United States District Court, N.D. Illinois
January 29, 2004.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
FRANK J. CUSTABLE, JR., et al., Defendants
The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge
Plaintiff United States Securities and Exchange Commission ("SEC") has
filed this lawsuit against Suburban Capital Corporation ("Suburban
Capital"), Frank J. Custable, Jr. and Sara Wetzel, among others, alleging
various violations of the federal securities laws. Before the court are
three motions filed by the SEC. For the reasons explained below, the
SEC's motion to strike portions of the answer is granted; its motion to
dismiss counterclaim is granted; and its motion to strike certain
affirmative defenses is granted.
Motion to Strike Answer
As the SEC correctly points out, Suburban Capital has failed to answer
properly any of the complaint's allegations that are not specifically
addressed to Suburban Capital. Instead, Suburban Capital responds with
some variation of the following: "These allegations are directed against
other defendants, therefore Suburban Capital neither admits nor denies
such allegations and demands strict proof thereof," These responses do
not comply with Federal Rule of Civil Procedure 8(b) which allows for
only three possible responses: (1) admit; (2) deny, or (3) a statement
that the party is
"without knowledge or information sufficient to form a belief as to
the truth of an averment." Further, Suburban Capital has a duty to comply
with Rule 8(b) even for those allegations concerning parties other than
Suburban Capital. Village of Arlington Heights Police Pension Fund v.
Poder, No. 88 C 3892, 1989 WL 75189, *2 (N.D. Ill. June 28, 1989).
Now that a receiver has been appointed in this case, he can make the
appropriate inquiries necessary to respond to the SEC's allegations and
comply with Rule 8(b). Suburban Capital shall have thirty days from the
date of this order to file an amended answer to cure the deficiencies
explained above. If Suburban Capital does not file an amended answer
within thirty days, all factual allegations in the complaint which have
not been answered in accordance with Rule 8(b) shall be deemed admitted.
Motion to Dismiss Counterclaim
The SEC has also moved to dismiss Suburban Capital's counterclaim in
which Suburban Capital seeks a declaratory judgment that its conduct was
not unlawful. Relying on Section 21(g) of the Securities and Exchange Act
of 1934, 15 U.S.C. § 78u(g), the SEC argues that Suburban Capital's
counterclaim must be dismissed. Section 21(g) states that:
Notwithstanding the provisions of section 1407(a)
of Title 28, United States Code or any provision
of law, no action for equitable relief instituted
by the Commission pursuant to the securities laws
shall be consolidated or coordinated with other
actions not brought by the Commission, even though
such other actions may involve common questions of
fact, unless such consolidation is consented to by
15 U.S.C. § 78u(g).
Although it does not specifically refer to "intervention, cross-claims,
counter-claims or third-party complaints by name, many courts have
concluded such procedural devices to be barred because § 21(g) acts
as an `impenetrable wall.'" SEC v. Heartland Group, Inc., No. 01
C 1984, 2003 WL
103015, *2(N.D. Ill. Jan. 10, 2003). In light of this, and because the
SEC has not consented to Suburban Capital's counterclaim, Suburban
Capital's counterclaim must be dismissed. SEC v. Randy, No. 94C 5902,
1995 WL 616788, *3 (N.D. Ill. Oct. 17, 1995) (barring counterclaim
against the SEC where SEC did not consent); SEC v. Sprecher, No. Civ. A
92-2860, 1993 WL 544306 (D.D.C. Dec. 16, 1993) (same); SEC v. Elec.
Warehouse, Inc., 689 F. Supp. 53, 71-72 (D. Conn. 1988) (same).
Motion to Strike Affirmative Defenses
The SEC has moved to strike Suburban Capital's affirmative defenses 2
through 13 and 15. Motions to strike affirmative defenses are generally
not favored unless they "serve a useful purpose by eliminating
insufficient defenses and saving the time and expense that otherwise
would be spent litigating issues that will not affect the outcome of the
case." United States v. Walerko Tool and Eng'g Corp., 784 F. Supp. 1385,
1387-1388 (N.D. Ind. 1992). Under Federal Rule of Civil Procedure 12(f),
upon motion of a party or upon the court's own initiative, the court may
"order stricken from any pleading any insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P.
As an initial matter, the court cannot discern what paragraphs
constitute Suburban Capital's affirmative defenses. In its answer, in a
section titled "Affirmative Defenses," Suburban Capital lists 15
separately numbered paragraphs. In its response brief, Suburban Capital
explains that some of the paragraphs are not intended to be separate
affirmative defenses, but rather are factual statements supporting its
defenses. Suburban Capital, however, fails to identify which paragraphs
serve as background only, and which paragraphs constitute an affirmative
defense. In light of this, the court grants the SEC's motion to strike
and strikes Suburban Capital's paragraphs 2, 3, 4, 5, 6,
7, 8, 9, 10, 11, 12, 13, and 15. Suburban Capital is reminded that an
affirmative defense is not merely a denial of an allegation in the
complaint. Rather, an affirmative defense admits the allegations of the
complaint, but asserts facts which would defeat recovery by the
plaintiff. Amelio v. Yazoo Manufacturing Co., 98 F.R.D. 691, 693
(N.D.Ill. 1983). Suburban Capital has thirty days to file an amended
pleading which clearly identifies separate affirmative defenses.
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