Federal Deposit Insurance Corporation as Receiver for Colonial Bank v. Countrywide Securities Corporation et al
ORDER that the FDIC-R's 45 Motion to Strike Affirmative Defenses is GRANTED in part and denied in part as further set out in the order. The motion is GRANTED as to Defendants' affirmative defense of lack of loss causation and that affirmative defense is STRICKEN. The motion is DENIED as to Defendants' affirmative defense of failure to mitigate damages. Signed by Chief Judge William Keith Watkins on 3/31/2016. (dmn, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
FEDERAL DEPOSIT INSURANCE
CORPORATION AS RECEIVER
FOR COLONIAL BANK, a domestic
CREDIT SUISSE SECURITIES
(USA) LLC, a limited liability
company; RBS SECURITIES INC.,
a corporation; and UBS
SECURITIES LLC, a limited
CASE NO. 2:12-CV-784-WKW
Before the court are the motion to strike defenses (Doc. # 45) filed by the
Federal Deposit Insurance Corporation as Receiver for Colonial Bank (“FDIC-R”),
the memorandum of law in opposition (Doc. # 56) filed by Defendants Credit Suisse
Securities (USA) LLC, RBS Securities Inc., and UBS Securities LLC,1 and the
FDIC-R’s reply (Doc. # 63). The FDIC-R moves to strike Defendants’ affirmative
defenses alleging a lack of loss causation and failure to mitigate damages. As
Morgan Stanley & Co. LLC also joined the memorandum of law in opposition, but it has
since reached a settlement with the FDIC-R. Accordingly, Morgan Stanley & Co. LLC is no longer
a defendant in this action.
grounds, the FDIC-R contends that the multidistrict litigation court (“MDL court”),
in its decision denying Defendants’ motion for summary judgment, found that these
two affirmative defenses were not legally cognizable under § 8-6-19(a)(2) of the
Alabama Securities Act. (See Doc. # 12-393 (Order Denying Defs.’ Mot. Summ.
J.).) Defendants dispute the FDIC-R’s characterization of the MDL court’s rulings
and assert that they are entitled to invoke these affirmative defenses at trial.
This Order presumes the court’s and the parties’ familiarity with the
protracted history of this lawsuit, which will not be repeated here. Based upon
careful consideration of the arguments of counsel and the relevant law, the FDICR’s motion to strike defenses is due to be granted in part and denied in part.
Federal Rule of Civil Procedure 12(f) governs motions to strike. Rule 12(f)
provides that “[t]he court may strike from a pleading an insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f)
(emphasis added). Although Rule 12(f) is not a favored remedy, its use is proper if
an affirmative defense is insufficient as a matter of law.
Lavorazione Materie Organiche, S.A.S. v. Kaiser Aluminum & Chem. Corp., 684
F.2d 776, 779 (11th Cir. 1982). “A defense is insufficient as a matter of law if, on
the face of the pleadings, it is patently frivolous, or if it is clearly invalid as a matter
of law.” Morrison v. Executive Aircraft Refinishing, Inc., 434 F. Supp. 2d 1314,
1318 (S.D. Fla. 2005) (citation and internal quotation marks omitted). While a court
may invoke Rule 12(f)’s remedy “on its own” at any time, Rule 12(f) imposes a
timeliness requirement on a party. A party must file a motion to strike “either before
responding to the pleading or, if a response is not allowed, within 21 days after being
served with the pleading.” Fed. R. Civ. P. 12(f).
Defendants raised lack of loss causation and failure to mitigate damages as
affirmative defenses in their Answer to the First Amended Complaint filed on July
5, 2013. (See Doc. # 12-2 (MDL Docket Sheet); Doc. # 12-191 (Answer to 1st Am.
Compl.).) Because a party is not permitted to file a responsive pleading to an answer,
the FDIC-R had twenty-one days after being served with the Answer to file a motion
to strike. The twenty-one-day deadline had long passed when the FDIC-R filed its
motion to strike on August 24, 2015. While the FDIC-R’s motion to strike is
untimely, the court will consider the motion on its own initiative and will not deny
it as untimely. See Fed. R. Civ. P. 12(f); see also Katz v. Chevaldina, No. 12-22211CIV, 2013 WL 2147156, at *2 (S.D. Fla. May 15, 2013) (“The Court’s discretion
under Rule 12(f) ‘renders the twenty-[one-]day rule essentially unimportant, as the
Court has the authority to hear a motion to strike at any time after the twenty[one-]day period.” (quoting Emmpresa Cubana Del Tabaco v. Culbro Corp., 213
F.R.D. 151, 155 n.2 (S.D. Fla. 2003)). Consideration of the motion is an appropriate
exercise of the court’s discretion under Rule 12(f) because the motion has some merit
and pretrial resolution of the motion will streamline the issues for trial. Cf. Fed. R.
Civ. 12(h)(2) (“Failure . . . to state a legal defense to a claim may be raised . . . at
The FDIC-R contends that the MDL court’s rulings on summary judgment
establish that Defendants’ affirmative defenses of lack of loss causation and failure
to mitigate damages are insufficient as a matter of law and, therefore, should be
stricken. The summary judgment ruling as to each affirmative defense and that
ruling’s bearing on the motion strike is addressed in turn.
During the consolidated pretrial proceedings in this action, the MDL court
entered an opinion denying Defendants’ motion for summary judgment. The MDL
court found that Defendants’ affirmative defense of lack of loss causation was not
cognizable under § 8-6-19(a)(2) of the Alabama Securities Act (“ASA”).
recognized that the Alabama Supreme Court had not addressed whether a defendant
could assert lack of loss causation as an affirmative defense to a claim under
§ 8-6-19(a)(2). However, it found the answer in the plain language of the statute and
through guidance from analogous precedent: “[T]here is no mention of loss
causation” in § 8-6-19(a)(2), and the Alabama Supreme Court “has clarified that
there is no causation element to § 8-6-19(a)(1), which is essentially identical to § 86-19(a)(2).” (Doc. # 12-393, at 4 (citing Ritch v. Robinson-Humphrey Co., 748 So.
2d 861, 862 (Ala. 1999) (“A cause of action based on § 8-6-19(a)(1), part of the
Alabama Securities Act, . . . does not contain a causation element”)).) The MDL
court also rejected Defendants’ urging to find an affirmative defense for lack of loss
causation implicit in the ASA based upon Alabama’s reluctance to find “implicit
causation elements in its blue sky law.” (Doc. # 12-393, at 5 (internal footnote
omitted).) Finally, the MDL court observed that the ASA tracked § 12(2) of the
Securities Act of 1933, but that Alabama’s legislature had not amended the ASA in
response to a later congressional amendment that added a defense of lack of loss
causation to § 12(2).
Absent a change in the law or other substantial change in circumstances, the
court will not disturb the MDL court’s well-reasoned conclusions of law on
summary judgment as to the unavailability of the affirmative defense of lack of loss
causation under § 8-6-19(a)(2).
The MDL’s conclusions demonstrate that an
affirmative defense of lack of causation is legally insufficient as a matter of law
under § 8-6-19(a)(2). Accordingly, based upon the MDL court’s ruling, the court
will strike Defendants’ affirmative defense of lack of loss causation.
The court does not reach the same conclusion as to the FDIC-R’s argument
that the MDL court’s denial of summary judgment renders Defendants’ affirmative
defense of failure to mitigate damages legally insufficient. The FDIC-R reads that
ruling too broadly. On summary judgment, Defendants contended that the FDIC-R
is not “entitled to damages under the ASA as [it] did not dispose of the certificates
at suit at fair [market] value.” (Doc. # 12-393, at 3.) Rejecting that argument, the
MDL court found that the plain language of § 8-6-19 contains “no requirement that
plaintiff show disposition at fair market value” in order to recover damages. (Doc.
# 12-393, at 10.) That the MDL court found that the FDIC-R need not prove that it
received fair market value for a security in order to recover damages is not to say
that the MDL court found that failure to mitigate damages is not a legally cognizable
affirmative defense under § 8-6-19(a)(2). (See Doc. # 12-191 (Answer to 1st Am.
Compl. ¶ 22) (alleging as an affirmative defense that the FDIC-R failed “to take
reasonable action to minimize any damages”).) The court finds that the narrow
ruling of the MDL court on damages provides an insufficient basis upon which to
impose Rule 12(f)’s drastic remedy and strike in toto Defendants’ affirmative
defense of failure to mitigate damages.
Accordingly, it is ORDERED that the FDIC-R’s motion to strike affirmative
defenses (Doc. # 45) is GRANTED in part and denied in part. The motion is
GRANTED as to Defendants’ affirmative defense of lack of loss causation and that
affirmative defense is STRICKEN. The motion is DENIED as to Defendants’
affirmative defense of failure to mitigate damages.
DONE this 31st day of March, 2016.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE
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