U.S. Securities and Exchange Commission v. Abdallah et al

Filing 332

Order granting in part and denying in part Defendant Abdallah's Motion to Approve Settlement Agreement and Allocate and Release Proceeds to Defendant, His Spouse, and His Counsel (Related Doc # 304 ). The court hereby approves the settl ement, in the amount of $25,000.00, between Defendant and his spouse with Allstate Insurance, relating to the personal injury claim resulting from a motor vehicle accident occurring on November 2, 2013. The court hereby approves the disbursem ent of $6,250.00 of the settlement to counsel for Defendant, Paul R. Hoffer, for the payment of legal services provided to Defendant and his wife. The court denies Defendant's request to order the disbursement of any amount of the settlement to Defendant. The parties reached an agreement regarding a recovery by Mrs. Abdallah which shall be the subject of a separate order. Signed by Judge Solomon Oliver, Jr. on 12/11/2017.(R,Sh)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff
v.
THOMAS ABDALLAH
(aka Thomas Abraham), et al.,
Defendants

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Case No.: 1:14 CV 1155

JUDGE SOLOMON OLIVER, JR.

ORDER

Currently pending before the court is Defendant Thomas Abdallah’s (“Defendant” or “Mr.
Abdallah”) Motion to Approve Settlement Agreement and Allocate and Release Proceeds to
Defendant, His Spouse, and His Counsel (“Motion”). (ECF No. 304.) The Motion asks the court
to approve a settlement agreement, in the amount of $25,000.00, obtained by Defendant relating
to a personal injury claim resulting from a motor vehicle accident. The Motion further requests
that the court order the disbursement of the settlement to Defendant, his spouse, and his counsel.
Plaintiff United States Securities and Exchange Commission (“Plaintiff” or “SEC”) filed a
Limited Objection to Defendant Abdallah’s Motion to Approve Settlement Agreement and
Allocate and Release Proceeds to Defendant, His Spouse, and His Counsel (“Objection”),
objecting to the release of the settlement award to Defendant. (ECF No. 308.) For the following
reasons, the court grants in part, denies in part, and reserves ruling in part on Defendant’s Motion.

I. BACKGROUND
On May 29, 2014, the SEC commenced this action against several individuals and entities,
including Mr. Abdallah, alleging that they were the originators of a Ponzi scheme that defrauded
investors of millions of dollars. (Compl. ¶¶ 1-17, ECF No. 1.) The court appointed the Receiver
to administer and conserve the Defendants’ assets pending resolution of the case on December 3,
2014. (Order Appointing Receiver, ECF No 119.) Mr. Abdallah consented to an entry of
judgment against him, and a Judgment as to Defendant Thomas Abdallah was entered by this
court on November 2, 2017. (ECF No. 330.) Pursuant to this Judgment, Mr. Abdallah is liable
for disgorgement in the amount of $5,209,349.00, plus prejudgment interest in the amount of
$868,835.00, deemed satisfied by the criminal restitution order of $17,077,571.44 entered against
Mr. Abdallah on October 19, 2016 in United States v. Thomas Abdallah, et al., No. 1:15-CR-231
(N.D. Ohio). (Id.)
Following an agreement between the Receiver, Mr. Abdallah, and Plaintiff, this court
granted Mr. Abdallah limited relief from the Order Appointing Receiver in order to prosecute a
personal injury claim resulting from a motor vehicle accident occurring on November 6, 2013.
(Order, Oct. 29, 2015, ECF. 225.) The Order granting limited relief held that any recovery or
settlement obtained by Mr. Abdallah as a result of the prosecution of his personal injury claim
shall be subject to the approval of this court, as well as to the terms of the Order Appointing
Receiver. (Id. at1-2.) Pursuant to this limited relief, Mr. Abdallah and his spouse, Yasmin
Abdallah (“Mrs. Abdallah”), through their counsel Paul R. Hoffer, initiated a personal injury
lawsuit against Osama Fahmy and Merveat Henein in the Cuyahoga County, Ohio Court of
Common Pleas on October 30, 2015. (Mot. 2.) The claim sought compensation for physical injury
to Mr. Abdallah and for loss of consortium to Mr. and Mrs. Abdallah. (Id.) Mr. and Mrs.
Abdallah obtained a settlement agreement with Osama Fahmy’s insurer, Allstate Insurance, in
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the amount of $25,000.00, and the action in the Cuyahoga County, Ohio Court of Common Pleas
was dismissed. (Id. at 2-3.)
Mr. Abdallah brought the present Motion on July 24, 2017, seeking approval of the
settlement agreement. (Mot. 3.) Mr. Abdallah also requests that the court order the disbursement
of funds, received and held by the Receiver from the settlement, in the amount of $6,250.00 to
Attorney Paul R. Hoffer for legal services provided in prosecuting the personal injury claim.
(Mot. 4.) The Motion includes an Affidavit of Mr. Hoffer averring that counsel for Receiver
authorized Mr. Hoffer to charge a contingency fee of twenty-five percent of any award recovered
by judgment or settlement for his services. (Affidavit, ECF No. 304-2, 13.) Mr. Abdallah further
asks this court to order the disbursement of the remaining balance of the settlement, in the amount
of $18,750.00, to Mr. and Mrs. Abdallah. (Mot. 4.)
On August 2, 2017, Plaintiff filed a limited Objection to Mr. Abdallah’s Motion. Plaintiff
indicated that, while it does not object to the approval of the settlement, it objects to “Defendant
Abdallah keeping the personal injury settlement when he owes so much in criminal restitution
to victims from two separate criminal restitution judgments.” (Obj. 3.) Plaintiff argues that Mr.
Abdallah is currently incarcerated and required by 18 U.S.C. § 3664(n) to apply the proceeds of
his personal injury settlement to his restitution debt. (Id. at 3.)
II. LEGAL STANDARD AND ANALYSIS
A. Approval of Settlement
Mr. Abdallah requests this court’s approval of the settlement entered into between Mr. and
Mrs. Abdallah and Allstate regarding Mr. Abdallah’s personal injury claim. Plaintiff does not
object. The court hereby approves the settlement.

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B. Disbursement of Funds to Mr. Abdallah
“‘[A] district court’s power to supervise an equity receivership and to determine the
appropriate action to be taken in the administration of the receivership is extremely broad.’”See
51382 Gratiot Ave. Holdings, LLC v. Chesterfield Dev. Co., LLC, No. 2:11-CV-12047, 2011 WL
4695820, at *2 (E.D. Mich. Oct. 5, 2011) (citing SEC v. Capital Consultants, LLC, 397 F.3d 733,
738 (9th Cir.2005)); see also Quilling v. Trade Partners, Inc., 572 F.3d 293, 298 (6th Cir.2009).
Furthermore, “[i]t is settled law that a receiver’s right to possession dates from the time of his
appointment.” See 51382 Gratiot Ave. Holdings, LLC, 2011 WL 4695820 at *2 (citing Davis v.
Cox, 356 F.3d 76, 93 (1st Cir.2004) (construing Maine law); Wells v. Cermak (In re Ackermann),
82 F.2d 971, 972 (6th Cir.1936); Saginaw Cnty. Sav. Bank v. Duffield, 122 N.W. 186, 188-89
(Mich.1909)).
The court denies Mr. Abdallah’s request to release any amount of the settlement award
to him. Mr. Abdallah was granted limited relief from this court’s Order Appointing Receiver for
the purpose of prosecuting his personal injury claim. (Order, Oct. 29, 2015.) The Order granting
relief to prosecute the claim held that “any recovery that may be paid to Defendant Abdallah by
judgment or settlement shall be subject to the terms of the Order Appointing Receiver”. (Id. at
1.) The Order Appointing Receiver grants the Receiver the power and duty to “[t]ake custody,
control, and possession of all Receivership Property”.1 (Order Appointing Receiver, 4.) Thus, the
Receiver maintains the power to possess and control Mr. Abdallah’s settlement award. Contrary
to Mr. Abdallah’s arguments, whether the settlement proceeds are related to the Ponzi scheme

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Pursuant to the Order Appointing Receiver, Receivership Property is defined as
including, but not limited to: “monies, funds, securities, credits, effects, goods,
chattels, lands, premises, leases, claims, rights and other assets, together with all
rents, profits, dividends, interest or other income attributable thereto, of whatever
kind, which the Receivership Defendants and/or Relief Defendants own, possess,
have a beneficial interest in, or control directly or indirectly”. (Order Appointing
Receiver, 4.).
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is irrelevant to the Receiver’s authority to possess and control the property pursuant to the terms
of the Receivership. (See Order Appointing Receiver, 4 (defining Receivership Property in a
manner not limited to property related to the crime)).
Furthermore, as noted by Plaintiff, Mr. Abdallah owes a staggering $17,077,571.41 on the
criminal judgment entered against him by this court in 1:15-CR-231. (Obj., 2) He also owes
$620,658.75 on the criminal judgment entered against him by this court in 1:06-CR-401. (Id. at
1.) Mr. Abdallah is currently incarcerated. Pursuant to 18 U.S.C. § 3664(n):
If a person obligated to provide restitution, or pay a fine, receives substantial
resources from any source, including inheritance, settlement, or other judgment,
during a period of incarceration, such person shall be required to apply the value
of such resources to any restitution or fine still owed.
Thus, Mr. Abdallah is required to apply the proceeds of his personal injury settlement towards
his restitution debt. The court will not order the release of any of the proceeds of this settlement
to Mr. Abdallah.
C. Disbursement of Funds to Mr. Abdallah’s Spouse
Mr. Abdallah’s wife, Yasmin Abdallah, was a co-plaintiff in the personal injury claim at
issue. (Mot. 7) Count 3 of their joint action was a claim for loss of consortium, claiming that both
Mr. and Mrs. Abdallah suffered such loss. (Compl. at 2, Thomas Abdallah, et al. v. Osama
Fahmy, et al., No. CV 15-853573, (Cuyahoga County, Ohio, Court of Common Pleas, Oct. 30,
2015)). The other two counts of the personal injury claim, negligence and negligent entrustment,
involve only Mr. Abdallah. (Id. at 2.) There is no indication that Mrs. Abdallah was involved in
the motor vehicle accident at issue. (See id.) In his Motion, Mr. Abdallah makes a very brief
argument that Mrs. Abdallah’s recovery is not recoverable by the Receivership. (Mot. 7.) Without
specifying an independent amount which should be disbursed to Mrs. Abdallah by the Receiver,
Mr. Abdallah argues that the balance of the recovery remaining after the payment of attorney’s

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fees should be disbursed to Mr. and Mrs. Abdallah. (Id. at 10) (emphasis added.) Plaintiff does
not address Mr. Abdallah’s argument regarding restrictions on the Receiver’s authority over the
settlement due to Mrs. Abdallah’s participation in the lawsuit, but objects to any portion of the
settlement being released to Mr. Abdallah. (Obj.)
Mr. Abdallah does not specify a separate amount of the recovery that is due solely to Mrs.
Abdallah for her claim of loss of consortium. Rather, he requests that the recovery be disbursed
to Mr. and Mrs. Abdallah together. Consequently, the court cannot make a determination based
on the information before it as to whether Mrs. Abdallah should recover separately. The court
scheduled, and had, a teleconference with the parties and the Receiver to see if an agreement
could be reached regarding this matter. An agreement was reached and Mrs. Abdallah’s separate
claim will be the subject of a separate order.
D. Disbursement of Funds for Legal Fees
Mr. Abdallah requests that the court order disbursement in the amount of $6,250.00 for
legal fees incurred in order to prosecute the personal injury claim. (Mot. 4.) The Affidavit of Paul
R. Hoffer, attorney for Mr. Abdallah, avers that Mr. Hoffer was authorized by counsel for
Receiver to charge a contingency fee of twenty-five percent of any settlement obtained. (Aff. 13.)
Mr. Hoffer also details the specific legal services he provided for Mr. Abdallah in pursuit of this
claim. See id. at 13. Plaintiff does not address or raise a specific objection regarding the payment
of legal fees, nor does Plaintiff dispute that Mr. Hoffer was authorized to enter a contingency fee
agreement. Thus, this court approves the disbursement of $6,250.00 of the settlement to Paul R.
Hoffer for legal services rendered for the prosecution of the personal injury claim at issue.
III. CONCLUSION
For the foregoing reasons, the court grants in part, denies in part, and reserves ruling in
part on Defendant’s Motion to Approve Settlement Agreement and Allocate and Release
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Proceeds to Defendant, His Spouse, and His Counsel. (ECF No. 304.) The court hereby approves
the settlement, in the amount of $25,000.00, between Defendant and his spouse with Allstate
Insurance, relating to the personal injury claim resulting from a motor vehicle accident occurring
on November 2, 2013. The court hereby approves the disbursement of $6,250.00 of the settlement
to counsel for Defendant, Paul R. Hoffer, for the payment of legal services provided to Defendant
and his wife. The court denies Defendant’s request to order the disbursement of any amount of
the settlement to Defendant. Because the court could not make a determination as to whether Mrs.
Abdallah should recover separately based on the information provided, the court reserves ruling
on this matter. However, the court held a teleconference with the parties and the Receiver to see
if an agreement could be reached regarding a recovery by Mrs. Abdallah. The parties did reach
an agreement, which shall be the subject of a separate order.

IT IS SO ORDERED.

/S/ SOLOMON OLIVER, JR.
UNITED STATES DISTRICT JUDGE

December 11, 2017

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