United States District Court, Northern District of Illinois, E.D
February 16, 1982
RICHARD A. BOBBITT, PLAINTIFF,
VICTORIAN HOUSE, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Richard A. Bobbitt ("Bobbitt") sues Victorian House, Inc.
("Victorian House") and its President Albert Morlock
(a) appointment of an independent receiver to
run Victorian House;
(b) dissolution of Victorian House;
(c) an accounting of corporate funds misapplied
or wasted by Morlock; and
(d) an injunction restraining Morlock from
mismanaging the affairs of Victorian House,
usurping the powers of the board of directors and
intruding on the rights of Bobbitt.
Defendants have answered the complaint and filed eight
Bobbitt has moved to strike those
defenses. For the reasons stated in this memorandum opinion and
order Bobbitt's motion is granted in part and denied in part.
Two preliminary areas should first be addressed:
First, the Complaint appears to pose a substantive problem.
Its prayers for relief just listed as (c) and (d) are asserted
against Morlock for his alleged mismanagement of Victorian
House and misappropriation of
corporate funds. Those allegations charge a breach of fiduciary
duties to Victorian House rather than to Bobbitt individually.
Ordinarily a stockholder like Bobbitt can bring such an action
only in a derivative status. But the Complaint does not in
terms allege a derivative lawsuit.*fn2 Absent Bobbitt's
appropriate amendment of the Complaint, this Court must treat
this action as one solely for dissolution and
Second, it is constructive as a threshold matter to examine
the general role of an affirmative defense. Rule 8(c) requires
a party to set forth any affirmative defense in a responsive
pleading. Failure to do so may waive the right to present
evidence at trial on that defense. Henry v. First National Bank
of Clarksdale, 595 F.2d 291, 298 n. 1 (5th Cir. 1979). In the
real world, however, failure to plead an affirmative defense
will rarely result in waiver. Affirmative defenses — like
complaints — are protected by the direction of Rule 15(a) that
courts are to grant leave to amend pleadings "freely . . . when
justice so requires." Accordingly, failure to advance a defense
initially should prevent its later assertion only if that will
seriously prejudice the opposing party.
Nonetheless the very possibility of waiver makes it important
(and certainly prudent) to plead all appropriate affirmative
defenses. That leads to a definitional question: What is an
affirmative defense? Rule 8(c) lists 17 specific defenses but
concludes that a party must also plead "any other matter
constituting an avoidance or affirmative defense." That creates
the sometimes difficult problem of determining what
unspecified matters are also "affirmative defenses" that must
be pleaded separately in an answer. 5 Wright and Miller,
Federal Practice and Procedure § 1270 at 292 speaks of an
affirmative defense as something that generally admits the
matters in a complaint but suggests some other reason why there
is no right of recovery. 2A Moore's Federal Practice ¶ 8.27
at 8-250, 8-254 calls it something that raises a matter outside
the scope of plaintiff's prima facie case and is thus a matter
not raised by a simple denial.
Both those definitions are obviously imprecise. So the
cautious pleader is fully justified in setting up as
affirmative defenses anything that might possibly fall into
that category, even though that approach may lead to pleading
matters as affirmative defenses that could have been set forth
in simple denials.
Both major treatises have taken the same position on that
problem. 2A Moore's Federal Practice ¶ 8.27 at 8-251 says:
A so-called affirmative defense that is
surplusage, in that it merely raises matters
already at issue under a denial, may be stricken.
But if there is any real doubt about the
defendant's right, under his denial, to offer
proof of the matters, the affirmative defense
should not be stricken.
5 Wright and Miller, Federal Practice and Procedure § 278 at
351-52 puts it this way:
If plaintiff wishes to challenge the propriety of
allegations of an affirmative defense, the proper
procedure is by a motion to strike; however, that
motion should not be granted unless the defense is
patently defective. If a defendant makes the
mistake of pleading matter as an affirmative
defense that could have been raised by denial,
there is no reason to penalize him either by
granting a motion to strike, which will not
promote the disposition of the case on the merits,
or by shifting the burden of proof from plaintiff
to defendant by invoking the fiction that pleading
affirmatively on the matter he intended to assume
the burden of proof. This latter conclusion seems
particularly appropriate since defendant should be
encouraged to plead a defense affirmatively if he
is in any doubt as to his ability to put the
matter in issue under a denial.
Thus the benefit of any doubt should be given the pleader.
Matters labeled affirmative defenses should be stricken only
where it is completely certain they have been mistitled.
One final background point should be made. Every affirmative
defense is a pleading and therefore subject to all pleading
requirements of the Rules. Two are principally relevant:
(1) Under Rule 8(a) an affirmative defense need
only set forth "a short and plain statement" of
the nature of the defense.
(2) Under Rule 9(b) affirmative defenses
involving fraud or mistake must state with
"particularity" the circumstances constituting the
fraud or mistake.
All those considerations suggest examining each affirmative
defense on three levels:
(1) Initially the Court will determine whether
the matter is appropriately pleaded as an
affirmative defense. Only matters that deserve a
clear "no" answer will be stricken to make the
pleadings more concise.
(2) If a matter may remain as an affirmative
defense the Court will determine if it is
adequately pleaded under the requirements of Rules
8 and 9. Any defense inadequately pleaded will be
dismissed without prejudice to enable defendants to
correct that technical deficiency.
(3) Any matter permitted to stand as an
affirmative defense will be tested under a
standard identical to Rule 12(b)(6). If it is
impossible for defendants to prove a set of facts
in support of the affirmative defense that would
defeat the Complaint, the matter will be stricken
as legally insufficient.
First Affirmative Defense
Defendants allege that "any and all actions of Victorian
House with respect to its business were performed in the
ordinary course of business and in good faith." Bobbitt
contends the question whether Victorian House performed its
actions in good faith is irrelevant to the relief he seeks
(Bobbitt says he challenges Morlock's acts, not those of the
Ill.Rev.Stat. ch. 32, § 157.86 ("Section 86") permits a court
of equity to liquidate the assets and business of a corporation
in a shareholder action if it can be shown that (1) the
directors are deadlocked and therefore unable to manage the
corporation and irreparable injury is being suffered as a
result or (2) the shareholders are deadlocked in voting power
and have failed for at least two consecutive annual meeting
dates to elect successors to directors or (3) the acts of the
directors in control are illegal, oppressive or fraudulent or
(4) the corporate assets are being misapplied or wasted.
Bobbitt contends the First Affirmative Defense should be
dismissed because good faith on the part of Victorian House
should not prevent dissolution if he can demonstrate that one
of the four situations listed in Section 86 exists.
Bobbitt does not specify on which of the four grounds he
seeks dissolution. Indeed the Complaint contains allegations
that could satisfy each of the four. But a party is not always
able to prove what he alleges. Hence defendants' First
Affirmative Defense (and for that matter all the others) will
be retained if relevant to any of the four grounds for
Section 86(a)(4) provides for dissolution if corporate funds
are being "misapplied or wasted." Whether Victorian House
carried on its transactions in good faith might conceivably be
probative on that score. Frankly defendants' position on this
issue appears quite thin. Nevertheless, under the principles
already announced the First Affirmative Defense will stand
— at least for the present.
Second Affirmative Defense
Defendants allege that "any transactions between Albert J.
Morlock and Victorian House were known to and approved by the
plaintiff prior to the implementation, and that plaintiff is
estopped from complaining of same." Estoppel is, of course, one
of the affirmative defenses listed in Rule 8(b) and therefore
must be pleaded in defendants' answer.
Dissolution is an exercise of a court's equitable powers, and
equitable defenses such as estoppel can affect such exercise.
It is possible Bobbitt could have estopped himself from
challenging certain corporate transactions.
Bobbitt urges however that defendants have failed to plead
the essential elements of an estoppel defense. While an
affirmative defense need only be a brief statement, see Form 20
following Fed.R.Civ.P., it must provide Bobbitt with adequate
notice of the relevant elements.
Estoppel under Illinois law requires more than knowledge and
approval of transactions that form the basis of a complaint. It
arises where (1) a party acts, (2) another party reasonably
relies on those acts and (3) the latter party thereby changes
his position for the worse. 18 I.L.P. Estoppel § 22. Defendants
have only advanced the conclusory term "estopped" without
alleging the necessary detrimental reliance.*fn5 Their Second
Affirmative Defense is stricken as legally insufficient.
Third Affirmative Defense
Defendants allege Bobbitt originally participated actively in
the management of Victorian House, his participation had a
deleterious effect upon the company and he moved to Florida
under the express understanding that he would not actively
participate thereafter in the active management of Victorian
House. That allegation speaks at least to Section 86(a)(1),
which provides for dissolution in cases of director deadlock.
Again it must be emphasized that dissolution is an equitable
remedy. This Court cannot say as a matter of law that an
agreement by Bobbitt to let Morlock run Victorian House is
irrelevant as a possible defense to a claimed injurious
deadlock. Defendants' Third Affirmative Defense will stand.
Fourth Affirmative Defense
Defendants assert Bobbitt's purpose in bringing this action
is to enable him to receive more favorable terms for the sale
of his stock in Victorian House. They claim that Bobbitt is
simply attempting to bolster his position in negotiating the
sale of his stock, so there is not an actual case or
controversy cognizable by this Court. As a "defense" that
allegation is entirely frivolous. So long as there is a genuine
dispute between the parties, the case or controversy
requirement is met. Improving settlement prospects is a normal
and legitimate concomitant of filing a lawsuit. Defendants'
Fourth Affirmative Defense is stricken.
Sixth Affirmative Defense
Defendants' Sixth Affirmative Defense alleges this Court is
without subject matter jurisdiction because diversity of
citizenship is lacking.*fn6 That contention is clearly an
inappropriate affirmative defense. It does nothing more than
deny plaintiff's jurisdictional allegation, echoing Paragraph
1 of defendants' Answer:
Defendants admit that jurisdiction for the
Complaint is purportedly based upon diversity of
citizenship, but deny that such jurisdiction
exists. . . .
That denial is sufficient to preserve the defense. Accordingly
Defendants' Sixth Affirmative Defense is also stricken.
Seventh Affirmative Defense
Defendants' Seventh Affirmative Defense states, "Plaintiff
had full knowledge of the acts complained of at or prior to the
time of their occurrence, and accordingly as to said acts
Plaintiff's Complaint is barred by laches." Laches like
estoppel requires more than defendants have alleged — and as
with defendants' stricken estoppel defense, the missing
ingredient is a detrimental change that makes it inequitable to
grant relief. Defendants' own citation, Pyle v. Ferrell,
12 Ill.2d 547, 552, 147 N.E.2d 341, 344 (1958) is one of a host of
authorities standing for that proposition. 4 ILP Chancery § 118
at 337 ("Prejudice or injury to the adverse party is an
essential element of laches. . . .). Defendants' Seventh
Affirmative Defense is stricken as legally insufficient.
Eighth Affirmative Defense
Defendants say that any transactions between them were fair
and proper. This defense adds nothing to defendants' denial of
Complaint ¶ 17, which charges improper self-dealing by Morlock.
It does not satisfy the Wright and Miller or Moore's test. It
too will be stricken.
Ninth Affirmative Defense
Defendants say they have managed the company pursuant to an
agreement with Bobbitt at the time he moved to Florida. That
allegation simply repeats a portion of defendants' Third
Affirmative Defense. Defenses are not made more persuasive by
repetition. Defendants' Ninth Affirmative Defense will also be
Bobbitt's motion to strike defendants' eight affirmative
defenses is granted as to Affirmative Defenses 2, 4, 6, 7, 8
and 9 and denied as to Affirmative Defenses 1 and 3.