Federal Trade Commission v. North America Marketing and Associates LLC et al, No. 2:2012cv00914 - Document 150 (D. Ariz. 2012)

Court Description: ORDER granting in part and denying in part 104 Plaintiff's Motion to Strike. Signed by Judge David G Campbell on 10/17/12.(DMT)
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Federal Trade Commission v. North America Marketing and Associates LLC et al 1 Doc. 150 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Federal Trade Commission No. CV-12-0914-PHX-DGC Plaintiff, 10 ORDER 11 v. 12 North America Marketing and Associates, LLC, a Nevada limited liability company, et al.; 13 Defendants and Relief Defendants. 14 15 Plaintiff Federal Trade Commission has filed a motion to strike affirmative 16 17 defenses. Doc. 104. The motion is now ripe for decision. Doc. 104; Doc. 107; 18 Doc. 114; Doc. 116; Doc. 119; Doc. 125; Doc. 126. For the reasons discussed below, the 19 motion will be granted in part and denied in part. 20 I. Background. 21 Plaintiff Federal Trade Commission has alleged that Defendants violated 15 22 U.S.C. § 45(a), prohibiting unfair or deceptive acts or practices in or affecting commerce. 23 15 U.S.C. § 45(a) (2006). 24 Defendants were engaged in a common enterprise to deceptively market home-based 25 Internet business opportunities and accompanying marketing services. Doc. 3, at 8-11. 26 Plaintiff alleges that Relief Defendants Sheila Ann Lowry, Carl Edward Morris, Jr., and 27 Marketing Strategies, LLC, received funds that can be traced directly to Defendants’ 28 deceptive practices and that each has no legitimate claim to the funds. Doc. 3, at 8. Doc. 3, at 11-14. Specifically, Plaintiff alleges that Dockets.Justia.com 1 In the various answers to the complaint, Defendants and Relief Defendants raise a 2 number of affirmative defenses. Plaintiff moves to strike some of these defenses as 3 addressed below. 4 II. Legal Standard. Plaintiff argues that Defendants’ affirmative defenses are not adequately pled 5 6 under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Doc. 104-1, at 5. 7 Defendants argue that the factual basis and showing of plausibility required by Twombly 8 do not apply to affirmative defenses. Doc. 107, at 5-6. The Ninth Circuit has not yet 9 decided whether the pleadings standards of Twombly and Ashcroft v. Iqbal, 556 U.S. 662 10 (2009), apply to affirmative defenses, but this Court has held that they do not. See G & G 11 Closed Circuit Events, LLC, v. Mitropoulos, No. CV12-0163-PHX DGC, 2012 WL 12 3028368, at *1 (D. Ariz. July 24, 2012); Ameristar Fence Products, Inc. v. Phoenix 13 Fence Co., No. CV10-299-PHX DGC, 2010 WL 2803907, at *1 (D. Ariz. July 15, 2010). 14 The Court will “leave any extension of Twombly to the Supreme Court or the Ninth 15 Circuit.” G & G Closed Circuit Events, 2012 WL 3028368, at *1. 16 But this does not absolve Defendants of all pleading requirements. Ninth Circuit 17 precedent requires that Defendants’ pleading give “fair notice” of the affirmative defense 18 to Plaintiff. Wyshak v. City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979). “Fair notice 19 generally requires that the defendant state the nature and grounds for the affirmative 20 defense.” Kohler, 280 F.R.D. at 564. Further, an affirmative defense may be legally 21 insufficient if it clearly lacks merit under any set of facts the defendant might allege, or 22 does not plead matters extraneous to the plaintiff’s prima facie case which deny the 23 plaintiff’s right to recover, even if the allegations of the complaint are true. Id.; Federal 24 Deposit Ins. Corp. v. Main Hrudman, 655 F. Supp. 259, 262 (E.D. Cal. 1987). 25 III. Discussion. 26 A. Failure to State a Claim Upon Which Relief May Be Granted. 27 Defendants North American Marketing and Associates, LLC, NAMAA, LLC, TM 28 Multimedia Marketing, LLC (Nevada), National Opportunities, LLC (Nevada), World -2- 1 Wide Marketing and Associates, LLC, Wide World of Marketing, LLC, Precious Metals 2 Resource, LLC, Superior Multimedia Group, LLC, Joseph Wayne Lowry, and Relief 3 Defendant Sheila Ann Lowry (collectively “the Lowry Defendants”) assert the 4 affirmative defense of failure to state a claim upon which relief can be granted. Doc. 89, 5 at 12. 6 Defendants”) assert this defense as well. Doc. 93, at 7; Doc. 94, at 7. “Failure to state a 7 claim is not a proper affirmative defense but, rather, asserts a defect in [Plaintiff’s] prima 8 facie case.” 9 F.Supp.2d 1167, 1176 (N.D. Cal. 2010) (citing Boldstar Tech, LLC v. Home Depot, Inc., 10 517 F.Supp.2d 1283, 1291 (S.D. Fla. 2007)). The Court will strike the Lowry and Vigil 11 Defendants’ affirmative defense of failure to state a claim upon which relief can be 12 granted. Defendants Daniel Vigil and National Opportunities (collectively “the Vigil Barnes v. AT & T Pension Ben. Plan—Nonbargained Program, 718 13 B. Commercial Speech. 14 Plaintiff has challenged Defendants’ speech as “false and or misleading.” 15 Doc. 104-1, at 9. Defendant Birdsong asserts that any communication was “non- 16 deceptive, and thus protected commercial speech under the U.S. Constitution.” Doc. 91, 17 ¶ XXVI. Defendant Birdsong’s affirmative defense is a factual disagreement with the 18 merits of Plaintiff’s case and not the proper subject of an affirmative defense. The Court 19 will strike Defendant Birdsong’s affirmative defense of commercial speech. 20 C. Mootness. 21 The Lowry Defendants assert that Plaintiff’s claims are moot “to the extent that 22 the challenged practices no longer occur or have never occurred.” Doc. 89, at 13. This 23 defense is logically separable into two distinct parts: (1) that Plaintiff’s claims are moot 24 because the challenged practices no longer occur, and (2) that Plaintiff’s claims are moot 25 because the challenged practices never occurred. 26 Addressing part 1, the cessation of activities may have some effect on the scope of 27 the allowed remedies. See FTC v. Bronson Partners, LLC, No. 3:04CV1866(SRU), 2006 28 WL 197357, at *3 (D. Conn. Jan. 25, 2006)(refusing to strike an affirmative defense of -3- 1 mootness because the cessation of activities “may be relevant with respect to an 2 appropriate remedy”). Here, the cessation of activities may be relevant to whether or not 3 an injunction is granted. This part of the affirmative defense will not be stricken. 4 Part 2 is a factual argument that disputes Plaintiff’s claims and is not an 5 appropriate subject of an affirmative defense. The Court accordingly will strike the 6 language “or have never occurred” from the Lowry Defendants’ affirmative defense that 7 the claims are moot. 8 D. Estoppel, Waiver, or Laches. 9 The Vigil Defendants, the Lowry Defendants, and Defendant Carl Morris each 10 assert that Plaintiff’s claims are barred by estoppel, waiver, or laches. Doc. 93, at 7; 11 Doc. 94, at 7; Doc. 89, at 12; Doc. 86, at 6-7. These defenses contain no reference to 12 supporting facts, see Doc. 93, at 7; Doc. 94, at 7; Doc. 89, at 12; Doc. 86, at 6-7, and thus 13 provide no notice concerning the basis of the defenses. See Desert European Motorcars, 14 LTD v. Desert European Motorcars, Inc., No. EDCV 11-197 RSWL, 2011 WL 3809933, 15 at **2-4 (C.D. Cal. Aug. 25, 2011) (granting a motion to strike affirmative defenses of 16 estoppel, waiver, and laches for failure to state any facts that provide fair notice). The 17 Court will strike the Lowry and Vigil Defendants’ and Defendant Carl Morris’ 18 affirmative defenses of estoppel, waiver, or laches. 19 E. Unclean Hands. 20 The Lowry Defendants assert that Plaintiff’s claims are barred by the doctrine of 21 unclean hands, Doc. 89, at 12, but provide no factual basis for the defense. See Kohler, 22 280 F.R.D. at 571-72 (striking an affirmative defense of unclean hands for failure to state 23 any facts that provide fair notice). 24 affirmative defense of unclean hands. The Court will strike the Lowry Defendants’ 25 F. Statute of Limitations. 26 The Lowry Defendants assert that Plaintiff’s claims are barred by the statute of 27 limitations, Doc. 89, at 12, but do not identify the applicable statute of limitations. This 28 does not provide fair notice to Plaintiff. See Wyshak, 607 F.2d at 827 (holding that citing -4- 1 the applicable statute of limitations provided fair notice of the defense). The Court will 2 strike the Lowry Defendants’ affirmative defense of the statute of limitations. 3 G. Mens Rea and Intent to Deceive. 4 The Vigil Defendants and Defendant Carl Morris assert that Plaintiff cannot prove 5 mens rea and that Defendants acted with intent to deceive. Doc. 93, at 6; Doc. 94, at 6; 6 Doc. 86, at 6. This affirmative defense, even if applicable to Plaintiff’s claims, is a mere 7 factual disagreement with the claims. The Court will strike this affirmative defense 8 without reaching the question of whether Plaintiff’s claims require mens rea or intent to 9 deceive. 10 H. Release. 11 The Vigil Defendants and Carl Morris both assert that Plaintiff’s claims are barred 12 by the doctrine of release. Doc. 93, at 7; Doc. 94, at 7; Doc. 86, at 7. Neither Defendant 13 provides any facts in support of the defense. Smith v. Walmart Stores, No. C06-2069 14 SBA, 2006 WL 2711468, at **8-9 (N.D. Cal. Sept. 20, 2006) (citing Woodfield v. 15 Bowman, 193 F.3d 354, 361 (5th Cir. 1999) and holding that “baldy naming the doctrine 16 of release falls well short” of the fair notice standard). The Court accordingly will strike 17 the Vigil Defendants’ and Defendant Carl Morris’ affirmative defense of release. 18 I. Reservation of Rights. 19 The Vigil and Lowry Defendants reserve their rights to additional affirmative 20 defenses. Doc. 93, at 8; Doc. 94, at 8; Doc. 89, at 12. “An attempt to reserve affirmative 21 defenses for a future date is not a proper affirmative defense in itself. Instead, if at some 22 later date defendants seek to add affirmative defenses, they must comply with Rule 15 of 23 the Federal Rules of Civil Procedure. Defendants cannot avoid the requirements of 24 Rule 15 simply by ‘reserving the right to amend or supplement their affirmative 25 defenses.’” Solis v. Zenith Capital, LLC, No. C08-4854 PJH, 2009 WL 1324051, at *7 26 (N.D. Cal. May 8, 2009) (citations omitted). The Court will strike the Vigil and Lowry 27 Defendants’ reservation of the right to allege additional affirmative defenses. 28 -5- 1 J. Non-parties at Fault. 2 The Lowry and Vigil Defendants assert that the alleged damages were caused by 3 non-parties and/or required parties. Doc. 93, at 7; Doc. 94, at 7; Doc. 89, at 13. Neither 4 provides any indication of who those parties might be. See Doc. 93, at 7; Doc. 94, at 7; 5 Doc. 89, at 13. Though the Lowry Defendants argue in their response that the Relief 6 Defendants should be included as true defendants, their answer makes no mention of this 7 argument. “A ruling on a motion to strike affirmative defenses must be based on matters 8 contained in the pleadings.” J & J Sports Productions, Inc. v. Jimenez, No. 10cv0866 9 DMS (RBB), 2010 WL 5173717, at *1 (S.D. Cal. Dec. 15, 2010) (citing Kelly v. Kosuga, 10 358 U.S. 516 (1959)). The Court will strike the Vigil and Lowry Defendants’ affirmative 11 defense that the damages were caused by non-parties and/or required parties. 12 Security People, Inc. v. Classic Woodworking, LLC, No C-04-3133 MMC, 2005 WL 13 645592, at *5 (N.D. Cal. March 4, 2005) (striking an affirmative defense of failure to join 14 required parties because the defendant failed to name any required parties). See 15 K. Mitigation of Damages. 16 The Lowry and Vigil Defendants assert that Plaintiff failed to mitigate damages. 17 Doc. 93, at 8; Doc. 94, at 8; Doc. 89, at 13. They allege no facts in support. Doc. 93, at 18 8; Doc. 94, at 8; Doc. 89, at 13. Courts have split on whether additional facts are 19 necessary to meet the fair notice standard. Compare Desert European Motorcars, LTD 20 2011 WL 3809933, at *2 with Kohler, 280 F.R.D. at 570. In this case, the Court finds 21 that more facts are needed. Though alleging failure to mitigate may provide Plaintiff fair 22 notice in a typical contract suit, it is unclear what Plaintiff, the Federal Trade 23 Commission, could have done to mitigate the damages arising out of the Federal Trade 24 Commission Act (“FTC Act”) and the Telemarketing and Consumer Fraud and Abuse 25 Prevention Act (“Telemarketing Act”). Because of this lack of clarity, Defendants must 26 provide some explanation of their defenses if Plaintiff is to receive fair notice. The Court 27 accordingly will strike the Lowry and Vigil Defendants’ affirmative defense of failure to 28 mitigate. -6- 1 L. The Damages Sought Are Not Authorized by Law. 2 The Vigil and Lowry Defendants assert that the damages sought are not authorized 3 by law. Doc. 93, at 8; Doc. 94, at 8; Doc. 89, at 13. In its complaint, Plaintiff requests 4 “temporary, preliminary, and permanent injunctive relief, rescission or reformation of 5 contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and 6 other relief[.]” 15 U.S.C. §§ 53(b) and 57(b) expressly list these “damages” as relief 7 available for violations of Sections 13(b) and 19 of the FTC Act and the Telemarketing 8 Act. If the Vigil and Lowry Defendants are asserting that these “damages” are not 9 authorized by the FTC Act and Telemarketing Act, they must be arguing that they did not 10 violate the FTC Act or the Telemarketing Act. This is a factual argument about the 11 merits of Plaintiff’s claim. If the Vigil and Lowry Defendants are arguing that some 12 other law makes the “damages” unauthorized, then they have failed to provide fair notice 13 of what law they mean. 14 Defendants’ affirmative defense that the damages sought are not authorized by law. The Court accordingly will strike the Vigil and Lowry 15 M. Omissions of Third Parties. 16 The Lowry Defendants assert that Plaintiff’s claims are bared by acts or omissions 17 of third parties over whom Defendants had no control. Doc. 89, at 13. The Lowry 18 Defendants provide no facts to support this defense and therefore fail to provide fair 19 notice. 20 2413257, at *4 (E.D. Cal. June 8, 2011) (holding that an affirmative defense that 21 damages were cause by third parties over whom the defendant has no control is 22 insufficiently pled if defendant asserts no other facts). The Court accordingly will strike 23 the Lowry Defendants’ affirmative defense that Plaintiff’s claims are barred by the action 24 or omission of third parties. Joe Hand Promotions, Inc. v. Estradda, 1:10-CV-02165-OWW, 2011 WL 25 N. No Knowledge of or Control over Corporate Defendant’s Actions. 26 Plaintiff alleges that Defendant Birdsong “formulated, directed, controlled, had the 27 authority to control, or participated in the acts and practices set forth in this Complaint.” 28 Doc. 3, at 6-7. Defendant Birdsong asserts that she had no knowledge or control over the -7- 1 corporate defendants’ actions. Doc. 91, at 6-7. This defense directly contradicts facts 2 alleged by Plaintiff and is not the proper subject of an affirmative defense. The Court 3 accordingly will strike Defendant Birdsong’s affirmative defense that she had no 4 knowledge or control over the corporate defendant’s actions. 5 O. Other Affirmative Defenses Asserted by Defendant Carl Morris. 6 In the last paragraph of his answer, Carl Morris asserts that Plaintiff’s claims are 7 barred by doctrines of (a) accord and satisfaction; (b) arbitration and award; 8 (c) assumption of risk; (d) contributory negligence; (e) duress; (f) failure of 9 consideration; (g) fraud; (h) illegality; (i) license; (j) payment; (k) res judicata; and 10 (l) statute of frauds. Doc. 86, at 6-7. Defendant Morris provides no facts or explanation 11 of these defenses, and did not file a response to Plaintiff’s motions to strike. The Court 12 will strike these affirmative defenses for failure to provide fair notice. 13 P. Affirmative Defenses Asserted by Defendant Tracy Morris. 14 Defendant Tracy Morris argues in his reply that Plaintiff makes no mention of his 15 affirmative defenses in the motion to strike. 16 affirmative defenses of other Defendants. Although Defendant Tracy Morris’s reply is 17 untimely, his factual assertion is true. Doc. 104. In response, Plaintiff argues that the 18 Court should still strike Defendant Tracy Morris’ affirmative defenses because Plaintiff 19 addressed substantially similar affirmative defenses in their motion to strike. But if 20 Plaintiff wishes to strike Defendant Tracy Morris’s affirmative defenses, it must file a 21 motion specifically requesting that the Court strike those affirmative defenses. 22 23 24 Instead, Plaintiff moves to strike the IT IS ORDERED that Plaintiff’s Motion to Strike (Doc. 104) is granted in part and denied in part as set forth above. Dated this 17th day of October, 2012. 25 26 27 28 -8-