United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
ST. EVE UNITED STATES DISTRICT COURT JUDGE
Defendants' Answer to Complaint (the
“Answer”), Defendants BCM High Income Fund, LP
(“BCM”) and BCM High Income Fund GP, LLC
(“BCM GP” and collectively with BCM,
“Defendants”) asserted Thirteen
“Affirmative and Other Defenses.” (R. 1466,
Defs.' Answer to Compl., 44-47.) Patrick Cavanaugh, as
receiver of the Overall Receivership Estate (“Overall
Receiver” or “Plaintiff”), moves to strike
the First Defense, Third Defense, Fourth Defense, Fifth
Defense, Sixth Defense, Seventh Defense, Eighth Defense,
Ninth Defense, Tenth Defense, Eleventh Defense, Twelfth
Defense, and Thirteenth Defense (collectively, the
“Defenses”). (R. 1486, Mot. of Overall Receiver
to Strike Defs.' Affirm. and Other Defenses.) Defendants
agreed to withdraw their Thirteenth Defense, thus this aspect
of the motion is moot. (R. 1491, Defs.' Mem. Law in
Opp'n to Pl.'s Mot. to Strike Defs.' Affirm. and
Other Defenses, 1.) For the following reasons, the Court
grants in part and denies in part Plaintiff's motion to
1, 2017, the Overall Receiver filed his Complaint against
Defendants to recover alleged fraudulent transfers in excess
of $22 million made by First Farmers and the Guaranty Fund,
and to obtain additional relief against Defendants.
Plaintiff's claims arise from a fraud conducted by First
Farmers and its owner, Nikesh Patel, who sold millions of
dollars in loans that were purportedly guaranteed by the U.S.
Department of Agriculture's Rural Development Program.
their Answer, Defendants assert thirteen affirmative
defenses. (Answer, 44-47.) In the First Defense, Defendants
assert that Plaintiff fails “to state a claim against
Defendants upon which relief may be granted.”
(Id. at 44.) In the Second Defense, Defendants
assert that Plaintiff's claims are barred because
“BCM received the P&I Transfers and the Repurchase
Transfer in good faith and for reasonably equivalent
value.” (Id.) In the Third Defense, Defendants
claim that they “did not have actual or constructive
knowledge of First Farmers' or the Guaranty Fund's
fraudulent activities or insolvency.” (Id. at
45.) In the Fourth Defense, Defendants allege that they
“were not unjustly enriched by their alleged
conduct.” (Id.) In the Fifth Defense,
Defendants assert that the doctrine of unclean hands bars
Plaintiff's claims. (Id.) In the Sixth Defense,
Defendants allege that the doctrine of in pari
delicto bars Plaintiff's claims. (Id.) In
the Seventh Defense, Defendants claim that “the
doctrines of set off and/or recoupment” bar
Plaintiff's claims. (Id. at 45-46.) In the Eight
Defense, Defendants assert that Plaintiff has an adequate
remedy at law and that there is “no factual or legal
basis for…granting… equitable relief.”
(Id. at 46.) In the Ninth Defense, Defendants assert
that Plaintiff “has incurred no damages as a result of
Defendants' alleged conduct.” (Id. at
46-47.) In the Tenth Defense, Defendants allege that
Plaintiff's claims are barred because Defendants'
alleged conduct benefitted Plaintiff more than it harmed it.
(Id. at 47.) In the Eleventh Defense, Defendants
claim “an offset for the total amounts paid to”
Plaintiff. (Id.) In the Twelfth Defense, Defendants
allege that express contracts govern and bar the unjust
enrichment claims. (Id.) In the Thirteenth Defense,
Defendants “reserve and assert all affirmative and
other defenses available under any applicable federal or
state law, ” including “additional defenses,
counterclaims, cross-claims, and third-party claims.”
Defenses with the exception of the Seventh Defense and the
Thirteenth Defense, Defendants lay out each affirmative
defense in exactly one sentence. Defendants provide factual
allegations only to support the Seventh Defense. Defendants
plead the Thirteenth Defense in three sentences, but do not
include any facts.
did not move to strike the Second Defense. (Mot. to Strike
Defs.' Affirm. Defenses.) Defendants “agree[d] to
withdraw their Thirteenth Affirmative Defense.”
(Defs.' Opp'n to Pl.'s Mot. to Strike, 1.)
Therefore, the Court addresses below the following eleven
defenses: First Defense, Third Defense, Fourth Defense, Fifth
Defense, Sixth Defense, Seventh Defense, Eighth Defense,
Ninth Defense, Tenth Defense, Eleventh Defense, and Twelfth
to Rule 12(f) of the Federal Rules of Civil Procedure, the
Court can strike “any insufficient defense or any
redundant, immaterial, impertinent, or scandalous
matter.” Fed.R.Civ.P. 12(f); Delta Consulting Grp.,
Inc. v. R. Randle Constr., Inc., 554 F.3d 1133, 1141
(7th Cir. 2009). District courts have considerable discretion
under Rule 12(f). See Delta, 554 F.3d at 1141-42.
“Affirmative defenses will be stricken ‘only when
they are insufficient on the face of the
pleadings.'” Williams v. Jader Fuel Co.,
944 F.2d 1388, 1400 (7th Cir. 1991) (quoting Heller Fin.
v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir.
1989)). “Motions to strike are not favored and will not
be granted unless it appears to a certainty that plaintiffs
would succeed despite any state of the facts which could be
proved in support of the defense, and are inferable from the
pleadings.” Id. (citations and quotations
appropriate, however, “for the court to strike
affirmative defenses that add unnecessary clutter to a
case.” Davis v. Elite Mortgage Servs., 592
F.Supp.2d 1052, 1058 (N.D. Ill. 2009) (citing
Heller, 883 F.2d at 1295). “It is also true
that because affirmative defenses are subject to the pleading
requirements of the Federal Rules of Civil Procedure, they
must set forth a ‘short and plain statement' of all
the material elements of the defense asserted; bare legal
conclusions are not sufficient.” Id. (citing
Heller, 883 F.2d at 1294; Fed.R.Civ.P. 8(a);
Renalds v. S.R.G. Rest. Grp., 119 F.Supp.2d 800, 802
(N.D. Ill. 2000)). According to Rule 8(a)(2), every pleading
must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
“[a]ffirmative defenses are pleadings and, therefore,
are subject to all pleading requirements of the Federal Rules
of Civil Procedure.” Heller, 883 F.2d at 1294.
“An affirmative defense must include direct or
inferential allegations as to all elements of the defense
asserted.” LaSalle Bank Nat'l Ass'n v.
Paramont Properties, 588 F.Supp.2d 840, 860 (N.D. Ill.
2008) (citing Reis Robotics USA, Inc. v. Concept Indus.,
Inc., 462 F.Supp.2d 897, 904 (N.D. Ill. 2006)). In their
Answer, Defendants for the most part allege one-sentence
Defenses and only develop their arguments in their Opposition
to Plaintiff's Motion to Strike. Despite their efforts to
later supplement their briefing, it is an “axiomatic
rule that a plaintiff may not amend his complaint in his
response brief.” Pirelli Armstrong Tire Corp.
Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436,
448 (7th Cir. 2011) (citing Frederico v. Home Depot,
507 F.3d 188, 201-02 (3d Cir. 2007); Car Carriers, Inc.
v. Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984)).
The same is true for a defendant attempting to amend their
answer in a later filing. Therefore, the Defenses stand alone
as written in the Answer and are not amended by
Defendants' later briefing.
Court-along with many others in this District-examines
affirmative defenses by reference to Twombly's
“plausibility” pleading standard. See,
e.g., State Farm Fire & Cas. Co. v. Electrolux
Home Prods., Inc., 2011 WL 133014 (N.D. Ill. Jan. 14,
2011) (citing Bell Atl. v. Twombly, 550 U.S. 544,
555 (2007)); see also Edwards v. Mack Trucks, Inc.,
310 F.R.D. 382, 386 (N.D. Ill. 2015) (“While the
Seventh Circuit has not addressed whether the
Twombly-Iqbal standard applies to affirmative
defenses, judges in this district have generally found these
requirements to apply”).
Court-again along with many others in this District-assesses
the sufficiency of an affirmative defense in three steps.
In re DiPiero, 553 B.R. 122, 128 (Bankr. N.D.Ill.
2016); Bryson v. Benchmark Mgmt. Corp., 2015 WL
1188524, *2 (Mar. 12, 2015); LaSalle Bank, 588
F.Supp.2d at 860; Reis Robotics, 462 F.Supp.2d at
905. First, the Court determines whether the matter pled
actually constitutes an affirmative defense. Reis
Robotics, 462 F.Supp.2d at 905. Second, the Court
considers whether the defense is adequately pled under the
pleading standards of Rules 8 and 9. Id. Third, the
Court evaluates the sufficiency of the defense pursuant to a
standard identical to Rule 12(b)(6). Id.
“Before granting a motion to strike an affirmative
defense, the Court must be convinced that there are no
unresolved questions of fact, that any questions of law are
clear, and that under no set of circumstances could the
defense succeed.” Id.
case premised on diversity jurisdiction, the legal and
factual sufficiency of the affirmative defenses is examined
with reference to state law. Id.; Williams,
944 F.2d at 1400. Plaintiff and Defendants do not to dispute
that Florida law governs these issues. Neither parties'
briefings address choice of law issues. “Courts do not
worry about conflicts of laws unless the parties disagree on