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Federal Trade Commission v. Electronic Payment Solutions of America Inc.

United States District Court, D. Arizona

July 31, 2018

Federal Trade Commission, Plaintiff,
Electronic Payment Solutions of America Incorporated, et al., Defendants.



         This matter is before the Court on seven Motions filed by the parties.[1] Defendants Electronic Payment Systems, LLC (“EPS”) and Electronic Payment Transfer, LLC (“EPT”) filed a Motion to Transfer Venue to the District of Colorado (Doc. 20). Defendants John Dorsey (“Dorsey”), Thomas McCann (“McCann”), and Michael Peterson (“Peterson”) (collectively, “Individual Defendants”) filed a Joinder to that Motion (Doc. 21). Plaintiff, the Federal Trade Commission (“FTC”), filed a Response in opposition to the Motion (Doc. 32) and all the Defendants filed a Reply. (Doc. 34). The FTC filed a Motion to Strike Affirmative Defenses of Defendants Dynasty Merchants LLC (“Dynasty”) and Nikolas Mihilli (“Mihilli”) (Doc. 59). No response was filed to that Motion. Defendant Electronic Payment Solutions of America Incorporated (“EPSA”) filed a Motion to Dismiss the cross-claims filed against it by Defendants EPS and EPT (Doc. 69). EPS and EPT filed a Response (Doc. 71). No reply to that Motion was filed. The FTC filed a Motion to Strike the Answer to the Amended Complaint filed by the Individual Defendants, related to the jury demands in the Amended Answer (Doc. 97). The Individual Defendants filed a Response. (Doc. 103). The FTC filed a Second Motion to Strike Affirmative Defenses (Doc. 98) of Defendants Dynasty Merchants and Milhilli. Dynasty and Milhilli did not respond to the Motion. Finally, there are two Motions for extensions of time to effectuate service and to respond to cross-claims. (Docs. 115 and 116). While not all of the parties are involved in each of the respective pending Motions, the Court will consider all of the Motions in this Order.

         I. Background

         The FTC brought this action under Section 13(b) of the Federal Trade Commission Act and the Telemarketing and Consumer Fraud and Abuse Prevention Act (the “Telemarketing Act”), seeking to obtain permanent injunctive relief, restitution, and other relief on behalf of consumers who were allegedly defrauded by all of the defendants involved here (hereafter, collectively, “Defendants”). (Doc. 85 at 3). The Complaint alleges that these Defendants perpetrated a deceptive telemarketing scheme (the “scheme”) by inducing consumers to give their credit card information in exchange for promised interest income payments on amounts given. Defendants allegedly laundered the credit card transactions resulting in a total injury to consumers in an amount in excess of $7, 300, 000. (Id. at 4). Defendants allegedly created several fictitious companies and accounts in order to hide these transactions. (Id.)

         In the credit card industry, merchant accounts are established in order to settle payment of credit card transactions. Independent sales organizations (“ISO”) are involved in the payment processing of credit card transactions. Defendant EPS is an ISO that markets payment processing services to merchants. EPS is a Colorado company. (Id.) EPS allegedly sells payment processing services to merchants, served as the ISO to numerous entities involved in the present scheme, and set up and approved the merchant accounts for the fictitious companies. (Id.) EPS allegedly processed nearly $5.9 Million in fraudulent transactions over the course of the scheme. The FAC alleges that EPS used three sales agents to market its services, Defendants Jay Wigdore (“Wigdore”), Michael Abdelmesseh (“Abdelmesseh”), and Mihilli. The FAC further alleges that these Defendants were participants in the scheme. (Id. at 6). EPS allegedly processed the consumer transactions through the fictitious accounts and then transferred the money to companies controlled by these Defendants. (Id.)

         Defendant EPT is a Colorado company who is closely affiliated with EPS. EPS and EPT are allegedly controlled by the same principals. The FAC refers to EPS and EPT collectively as EPS. (Id. at 10). Defendant Dorsey is the CEO and co-owner of EPS. Defendant McCann is the managing member and co-owner of EPS. (Id. at 11). Defendant Peterson is the risk-manager of EPS. The FAC alleges that all three individuals were principal actors in the scheme. (Id.)

         Defendant Electronic Payment Services, Inc. (“EP Services”) is an Arizona corporation. Defendant EPSA is also an Arizona Corporation. EP Services and EPSA both allegedly acted as ISO sales agents for EPS and referred merchants to EPS in furtherance of the scheme. (Id. at 7-8). Defendant Wigdore, who resides in Arizona, is President of EP Services and a director of EPSA and allegedly acted as an ISO sales agent on behalf of EPS and participated in the scheme. (Id. at 9). The FAC alleges that Defendant Michael Abdelmesseh, who resides in Arizona, is a director of EPSA and acted as an ISO sales agent for EPS and participated in the scheme. (Id.)

         Defendant Dynasty is an Arizona limited liability company. The FAC alleges that Dynasty processed merchant transactions using EPS's ISO services in furtherance of the scheme. (Id.) The FAC alleges that Defendant Mihilli, who resides in Arizona, is an officer of Dynasty and worked as a sub-agent of Wigdore and Abdelmesseh.

         The FAC brings six causes of action against the various Defendants related to alleged violations of the FTC Act and the Telemarketing Act. The FTC seeks permanent injunctive relief, refund of monies paid, and restitution to consumers. (Doc. 84 at 56-57). On September 29, 2017, EPS filed their Answer to the FTC's Complaint and additionally filed cross-claims against Defendants EPSA Wigdore, Abdelmesseh, Mihilli, Dynasty, and KMA Merchant Services, LLC.[2] (Doc. 22). The FTC filed their FAC on March 9, 2018. (Doc. 85). Since that time, all remaining Defendants have answered the FAC. (Docs. 89, 90, 91, 94, and 95).

         II. Motion to Dismiss Cross-Claims

         Defendants EPSA and Wigdore move to dismiss the cross-claims asserted against them by EPS based on the duplicative nature of the cross-claims to a complaint filed in the District of Colorado and pursuant to Fed.R.Civ. 12(b)(6).

         A. Motion to Dismiss Legal Standards

         A motion to dismiss pursuant to Rule 12(b)(6) challenges the legal sufficiency of a complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003). A complaint must contain a “short and plain statement showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). “All that is required are sufficient allegations to put defendants fairly on notice of the claims against them.” McKeever v. Block, 932 F.2d 795, 798 (9th Cir. 1991). Rule 8, however, requires “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         A complaint need not contain detailed factual allegations to avoid a Rule 12(b)(6) dismissal; it simply must plead “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “A complaint has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that defendant has acted unlawfully.” Iqbal, 129 S.Ct. at 1949 (citation omitted). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (citation omitted).

         In addition, the Court must interpret the facts alleged in the complaint in the light most favorable to the plaintiff, while also accepting all well-pleaded factual allegations as true. Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). That rule does not apply, however, to legal conclusions. Iqbal, 129 S.Ct. at 1949. A complaint that provides “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Nor will a complaint suffice if it presents nothing more than “naked assertions” without “further factual enhancement.” Id. at 557.

         B. Duplicative Complaints

         Federal courts “retain broad powers to prevent duplicative or unnecessary litigation.” Slack v. McDaniel, 529 U.S. 473, 478 (2000). “There is a generally recognized doctrine of federal comity which permits a district court to decline jurisdiction over an action when a complaint involving the same parties and issues has already been filed in another district.” Pacesetter Systems, Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982). “A suit is duplicative if the claims, parties, and available relief do not significantly differ between the two actions.” iStar RC Paradise Valley LLC v. Five Star Dev., No. CV-10-2191-PHX-GMS, 2011 WL 4852293, at *8 (D. Ariz. Oct. 13, 2011) (quoting Barapind v. Reno, 72 F.Supp.2d 1132, 1145 (E.D. Cal. 1999) (internal citation omitted)). Dismissal of the second action is proper “when a complaint involving the same parties and issues has already been filed in another district.” Pacesetter Systems, 678 F.2d at 95.

         C. Discussion

         Cross-claim Defendants Wigdore and EPSA argue that the cross-claims filed against them in this case are identical to the complaint filed against them in the District of Colorado, and thus that the duplicative claims filed in this District should be dismissed.[3]

         As explained above, EPS brought suit against these Defendants in the District of Colorado (the “Colorado case”) in September of 2014. The FTC subsequently filed suit against the Defendants, including EPS, in July of 2017. With their Answer to the FTC Complaint, EPS filed cross-claims against Wigdore, Abdelmesseh, and EPSA that largely mirrors the complaint in the Colorado case. (Doc. 22).

         The Court notes that the relevant portions of the complaint filed by EPS and EPT in the District of Colorado and the cross-claims filed in this case are nearly identical. Both list the same or very similar causes of action against Defendants EPSA and Wigdore. These cases of action relate to alleged breaches of the contractual obligations of the parties, including: failing to sell EPS's processing services; failure to offer a right of first refusal pursuant to the contract; encouraging merchants to obtain services ...

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