Lockheed Martin Corporation v. United States of America
Filing
29
MEMORANDUM OPINION. Signed by Judge Alexander Williams, Jr on 9/26/2013. (nss, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SOUTHERN DIVISION
LOCKHEED MARTIN CORPORATION,
Plaintiff,
v.
Civil Action No. 8:12-cv-03725-AW
UNITED STATES OF AMERICA,
Defendant.
MEMORANDUM OPINION
Pending before the Court is Plaintiff’s Motion to Strike. The Court has reviewed the
record and deems a hearing unnecessary. For the following reasons, the Court DENIES
Plaintiff’s Motion to Strike.
I.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff is a Maryland corporation headquartered in Bethesda. Plaintiff alleges that it is a
global security and aerospace company that primarily researches, designs, manufactures,
integrates, and sustains advanced technology systems and products. Plaintiff further alleges that
it makes substantial sales to the United States Government.
Plaintiff has brought this action for a refund of federal income taxes allegedly overpaid in
the years 2004 – 2008. Plaintiff basically alleges that the IRS improperly applied various tax
credits, deductions, and exclusions. The minimum amount Plaintiff seeks to recover is
$16,157,226.
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Plaintiff filed a Complaint in December 2012 and an Amended Complaint in May 2013.
Doc. Nos. 1, 16. Defendant has answered. Doc. No. 17. In its Answer, under the heading
“Second Defense,” Defendant states:
Should the Court determine that Plaintiff raised a meritorious argument that
would otherwise establish that Plaintiff overpaid its taxes, the United States is
entitled to reduce that overpayment based on any additional tax liabilities that the
Plaintiff may owe, whether or not previously assessed or alleged. The United
States is entitled to such reduction because the redetermination of the Plaintiff’s
entire federal income tax liability for the litigated tax years is at issue in this
refund suit.
Doc. No. 17 at 1 (citations omitted).
On June 10, 2013, Plaintiff filed a Motion to Strike Defendant’s Second Affirmative
Defense (“Motion to Strike”). Doc. No. 19. Plaintiff generally argues that the pleading standards
enunciated in Twombly and Iqbal apply to affirmative defenses and that the United States’
Second Defense is a facially implausible legal conclusion. The United States filed a Response on
June 24, 2013. Doc. No. 25. The United States generally argues that its Second Defense is not a
true affirmative defense and that Twombly and Iqbal do not apply to affirmative defenses.
II.
STANDARD OF REVIEW
“Federal Rule of Civil Procedure 12(f) permits a district court, on motion of a party, to
“‘order stricken from any pleading any insufficient defense.’” Waste Mgmt. Holdings, Inc. v.
Gilmore, 252 F.3d 316, 347 (4th Cir. 2001) (quoting Fed. R. Civ. P. 12(f)). “Rule 12(f) motions
are generally viewed with disfavor because striking a portion of a pleading is a drastic remedy
and because it is often sought by the movant simply as a dilatory tactic.” Id. (citation and internal
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quotation marks omitted). The decision whether to strike an affirmative defense is discretionary
and courts generally refrain from striking affirmative defenses absent a showing that not doing so
would unfairly prejudice the movant. See Certain Underwriters at Lloyd’s, London v. R.J.
Wilson & Assocs., Ltd., Civil No. CCB–11–1809, 2012 WL 2945489, at *5 (D. Md. July 17,
2012) (citations omitted).
III.
LEGAL ANALYSIS
A.
Whether Twombly and Iqbal Apply to Affirmative Defenses
Plaintiff’s argument that the Court should strike Defendant’s Second Defense as
insufficient proceeds from the premise that the pleading standards announced in Twombly and
Iqbal generally apply to affirmative defenses. Although Defendant argues that the Court need not
resolve this question to rule on the instant Motion to Strike, it is advisable to address it in added
detail.
At least five judges in the District of Maryland have embraced the view that Twombly
and Iqbal apply to affirmative defenses. See Swarey v. Desert Capital REIT, Inc., Civil Action
No. DKC 11–3615, 2012 WL 4208057, at *5 (D. Md. Sep. 20, 2012) (Chasanow, J.); Blind
Indus. and Servs. of Md. v. Route 40 Paintball Park, No. WMN–11–3562, 2012 WL 2946688, at
*3 (D. Md. July 17, 2012) (Gallagher, J.); Ulyssix Techs., Inc. v. Orbital Network Eng’g, Inc.,
Civil Action No. ELH–10–02091, 2011 WL 631145, at *14 (D. Md. Feb. 11, 2011) (Hollander,
J.); Bradshaw v. Hilco Receivables, LLC, 725 F. Supp. 2d 532, 536–37 (D. Md. 2010) (Bennett,
J.); Topline Solutions, Inc. v. Sandler Sys., Inc., Civ. No. L–09–3102, 2010 WL 2998836, at *1
(D. Md. July 27, 2010) (Legg, J.). By contrast, although the Court did not locate a District of
Maryland opinion holding that the plausibility pleading standard is inapplicable to affirmative
defenses, at least four judges in the District of Maryland have stated that it is uncertain whether
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the plausibility standard applies to affirmative defenses. See GN Hearing Care Corp. v.
Advanced Hearing Ctrs., Inc., Civil No. WDQ–12–3181, 2013 WL 4401230, at *1 (D. Md. Aug.
14, 2013) (Quarles, J.); Sprint Nextel Corp. v. Simple Cell, Inc., Civil No. CCB–13–617, 2013
WL 3776933, at *9 (D. Md. July 17, 2013) (Blake, J.); Util. Line Servs., Inc. v. Wash. Gas Light
Co., No. PWG–12–3438, 2013 WL 3465211, at *6–7 (D. Md. July 9, 2013) (Grimm, J.); Piontek
v. Serv. Ctrs. Corp., Civil No. PJM 10–1202, 2010 WL 4449419, at *3 (D. Md. Nov. 5, 2010)
(Messitte, J.).
Likewise, district judges both within the Fourth Circuit and nationally have split on the
question whether the plausibility standard applies to affirmative defenses, with a majority
adopting the view that it does. See, e.g., Tiscareno v. Frasier, No. 2:07–CV–336, 2012 WL
1377886, at *14 n.4 (D. Utah Apr. 19, 2012); Aguilar v. City Lights of China Rest., Inc., Civil
Action No. DKC 11–2416, 2011 WL 5118325, at *2–3 (D. Md. Oct. 24, 2011) (citing cases);
Lane v. Page, 272 F.R.D. 581, 589 & ns. 5–6 (D.N.M. 2011) (citing cases); Piontek, 2010 WL
4449419, at *3 (citing cases); see also Amy St. Eve & Michael A. Zuckerman, The Forgotten
Pleading, 7 Fed. Cts. L. Rev. 152, 166 (2013); Leslie Paul Machado & E. Matthew Haynes, Do
Twombly and Iqbal Apply To Affirmative Defenses?, 59 Fed. Law. 56, 57 (July 2012). All judges
and commentators agree that no federal appellate court has addressed the issue.
The opinions holding that the plausibility standard applies to affirmative defenses have
relied primarily on two justifications. “First, they reason that it makes neither sense nor is it fair
to require a plaintiff to provide the defendant with enough notice that there is a plausible, factual
basis for [a] claim under one pleading standard and then permit a defendant under another
pleading standard simply to suggest that some defense may possibly apply in the case.” Aguilar,
2011 WL 5118325, at *2 (alteration in original) (citation and internal quotation marks omitted).
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“Second, they cite the importance of litigation efficiency, explaining that boilerplate defenses
serve only to clutter the docket and . . . create unnecessary work by requiring opposing counsel
to conduct unnecessary discovery.” Id. (ellipsis in original) (citation and internal quotation marks
omitted). By contrast, “the small minority of courts within [the Fourth Circuit] rejecting the
application of the Twombly–Iqbal pleading standard to affirmative defenses have relied on either
the absence of an appellate court opinion on the issue or have concluded that Twombly and Iqbal
confined themselves to the sufficiency of claims for relief under Rule 8(a).” Id. at 3 (citations
omitted). Furthermore, in concluding that the plausibility standard does not apply to affirmative
defenses, courts both inside and outside the Fourth Circuit have reasoned that “defendants
ordinarily have a much shorter time to determine and plead affirmative defenses in their answer
than plaintiffs have to develop the facts that should be pled to support their complaint.” Simple
Cell, 2013 WL 3776933, at *9 n.6; accord Tiscareno, 2012 WL 1377886, at *15.
The Court finds the minority view more persuasive. The Supreme Court’s analysis in
Twombly and Iqbal centered on Rule 8(a)(2)’s requirement that the plaintiff make a “showing”
that he or she is entitled to relief. Ashcroft v. Iqbal, 556 U.S. 662, 667–69 (2009); Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 554–55 & n.3 (2007). By contrast, Rule 8(b) only requires parties
responding to a pleading to “state in short and plain terms its defenses to each claim” and “admit
or deny the allegations asserted against it.” Fed. R. Civ. P. 8(b)(1). Likewise, it is hard to square
the idea that Rule 8 imposes a plausibility standard on affirmative defenses with the language of
Rule 8(b)(3), which allows parties in good faith to “deny all the allegations of a pleading . . . by a
general denial.” Fed. R. Civ. P. 8(b)(3). Although Rule 8(b)(3) does not speak to affirmative
defenses directly, it appears in the section of the Rule applicable to defenses, admissions, and
denials. See Fed. R. Civ. P. 8(b). It would be anomalous if Rule 8(b) allowed parties to generally
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deny the allegations in the complaint yet required them to plead facially plausible affirmative
defenses. At any rate, the Court deems it unlikely that the Supreme Court “would have ushered
in such a radical change in legal landscape sub silentio.” See Rosa v. Bd. of Educ. of Charles
County, Md., Civil Action No. 8:11–cv–02873–AW, 2012 WL 3715331, at *10 (D. Md. Aug. 27,
2012); see also Davis v. Ind. State Police, 541 F.3d 760, 764 (7th Cir. 2008) (noting that
Twombly does not discuss affirmative defenses).
Generally speaking, the policy considerations that underpin the majority view do not
fully persuade the Court. Although the majority believes that not applying the plausibility
standard to affirmative defenses creates a double standard, it discounts the fact that defendants
usually have considerably less time to develop affirmative defenses than plaintiffs do claims for
relief. For instance, in this case, Plaintiff requests a refund for taxes paid in 2004 – 2008. Yet
Plaintiff did not file suit until 2013. Once Plaintiff filed suit, Defendant technically had sixty
days to respond to the Complaint. See Fed. R. Civ. P. 12(a)(2) (“The United States . . . must
serve an answer . . . within 60 days after service . . . .”). Although the Court granted an
unopposed motion for extension of time, one cannot presuppose that this avenue will be open in
every case. Besides, the Court granted Plaintiff’s consent motion to amend its Complaint, and the
United States responded to the Amended Complaint two days after its filing. Additionally, while
the Court recognizes the majority’s concerns about judicial efficiency, one must question
whether the majority has overstated them. The discovery rules are written broadly. See, e.g., Fed.
R. Civ. P. 26(b) (“Parties may obtain discovery regarding any nonprivileged matter that is
relevant to any party’s claim or defense . . . .”); Fed. R. Civ. P. 33(a)(1) (allowing parties to serve
up to 25 written interrogatories relating to any matter relevant to any party’s claim or defense).
Thus, the extent to which the pleading of boilerplate affirmative defenses portends to subject
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parties to added discovery is presumptively unclear. Moreover, parties can always seek a
protective order in response to onerous discovery requests. Fed. R. Civ. P. 26(c)(1). And, while
the presence of boilerplate affirmative defenses could make more material relevant to a party’s
claim or defense, courts presumably could consider a defense’s conclusory nature when ruling on
the discovery request.
The majority view also disregards the fact that, by filing the complaint, the plaintiff
“invokes the jurisdiction of the federal courts in the first instance.” Tiscareno, 2012 WL
1377886, at *15 (citation and internal quotation marks omitted). “The primary function of
imposing a pleading standard on a plaintiff in the first instance is to ensure that ‘largely
groundless claims’ are not made to ‘take up the time of a number of other people.’” Id. (quoting
Twombly, 550 U.S. at 558). On the other hand, affirmative defenses do not invoke the
jurisdiction of the court and, at least technically, do not expose plaintiffs to liability. See id.; see
also United States v. Stevens, 771 F. Supp. 2d 556, 565 (D. Md. 2011) (alteration in original)
(quoting Black’s Law Dictionary 482 (9th ed. 2009)) (“An affirmative defense is ‘[a] defendant’s
assertion of facts and arguments that, if true, will defeat the plaintiff’s . . . claim . . . . .”).
Therefore, judicial economy and equity depend on screening complaints more than they do on
screening affirmative defenses. Cf. Tiscareno, 2012 WL 1377886, at *15.
For these reasons, as a general matter, the Court declines to hold that Twombly and Iqbal
apply to affirmative defenses. Although the Court is mindful of the cost and efficiency concerns
that blithe or shotgun assertions of affirmative defenses may raise, the standards applicable to
motions to strike, as well as notice pleading principles, should usually suffice to weed out
frivolous, vexatious, and/or unfairly prejudicial affirmative defenses.
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B.
Whether to Strike Defendant’s Second Defense
Having concluded that, at least here, the plausibility standard does not apply to
affirmative defenses, the resolution of Plaintiff’s Motion to Strike is straightforward. Plaintiff has
brought an action for a refund under 26 U.S.C. § 7422. The Supreme Court established in 1932
that the United States has implied authority to “reaudit a return whenever repayment is claimed.”
Lewis v. Reynolds, 284 U.S. 281, 283 (1932). In 2011, the Fourth Circuit reaffirmed the viability
of Lewis, holding that “the IRS may recompute tax liabilities in response to a refund claim.” R.H.
Donnelley Corp. v. United States, 641 F.3d 70, 72 (4th Cir. 2011) (citing Lewis, 284 U.S. 281).
Indeed, it would appear that the United States has a statutory right to offset. See 26 U.S.C. §
6402(a) (“In the case of any overpayment, the Secretary . . . may credit the amount of such
overpayment . . . against any liability in respect of an internal revenue tax on the part of the
person who made the overpayment . . . .”). In keeping with this authority, the United States has
asserted that it is entitled to offset any overpayment by any additional tax liabilities Plaintiff may
owe, regardless of whether the United States previously assessed or alleged such liabilities. The
Court finds no flaw in this approach.
Plaintiff counters that this construction of Lewis confers the United States carte blanche
to reaudit its tax liability for the years in question. The salient flaw in this argument is that Lewis
and its progeny appear to authorize the “reaudit [of] a return.” See Lewis, 284 U.S. at 283.
Furthermore, although Plaintiff accuses the United States of using Lewis as a launch pad for a
fishing expedition, the record does not reflect that the United States raised this defense in bad
faith. Speculation of this sort does not suffice to grant a motion to strike. Indeed, a cynic could
just as easily contend that Plaintiff’s opposition is a “dilatory tactic” to prevent the United States
from discovering whether Plaintiff underpaid its taxes for the years in question. Cf. Waste Mgmt.,
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252 F.3d at 347. Furthermore, although Plaintiff contends that not striking the Second Defense
would prejudice it, “Plaintiff has identified no prejudice that would result from the Court’s
consideration of [Defendant’s affirmative defense], except perhaps the prejudice that litigants
faced with meritorious [affirmative defenses] invariably incur.” Montage Furniture Servs., LLC
v. Regency Furniture, Inc., --- F. Supp. 2d ----, Civil Action No. 8:12–cv–03365–AW, 2013 WL
4758056, at *5 n.3 (D. Md. Sep. 4, 2013) (citing Brinkley v. Harbour Recreation Club, 180 F.3d
598, 612 (4th Cir. 1999)). Accordingly, the Court denies Plaintiff’s Motion to Strike.
IV.
CONCLUSION
For the preceding reasons, the Court DENIES Plaintiff’s Motion to Strike. A separate
Order follows.
September 26, 2013
Date
/s/
Alexander Williams, Jr.
United States District Judge
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