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Federal Deposit Insurance Corp. v. Giannoulias

United States District Court, N.D. Illinois, Eastern Division

July 10, 2014



JOHN F. GRADY, District Judge.

Before the court is the plaintiff's supplemental motion to strike. For the reasons explained below, we grant the motion in part, and deny it in part.


Plaintiff Federal Deposit Insurance Corporation, as receiver for Broadway Bank ("FDIC-R"), has filed this lawsuit to recover approximately $114 million in losses that the bank suffered on 20 loans. (See Second Am. Compl. ¶ 1.) It alleges that the defendants - seven former directors of Broadway Bank and two former officers - negligently approved the loans. (Id. at ¶ 2.) We will assume that the reader is familiar with our opinion denying the defendants' motion to dismiss the FDIC-R's complaint, which discussed the plaintiff's allegations in more detail. See FDIC v. Giannoulias , 918 F.Supp.2d 768 (N.D. Ill. 2013). However, the procedural history of the FDIC-R's motion to strike requires additional discussion. After the parties finished briefing the plaintiff's original motion to strike, we ordered the FDIC-R to amend its complaint to remove surplusage. (See Minute Entry, dated Oct. 16, 2013, Dkt. 130.) The defendants answered and filed amended affirmative defenses, restating their earlier defenses challenging the FDIC-R's conduct and adding a new constitutional claim.[1] The FDIC-R then filed a "supplemental" motion to strike those defenses, which is the motion currently before us. It challenges the following amended affirmative defenses: (1) "Waiver and Estoppel" (Third Affirmative Defense); (2) "Failure to Mitigate" (Fourth Affirmative Defense); (3) "Comparative Negligence" (Fifth Affirmative Defense); (4) "Lack of Constitutional Standing" (Sixth Affirmative Defense). The FDIC-R also asks us to strike the defendants' "Reservation of Right to Add Affirmative Defenses."


A. Legal Standard

Federal Rule of Civil Procedure 12(f) provides that we "may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). "Ordinarily, defenses will not be struck if they are sufficient as a matter of law or if they present questions of law or fact." Heller Financial, Inc. v. Midwhey Powder Co., Inc. , 883 F.2d 1286, 1294 (7th Cir. 1989).

B. The Timeliness of the FDIC-R's Motion

Under Rule 12(f), a party may file a motion to strike within 21 days after being served with the challenged pleading. See Fed.R.Civ.P. 12(f)(2). The FDIC-R filed its original motion to strike more than 21 days after all but one of the defendants (Gloria Sguros) had served their answers and affirmative defenses. (See FDIC-R's Mot. for Leave ¶ 6; see also Certain Defs.' Resp. to Mot. to Leave at 1, n.1 (acknowledging that the motion was timely as to Sguros).) Nevertheless, we retain discretion to strike material from a pleading after the motion deadline in Rule 12(f)(2) has passed. See Fed.R.Civ.P. 12(f)(1) (authorizing the court to strike matters "on its own, " without imposing any particular time period).) Given the substantial time that the parties devoted to their substantive arguments, as well as the fact that the FDIC-R's motion was timely as to one of the defendants, we certainly would have addressed the FDIC-R's arguments on our own motion. As it happens, the defendants reset the clock when they filed their amended affirmative defenses on November 27, 2013. The FDIC-R filed its supplemental motion to strike within 21 days after it was served with the defendants' amended affirmative defenses. So, the motion was timely under Fed.R.Civ.P. 12(f)(2) as to all defendants.

C. Whether the Defendants' Affirmative Defenses Are Adequately Pled.

The FDIC-R argues that the defendants' Third, Fourth, and Fifth affirmative defenses are insufficiently detailed to satisfy Rule 8. "Affirmative defenses are pleadings and, therefore, are subject to all pleading requirements of the Federal Rules of Civil Procedure. Thus, defenses must set forth a short and plain statement, ' Fed. R.Civ. P. 8(a), of the defense." Heller Financial, Inc. v. Midwhey Powder Co., Inc. , 883 F.2d 1286, 1294 (7th Cir. 1989). They must contain enough factual content to allow the court to draw a "reasonable inference" that the defense has merit. Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009); see also Shield Technologies Corp. v. Paradigm Positioning, LLC, No. 11 C 6183 , 2012 WL 4120440, *8 (N.D. Ill. Sept. 19, 2012) (Grady, J.) (concluding that affirmative defenses are governed by the pleading standard announced in Iqbal and Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555 (2007)). The defendants' Third Affirmative Defense merely alleges, "[u]pon information and belief, " that "the FDIC-R's conduct in administering the [Federal Street Loan] caused a material decrease in the value of the loan." (Id. at 78.) Without knowing what "conduct" the defendants are challenging, the FDIC cannot adequately respond. The defendants' Fourth and Fifth Affirmative defenses allege, on information and belief, that the FDIC-R "failed to take actions to maximize the value of the collateral, failed to take the steps necessary to maximize the collection on the loans, sold loans at unreasonably low values, created incentives to obtain less than the maximum level of recovery available on loans, failed to adequately work out loans, and failed to take other actions which adversely affected collateral values and/or the loan recovery." (Id. at 79.) These allegations are too generic to put the FDIC-R on notice of the defendants' defense. Rule 8 does not necessarily require a loan-by-loan analysis of all the ways that the FDIC-R failed to mitigate its damages. But the defendants' current allegations would apply to any lawsuit in which the FDIC alleges negligence by a bank's former executives. We will strike the defendants' Third, Fourth, and Fifth Affirmative Defenses.

The defendants have requested leave to amend their affirmative defenses to allege greater detail if we find that they are inadequately pled. (Giannoulias Defs.' Resp. at 13 n.5.) But it would be futile to allow them to amend if we accepted the FDIC-R's position that these defenses are barred by federal and/or state law. So, we will proceed to address the merits of the FDIC-R's arguments.

C. Bierman and O'Melveny

The defendants' Third, Fourth, and Fifth Affirmative Defenses are based on their theory that the FDIC-R's conduct as receiver contributed to its losses on the challenged loans. The FDIC-R argues that FDIC v. Bierman , 2 F.3d 1424 (7th Cir. 1993) bars the defendants from challenging its discretionary decisions regarding Broadway Bank's assets.

1. The "No Duty" Rule and the Federal Tort Claims Act ("FTCA")

In Bierman, the FDIC, in its corporate capacity ("FDIC-C"), sued a failed bank's former officers and directors to recover losses to its insurance fund. Id. at 1438. In response, the defendants filed an affirmative defense asserting that the FDIC had failed to pursue claims against guarantors that would have mitigated its losses. Id . The Bierman Court noted that several district courts had held that a bank's former officers cannot challenge the FDIC-R's actions because it owes no duty to those individuals. Id . Instead, its duty "runs to the public." Id . (quoting FDIC v. Greenwood , 719 F.Supp. 749, 751 (C.D. Ill. 1989)) (internal quotation marks omitted). The Bierman Court extended this "no duty" rule to affirmative defenses asserted against the FDIC-C: "[W]hen the FDIC acts to replenish the insurance fund through the disposition of assets of the failed bank, including the right of action against the officers and directors, it has no duty first to attempt to mitigate the damages attributed to those individuals by seeking other, and perhaps less sure, avenues of relief." Id. at 1439-40. The Court then went on to address FDIC v. Carter , 701 F.Supp. 730 (C.D. Cal. 1987), contrary ...

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