability, and scope of the automatic stay of bankruptcy under 11 U.S.C. § 362(a)(3).” Notice of Removal (“NOR”) 3:6-11. Specifically, “[t]he thirteenth affirmative defense in [Payan's] Answer (‘Affirmative Defense 13') asserts, ‘Plaintiff's causes of action are barred because Defendant entered into a settlement agreement with regard to the subject claims.' ” NOR ¶ 12. The Court will refer to the “secret settlement agreement” as the “Cartwright-Payan Settlement Agreement.” It arose in a different case between Payan on one hand, and on the other Plaintiff Overland and its principal Michael Cartwright and two other of Cartwright's businesses (“Cartwright Parties”). The Cartwright-Payan Settlement Agreement § 2.6 provides:

The Parties agree that the Cartwright Parties will attempt to litigate an action regarding any property owned by Homesite Holdings, LLC adverse to Houshang Aframian. Should the Cartwright Parties prevail in any action to obtain the rights and title to any property owned by Homesite Holdings, LLC, the Parties agree that any proceeds from any such action be distributed as follows: First to any and all legal fees and expenses incurred by the Cartwright Parties in any such litigation, then any remaining proceeds shall be split equally between the Cartwright Parties (50%) and Payan (50%).

See NOR ¶ 9 (quoting Cartwright-Payan Settlement Agreement § 2.6, Ex. 55 to NOR (Dkt. No. 4-5 pp. 33-39)).

Aframian contends that this § 2.6 implicates the scope of the automatic bankruptcy stay arising out of the Homesite Bankruptcy because it is an attempt by Overland and Payan to transfer property of the Homesite Bankruptcy estate, and that by asserting it in this case Payan revealed that the case triggered federal jurisdiction. Aframian contends that Payan's Answer was the “first pleading or other document from which Aframian could ascertain that the automatic stay of bankruptcy would necessarily be adjudicated as part of the litigation.” NOR ¶ 15.

Plaintiff seeks remand, arguing that Aframian removed untimely, that federal jurisdiction cannot be based on an affirmative defense, that Payan's withdrawal of his Affirmative Defense Thirteen moots any connection between this case and the Homesite Bankruptcy, and that Aframian did not follow the correct procedures. None of Plaintiff's arguments has merit.

1. Aframian Timely Removed this Action

First, the removal was timely. Under 28 U.S.C. § 1446, there are two 30-day periods pursuant to which a defendant may remove an action: “during the first thirty days after the defendant receives the initial pleading or during the first thirty days after the defendant receives a paper ‘from which it may first be ascertained that the case is one which is or has become removable' if ‘the case stated by the initial pleading is not removable.'” Harris v. Bankers Life and Cas. Co., 425 F.3d 689, 692 (9th Cir. 2005), quoting 28 U.S.C. § 1446(b). The first timeframe is not implicated here because Plaintiff in effect admits that neither the Complaint nor the FAC presents a basis for federal jurisdiction. The issue, therefore, is whether the removal was timely under the second 30-day time frame, that is, whether Aframian removed within 30 days after he received a paper showing that the case is removeable.

Aframian contends that the second 30-day period began on July 29, 2022 when Payan filed his Answer asserting Affirmative Defense Thirteen, which revealed that this action violated the Homesite Bankruptcy's automatic stay. Aframian removed this action timely thereafter, on August 5, 2022.

Plaintiff argues that the second 30-day period started much earlier, in August 2021, when Aframian and his counsel were provided the[Cartwright-Payan Settlement Agreement during trial in a state court case in San Diego, in which Overland is a plaintiff, and Aframian and Payan are named as defendants, Overland Direct, Inc. v. Esola Capital Investment, LLC, Case No. 37-2013-00078078-CU-BT-CTL (“SDSC Action”). See Mot. Remand 4:15-5:2. Plaintiff also points to an April 1, 2022 declaration, in yet another action (the Nguyen case), from Aframian's counsel reflecting that he knew of the settlement agreement. See Mot. Remand 9:3-7. But “courts in the Ninth Circuit have followed the ‘paper in the case' rule in order to determine when the thirty-day provision begins to run. [] The ‘paper in the case' rule requires that only official documents filed in the underlying state court matter be used as a basis for removal, and not documents filed in other cases.” Walker v. Motricity Inc., 627 F.Supp.2d 1137, 1142 (N.D. Cal. 2009), rev'd on other grounds in Walker v. Morgan, 386 Fed.Appx. 601, 602 (9th Cir. 2010). Here, neither the filing in the SDSC Action nor the declaration of Aframian's counsel in the Nguyen case triggered the second 30-day removal period because neither was a paper filed in this case. Furthermore, Aframian's counsel's declaration in Nguyen could not trigger removal for a second reason: “The document that triggers the thirty-day removal period cannot be one created by the defendant.” Rossetto v. Oaktree Capital Management, LLC, 664 F.Supp.2d 1122, 1129 (D.Haw. 2009). Accordingly, Plaintiff's argument that Aframian's August 5, 2022 removal was untimely because the second 30-day removal period was triggered in August 2021 or April 2022 is meritless.

The removal was therefore timely.

2. Payan's Affirmative Defense Thirteen Revealed that This Action Triggered Subject Matter Jurisdiction

Second Payan's Affirmative Defense Thirteen revealed that this case violates the automatic stay in the Homesite Bankruptcy. Payan's Affirmative Defense Thirteen asserts that Overland's claims are barred because of the Cartwright-Payan Settlement...