Federal Deposit Insurance Corporation v. First Priority Financial, Inc.

Filing 22

ORDER signed by District Judge John A. Mendez on 6/16/16 ORDERING that Plaintiff's Motion to Strike 12 is GRANTED. Defendant's counsel, Patton & Sullivan LLP, is sanctioned in the amount of $50.00. Counsel is to pay this amount within five days of the date of this Order. (Mena-Sanchez, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for
AMTRUST BANK,

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Plaintiff,

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v.

No. 2:15-cv-02507-JAM-KJN

ORDER GRANTING PLAINTIFF’S
MOTION TO STRIKE DEFENDANT’S
AFFIRMATIVE DEFENSES

FIRST PRIORITY FINANCIAL,
INC., a California
corporation,

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Defendant.

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This matter comes before the Court on Plaintiff Federal

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Deposit Insurance Corporation’s (FDIC) (“Plaintiff”) Motion to

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Strike Defendant First Priority Financial Inc.’s (“Defendant”)

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twelfth, twenty-sixth, and twenty-seventh affirmative defenses

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(Doc. #12) from Defendant’s answer (Doc. #5) to the complaint

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(Doc. #1).

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reasons set forth below, Plaintiff’s motion is GRANTED.

Defendant opposes the motion (Doc. #17). 1

For the

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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for June 14, 2016.
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I.

FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

Plaintiff “is a corporation and instrumentality of the

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United States of America, . . . and is authorized to be appointed

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as receiver for insured depository institutions that have

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failed.”

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Supervision closed AmTrust and appointed [Plaintiff] as

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Receiver.”

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court of law pursuant to 12 U.S.C. §§ 1819 and 1821(d)(2)(A)(i)

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and succeeded to all of AmTrust’s claims.

Id. ¶ 5.

Id.

“On December 4, 2009, the Office of Thrift

Plaintiff is permitted to file a lawsuit in this

Plaintiff now owns the

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subject claims and has standing to prosecute this action as

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AmTrust’s receiver.

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Plaintiff alleges that in both 2004 and 2007, AmTrust and

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Defendant entered into a written Master Broker Agreement which

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“set[] forth terms and conditions, pursuant to which [Defendant]

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would originate and submit and AmTrust would accept and fund

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mortgage loans.”

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breached the terms and conditions of the referenced Master Broker

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Agreements, id. ¶¶ 24, 34, 43, 52, accordingly, Plaintiff filed

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this lawsuit for breach of contract, id. ¶ 1.

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Compl. ¶¶ 7, 11.

Plaintiff alleges Defendant

In Defendant’s answer it denies the allegations in

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Plaintiff’s complaint and asserts thirty-two affirmative

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defenses.

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sixth, and twenty-seventh affirmative defenses: (12) Negligence

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and Breach of Contract, (26) Comparative Indemnity, and

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(27) Fraud.

Plaintiff seeks to strike Defendant’s twelfth, twenty-

II.

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OPINION

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A.

Legal Standard

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A Motion to Strike is brought under Federal Rule of Civil
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Procedure (“Rule”) 12(f), which provides in pertinent part:

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court may strike from a pleading an insufficient defense or any

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redundant, immaterial, impertinent or scandalous matter.”

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R. Civ. P. 12(f).

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has not met its burden of proof is not an affirmative defense.”

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Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir.

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2002).

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meaning of [Rule] 8(c), is a defense that does not negate the

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elements of the plaintiff’s claim, but instead precludes

“The

Fed.

“A defense which demonstrates that plaintiff

“On the other hand, ‘[a]n affirmative defense, under the

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liability even if all of the elements of the plaintiff’s claims

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are proven.’”

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Program, 718 F. Supp. 2d 1167, 1173 (N.D. Cal. 2010) (first

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alteration in original) (quoting Roberge v. Hannah Marine Corp.,

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No. 96-1691, 1997 WL 468330, at *3 (6th Cir. 1997)).

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courts rarely grant Rule 12(f) motions to strike affirmative

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defenses, if an affirmative defense is a negative defense and

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should instead be included as a denial in the answer, the motion

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to strike will be granted.”

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& Plaster, Inc., No. 2:15-CV-00861-KJM, 2015 WL 5436784, at *11-

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12 (E.D. Cal. Sept. 15, 2015) (citing Barnes, 718 F. Supp. 2d at

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1173).

Barnes v. AT & T Pension Benefit Plan—Nonbargained

“While

Lexington Ins. Co v. Energetic Lath

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B.

Evidentiary Objections

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Defendant objects (Doc. #18) to Plaintiff’s Exhibit A

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attached to the Declaration of Lauren M. Gibbs (Plaintiff’s

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attorney of record) in support of the Motion to Strike (Doc. #13-

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1).

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Master Broker Agreement between AmTrust bank and Defendant.

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Exhibit A contains three pages of the seventeen page 2004

Defendant contends that “[t]he complete document has not
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been disclosed to Defendant by Plaintiff[, and] Plaintiff should

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not be allowed to select favorable portions of the alleged

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agreement . . . while disregarding the rest . . . .”

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Objection to Pl.’s Ex. A 1:25-28.

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of Evidence 106 as the basis for its objection.

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Def.’s

Defendant cites Federal Rule

The advisory committee’s note to Federal Rule of Evidence

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106 states:

“The rule is based on two considerations[—t]he first

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is the misleading impression created by taking matters out of

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context[; t]he second is the inadequacy of repair work when

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delayed to a point later in the trial.”

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advisory committee’s note.

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Court’s analysis for the choice-of-law provision it contains.

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Further, Plaintiff also introduces Exhibit B—the 2007 Master

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Broker Agreement between AmTrust bank and Defendant—which

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contains an identical choice-of-law provision (Doc. #13-2).

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Defendant does not object to this Exhibit and Defendant does not

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contest Plaintiff’s choice-of-law argument.

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of the concerns raised by the advisory committee is presented by

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the selected portions of the 2004 Master Broker Agreement in

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Plaintiff’s Exhibit A, and Defendant’s objection is overruled.

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C.

Fed. R. Evid. 106

Exhibit A is only relevant to this

Accordingly, neither

Analysis
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Choice-of-law

Plaintiff contends that the agreements at issue in this

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action contain a choice-of-law provision electing Ohio law, and

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that because of this provision this Court should apply Ohio

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contract law.

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oppose this argument.

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Mot. to Strike 6:3-4, 6 n.2.

Defendant does not

Jurisdiction in this case is based on federal question,
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therefore, federal common law applies to the choice-of-law rule

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determination.

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997 (9th Cir. 2006) (stating where jurisdiction is not based on

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diversity of citizenship, federal common law choice-of-law rules

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apply); see also Daugherty v. Experian Info. Solutions, Inc., 847

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F. Supp. 2d 1189, 1194 (N.D. Cal. 2012) (same).

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law follows the approach outlined in the Restatement (Second) of

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Conflict of Laws.”

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See Huynh v. Chase Manhattan Bank, 465 F.3d 992,

“Federal common

Huynh, 465 F.3d at 997.

Under the Restatement, the parties’ choice-of-law “to govern

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their contractual rights and duties will be applied if the

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particular issue is one which the parties could have resolved by

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an explicit provision in their agreement directed to that issue.”

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Restatement (Second) of Conflicts of Laws § 187(1) (1988).

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Courts should honor the parties’ choice unless “the chosen state

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has no substantial relationship to the parties or the transaction

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and there is no other reasonable basis for the parties’ choice”

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or “application of the law of the chosen state would be contrary

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to a fundamental policy of a state which has a materially greater

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interest than the chosen state in the determination of the

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particular issue” and that state would be the state of the

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applicable law in the absence of an effective choice-of-law by

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the parties.

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Id. at § 187(2).

Here AmTrust was headquartered in Ohio, thus Ohio bears a

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substantial relationship to the parties.

Application of Ohio

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contract law is not contrary to any fundamental California

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policy.

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provision and applies Ohio contract law in analyzing this motion.

The Court therefore defers to the parties’ choice-of-law

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2.
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Comparative Negligence and Contributory Indemnity
(Twelfth and Twenty-Sixth Affirmative Defenses)

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Defendant alleges in its twelfth affirmative defense that
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“Plaintiff is barred from recovery herein by reason of its
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negligence at or about the time and place of the alleged
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transaction and failure to satisfy its contractual obligation to
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underwrite the loans.”

Answer 12:18-21.

Defendant alleges in

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its twenty-sixth affirmative defense that “Plaintiff is barred
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from recovery on the alleged contract, because the equities of
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this case entitle this Defendant to comparative and/or implied
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indemnity from Plaintiff.”

Id. at 16:8-14.

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Plaintiff argues these defenses must be stricken because
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“[i]t is black letter law in Ohio that the related defenses of
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comparative fault and contributory negligence are not valid
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defenses to a claim for breach of contract.”

Mot. to Strike 6:6-

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7.
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Defendant counters that “[w]hile there is authority for the
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contention that generally negligence is not a defense to a breach
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of contract claim, the rule does not bar a plaintiff’s negligence
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from remaining relevant to a breach of contract action . . . .”
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Opp’n at 12:7-10.

Defendant provides examples of courts

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considering negligence in determining whether there has been a
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breach of implied contractual duties and whether causation is
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satisfied.

See id. 12:22-13:10 (citing Ohio Oil Gathering Corp.

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III v. Welding, Inc., No. 2:09-cv-782, 2010 WL 5135999 (S.D. Ohio
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Dec. 9, 2010); Becker v. BancOhio Nat’l Bank, 17 Ohio St. 3d 158
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(1985); Bailey PVS Oxide (Delta) LLC v. Plas-Tanks, Inc., No.
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3:02CV7363, 2005 WL 1377874, at *1 (N.D. Ohio June 6, 2005)).
Ohio case law prescribes that “it is well settled that

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comparative negligence, contributory negligence, or assumption of

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the risk are not defenses in contract.”

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Nealco Leasing, Inc., 92 Ohio App. 3d 555, 569 (1993) (citing

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Becker, 17 Ohio St.3d 158); see also Ohio Oil Gathering Corp.

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III, 2010 WL 5135999, at *3 (precluding defendants from arguing

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that comparative fault is a defense to a contract claim);

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Bedillion v. Tri-Cty. Inc. Agency, No. 15722, 1993 WL 27381, at

Chase Bank of Ohio v.

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*3 (Ohio Ct. App. Feb. 3, 1993) (“Comparative negligence is not a

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defense in a contract action.”).

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Applying these cases to the instant case, the Court finds

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that Defendant’s twelfth and twenty-sixth asserted defenses are

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improper affirmative defenses under Ohio contract law.

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is not precluded from arguing Plaintiff’s own negligence

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undermines the elements of Plaintiff’s claims, however, any such

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defense is a negative defense and is properly stricken under Rule

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12(f).

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Barnes, 718 F. Supp. 2d at 1173). Plaintiff’s motion to strike

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Defendant’s twelfth and twenty-sixth defenses as improper

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affirmative defenses is GRANTED WITH PREJUDICE.

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Defendant

See Lexington Ins. Co, 2015 WL 5436784, at *11-12 (citing

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Fraud (Twenty-Seventh Affirmative Defense)

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Defendant alleges in its twenty-seventh affirmative defense

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that “the Complaint, and each cause of action therein, is barred

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due to the fraudulent representations made by AmTrust instructing

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and directing First Priority Financial not to verify any income

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representations made by a borrower, while representing that

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AmTrust would be performing the underwriting of a loan.”
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Answer

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16:17-22.
Plaintiff contends that Defendant’s twenty-seventh

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affirmative defense should be stricken for failure to meet the

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heightened pleading requirements of Rule 9(b).

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counters that it has met Rule 9(b)’s requirements.

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also contends that “the knowledge of specific persons that made

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the representations and sent/posted the instructions . . . are in

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possession of AmTrust.”

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Defendant
Defendant

Opp’n 9:19-22.

Rule 9(b) prescribes: “in all averments of fraud or mistake,

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the circumstances constituting fraud or mistake shall be stated

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with particularity.”

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particularity requirement applies to affirmative defenses.

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Commercial Leasing, Inc. v. M.G. Santos, Inc., No. CV F 13-0587

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LJO SKO, 2013 WL 3863897, at *9 (E.D. Cal. July 24, 2013) (citing

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Multimedia Patent Trust v. Microsoft Corp., 525 F. Supp. 2d 1200,

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1210-11 (S.D. Cal. 2007)).

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specificity including an account of the ‘time, place, and

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specific content of the false representations as well as the

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identities of the parties to the misrepresentations.’”

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KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Edwards v.

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Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004) (citation

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omitted)); see also Kearns v. Ford Motor Co., 567 F.3d 1120, 1124

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(9th Cir. 2009) (citations omitted) (“Averments of fraud must be

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accompanied by the who, what, when, where, and how of the

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misconduct charged.”).

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Fed. R. Civ. P. 9(b).

Rule 9(b)’s
ADP

“[Rule] 9(b) requires more

An exception to the particularity standard exists.

Swartz v.

The

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Ninth Circuit “has held that the general rule that allegations of

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fraud based on information and belief do not satisfy Rule 9(b)
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may be relaxed with respect to matters within the opposing

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party’s knowledge[; i]n such situations, [a party] cannot be

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expected to have personal knowledge of the relevant facts.”

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Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993).

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evidence of AmTrust’s alleged fraudulent behavior has not been

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shown to be peculiarly within the possession of Plaintiff and

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thus the exception to Rule 9(b)’s heightened pleading standard

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does not apply.

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However,

While Defendant provides factual support for its fraud

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affirmative defense in its opposition, see Opp’n 9:13-22,

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“Defendant’s allegations in [its o]pposition do not serve to cure

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the deficiency in [its a]nswer.”

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No. 2:13-CV-00188-TLN, 2014 WL 5797194, at *3 (E.D. Cal. Nov. 6,

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2014).

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affirmative defenses in [its a]nswer-not in an [o]pposition to

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Plaintiff[’s] [m]otion filed at some later date.”

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also Fed. R. Civ. Proc. 8(c)(1) (requiring that a party state its

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affirmative defenses in a “responsive pleading”); Fed. R. Civ.

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Proc. 7(a) (defining the following documents as “pleadings”:

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“(1) a complaint; (2) answer to a complaint; (3) answer to a

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counterclaim designated as a counterclaim; (4) answer to a

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crossclaim; (5) third-party complaint; (6) answer to a third-

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party complaint; and (7) if ordered by the court, a reply to an

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answer.”); Morrison v. Mahoney, 399 F.3d 1042, 1046 (9th Cir.

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2005) (explaining that “anything” not listed as a pleading under

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Rule 7(a) is a “motion or paper”).

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See Shellabarger v. Dicharry,

“Defendant must give Plaintiff[] fair notice of [its]

See id.; see

As pled, Defendant’s fraud defense fails to allege the “who,
where, and when” of the fraud.

See Kearns, 567 F.3d at 1124.
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Accordingly, the Court GRANTS Plaintiff’s motion to strike

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Defendant’s twenty-seventh affirmative defense but Defendant is

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given to leave amend this defense.

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Bank, 607 F.2d 824, 826 (9th Cir. 1979) (“In the absence of

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prejudice to the opposing party, leave to amend should be freely

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given.”).

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III.

See Wyshak v. City Nat’l

ORDER

For the reasons set forth above, it is hereby ordered that
Plaintiff’s Motion to Strike is GRANTED as follows:

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1. Plaintiff’s Motion to Strike Defendant’s twelfth and

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twenty-sixth affirmative defenses is GRANTED WITH PREJUDICE.

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2. Plaintiff’s Motion to Strike Defendant’s twenty-seventh
affirmative defense is GRANTED WITH LEAVE TO AMEND.
Defendant shall file any amended answer within twenty days
of this Order.
As a final matter, Defendant’s opposition is one page longer

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than the page limit allowed by this Court’s standing order.

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Order re Filing Requirements (Doc. #3-2) at p. 1.

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with that order, Defendant’s counsel, Patton & Sullivan LLP, is

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sanctioned in the amount of $50.00.

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Order will result in monetary sanctions being imposed against

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counsel in the amount of $50.00 per page. . . .”)

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pay this amount within five days of the date of this Order.

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IT IS SO ORDERED.
Dated: June 16, 2016

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See

In accordance

Id. (“A violation of this

Counsel is to