In re: Mardiros Haig Mihranian, CC-16-1378-KuFTa

Background

Chapter 7 trustee Sam Leslie sued Takouhie Bartamian to avoid and recover alleged fraudulent transfers under 11 U.S.C. §§ 544 and 548 and Cal. Civ. Code §§ 3439.04–.05, claiming funds were diverted from debtor Dr. Mardiros Mihranian’s medical practice to Bartamian.
Leslie filed four complaints (the third amended complaint is at issue); the bankruptcy court twice ordered greater specificity about each transfer’s source, transferor, date, and amount.
Leslie’s third amended complaint added exhibits listing dates and deposit amounts but did not identify the transferor or the source (i.e., whether funds originated with Mihranian personally, his ex-wife Susan, or their incorporated practice MCSSG).
The bankruptcy court dismissed the third amended complaint with prejudice for failure to plausibly plead that the debtor had a pre-transfer property interest in the funds and for failing to comply with specificity orders; Leslie appealed.
On appeal, the panel agreed the complaint failed to allege facts plausibly showing the funds were Mihranian’s (rather than MCSSG’s), rejected Leslie’s alter-ego attempt to treat corporate funds as his, and affirmed dismissal without leave to amend given multiple prior opportunities and extensive pre-complaint discovery.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether complaint plausibly alleged debtor’s pre-transfer property interest in transferred funds	Leslie argued funds were diverted from the doctors’ shared practice to defendants and thus were the debtor’s property; he also argued alter-ego piercing of MCSSG justified treating corporate funds as his	Bartamian argued complaint failed to identify the source/transferor and thus did not show the funds were debtor’s property rather than MCSSG’s; alter-ego was inadequately pled and inappropriate to reverse-pierce	Held: Complaint failed Rule 8(a) plausibility — no plausible facts showing the funds belonged to Mihranian; alter-ego theory insufficient and reverse piercing not permitted as pleaded
Whether Rule 9(b) particularity applied and was satisfied	Leslie contended court imposed an impermissibly heightened specificity standard beyond Rules 8 and 9	Bartamian argued fraud-based claims require particularity (who, what, when, where, how) and Leslie did not provide it	Held: The panel need not resolve the full scope of Rule 9(b) here because complaint failed Rule 8(a); in this context 8(a) and 9(b) largely overlapped and Leslie’s pleading was deficient
Whether the bankruptcy court erred in imposing specificity requirements in its April 14, 2016 order	Leslie argued the court exceeded pleading standards by requiring identity of transferor/source	Bartamian supported the court’s order as necessary to determine whether the debtor had an interest in the funds	Held: The court did not err; identifying source/transferor was a reasonable means to cure the key pleading deficiency
Whether dismissal with prejudice (denial of leave to amend) was an abuse of discretion	Leslie argued he should have another opportunity to amend	Bartamian argued multiple prior opportunities and extensive Rule 2004 discovery meant further amendment would be futile or dilatory	Held: No abuse of discretion — four attempts, extensive discovery, and continued failure to plead the debtor’s interest made further amendment futile; dismissal with prejudice affirmed

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (2009) (complaint must plead factual content permitting plausible inference of liability)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard applied to civil complaints)
Levitt v. Yelp! Inc., 765 F.3d 1123 (9th Cir. 2014) (de novo review of dismissals for failure to state a claim)
Mesler v. Bragg Management Co., 39 Cal.3d 290 (Cal. 1985) (elements and caution for piercing corporate veil/alter ego)
Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal. App.4th 1510 (2008) (discusses limits on reverse/outside piercing to reach corporate assets for shareholder debts)
Gaughan v. Edward Dittlof Revocable Tr. (In re Costas), 555 F.3d 790 (9th Cir. 2009) (recognizing property-interest requirement for fraudulent transfer claims)