Securities and Exchange Commission v. AIC, Inc. et al
Filing
81
ORDER granting in part and denying in part, and denying without prejudice in part, 71 Plaintiff's Motion to Strike as set forth more fully herein. The Defendants SHALL FILE an amended Answer that is consistent with the rulings announced herein on or before February 28, 2013. Signed by Magistrate Judge H Bruce Guyton on February 20, 2013. (copies mailed to pro se parties) (AYB)
UNITED STATE DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
SECURITIES AND EXCHANGE COMMISSION, )
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Plaintiff,
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V.
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AIC, Inc., et al.,
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Defendants.
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No. 3:11-CV-176
(VARLAN/GUYTON)
MEMORANDUM AND ORDER
This case is before the undersigned pursuant to 28 U.S.C. § 636, the Rules of this Court,
and the Order of the District Judge referring Plaintiff’s Motion to Strike to the undersigned for
disposition.
I.
BACKGROUND
Plaintiff filed this action on April 15, 2011, naming AIC, Inc., Community Bankers
Securities, LLC, Nicholas D. Skaltsounis, John B. Guyette, and John R. Graves, as defendants
and Allied Beacon Partners, Inc., Advent Securities, Inc., and CBS Advisors, LLC, as relief
defendants. Plaintiff alleged various violations of the Securities Act of 1933, 15 U.S.C. §§ 77a
et seq., the Exchange Act of 1934, 15 U.S.C. §§ 78a et seq., and the Investment Advisers Act of
1940, 18 U.S.C. §§ 80b-1, et seq.
On November 21, 2011, the Honorable Thomas A. Varlan, United States District Judge,
entered a Stipulated Order resolving three pending motions, including: the motion to dismiss
contained within the Answer and Affirmative Defense and Renewed Objection to Venue [Doc.
31]; the Plaintiff’s Cross-Motion to Strike [Doc. 33]; and AIC Defendants for the Entry of a
Stipulated Order Regarding the Withdrawal of the AIC Defendants’ Motion to Dismiss and
Resolving the Plaintiff’s Cross-Motion to Strike [Doc. 39]. The Stipulated Order struck a
number of the affirmative defenses pled in this case. [Doc. 40 at 2-3].
On September 28, 2012, the Plaintiff filed a Motion to Amend its Complaint. On
October 25, 2012, Judge Varlan granted the Motion to Amend. [Doc. 64]. On October 25, 2012,
the Plaintiff filed its Amended Complaint [Doc. 65], and on November 8, 2012, AIC, Inc.,
Community Bankers Securities, LLC, Nicholas Skaltsounis, Allied Beacon Partners, Inc.,
Advent Securities, Inc., and Allied Beacon Wealth Management, LLC, filed their Answer and
Affirmative Defenses to First Amended Complaint and Renewed Objection to Venue [Doc. 66].
The Plaintiff filed its Motion to Strike on December 3, 2012, and AIC, Inc., Community
Bankers Securities, LLC, Nicholas Skaltsounis, Allied Beacon Partners, Inc., Advent Securities,
Inc., and CBS Advisors, LLC, 1 responded in opposition on December 18, 2012. [Doc. 73]. The
Plaintiff filed a final reply in support of its position on December 28, 2012. [Doc. 75]. The
Court finds that the Motion to Strike is ripe for adjudication, and for the reasons stated herein,
the Motion to Strike will be GRANTED IN PART, DENIED IN PART, and DENIED
WITHOUT PREJUDICE IN PART.
II.
POSITIONS OF THE PARTIES
In the instant motion, Plaintiff moves the Court pursuant to Rule 12(f) of the Federal
Rules of Civil Procedure to strike certain affirmative defenses set forth in the Amended Answer
to Plaintiff’s Amended Complaint [Doc. 66], filed November 8, 2012. Plaintiff argues that in the
Stipulated Order Judge Varlan struck the same affirmative defenses that Defendants have once
1
For purposes of this motion, these persons and entities are referred to as the “Defendants.”
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again pled. Plaintiff seeks to strike these affirmative defenses. In the alternative, the Plaintiff
argues that the affirmative defenses are legally insufficient.
The Defendants respond that the affirmative defenses pled are properly raised. [Doc. 73].
The Defendants argue that the affirmative defenses contain a short and plain statement of matters
of avoidance and defense, and they support Defendants’ defenses under Rule 12(b)(6) of the
Federal Rules of Civil Procedure.
Defendants review, at length, the merits of each of the
affirmative defenses asserted.
The Plaintiff replies that the Defendants’ response brief is no more than an attempt to
obfuscate the issue by diverting attention away from the affirmative defenses that Plaintiff
maintains should be stricken. [Doc. 75]. Plaintiff argues that the Defendants made no effort to
explain why the defenses that were previously stricken from the Complaint should not be
stricken again. In addition, Plaintiff argues that the Defendants have not addressed the legal
deficiencies in a number of their affirmative defenses.
III.
ANALYSIS
Pursuant to Rule 12(f) of the Federal Rules of Civil Procedure, the “court may strike from
a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous
matter.”
In this matter, Judge Varlan entered a Stipulated Order directing:
a. From the First Affirmative Defense and Motion to Dismiss, the
third sentence, as well as the words “and MOTION TO DISMISS”
from the heading of the First Affirmative Defense and Motion to
Dismiss, are STRICKEN;
b. from the Second Affirmative Defense and Motion to Dismiss,
the second through sixth sentences, inclusive, as well as the words
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“and MOTION TO DISMISS” from the heading of the Second
Affirmative Defense and Motion to Dismiss, are STRICKEN;
c. from the Third Affirmative Defense and Motion to Dismiss, the
second through eighth sentences, inclusive, as well as the words
“and MOTION TO DISMISS” from the heading of the Third
Affirmative Defense and Motion to Dismiss, are STRICKEN;
d. from the Fourth Affirmative Defense and Motion to Dismiss, the
words “and MOTION TO DISMISS” from the heading of the
Fourth Affirmative Defense and Motion to Dismiss, are
STRICKEN;
e. from the Fifth Affirmative Defense and Motion to Dismiss, the
second sentence of the first paragraph, the second through fourth
paragraphs, inclusive, and footnote 1 on page 5, as well as the
words “and MOTION TO DISMISS” from the heading of the Fifth
Affirmative Defense and Motion to Dismiss, are STRICKEN;
f. the Eighth Affirmative Defense is STRICKEN in its entirety;
g. from the Ninth Affirmative Defense, the first sentence is
STRICKEN;
h. the Tenth Affirmative Defense is STRICKEN in its entirety;
i. from the Eleventh Affirmative Defense, the words “ratification,
assumption of the risk, and negligence” are STRICKEN;
j. the Twelfth Affirmative Defense is STRICKEN in its entirety;
and
k. the Thirteenth Affirmative Defense is STRICKEN in its
entirety.
[Doc. 40 at 2-3].
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The Court has compared the rulings in the Stipulated Order to the Plaintiff’s prayer for
relief in the instant case, and the Court finds:
1. The First Affirmative Defense (Sentences 4, 5, 6, 7, and 9) 2: With regard to Sentence
7, the Court finds Judge Varlan struck the ratification defense from the Eleventh
Affirmative Defense contained in the initial Answer. Judge Varlan also struck the type of
general denials contained in Sentences 4, 5, 6. The Defendants have not demonstrated a
basis for reconsidering these rulings. Therefore, the Motion to Strike is GRANTED as to
Sentence 4, 5, 6, and 7 of the First Affirmative Defense. It is DENIED as to Sentence 9
of the First Affirmative Defense, because the Court finds that the Stipulated Order
entered by Judge Varlan did not address the statute of limitations affirmative defense and
the Court further finds that the Plaintiff has not carried the burden for excluding this
language under Rule 12(f).
2. The Second Affirmative Defense (Sentences 2, 3, 4, 5 (words “unclean hands”), and
7): As to Sentences 2, 3, and 4, the Court finds that Judge Varlan struck similar legal
conclusions and arguments from the initial Answer. The Defendants have not
demonstrated a basis for reconsidering this ruling. Therefore, the Motion to Strike is
GRANTED as to Sentences 2, 3, and 4 of the Second Affirmative Defense. It is
DENIED as to Sentence 7 of the Second Affirmative Defense, because the Court finds
that the Stipulated Order entered by Judge Varlan did not address the statute of
limitations affirmative defense and the Court further finds that the Plaintiff has not
carried the burden for excluding this language under Rule 12(f). Finally, the Court finds
that neither side has briefed the legal viability of a “unclean hands” defense sufficiently at
2
This Memorandum and Order refers to the affirmative defenses and language as they are contained in the Answer
and Affirmative Defenses to the First Amended Complaint and Renewed Objection to Venue [Doc. 66].
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this juncture. The request to strike the words “unclean hands” from Sentence 5 will be
DENIED WITHOUT PREJUDICE.
3. Third Affirmative Defense (Sentences 2, 3, 4 (words “unclean hands”), and 6): As to
Sentences 2 and 3, the Court finds that Judge Varlan struck similar legal conclusions and
arguments from the initial Answer. The Defendants have not demonstrated a basis for
reconsidering this ruling. Therefore, the Motion to Strike is GRANTED as to Sentences
2 and 3 of the Third Affirmative Defense. It is DENIED as to Sentence 6 of the Third
Affirmative Defense, because the Court finds that the Stipulated Order entered by Judge
Varlan did not address the statute of limitations affirmative defense and the Court further
finds that the Plaintiff has not carried the burden for excluding this language under Rule
12(f).
The request to strike the “unclean hands” language in Sentence 4 is again
DENIED WITHOUT PREJUDICE.
4. Fourth Affirmative Defense (Sentences 2 and 5): As to Sentence 2, the Court finds that
Judge Varlan struck similar legal conclusions and arguments from the initial Answer. The
Defendants have not demonstrated a basis for reconsidering this ruling. Therefore, the
Motion to Strike is GRANTED as to Sentence 2 of the Fourth Affirmative Defense. It is
DENIED as to Sentence 5 of the Fourth Affirmative Defense, because the Court finds
that the Stipulated Order entered by Judge Varlan did not address the statute of
limitations affirmative defense and the Court further finds that the Plaintiff has not
carried the burden for excluding this language under Rule 12(f).
5. Fifth Affirmative Defense (Sentences 2, 3, and 5): As to Sentences 2 and 3, the Court
finds that Judge Varlan struck similar legal conclusions and arguments from the initial
Answer. The Defendants have not demonstrated a basis for reconsidering this ruling.
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Therefore, the Motion to Strike is GRANTED as to Sentences 2 and 3 of the Fifth
Affirmative Defense. It is DENIED as to Sentence 5 of the Fifth Affirmative Defense,
because the Court finds that the Stipulated Order entered by Judge Varlan did not address
the statute of limitations affirmative defense and the Court further finds that the Plaintiff
has not carried the burden for excluding this language under Rule 12(f).
6. Sixth Affirmative Defense (Sentences 2, 3, 5 (words “unclean hands”), 6, and 7): As
to Sentences 2, 3, 6, and 7, the Court finds that Judge Varlan struck similar legal
conclusions and arguments from the initial Answer. The Defendants have not
demonstrated a basis for reconsidering this ruling. Therefore, the Motion to Strike is
GRANTED as to Sentences 2, 3, 6, and 7 of the Sixth Affirmative Defense. The request
to strike the “unclean hands” language in Sentence 5 is again DENIED WITHOUT
PREJUDICE.
7. Ninth Affirmative Defense (Sentence 1): The Court finds that Judge Varlan struck legal
conclusions and arguments similar to Sentence 1 of the Ninth Affirmative Defense from
the initial Answer. The Defendants have not demonstrated a basis for reconsidering this
ruling. Therefore, the Motion to Strike is GRANTED as to Sentence 1 of the Ninth
Affirmative Defense.
8. Tenth Affirmative Defense (words “unclean hands”): For the reasons stated above, the
request to strike the “unclean hands” language the Tenth Affirmative Defense is
DENIED WITHOUT PREJUDICE.
In so ruling, the Court finds that the Defendants’ shuffling of their affirmative defenses in their
revised pleading was careless at best. Counsel for the Plaintiff and the Court have been required
to expend resources unnecessarily in identifying and striking the redundancies that the Court
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ordered removed over a year ago. Going forward the parties shall litigate this case in a manner
that avoids superfluous motion practice.
IV.
CONCLUSION
The Plaintiff’s Motion to Strike [Doc. 71] is GRANTED IN PART, DENIED IN
PART, and DENIED WITHOUT PREJUDICE IN PART. The Defendants SHALL FILE an
amended Answer that is consistent with the rulings announced above on or before February 28,
2013.
IT IS SO ORDERED.
ENTER:
/s H. Bruce Guyton
United States Magistrate Judge
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