Bolton, et al v. United States of America

Filing 18

ORDER denying 10 Motion to Strike. Signed by Chief Judge Jon Phipps McCalla on 08/01/2013. (McCalla, Jon)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
____
CHARLES E. and
MICHELLE P. BOLTON,
Plaintiffs,
v.
UNITED STATES OF AMERICA,
Defendants.

)
)
)
)
)
)
)
)
)
)

No. 2:12-cv-3031-JPM-dkv

____
ORDER DENYING PLAINTIFFS’ MOTION TO STRIKE

Before the Court is Plaintiffs Charles E. and Michelle P.
Bolton’s (“Plaintiffs”) Motion to Strike Defendant United States
of America’s (“Defendant” or “Government”) First and Second
Defenses (Pls.’ Mot. to Strike, ECF No. 10), filed March 19,
2013.

Defendant filed its Response in opposition to the

Plaintiffs’ Motion on April 5, 2013.

(ECF No. 17.)

For the

reasons that follow, the Plaintiffs’ Motion is DENIED.
I.

Background
This case arises under the internal revenue laws of the

United States for recovery of interest that was allegedly
assessed and collected “erroneously and illegally” from
Plaintiffs “for the tax years 1998 and 2000.”
1 ¶ 1.)

(Compl., ECF No.

Plaintiffs allege that they filed a joint income tax

return for tax year 1998, and in 2006 received a notice of tax

liability.

(Id. ¶¶ 6-8.)

Plaintiffs thereafter paid $258,120

of interest on December 20, 2006.

(Id. ¶¶ 8-9.)

Plaintiffs

similarly allege that they filed a joint income tax return for
tax year 2000, and in 2006 received a notice of tax liability.
(Id. ¶¶ 17-18.)

Plaintiffs thereafter paid $2,820,978 of

interest on December 20, 2006.

(Id. ¶¶ 18-20.)

Plaintiffs further allege that on November 20, 2007, they
“filed a Form 843, Claim for Refund and request for Abatement,
requesting a refund of interest paid as a result of IRS errors
or delay under 26 U.S.C. § 6404(g) in the amount of $743,112, or
such greater amount as may be legally refundable, for the tax
years 1998 and 2000.”

(Id. ¶ 10.)

“On December 3, 2010, the

Internal Revenue Service sent Plaintiffs a notice of
disallowance of their claim for refund under 26 U.S.C. § 6404(g)
for interest paid for the 1998 tax year.”

(Id. ¶ 12.)

On the

same date, the IRS also sent Plaintiffs a “notice of
disallowance of their claim for refund under 26 U.S.C. § 6404(g)
for interest paid for the 2000 tax year.”

(Id. ¶ 23.)

The

notices indicated that the Plaintiffs’ claim for refund was
denied because “[i]nterest suspension [under 26 U.S.C. §6404(g)]
does not apply in a case involving fraud.”

(Id. ¶¶ 13, 24

(internal quotation marks omitted)); see 26 U.S.C.
§ 6404(g)(2)(B).

2

Plaintiffs demand judgment in their favor in the amounts of
$258,120 for tax year 1998, plus interest; $2,820,978 for tax
year 2000, plus interest; and “[P]laintiff’s costs, attorney’s
fees, and such other and further legal and/or equitable relief
as this court deems appropriate.”

(Compl., ECF No. 1, at 6.)

Defendant filed its Answer on January 27, 2013.
Answer, ECF No. 7.)

(Def.’s

In its Answer, the Government’s First

Defense provides that Plaintiffs are not entitled to suspension
of interest under 26 U.S.C. § 6404(g) because, “[a]mong other
things, Plaintiff Charles Bolton pled guilty in federal court to
conspiracy to commit federal tax crimes under 18 U.S.C. § 371.”
(Def.’s Answer, ECF No. 7, at 1); see United States v. Bolton,
No. 07-453 (S.D.N.Y. 2009).

The Government further asserts that

in Charles Bolton’s plea, “he admitted that between 1999 and
2006, he ‘entered into an agreement with others to impede and
mislead the Internal Revenue Service’ about his and his client’s
participation in tax shelters known as ‘CDS and CDS Add-On
Transactions.’”

(Def.’s Answer, ECF No. 7, at 1.)

The

Government also states, “[Charles Bolton] admitted that he
‘submitted a sworn statement to the IRS on which I stated that
my decision to participate personally in that CDS transaction
was primarily profit driven and that tax avoidance was not a
significant purpose of the CDS transaction. That was false.’”
(Id.)

3

For its Second Defense, the Government states, “Plaintiffs
are not entitled to an award of attorneys’ fees or costs.”

(Id.

at 2.)
“Pursuant to Rules 8 and 12(f) of the Federal Rules of
Civil Procedure,” Plaintiffs move to strike Defendant’s First
and Second Defenses for “failure to satisfy the pleading
requirements of the Federal Rules of Civil Procedure.”

(Pls.’

Mot. to Strike, ECF No. 10, at 1.)
II.

Standard of Review

Under Rule 12(f) of the Federal Rules of Civil Procedure
(“Rule 12(f)”), “the court may strike from a pleading an
insufficient defense or any redundant, immaterial, impertinent,
or scandalous matter.”
pleadings.

Motions to strike are applicable only to

Fox v. Mich. State Police Dep’t, 173 F. App’x 372,

375 (6th Cir. 2006).

“It is well-established that the action of

striking a pleading should be used sparingly by the courts.”
Parlak v. U.S. Immigration & Customs Enforcement, No. 05-2003,
2006 U.S. App. LEXIS 32285, at *3 (6th Cir. Apr. 27, 2006)
(internal quotation marks omitted).
“What constitutes an insufficient defense under Rule 12(f)
depends upon the nature of the affirmative pleader’s claim for
relief and the particular defense that is in question.”

Snow v.

Kemp, No. 10-2363-STA-cgc, 2011 U.S. Dist. LEXIS 8866, at *6
(W.D. Tenn. Jan. 28, 2011) (citing 5C Charles Alan Wright &

4

Arthur R. Miller, Federal Practice and Procedure, § 1381 (3d ed.
2004)).

A defense may be insufficient under Rule 12(f) if it

fails to meet the pleading requirements governed by Rule 8 of
the Federal Rules of Civil Procedure (“Rule 8”).

McLemore v.

Regions Bank, Nos.3:08-cv-0021, 3:08-cv-1003, 2010 U.S. Dist.
LEXIS 25785, at *44 (M.D. Tenn. Mar. 18, 2010), aff’d, 682 F.3d
414 (6th Cir. 2012).

Rule 8(a) requires that a claim for relief

must contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.”
8(a)(2).

Fed. R. Civ. P.

The purpose of this rule is to give the opposing party

“fair notice of what the . . . claim is and the grounds upon
which it rests.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

(2007) (alteration in original) (internal quotation marks
omitted).

Rule 8(b) provides that “in responding to a pleading,

a party must: (A) state in short plain terms its defenses to
each claim asserted against it; and (B) admit or deny the
allegations asserted against it by an opposing party.”
Civ. P. 8(b)(1).

Fed. R.

Pursuant to Rule 8(c), in a responsive

pleading, “a party must affirmatively state any avoidance or
affirmative defense,” including fraud.

Fed. R. Civ. P. 8(c)(1).

A motion to strike a defense under Rule 12(f) “should be
granted only when the pleading to be striken [sic] has no
possible relationship to the controversy.”

Parlak, 2006 U.S.

App. LEXIS 32285, at *3-4 (quoting Brown & Williamson Tobacco

5

Corp. v. United States, 201 F.2d 819, 822 (6th Cir. 1953))
(internal quotation marks omitted).

After accepting as true the

factual allegations contained in the defense, “if it is
impossible for defendants to prove a set of facts in support of
the affirmative defense that would defeat the complaint, the
matter must be stricken as legally insufficient.”

Snow, 2011

U.S. Dist. LEXIS 8866, at *7 (quoting Williams v. Provident Inv.
Counsel, Inc., 279 F. Supp. 2d 894, 906 (N.D. Ohio 2003))
(internal quotation marks omitted).

Additionally, when

presented with a Rule 12(f) motion, courts must assess if the
moving party will be prejudiced by the inclusion of the defense.
Damron v. ATM Central LLC, No. 1:10-cv-01210-JDB-egb, 2010 U.S.
Dist. LEXIS 142812, at *6 (W.D. Tenn. Oct. 29, 2010).
Ultimately, a motion to strike a defense under Rule 12(f) is “a
drastic remedy to be resorted to only when required for the
purposes of justice.”

Brown & Williamson, 201 F.2d at 822;

accord Parlak, 2006 U.S. App. LEXIS 32285, at *3.

While Rule

12(f) motions are occasionally granted, “the general practice is
to grant the defendant leave to amend.”

Damron, 2010 U.S. Dist.

LEXIS 142812, at *3 (internal quotation marks omitted).
III.

Analysis

Plaintiffs argue that Defendant’s First Defense should be
stricken for three reasons: (1) the defense “does not prove a
fact that might allow the defense to succeed” (Pls.’ Mot. to

6

Strike, ECF No. 10, ¶¶ 7-13); (2) the defense does not present a
“substantial question of law that might allow the defense to
succeed” (id. ¶¶ 14-16); and (3) the defense “prejudices
plaintiffs because it introduces immaterial and scandalous facts
that will protract the litigation” (id. ¶¶ 17-19).
Plaintiffs further argue that Defendant’s Second Defense
should be stricken for two reasons: (1) the Second Defense is
“insufficient as a matter of law” (id. ¶ 20); and (2) the Second
Defense “would deny plaintiffs a legal remedy” to allegations in
Defendant’s pleadings (id. ¶ 21).
The Government argues that Plaintiffs’ Motion to Strike its
First Defense should be denied because “the first defense is not
wholly irrelevant to Plaintiffs’ claims” and “gives Plaintiffs
fair notice of the United States’ defenses.”
Pls.’ Mot. to Strike, ECF No. 17, at 6-7.)

(Def.’s Resp. to

Additionally,

Defendant argues that Plaintiffs “have not shown that they will
be prejudiced by [the inclusion] of the United States’ First
Defense.”

(Id. at 11.)

The Government similarly argues that the Plaintiffs’ Motion
to Strike its Second Defense should be denied because the
“affirmative defense must be read in the context of Plaintiffs’
Complaint” and therefore “satisfies the ‘fair notice’ standard
of Rule 8.”

(Id. at 12.)

7

A.

Defendant’s First Defense
1.

Substantial Question of Fact and Law

To grant a Rule 12(f) motion, the court must determine that
the challenged allegations are “‘so unrelated to the plaintiff’s
claims as to be unworthy of any consideration as a defense.’”
Kilgore-Wilson v. Home Depot U.S.A., No. 2:11-cv-02601-JTF-cgc,
2012 U.S. Dist. LEXIS 131166, at *9 (W.D. Tenn. Sept. 13, 2012)
(quoting Damron 2010 U.S. Dist. LEXIS 142812, at *2-3).

At

issue in the Plaintiffs’ Motion to Strike is whether the
Defendant’s Answer provides sufficient facts in support of the
affirmative defense of fraud, thereby providing fair notice to
Plaintiffs of a potentially successful defense.1
As articulated in Plaintiffs’ argument, a Rule 12(f) motion
may be granted if a pleading does not meet the pleading
standards of Rule 8.

(Pls.’ Mot. to Strike, ECF No. 10, ¶ 6.)

Pursuant to Rule 8(b)(1)(A), a party responding to a claim must
“state in short and plain terms its defenses to each claim
asserted against it,” in order to provide “fair notice of the
defense that is being advanced [and] the grounds for entitlement
1

The United States Court of Appeals for the Sixth Circuit has not addressed
the issue of whether the “plausibility standard” articulated in Twombly
applies to affirmative defenses such as fraud. See Twombly, 550 U.S. 544
(requiring a heightened pleading standard in which a plaintiff must allege
sufficient facts within a complaint to establish a plausible claim). Under
the current Sixth Circuit approach, the fair-notice standard for affirmative
defenses continues to apply. Lawrence v. Chabot, 182 F. App’x 442, 456 (6th
Cir. 2006); see also Kilgore-Wilson, 2012 U.S. Dist. LEXIS 131166, at *8;
Damron, 2010 U.S. Dist. LEXIS 142812, at *5-6.

8

to relief.”

Del-Nat Tire Corp. v. A to Z Tire & Battery, Inc.,

No. 2:09-cv-02457-JPM-tmp, 2009 WL 4884435, at *2 (W.D. Tenn.
Dec. 8, 2009) (internal quotation marks omitted).

The facts

asserted within Defendant’s First Defense include (1) Plaintiff
Charles Bolton pled guilty to conspiracy to commit federal tax
crimes under 18 U.S.C. § 371; (2) Plaintiff Charles Bolton made
a statement admitting that from 1999 to 2006 he entered into an
agreement to “impede and mislead the Internal Revenue Service”
about his participation in tax shelters; and (3) Plaintiff
Charles Bolton made a statement admitting tax avoidance was a
significant purpose of his related transactions.

The Court

finds these allegations offer sufficient evidence for an
inference of fraud and accordingly provide the Plaintiffs with
fair notice of the defense being advanced.
Contrary to Plaintiffs’ argument, Defendant’s Answer does
not need to “prove” facts that might allow the defense to
succeed (see Pls.’ Mot. to Strike, ECF No. 10, ¶ 9), rather the
Answer need only present facts that provide fair notice of the
defense.2

A motion to strike should not be granted where the

sufficiency of a defense depends on disputed issues of fact or
substantial questions of law.
142812, at *6.

See Damron, 2010 U.S. Dist. LEXIS

Plaintiffs’ argument attempts to distinguish

between the definition and elements of the term “Federal tax
2

See supra n.1 and accompanying text.

9

crime,” as used in the Defendant’s Answer, and the term
“defrauding an agency of the United States,” as used in Charles
Bolton’s plea agreement in the previous criminal case.

This

argument depends on disputed issues of fact and substantial
issues of law that cannot be determined in a motion to strike.
Moreoever, this argument does not address or alter the
Government’s pleading obligation under Rule 8.
Plaintiffs also argue that the facts within Defendant’s
First Defense allege “immaterial and irrelevant facts that do
not support an element [of fraud].”

(Pls.’ Mot. to Strike, ECF

No. 10, ¶ 10; see also id. ¶¶ 11-13.)

While such facts might

not support a particular element of fraud, Defendant’s
allegations within the First Defense provide fair notice of the
defense being advanced.

Because “[a]n affirmative defense may

be pleaded in general terms and will be held to be
sufficient . . . as long as it gives plaintiff fair notice of
the nature of the defense,” the Court finds Defendant’s answer
sufficiently meets the pleading standard under Rule 8 to
withstand a motion to strike under Rule 12(f).

Estate of Robles

v. Vanderbilt Univ., No. 3:11-cv-00399, 2011 U.S. Dist. LEXIS
131378, at *6 (M.D. Tenn. Nov. 10, 2011) (quoting Lawrence v.
Chabot, 182 F. App’x 442, 456 (6th Cir. 2006)) (alteration in
original) (internal quotation marks omitted).

By arguing that

facts have not been alleged to support the elements of the

10

defense, Plaintiffs are implicating the Government’s future
burden of proof rather than its present pleading standard.
Additionally, the Court notes that motions to strike are
inappropriate during the pre-discovery stage before parties have
had the opportunity to gather additional evidence in support of
their claims.

Damron, 2010 U.S. Dist. LEXIS 142812, at *6-7.

The action is used sparingly because of the “practical
difficultly of deciding cases without a factual record.”

Mapp

v. Bd. of Educ., 319 F.2d 571, 576 (6th Cir. 1963) (quoting
Brown & Williamson, 201 F.2d at 822) (internal quotation marks
omitted).

As stated in its Answer, Defendant “intends to take

discovery to gather additional evidence in support of its fraud
claims.”
8).

(Def.’s Resp. to Pls.’ Mot. to Strike, ECF No. 17, at

Therefore, appropriate time should be given to develop such

factual allegations in an attempt to meet the applicable burden
of proof.
2.

Prejudice to Plaintiffs

If a court finds an “insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter” within a
pleading, a court must next address whether the moving party
would be prejudiced by the inclusion of the defense.

Fed. R.

Civ. Pro. 12(f); see also Damron, 2010 U.S. Dist. LEXIS 142812,
at *6.

In order to grant a Rule 12(f) motion, the court must

additionally find that the inclusion of the disputed pleading

11

prejudices the plaintiff.
at *9.

See Snow, 2011 U.S. Dist. LEXIS 8866,

This determination similarly must be made in light of

the well-settled notion that granting a 12(f) motion is “a
drastic remedy to be resorted to only when required for the
purposes of justice.”

Brown & Williamson, 201 F.2d at 822.

Having found the Defendant’s First Defense sufficient and
material to the claim, the Court need not address Plaintiffs’
argument regarding prejudice.

Accordingly, Plaintiffs’ Motion

to Strike Defendant’s First Defense is DENIED.
B.

Defendant’s Second Defense

Defendant’s Second Defense states, “Plaintiffs are not
entitled to an award of attorneys’ fees or costs.”
Answer, ECF No. 7, at 2.)

(Def.’s

Plaintiffs argue that “Defendant’s

Second Defense does not allege a legal defense nor does it
allege facts that satisfy an element of a legal defense.”
(Pls.’ Mot. to Strike, ECF No. 10, ¶ 20.)

Plaintiffs assert

that Defendant’s Second Defense should be stricken because it is
a “cursory conclusion of law and legally insufficient as a
matter of law.”

(Id.)

The Government counters that its second defense must be
read in the context of Plaintiffs’ Complaint.3
Pls.’ Mot. to Strike, ECF No. 17, at 12.)

3

(Def.’s Resp. to

The Government argues

Within its prayer for relief, Plaintiffs demand “plaintiff’s [sic] costs,
attorney’s fees, and such other further legal and/or equitable relief as this
court deems appropriate.” (Compl., ECF No. 1, at 6.)

12

that its assertion “satisfies the ‘fair notice’ standard of Rule
8” because Plaintiffs made “the boilerplate assertion” that they
are entitled to an award of attorney’s fees, yet “cited to no
authority to justify his attorney’s fee award, nor any facts to
support this position.”

(Id.)

When filing a responsive pleading, a party may “assert in
[its] answer to the complaint every defense, objection, or
response the defendant has to the plaintiff’s claim for relief,
. . . denials, affirmative defenses, and counterclaims.”

King

v. Taylor, 803 F. Supp. 2d 659, 669 (6th Cir. 2011), rev’d on
other grounds, 694 F.3d 650 (6th Cir. 2012).

“[I]ssues [are]

waived when they are raised for the first time in motions
requesting reconsideration or in replies to responses.”
Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 553 (6th Cir.
2008); see Foster v. Barilow, 6 F.3d 405, 406 (6th Cir. 1993)
(affirming a defendant’s award of attorney’s fees because
plaintiffs did not raise the issue in the district court
proceedings and therefore waived it on appeal).

To preserve

such issues or defenses, “a defendant need only state the
defense in its first responsive filing and need not articulate
the defense with any rigorous degree of specificity.”

King, 694

F.3d at 657 (quoting Mattel, Inc. v. Barbie-Club.com, 310 F.3d
293, 307 (2d Cir. 2002)) (internal quotation marks omitted).
“The filing of an answer is, after all, the main opportunity for

13

a defendant to give notice of potentially dispositive issues to
the plaintiff.”

Johnson Assocs. Corp. v. HL Operating Corp.,

680 F.3d 713, 718 (6th Cir. 2012) (holding that the defendant’s
defense should have been raised in its answer with a simple
statement, thus preserving the opportunity to further litigate
the details of the issue).
Again, the issue to consider regarding Defendant’s Second
Defense is whether it meets the responsive pleading requirements
of Rule 8.

To make that determination, the Court will consider

“the nature of the affirmative pleader’s claim for relief and
the particular defense that is in question.”
Dist. LEXIS 886, at *6 (citation omitted).

Snow, 2011 U.S.

Because a “defense

may be pleaded in general terms . . . as long as it gives
plaintiff fair notice of the nature of the defense,” the Court
finds Defendant’s Second Defense is sufficient under the
pleading standard of Rule 8.4

Estate of Robles, 2011 U.S. Dist.

LEXIS 131378, at *6 (quoting Lawrence 182 F. Appp’x 442, 456)
(internal quotation marks omitted).

A statement denying a

plaintiff’s claim for relief (a claim for attorney fees in the
instant case) provides Plaintiffs with fair notice of the
Defendant’s assertion.

Accordingly, the Court finds Defendant’s

Second Defense sufficient under Rule 8’s pleading standard.

4

See supra n.1 and accompanying text.

14

Plaintiffs’ Motion to Strike Defendant’s Second Defense is
DENIED.
IV.

Conclusion

For the reasons stated above, the Court DENIES Plaintiffs’
Motion to Strike Defendant’s First Defense and Second Defenses.
IT IS SO ORDERED, this 1st day of August, 2013.

/s/ Jon P. McCalla_______
CHIEF U.S. DISTRICT JUDGE

15