Small Business Financial Solutions, LLC v. Cavalry, LLC et al
MEMORANDUM OPINION. Signed by Judge Deborah K. Chasanow on 1/18/2023. (sat, Chambers)
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 1 of 29
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SMALL BUSINESS FINANCIAL
Civil Action No. DKC 22-1383
CAVALRY, LLC d/b/a CNC Property
Management, et al.
Pending and ready for resolution in this breach of contract
affirmative defenses filed by Plaintiff Small Business Financial
Solutions, LLC (“SBFS”). (ECF No. 20).
The issues have been
briefed and the court now rules, no hearing being necessary. Local
Rule 105.6. Because the parties’ Loan Agreement cannot be usurious
counterclaims will be granted as to Counts II, III, and IV.
Count I—which seeks declaratory relief—SBFS’ motion to dismiss
will be construed as a cross-motion for a declaration, and the
court will declare that the Loan Agreement cannot be usurious under
SBFS’ motion to strike Defendants’ affirmative
defenses will also be granted because Defendants’ usury defense is
insufficiently pled under Rules 8 and 9 of the Federal Rules of
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 2 of 29
Defendant Cavalry, LLC.
(ECF No. 3-1). 1
served as a guarantor on the loan.
Defendant Yoel Bochner
(ECF No. 3-1, at 11-12).
the Loan Agreement, Cavalry was required to pay back the loan plus
$38,100 in interest through 180 payments “due each business day
beginning one day before the funds [we]re wired to [Cavalry’s]
(ECF No. 3-1, at 2).
The Agreement requires that the
loan “be used for business purposes only,” and that Defendants
cannot use the loan “for personal, family or household purposes.”
The Agreement also states that “the laws of the State of
Maryland” “shall . . . govern” “this Agreement, all transactions
it contemplates, the entire relationship between the parties, and
all Claims . . . whether such Claims are based in tort, contract
or arise under statute or in equity.”
(ECF No. 3-1, at 7).
When considering a motion to dismiss, a court must construe
the facts “in the light most favorable to the nonmoving party” and
take as true all factual allegations that party has made.
Rockville Cars, LLC v. City of Rockville, 891 F.3d 141, 145 (4th
The same presumptions apply where a court is
considering a motion to strike. See Kantsevoy v. LumenR, LLC, 301
F.Supp.3d 577, 611 (D.Md. 2018) (“[W]hen reviewing a motion to
strike, the court must view the pleading under attack in a light
most favorable to the pleader.”) (internal citation omitted);
Hubbard v. Allied Van Lines, 540 F.2d 1224, 1230 (4th Cir. 1976)
(nonmoving party’s factual allegations “must be accepted as true
in considering . . . [a] motion to strike”). Because this case
involves a motion to dismiss a counterclaim and to strike
affirmative defenses, Defendants are the nonmoving party and all
facts listed here are undisputed and are construed in the light
most favorable to Defendants.
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 3 of 29
Several months after the agreement was signed, Cavalry and
Mr. Bochner sued SBFS in New York state court, alleging that the
Loan Agreement violated New York usury laws and claiming that SBFS
committed fraud “by disguising the usurious interest rate in the
Agreement as. . . a legal rate.”
(ECF No. 20-3, at 3, 5). 2
moved to dismiss the complaint, arguing that the New York court
lacked personal jurisdiction over SBFS and that the Agreement
itself designates Maryland as the proper forum for legal disputes.
(ECF No. 20-3, at 3).
In January of 2022, the New York state court
granted the motion to dismiss.
Before concluding that it lacked
personal jurisdiction, the court first noted that it was “not
convinced” by Cavalry’s fraud arguments, and then observed that
“[t]he case law . . . does not suggest that the interest rate on
the subject loan was usurious.”
(ECF No. 20-3, at 5-6).
Before the New York State Court issued that opinion, SBFS
sued Cavalry and Mr. Bochner in the Circuit Court for Montgomery
(ECF No. 3).
SBFS’ Complaint alleged that Defendants had
failed to make payments under the Loan Agreement and demanded
judgment against Defendants for $138,500.33.
(ECF No. 3, at 2).
In ruling on a motion to dismiss, a court may take judicial
notice of “matters of public record.” Philips v. Pitt Cnty. Mem’l
Hosp., 572 F.3d 176, 180 (4th Cir. 2009). The New York state court
opinion—attached to SBFS’ motion to dismiss, (ECF No. 20-3)—is
publicly available, see Cavalry, LLC et al. v. SBFS Financial
Solutions, Inc., Index No. EF003083-2021 (N.Y. Sup. Ct. Jan. 5,
Defendants do not dispute its authenticity.
court takes judicial notice of that opinion.
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 4 of 29
Defendants removed the case to this court.
(ECF No. 1).
then filed an Answer which raised eight affirmative defenses (ECF
No. 13), and asserted a four-count Counterclaim, (ECF No. 14).
Neither the Answer nor the Counterclaim dispute that Defendants
signed the Loan Agreement.
Rather, Defendants themselves allege
that they “entered into a loan agreement” with SBFS, and that the
Agreement attached to SBFS’ complaint is the contract Defendants
(ECF No. 14, at 1).
The Answer and the Counterclaim both
assert that the Loan Agreement violates usury laws in Maryland and
New York, and that the Agreement is invalid and unenforceable.
(ECF Nos. 13, 14).
SBFS moved to dismiss the Counterclaim and to
strike Defendants’ first five affirmative defenses.
(ECF No. 20).
Defendants responded, (ECF No. 22), and SBFS replied, (ECF No.
Standard of Review
In considering a motion to dismiss a counterclaim, the court
applies the same standard of review that would be applied to a
Rule 12(b)(6) motion to dismiss a complaint.
E.I. du Pont de
Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir.
Thus, a motion to dismiss in this context tests the
Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006). “[T]he district
court must accept as true all well-pleaded allegations and draw
all reasonable factual inferences in [the counter-plaintiff’s]
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 5 of 29
Mays v. Sprinkle, 992 F.3d 295, 299 (4th Cir. 2021).
counterclaim must satisfy the standard of Fed. R. Civ. P. 8(a)(2),
which requires a “short and plain statement of the claim showing
“showing” requires more than “a blanket assertion of entitlement
to relief,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 n.3
(2007), or “a formulaic recitation of the elements of a cause of
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the
reasonable inference that defendant is liable for the misconduct
Mays, 992 F.3d at 299-300 (quoting Iqbal, 556 U.S. at
Motions to strike are governed by Federal Rule of Civil
Procedure 12(f), which gives the court discretion to “strike from
a pleading an insufficient defense.”
Rule 12(f) motions are
“viewed with disfavor by the federal courts and are infrequently
granted” because “striking a portion of a pleading is a drastic
remedy” that is “often . . . sought by the movant simply as a
dilatory or harassing tactic.”
5C Charles Alan Wright & Arthur R.
Miller, Federal Practice & Procedure § 1380 (3rd ed. Apr. 2022)
(“Wright & Miller”).
Nevertheless, a Rule 12(f) motion to strike
a defense as insufficient is the “appropriate tool when the parties
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 6 of 29
Wright & Miller § 1381.
A defense may
also be stricken when it fails to meet the applicable pleading
standards under Rules 8 and 9, including when a defense is “plead
with so little detail that [it] fail[s] to provide sufficient
notice to the opposing party.”
Wright & Miller § 1380.
Motion to dismiss counterclaim
Counts II, III, and IV of Defendants’ counterclaim rest on
the assertion that the loan contract is invalid because it includes
an interest rate that is “usurious” under Maryland and New York
(ECF No. 14, at 2). Count I requests a declaratory judgment
“that the Agreement is usurious and unenforceable.”
(ECF No. 14,
at 2). 3 As explained below, unique rules govern a motion to dismiss
a declaratory judgment request.
In Count I, Defendants seek a declaration that the Loan
Agreement is “usurious and unenforceable” because it includes an
interest rate that exceeds the maximum rate allowed under Maryland
and New York’s usury laws.
(ECF No. 14, at 2).
In Count II,
Defendants ask the court to “enjoin” SBFS “from its unlawful
conduct” based on the “usurious and unenforceable nature of the
Agreement.” (ECF No. 14, at 3). In Count III, Defendants claim
that SBFS is liable for fraud because it “represented to
[Defendants] that [they] would pay a legal interest rate on the
(ECF No. 14, at 3).
And in Count IV, Defendants “reallege” the preceding paragraphs regarding usury and claim that
SBFS “has been unjustly enriched by the collection of money” under
a purportedly “illegal and unenforceable” contract. (ECF No. 14,
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 7 of 29
Counts II, III, and IV
Counts II, III, and IV hinge on Defendants’ usury arguments.
Thus, if the loan agreement’s interest rate is not usurious under
Pursuant to the contract itself, Maryland law applies, making
New York’s usury statute irrelevant.
“A federal court sitting in
diversity is required to apply the substantive law of the forum
state, including its choice of law rules.”
Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941).
Here, the forum state
“contracting parties” may “specify in their contract that the laws
of a particular State will apply in any dispute over the validity,
construction, or enforceability of the contract.”
Pasadena Receivables, Inc., 398 Md. 611, 617 (2007).
Agreement specifies that Maryland law controls: It states that
“the laws of the State of Maryland” “shall . . . govern” “this
relationship between the parties, and all Claims . . . whether
such Claims are based in tort, contract or arise under statute or
(ECF No. 3-1, at 7). 4
There are two exceptions to Maryland’s rule that a
contract’s choice-of-law provision controls. Jackson, 398 Md. at
619. The rule does not apply where (1) “the chosen state has no
substantial relationship to the parties or the transaction and
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 8 of 29
Under Maryland law, a lender commits “[u]sury” by “charging
. . . interest . . . in an amount which is greater than that
allowed by” § 12, Subtitle 1 of Maryland’s Commercial Code.
Md. Code Ann., Comm. Law § 12-101(m).
While Subtitle 1 generally
imposes a 6% interest cap, see Md. Code Ann., Comm. Law § 12-102,
it also provides exceptions.
For instance, a lender may charge
interest “at any rate,” Md. Code Ann., Comm. Law § 12-103(e)(1),
on certain kinds of “commercial loans,” including:
residential real property,” and
there is no other reasonable basis for the parties[’] choice,” or
(2) “application of the law of the chosen state would be contrary
to a fundamental policy of a state which has a materially greater
interest than the chosen state in the determination of the
particular issue.” Id. (internal quotations omitted). Defendants
do not mention these exceptions, much less argue that the
Exception 1—the “substantial relationship”
exception—does not apply because a state has a “substantial
relationship” to the case as long as it is the “home of” one of
the parties, see id. at 621, and SBFS is at home in Maryland.
Exception 2—the “fundamental policy” exception—applies only where
application of the parties’ chosen state laws would “contravene a
fundamental policy” of another state.
Id. (internal quotations
omitted). Defendants already sued SBFS in New York state court,
raising many of the same theories they raise here—and the New York
court held that New York law does not apply to this dispute because
the Loan Agreement’s choice-of-law provision is not “in
contravention of public policy . . . within New York.” (ECF No.
20-3, at 5 (internal quotations omitted)). Finally, even if New
York law did apply, it seems that the Loan Agreement does not
After considering similar arguments to those that
Defendants raise here, the same New York court noted that it was
“not convinced . . . that [SBFS] engaged in fraud” in part because
“[t]he case law . . . does not suggest that the interest rate on
the subject loan was usurious.” (ECF No. 20-3, at 5).
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 9 of 29
“A commercial loan in excess of $75,000 secured by residential
Md. Code Ann., Comm. Law § 12-103(e)(1)(ii)-(iii).
loan” is one made “[s]olely to acquire or carry on a business or
Md. Code Ann., Comm. Law § 12-101(c).
The Loan Agreement fits that exception.
The Agreement is a
“commercial loan” because it was made “[s]olely to . . . carry on
a business,” see id.—indeed, the Agreement itself states that the
“proceeds of the requested Loan may be used for business purposes
only” and cannot be used “for personal, family, or household
(ECF No. 3-1, at 2); see Sutherland v. Maryland Nat’l
Bank, No. HAR-90-2029, 1991 WL 111371, at *1-2 (D.Md. June 19,
1991) (granting a motion to dismiss a usury claim where a real
estate broker had borrowed money to “to acquire a facility . . .
which it planned to lease to various tenants,” and holding that
“no maximum interest rate” applied because the loan was “within
the scope of [the borrower’s] commercial real estate activities”).
And while it is unclear from the pleading thus far whether
the loan is “secured by residential real property,” that ambiguity
is not dispositive. 5
If the loan is “not secured by residential
Defendants seem to argue that the loan is secured by
residential real property because Defendant Yoel Bochner is a
guarantor on the loan, and thus his “personal assets, including
real and personal property, may be collected” if the debt goes
unpaid. (ECF No. 22, at 8). On the other hand, SBFS asserts that
“nothing in the [Agreement] . . . creates a security in Mr.
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 10 of 29
real property,” then it may include “any” interest rate as long as
the loan exceeds $15,000, which it plainly does.
2 (“Amount of Loan” is $127,000)).
(ECF No. 3-1, at
And if the loan is “secured by
residential real property,” then it can still include any interest
rate as long as it exceeds $75,000. Because the loan amount is
$127,000, the loan can include “any” interest rate either way.
Md. Code Ann., Comm. Law § 12-103(e)(1).
See Sutherland, 1991 WL
111371, at *1-2 (holding that Maryland law “impose[d] no maximum
interest rate” on a commercial loan that was “not secured by
residential real property” because the loan was for $556,000, which
exceeds $15,000); St. Annes Dev. Co., LLC v. Trabich, No. WDQ-071056, 2008 WL 11363691, at *4 (D.Md. May 21, 2008) (holding that
a commercial loan secured by residential real property could “not
[be] usurious” because the loan was for $500,000, which exceeds
Looking elsewhere in the Maryland Commercial Code, Defendants
rely on § 12, Subtitle 10, which states that certain kinds of loans
may not have an interest rate “in excess of 24 percent per year.”
Md. Code Ann., Comm. Law § 12-1003.
(ECF No. 14, at 2).
Subtitle 10 does not apply—it governs only certain kinds of “closed
end credit” provisions that are not involved in this case.
Code Ann., Comm. Law § 12-1001.
Indeed, Subtitle 10 only applies
Bochner’s residence, or even mentions Mr. Bochner’s property.”
(ECF No. 23, at 8). This debate is beside the point.
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 11 of 29
where a lender “makes a written election” showing an intent “to
make a loan under this subtitle.”
Md. Code Ann., Comm. Law § 12-
By contrast, if a lender “fails” to make such an
election, “the provisions of [Subtitle 10] do not apply.”
Code Ann., Comm. Law § 12-1013.1(b)(2).
Defendants do not allege
that SBFS made a Subtitle 10 election.
Indeed, after originally
citing Subtitle 10’s 24% interest cap in their counterclaim,
Defendants neither mention Subtitle 10 in their opposition to SBFS’
motion to dismiss nor respond to SBFS’ assertion that it never
made such an election.
(ECF No. 20, at 11).
vaguely assert that the loan contract “is clearly in violation of
(ECF No. 22, at 8 (citing Md. Code Ann., Comm. Law
That cap, as noted, is subject to an exception for
certain commercial loans like the one here.
Defendants next argue that the loan contract “should be
treated as a personal loan” rather than a “commercial loan” because
Defendant Yoel Bochner serves as a guarantor on the loan, and thus
“Mr. Bochner’s personal assets . . . may be collected regardless
of the status of the loan with Cavalry.”
(ECF No. 22, at 8).
Maryland’s usury law, however, defines a “commercial loan” based
on the purposes for which the borrowed money will be used—not based
on whether personal assets can be collected when the loan goes
Thus, Mr. Bochner’s guarantor status is irrelevant, and
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 12 of 29
it does not matter whether SBFS may collect his personal assets to
satisfy the debt. Either way, the loan was made “[s]olely to
acquire or carry on a business or commercial enterprise”—and that
Md. Code Ann., Comm. Law § 12-101(c).
Defendants also assert, incorrectly, that the court ought not
consider the terms of the Agreement at all in deciding the motion
to dismiss because doing so requires “going beyond the four corners
of the pleading.”
(ECF No. 22, at 5).
In deciding a motion to
dismiss, a court may rely on a document that is “integral to” the
pleading under attack and “explicitly relied on” by the nonmoving
party, as long as that party does not “challenge [the document’s]
E.I du Pont de Nemours & Co. v. Kolon Indus., Inc.,
190 F.3d 609, 618 (4th Cir. 1999).
While this rule usually applies
to a document integral to a complaint in the context of a motion
to dismiss that complaint, courts in this circuit regularly apply
the same rule to documents integral to a counterclaim when deciding
a motion to dismiss that counterclaim. 6
See, e.g., Kisano Trade & Invest Ltd. v. Winding Gulf Coal
Sales, LLC, No. 09–0804, 2010 WL 1904669, at *2 (S.D.W.Va. May 10,
2010) (considering a document “[a]attached to the Complaint” in
ruling on a motion to dismiss a counterclaim because the document
was “integral to and explicitly relied on” in the counterclaim and
the counter-plaintiff did not challenge its authenticity)
(internal quotations omitted); Teras v. Wilde, No. DKC 14–0244,
2015 WL 7008374, at *4 n.4 (D.Md. Nov. 12, 2015) (noting that
courts are “permitt[ed] to consider documents attached to the
motion to dismiss that are integral to the counterclaim and
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 13 of 29
The Loan Agreement was attached to SBFS’ complaint, (ECF No.
Defendants have “explicitly relied on” it. E.I du Pont de Nemours,
Defendants’ counterclaim rests on the interest rate listed in the
And far from challenging the Agreement’s authenticity,
Defendants agree that the Loan Agreement attached to the Complaint
is the contract they signed.
(ECF No. 14, at 1).
Finally, Defendants note that a court at this stage must view
the “allegations in a light most favorable to Defendants,” and
unenforceable, the court cannot consider the Agreement’s “specific
provisions” in deciding the motion to dismiss.
(ECF No. 22, at
That argument similarly misunderstands the court’s role.
this stage, the court need only accept as true Defendants’ “factual
allegations,” not their “legal conclusion[s].”
Iqbal, 556 U.S. at
Defendants’ assertion that the Loan Agreement is usurious—
entitled to the assumption of truth.”
Indeed, the court cannot resolve this motion to dismiss
without determining the legal question of whether—under the facts
alleged by Defendants—the Agreement is usurious.
Defendants do not, of course, claim that the Agreement itself is
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 14 of 29
inauthentic, or that the loan contract they signed contained terms
Agreement reflects the contract they signed—they only disagree
with the legal conclusion that the Agreement is not usurious.
considering the terms of the Agreement in resolving the motion to
Because Counts II, III, and IV of Defendants’ counterclaim
hinge on the incorrect argument that the Agreement is usurious,
all three counts will be dismissed. Beyond that, Count III—which
alleges “fraud,” (ECF No. 14, at 3)—must be dismissed because it
is improperly pled.
Under Federal Rule of Civil Procedure 9(b),
allegations of fraud “shall be stated with particularity.”
a party claiming fraud typically must allege “the time, place, and
contents of the false representations, as well as the identity of
the person making the misrepresentation and what he obtained
In their opposition to SBFS’ motion to dismiss, Defendants
argue—for the first time—that their Counterclaim should not be
dismissed because the Agreement “is an unconscionable contract of
adhesion that was not negotiated at arms-length.” (ECF No. 22, at
7). But this unconscionability theory is mentioned nowhere in the
Counterclaim itself, and “for the purposes of a motion to dismiss,”
a counter-plaintiff “is bound by her [counterclaim] and cannot
amend it through her briefs.”
Stahlman v. United States, 995
F.Supp.2d 446, 453 (D.Md. 2014). Thus, this new unconscionability
theory cannot save the Counterclaim at this stage.
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 15 of 29
Harrison v. Westinghouse Savannah River Co., 176 F.3d
776, 784 (4th Cir. 1999) (internal citation omitted).
Defendants do not meet that standard.
At most, they allege
the “contents of the false representations,” id.—that is, they
allege that SBFS “represented . . . that [Defendants] would pay a
legal interest rate on the loan.”
(ECF No. 14, at 3).
do not mention when or where this statement was made, nor do they
identify the person who made it.
See Bakery & Confectionary Union
& Indus. Int’l Pension Fund v. Just Born II, Inc., 888 F.3d 696,
705 (4th Cir. 2018) (holding that a party did not plead fraud with
sufficient particularity where it “broadly accused” the plaintiff
organization made the alleged statements).
Because Defendants do
not sufficiently plead the “who, what, when, where, and how of the
alleged fraud,” Count III “falls short of the applicable pleading
Count I: Declaratory Judgment
In Count I, Defendants claim that the Agreement is “usurious,”
and request that this court declare as much.
(ECF No. 14, at 2).
As explained above, the Agreement is not usurious and Defendants’
usury arguments lack merit.
However, while SBFS seeks to dismiss
Count I under Rule 12(b)(6), “a motion to dismiss for failure to
state a claim is not the appropriate means of resolving a claim
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 16 of 29
for declaratory relief.”
Pruitt v. Alba Law Group, P.A., No. DKC
15–0458, 2015 WL 5032014, at *8 (D.Md. Aug. 24, 2015).
the “test of the sufficiency of [a declaratory judgment claim] is
declaration of rights” that it requests, but “whether [the pleader]
is entitled to a declaration at all.”
Charter Oak Fire Ins. Co.
v. Am. Capital, Ltd., No. DKC 09–0100, 2011 WL 856374, at *18
(D.Md. Mar. 9, 2011) (quoting 120 W. Fayette St., LLLP v. Mayor &
City Council of Baltimore City, 413 Md. 309, 355–56 (2010)).
a declaration is appropriate where there is an “actual, ongoing
Pruitt, 2015 WL 5032014, at *8 (internal quotations omitted).
Thus, when one party seeks a declaratory judgment that “contravenes
applicable law,” and the other party moves to dismiss that claim,
a court may construe the parties’ motions as “competing crossmotions for a declaration in their favor” as to the ongoing
It may then issue a declaration in favor of the
party that originally moved to dismiss.
See also 22A Am.Jur.2d Declaratory Judgments § 228 (2015
supp.) (“A motion to dismiss is seldom an appropriate pleading in
actions for declaratory judgments, and such motions will not be
allowed simply because the plaintiff may not be able to prevail.”);
Diamond v. Chase Bank, No. DKC–11–0907, 2011 WL 3667282, at *5
(D.Md. Aug. 19, 2011) (construing a defendant’s Rule 12(b)(6)
motion to dismiss the plaintiff’s declaratory judgment claim as a
motion for a declaration in its favor).
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 17 of 29
The Declaration sought by Defendants “contravenes applicable
law,” so it will not be issued.
However, the parties’ briefs show
that there is an “ongoing controversy” regarding whether the
Agreement is usurious.
Thus, the court will issue a declaration
in SBFS’ favor that the Loan Agreement is not usurious under
Motion to strike affirmative defenses.
SBFS argues that Defendants’ first five affirmative defenses
are “based on usury,” and thus should be stricken because the
Agreement “cannot be usurious under Maryland law.”
(ECF No. 20,
at 7, 12). Defendants’ first affirmative defense is no doubt based
Less clear are the grounds for the other four defenses
that SBFS has moved to strike.
In Defenses 2 and 5, the Defendants
do not specifically reference “usury”—rather, they vaguely assert
that the loan agreement is not legal or valid, without stating a
legal theory underlying that assertion.
(ECF No. 13, at 2).
Defendants likewise do not mention usury in Defense 3; instead,
they claim that “[t]he agreement at issue was entered into because
of Plaintiff’s fraud,” without explaining which conduct Defendants
believe to be fraudulent.
(ECF No. 13, at 2).
And in Defense 4,
Defendants assert that SBFS “fails to state a claim for which
relief may be sought.”
(ECF No. 13, at 2).
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 18 of 29
Affirmative Defense 1
In Defense 1, Defendants claim that “Plaintiff’s claims are
barred due to usury under both New York and Maryland law.”
No. 13, at 2).
This defense is meritless for the reasons explained
above—the Agreement is not usurious under Maryland law, and New
York law does not apply.
Defendants argue, however, that the
motion should be denied because a motion to strike is a “drastic
(ECF No. 22, at 6-7 (quoting Waste Mgmt. Holdings v. Gilmore, 252
F.3d 316, 347 (4th Cir. 2001)).
It is true that motions to strike are “generally viewed with
Waste Mgmt., 252 F.3d at 347.
But that is because a
motion to strike is “often sought by the movant simply as a
Id. (internal quotation omitted).
affirmative defense “should be” stricken when it “might confuse
the issues in the case” and “would not, under the facts alleged,
constitute a valid defense to the action.” Id. (internal quotation
affirmative defense simply because it is “insufficient,” and a
motion to strike an insufficient defense is the “appropriate tool
when the parties disagree only on the legal implications to be
drawn from uncontroverted facts.”
Wright & Miller § 1381.
other federal courts have held, a motion to strike an insufficient
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 19 of 29
certainty” that the defense would fail on the merits “despite any
state of the facts which could be proved in support of the defense
and are inferable from the pleadings.”
Operating Eng’rs Loc. 324
Health Care Plan v. G&W Const. Co., 783 F.3d 1045, 1050 (6th Cir.
2015) (quoting Williams v. Jader Fuel Co., 944 F.2d 1388, 1400 (7th
Applying these principles, the Fourth Circuit found
that a district court properly struck an affirmative defense simply
because, under the uncontroverted “facts alleged,” the defense had
“no basis” on the merits.
Waste Mgmt., 252 F.3d at 347.
The underlying facts are undisputed—the parties agree that
they signed the Loan Agreement, and they do not dispute what that
They only disagree about the legal implications
of that Agreement.
Thus, while motions to strike are “generally
viewed with disfavor,” this is precisely the kind of case in which
a motion to strike is appropriate: A case in which a defense is
not legally “valid” based on “the [uncontroverted] facts alleged.”
Id. (emphasis added).
authenticity of a contract and raises an affirmative defense to
prevent enforcement of that contract, several federal courts have
held that a district court may strike that defense as insufficient
if the terms of the contract foreclose the possibility that the
defense could succeed on the merits.
For instance, in Operating
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 20 of 29
Eng’rs Loc. 324 Health Care Plan v. G&W Const. Co., 783 F.3d 1045
(6th Cir. 2015), a Pension Fund sued an employer, arguing that the
employer did not make contributions that were required by the
parties’ collective bargaining agreement.
The employer raised the
affirmative defense of equitable estoppel, the district court
denied the Fund’s motion to strike that defense, and the United
States Court of Appeals for the Sixth Circuit reversed.
The Sixth Circuit found that the “explicit terms” of the
Employer to prove one of the elements of its estoppel defense.
Id. at 1056.
Thus, because the agreement necessarily “defeat[ed]
any claim” of equitable estoppel the Employer could make, the
estoppel defense should have been stricken because it could not
“constitute a valid defense.”
SolarWorld Indus. Sachsen GmbH, 867 F.3d 692 (6th Cir. 2017), a
seller sued a buyer for breach of contract and the buyer raised
the affirmative defense that the contract was invalid because it
violated antitrust law.
Id. at 697.
The Sixth Circuit held that
the district court was right to strike this defense for “lack[ing]
Id. at 697, 702.
To reach this conclusion, the court
conducted a “review of the contract” and concluded that it “[did]
not facially violate” antitrust law.
Id. at 701.
Here, a “review
of the contract” shows that the Loan Agreement’s interest rate
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 21 of 29
“[does] not facially violate” Maryland’s usury law, see id., and
that the terms of the Loan Agreement “defeat any [usury] claim”
that Defendants could make, see Operating Eng’rs, 783 F.3d at 1056.
Seeking to evade this conclusion, Defendants seem to argue
that it is not enough for a defense to be meritless.
note that courts in this district have previously stated that a
motion to strike should “ordinarily” not be granted without a
“demonstration of some prejudice as a result of the inclusion of
the challenged affirmative defense.”
(ECF No. 22, at 6 (citing
EEOC v. Spoa, LLC, No. CCB-13-1615, 2014 WL 47337 (D.Md. Jan. 3,
Defendants likewise argue that SBFS has not shown that a
denial of its motion would cause prejudice.
Courts in this district have in some cases said that a showing
of prejudice is “ordinarily” required before a motion to strike
can be granted.
Spoa, 2014 WL 47337, at *6; see also Asher &
Simmons, P.A. v. j2 Global Can., Inc., 965 F.Supp.2d 701, 705
(D.Md. 2013) (noting that prejudice is “generally” required).
Defendants, however, cite no binding authority to support the
proposition that a showing of prejudice is absolutely mandatory in
affirmative defense simply because it has no chance of success on
the merits, or because the defendant has not alleged sufficient
Indeed, the Fourth Circuit itself affirmed a district
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 22 of 29
court’s decision to strike an affirmative defense simply because
the defense had “no basis” and was unsupported by “case law,”
without any consideration of prejudice at all.
252 F.3d at 347.
See Waste Mgmt.,
Similarly, in the very case that Defendants cite
to support their assertion that prejudice is required, the court
struck an affirmative defense solely because it had “no factual
basis” on the uncontroverted facts alleged—again, without any
Spoa, 2014 WL 47337, at *4. 9
Any purported lack of
prejudice is thus not dispositive. 10
See also Long v. Welch & Rushe, Inc., 28 F.Supp.3d 446, 463
(D.Md. 2014) (striking an affirmative defense because it was
“inapplicable” to the case and lacked “any factual bases,” without
consideration of prejudice); Haley Paint Co. v. E.I. DuPont De
Nemours and Co., 279 F.R.D. 331, 336 (D.Md. 2012) (striking an
affirmative defense because it was “improper as a matter of law”
and could not succeed under Fourth Circuit precedent, without
consideration of whether striking that defense would reduce
prejudice to the plaintiff).
SBFS argues that it would suffer prejudice from a denial
of its motion because it believes that keeping an “unsupported
defense” in the case “would cause increased time and expense of
trial, including the possibility of extensive and burdensome
discovery.” (ECF No. 23, at 11). It is unclear what additional
discovery could be required by Defendants’ usury-based defense—
all facts relevant to that theory are seemingly already known.
That said, as discussed later in this opinion, the legal theory
underlying Affirmative Defenses 2 and 5 is unclear. And another
court in this district has found that a plaintiff may be prejudiced
by being forced to engage in discovery related to defenses that
“lack of any sort of factual detail.” Jones v. Aberdeen Proving
Ground Federal Credit Union, No. ELH-21-1915, 2022 WL 2703825, at
*6 (D.Md. July 12, 2022); see also Villa v. Ally Fin., Inc., No.
13-cv-953, 2014 WL 800450, at *4 (M.D.N.C. Feb. 28, 2014) (holding
that a plaintiff would be prejudiced if the court did not strike
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 23 of 29
Affirmative Defenses 2 and 5
In Defenses 2 and 5, Defendants assert that the Agreement is
not “legal” or “valid,” and thus that they “are not obligated to
perform” under the Agreement (Defense 2), and that SBFS’ claim “is
barred due to the unjust enrichment doctrine” (Defense 5).
No. 13, at 2).
If Defendants’ sole basis for Defenses 2 and 5 is
their usury theory, then these Defenses should be stricken for the
same reason that Defense 1 will be stricken.
Defenses do not necessarily rest on usury alone.
calls the Agreement “usurious” or mentions usury at all.
Defendants simply label the Agreement as illegal and invalid
without explaining why they believe it to be so.
And in their
opposition to SBFS’ motion to dismiss, Defendants argue that the
Agreement is “unconscionable” and “one-sided,” which suggests that
Defendants may intend to argue that the Agreement is invalid for
reasons besides usury.
(ECF No. 22, at 7).
If Defenses 2 and 5 are meant to raise a theory of contract
invalidity beyond usury, then they must be stricken because they
fail to meet the pleading standards of Rule 8, which provides the
“[g]eneral [r]ules of [p]leading” in federal court.
See Wright &
“unsupported” affirmative defenses in part because the plaintiff
would “have to use up some of her limited discovery requests and
time to figure out exactly what the factual bases are” for those
defenses) (internal quotations omitted). Thus, even if prejudice
is required, that requirement would likely be satisfied here, at
least with respect to Affirmative Defenses 2 and 5.
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 24 of 29
Miller § 1380 (noting that defenses can be stricken for failing to
meet Rule 8’s pleading standards because “Rule 12(f) . . . is
designed to reinforce the requirement[s] in Rule 8”).
Rule 8(b), “a party must . . . state in short and plain terms its
defenses to each claim asserted against it.”
Fed. R. Civ. P.
Rule 8(c) states that a party “must affirmatively
state any . . . affirmative defense.”
Fed. R. Civ. P. 8(c)(1).
Federal courts currently disagree over what these standards
mean in practice.
Many courts—including a majority of the courts
in this district, see Jones, 2022 WL 2703825, at *4 (collecting
cases)—conclude that an affirmative defense must be plead with the
same detail as an affirmative claim under Rule 8(a), meaning that
it must meet the “plausible pleading” standard established by the
Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544
(2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009).
in this circuit conclude that the Twombly-Iqbal standard does not
sufficiently plead as long as it provides the plaintiff “fair
notice of the nature of the defense”—a more lenient pleading
standard that predates Iqbal and Twombly.
See, e.g., Guessford v.
Pa. Nat. Mut. Cas. Ins. Co., 918 F.Supp.2d 453, 468 (M.D.N.C. Jan.
The court need not resolve this dispute because
Affirmative Defenses 2 and 5 fail even under the more lenient preTwombly-Iqbal pleading standard.
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 25 of 29
Before Twombly and Iqbal, the Fourth Circuit held that an
affirmative defense may be stated in “general terms,” as long as
it is plead with sufficient detail to “give plaintiff fair notice
of the nature of the defense.”
204 (4th Cir. 2004). 11
Clem v. Corbeau, 98 Fed.App’x 197,
Other federal courts applied a similar fair
See, e.g., Woodfield v. Bowman, 193 F.3d 354, 362
(3d Cir. 1999). 12
The Fourth Circuit has said that a defendant provides “fair
notice” when its answer “encapsulat[es] the elements” of the
affirmative defense it seeks to raise.
Clem, 98 Fed.App’x at 204.
Another federal appellate court held that a defendant raising a
state law affirmative defense to the enforcement of a contract may
provide fair notice by stating “the name” of the state law defense
in its answer, as long as that identification allows the plaintiff
See also Francisco v. Verizon South, Inc., No. 09-cv-737,
2010 WL 2990159, at *6 (E.D.Va. July 29, 2010) (“Prior to the
Supreme Court’s decisions in Twombly and Iqbal, the United States
Court of Appeals for the Fourth Circuit held that general
statements of affirmative defenses were sufficient provided they
gave plaintiffs fair notice of the defense.”); Wright & Miller §
1380 (noting that a court may “grant a motion to strike [a]
defense that [is] pleaded with so little detail that [it] fail[s]
to provide sufficient notice to the opposing party”).
Several district courts in this circuit that have declined
to apply Twombly-Iqbal to affirmative defenses have continued to
apply Clem’s “fair notice” standard instead. See, e.g., Guessford,
918 F.Supp.2d at 468; Villa, 2014 WL 800450, at *2; Tippman Eng’g,
LLC v. Innovative Refrigeration Sys., Inc., No. 19-cv-87, 2020 WL
1644985, at *2 (W.D.Va. Apr. 2, 2020); Grant v. Bank of America,
N.A., No. 13–cv–342, 2014 WL 792119, at *4 (E.D.Va. Feb. 25, 2014).
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 26 of 29
“to identify” which contract defense the defendant intends to
Woodfield, 193 F.3d at 362.
Thus, while Twombly and Iqbal
require a pleader to do more than simply name a legal theory and
restate the elements, a defendant pleading an affirmative defense
can generally satisfy the pre-Twombly-Iqbal fair notice standard
by identifying the name of that defense under state law, or by at
least stating the elements of that defense in its answer.
Defendants do not clear that low bar here.
provides several affirmative defenses to the enforcement of a
contract, including “duress, coercion, mistake, undue influence,
. . . incompetence[,]” and “unconscionability.”
384 Md. 537, 554-55 (2005). 13
Cannon v. Cannon,
In their Answer, Defendants neither
state the “name” nor list the elements for any of these defenses—
explaining why they believe it to be so.
What is more, each of
these defenses—when successful—have the effect of “invalidat[ing]
So where—as here—a defendant merely alleges
Maryland courts do not refer to these defenses as
“affirmative defenses.” However, under Maryland law, a defendant
“bears the burden” of proving one of these defenses in order avoid
liability after a plaintiff claiming breach of contract proves its
“prima facie case.”
Cannon, 384 Md. at 555. So each of these
contract defenses functions as an affirmative defense, even if
Maryland courts have not labelled them as such. See Black’s Law
Dictionary (8th ed. 2004) (defining “affirmative defense” as “a
defendant’s assertion of facts and arguments that, if true, will
defeat the plaintiff’s . . . claims, even if all the allegations
in the complaint are true”).
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 27 of 29
that a contract is invalid without providing any added detail, the
defendant intends to raise. 14
insufficient, the defendant “should normally be granted leave to
amend” its answer and fix any pleading deficiencies.
See Long, 28
F.Supp.3d at 463 (D.Md. 2014) (internal citations omitted).
Defendants will have fourteen days to move for leave to amend the
answer and clarify the contract defenses they seek to raise and to
add the allegations necessary to plead those chosen defenses
sufficiently without relying on usury.
See also Heller Financial, Inc. v. Midwhey Powder Cor.,
Inc., 883 F.2d 1286, 1294-95 (7th Cir. 1989) (applying pre-TwomblyIqbal pleading standard where a defendant raised several
affirmative defenses based on the assertion that the contract under
which plaintiff sued was “unenforceable,” and holding that the
defenses should be stricken because they contained “nothing but
bare bones conclusory allegations” and failed to “allege the
necessary elements”); Topline Sols., Inc. v. Sandler Sys., Inc.,
No. L-09-3102, 2010 WL 2998836, at *2 (D. Md. July 27, 2010)
(noting that, “even before Twombly and Iqbal,” certain defenses
“were consistently struck when pled without reference to some
facts”); Tippman Eng’g, 2020 WL 1644985, at *2 (noting that under
the pre-Twombly-Iqbal fair notice standard, “bare bones conclusory
assertions . . . provide insufficient notice of the nature of
the defense”) (internal citation omitted); Villa, 2014 WL 800450,
at *2 (to “survive a motion to strike” under the pre-Twombly-Iqbal
fair notice standard, a party must offer more than a “bare-bones
conclusory allegation which . . . does not indicate how the
[defendant’s legal] theory is connected to the case at hand”)
(internal quotations omitted); Staton v. North State Acceptance,
LLC, No. 13-cv-277, 2013 WL 3910153, at *2-3 (M.D.N.C. July 29,
2013) (holding that, even where “Iqbal/Twombly does [not] apply,”
an affirmative defense must “[a]t a minimum” provide “more than
conclusions”) (internal citation omitted).
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 28 of 29
Affirmative Defense 3
Affirmative Defense 3 alleges that Defendants signed the
Agreement “because of [SBFS’] fraud.”
(ECF No. 13, at 2).
is an affirmative defense under Maryland law, see Cannon, 384 Md.
at 555, but an affirmative defense alleging fraud must meet the
same particular pleading standard as a fraud counterclaim.
Just Born II, 888 F.3d at 704-05.
Because the Answer provides no
more detail than the Counterclaim regarding Defendants’ fraud
allegations, Affirmative Defense 3 will be stricken for the same
reason that Count III of the Counterclaim will be dismissed.
Defendants will likewise have fourteen days to move for leave to
amend the answer and add the allegations necessary to plead with
the required particularity a fraud defense that does not rest on
Affirmative Defense 4
Finally, Affirmative Defense 4 alleges that SBFS “fails to
state a claim for which relief may be sought.”
(ECF No. 13, at
The assertion that a plaintiff has failed to state a claim is
“not an affirmative defense at all.”
Odyssey Imaging, LLC v.
An affirmative defense is an argument that—if
successful—“will defeat the plaintiff’s . . . claims” even if the
plaintiff proves its prima facie case.
See Black’s Law Dictionary
(8th ed. 2004) (defining “affirmative defense”).
By arguing that
Case 8:22-cv-01383-DKC Document 24 Filed 01/18/23 Page 29 of 29
SBFS failed to state a claim, Defendants merely “assert[ed] that
[SBFS] cannot establish a prima facie case”—they did not raise an
See Clark v. Milam, 152 F.R.D. 66, 73
Affirmative Defense 4 is thus “superfluous,” and
it will be stricken.
Id.; see also Odyssey Imaging, 752 F.Supp.2d
at 727 (W.D.Va.2010) (striking purported affirmative defense which
asserted that the “complaint fails to state a cause of action”
because it was “not an affirmative defense at all”); Malibu
Media, LLC v. Popp, No. 14-cv-700, 2015 WL 10937405, at *3 (E.D.Va.
April 13, 2015) (same).
Because the parties’ Loan Agreement cannot be usurious under
Maryland law, SBFS’ motion to dismiss Defendants’ counterclaims
will be granted as to Counts II, III, and IV.
As to Count I, the
court will declare that the Loan Agreement cannot be usurious under
SBFS’ motion to strike Defendants’ affirmative
defenses will also be granted because Defendants’ usury theory is
DEBORAH K. CHASANOW
United States District Judge
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