Pieciak v. Crowe LLP
Filing
120
OPINION AND ORDER granting in part and denying in part 45 Motion to Strike Certain Affirmative Defenses. Signed by Judge Christina Reiss on 7/18/2023. (law)
Case 2:21-cv-00273-cr Document 120 Filed 07/18/23 Page 1 of 13
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UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
KEVIN J. GAFFNEY, in his official
Capacity as Commissioner of the Vermont
Department of Financial Regulation, solely as
Liquidator of Global Hawk Insurance
Company Risk Retention Group,
Plaintiff, 1
2'14 JUL 18 AH to: 51
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V.
CROWELLP,
Defendant.
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Case No. 2:21-cv-00273
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OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
PLAINTIFF'S MOTION TO STRIKE CERTAIN AFFIRMATIVE DEFENSES
(Doc. 45)
Plaintiff Kevin J. Gaffney (the "Commissioner") brings this action in his official
capacity as Commissioner of the Vermont Department of Financial Regulation
("VDFR"), solely as Liquidator of Global Hawk Insurance Company Risk Retention
Group ("Global Hawk"), a Vermont nonstock mutual insurance company, against
Defendant Crowe LLP ("Crowe"), an accounting firm that audited Global Hawk's
financial statements in 2016, 201 7, and 2018.
Plaintiff asserts nine causes of action: negligence by Crowe in issuing its audit
reports in 2016 (Count I), 2017 (Count II), and 2018 (Count III); negligent
misrepresentation by Crowe to VDFR in its audit reports in 2016 (Count IV), 2017
(Count V), and 2018 (Count VI); and breach of contract by Crowe for, without due
1
At the time the pleadings were filed, the Commissioner of the Vermont Department of
Financial Regulation was Michael S. Pieciak. The case caption has been updated to reflect that
Kevin J. Gaffney was confirmed as the Commissioner of the Vermont Department of Financial
Regulation in July 2022.
Case 2:21-cv-00273-cr Document 120 Filed 07/18/23 Page 2 of 13
professional care, issuing its audit reports in 2016 (Count VII), 2017 (Count VIII), and
2018 (Count IX).
On January 6, 2023, Plaintiff filed a motion to strike Crowe's First, Third, and
Ninth Affirmative Defenses pursuant to Fed. R. Civ. P. 12(t) for legal insufficiency.
(Doc. 45.) Crowe opposed the pending motion on February 6, 2023 (Doc. 52), and
Plaintiff replied on February 17, 2023 (Doc. 57), at which time the court took the pending
motion under advisement.
Plaintiff is represented by Derek T. Rocha, Esq., Eric A. Smith, Esq., and Jennifer
Rood, Esq. Crowe is represented by Caesar A. Tabet, Esq., Elizabeth B. Coburn, Esq.,
Jacob B. Berger, Esq., John M. Fitzgerald, Esq., Matthew B. Byrne, Esq., Michael J.
Grant, Esq., and Nicole R. Marcotte, Esq.
I.
Allegations in the Complaint.
As VDFR's Commissioner, Plaintiff was appointed as Liquidator of Global Hawk
by order of the Vermont Superior Court, Washington Unit on June 8, 2020 and "brings
this action solely in his capacity as Liquidator of Global Hawk." (Doc. 1-1 at 6, 1 1.)
Pursuant to the Order of Liquidation, the Commissioner is "authorized to prosecute any
action on behalf of the creditors, members, policyholders or shareholders of Global Hawk
against any officer of Global Hawk or any other person." Id. at 6, 12.
Global Hawk is a Vermont-domiciled insurance company and risk retention group
subject to regulation by VDFR. A June 8, 2020 Order of the Vermont Superior Court,
Washington Unit declared Global Hawk insolvent and placed it in liquidation. At the
time, Jasbir Thandi was the sole officer of Global Hawk as well as a director. Global
Hawk also had three independent directors.
Crowe is an Indiana limited liability partnership that provides accounting,
consulting, and audit services to public and private entities. It is licensed as an accounting
firm by the Vermont Office of Professional Regulation.
Global Hawk engaged Crowe, via three separate engagement letters, to audit
Global Hawk's financial statements for the years ending December 31, 2016; December
31, 2017; and December 31, 2018. Crowe released its 2016 auditor's report and letter of
2
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qualification on June 30, 2017; its 2017 auditor's report and letter of qualification on
June 29, 2018; and its 2018 auditor's report and letter of qualification on June 28, 2019.
Each auditor's report stated in relevant part: "We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our qualified audit
opinion." Id. at 8, ,i 13 (internal quotation marks omitted). In each auditor's report,
Crowe opined that the financial statements attached to the report "present fairly, in all
material respects, the financial position of [Global Hawk] ... in accordance with
accounting principles generally accepted in the United States of America." Id. at 9, ,i,i 1518. Each letter of qualification 2 stated that Crowe understood that Global Hawk intended
to file the audited financial statements with VDFR, who would "be relying on that
information in monitoring and regulating the financial condition of [Global Hawk.]" Id.
at 9, ,i 19 (internal quotation marks omitted).
Plaintiff alleges that the audited financial statements for 2016, 2017, and 2018
"each materially misstated the financial position of Global Hawk by representing Global
Hawk was solvent when in fact it was insolvent." Id. at 11, ,i 23. Each audited financial
statement allegedly also "falsely report[ ed] capital contributions as received, when the
contributions had not been made[,]" and "omitt[ed] loan liabilities and pledges of Global
Hawk's assets." (Doc. 1-1 at 11, ,i 23.) In addition, the 2017 and 2018 audited financial
statements "overstat[ed] cash balances." Id.
In his Complaint, Plaintiff asserts Crowe "had a duty to conduct its audit and issue
its auditor's reports with due professional care[,]" including ( 1) "a duty to identify and
assess the risks of material misstatement, whether due to fraud or error, at the financial
2
VDFR regulations require a company's audited annual report to include a "letter of
qualification" furnished by the auditor which describes "[t]he general background and
experience of the staff engaged in [the] audit" and states that the auditor is "independent with
respect to the company"; "conforms to the standards of his/her profession"; "understands that the
audited annual report and his/her opinions thereon will be filed in compliance with" VDFR
regulations; "consents to the requirements of Section 6 of [the VDFR audit] regulation"; and "is
[properly] licensed by an appropriate state licensing authority and that he/she is a member in
good standing in the American Institute of Certified Public Accountants." Vt. Admin. Code
4-6-1 :3(C)(a)-(e).
3
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statement and relevant assertion levels[,]" (2) "a duty to obtain sufficient and appropriate
audit evidence regarding the assessed risks of material misstatement by designing and
implementing appropriate responses to those risks, including appropriate external
confirmations[,]" (3) "a duty to select an appropriate confirming party and to ask
appropriate questions" in its "external confirmation procedures," and (4) "a duty to
evaluate confirmations received to assess their reliability and, where they were
unreliable, to obtain additional confirmations." Id. at 14,132.
In 2016, 2017, and 2018, Plaintiff contends Crowe "breached its obligation to
audit [Global Hawk] and issue its audit opinions with due professional care" by, among
other things, failing to confirm financial information used in its audits with appropriate
external parties and failing to evaluate whether the external confirmation it received
provided reliable audit evidence. See Doc. 1-1 at 14-24, 11 33-68. Plaintiff alleges that if
Crowe had properly audited Global Hawk, Global Hawk would have ceased operations in
2017 because the material misstatements in Global Hawk's financial statements and its
insolvency would have been discovered.
By submitting "materially misstated" audited financial statements to VDFR,
Plaintiff contends Crowe enabled Global Hawk to "incur operating losses and suffer
misappropriations" and "allow[ed] its insolvency to increase." Id. at 26, 1 77. "The
deepened insolvency harmed Global Hawk[,]" and it "harmed Global Hawk's
policyholders and other creditors, who will receive smaller distributions on their claims
in the liquidation." Id.
II.
Procedural Background.
On October 26, 2021, Plaintiff filed his Complaint in Vermont Superior Court,
Washington Unit. On November 22, 2021, Crowe removed the case to this court based on
diversity jurisdiction. On October 17, 2022, the court issued an Opinion and Order
denying Crowe's motion to dismiss the Complaint. On November 30, 2022, Crowe
answered the Complaint. In addition to denying many of Plaintiffs allegations, Crowe
asserted twelve Amended Affirmative Defenses. Plaintiff seeks to strike the following:
1. First Affirmative Defense: Plaintiffs claims are barred, in whole or in
4
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part, because Plaintiffs purported damages were caused by the failure of
the Vermont Department of Financial Regulation to exercise appropriate
oversight over Global Hawk and to take all action necessary to prevent any
such damages from being incurred.
3. Third Affirmative Defense: Plaintiffs claims are barred, in whole or in
part, under the doctrine of in pari delicto, which precludes a plaintiff from
recovering against others for a wrong in which the plaintiff participated or
is deemed through imputation to have participated. Plaintiff, as a liquidator,
steps into the shoes of Global Hawk, and is therefore barred from recovery
due to Global Hawk's fraud and misconduct and that of its sole actor, Jasbir
Thandi.
9. Ninth Affirmative Defense: Plaintiffs claims are barred, in whole or in
part, due to Plaintiffs failure to take reasonable steps to mitigate the
damages Plaintiff claims to have suffered.
(Doc. 33 at 31-32.) Plaintiff subsequently withdrew his request to strike the Ninth
Affirmative Defense in a footnote in his reply brief, stating: "Crowe has clarified that its
Ninth Affirmative Defense does not concern regulatory conduct but only the Liquidator.
Opp'n at 15. In that case, the affirmative defense need not be stricken." (Doc. 57 at 7,
n.2.)
III.
Conclusions of Law and Analysis.
A.
Standard of Review.
Pursuant to Fed. R. Civ. P. 12(f), upon a motion made by either party the court
may "strike from a pleading an insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter." To prevail on a motion to strike an affirmative
defense, the moving party must satisfy three prongs set by the Second Circuit in GEOMC
Co., Ltd. v. Ca/mare Therapeutics, 918 F.3d 92 (2d Cir. 2019). See Blow v. Univ. of
Vermont & State Agric. Coll., 2021 WL 5903355, at *3 (D. Vt. Oct. 22, 2021) ("Plaintiff
[as the moving party] has the burden of demonstrating that [defendant's] affirmative
defenses fall below the GEOMC standard.").
First, the moving party must show that the affirmative defense fails the plausibility
standard established by Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). See
5
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GEOMC Co. v. Ca/mare Therapeutics Inc., 918 F.3d 92, 98 (2d Cir. 2019) (concluding
that "the plausibility standard of Twombly applies to determining the sufficiency of all
pleadings, including the pleading of an affirmative defense"). Applying the Twombly
plausibility standard "is a 'context-specific' task" requiring the court to employ the
"degree of rigor appropriate for testing the pleading of an affirmative defense" in light of
the affirmative defense's nature and timing. Id. Where the pleader of an affirmative
defense has limited time to respond to the complaint or the operative facts are not
"readily available[,]" the circumstances may "warrant[] a relaxed application of the
plausibility standard." Id.
Second, the moving party must show that "there is no question of law which might
allow the defense to succeed[.]" Id. at 96 (internal quotation marks omitted). "There is no
dispute that an affirmative defense is improper and should be stricken if it is a legally
insufficient basis for precluding a plaintiff from prevailing on its claims." Id. at 98.
And third, the moving party must show that "the plaintiff would be prejudiced by
inclusion of the defense." Id. at 96 (internal quotation marks omitted). Prejudice
"normally depend[s] on when the defense is presented." GEOMC Co., 918 F.3d at 98.
When an affirmative defense is timely filed, "[a] factually sufficient and legally valid
defense should always be allowed ... even if it will prejudice the plaintiff by expanding
the scope of the litigation." Id. "On the other hand, prejudice may be considered and, in
some cases, may be determinative, where a defense is presented beyond the normal time
limits of the Rules, especially at a late stage in the litigation, and challenged by a motion
to dismiss or opposed by opposition to a Rule 15(a) motion." Id. at 99.
As "the courts should not tamper with the pleadings unless there is a strong reason
for so doing[,]" Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir.
1976), "[m]otions to strike are viewed with disfavor and are not frequently granted."
Operating Eng'rs Loe. 324 Health Care Plan v. G & W Constr. Co., 783 F.3d 1045, 1050
(6th Cir. 2015); see also MadGrip Holdings, LLC v. West Chester Holdings, Inc., 2017
WL 4335028, at *3 (D. Vt. Sept. 27, 2017) (holding motions to strike are "disfavored,"
which is "particularly so when ... there has been no significant discovery") ( alteration in
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original) (citation omitted).
B.
Whether to Strike Crowe's First Affirmative Defense.
Crowe's First Affirmative Defense asserts that Plaintiffs damages were caused by
the VDFR's failure to exercise appropriate oversight over Global Hawk and to take
prompt remedial action. The parties differ in their interpretations of this affirmative
defense as either asserting an intervening cause or lodging a claim of comparative
negligence.
To the extent that the First Affirmative Defense asserts Plaintiffs pre-liquidation
conduct was an intervening cause, it constitutes a denial of the Complaint's allegations
rather than a true affirmative defense. The Second Circuit has explained that it is "no
affirmative defense to assert that an intervening cause broke the chain of causation,
because the intervening cause challenge[s] 'an integral part' of the causation element of
[a] claim." Utica Mut. Ins. Co. v. Munich Reinsurance Am., Inc., 7 F.4th 50, 63 (2d Cir.
2021) (quoting Nat'! Mkt. Share, Inc. v. Sterling Nat'! Bank, 392 F.3d 520, 527 (2d Cir.
2004)). The court reached this conclusion, however, in deciding whether "the issue of
intervening cause ... was an affirmative defense that [the defendant] waived by failing to
plead it." Nat'! Mkt. Share Inc., 392 F.3d at 526. It does not follow that the First
Affirmative Defense must be stricken as legally insufficient in the Rule 12(f) context,
where waiver is not an issue. To the contrary, district courts have refused to strike
affirmative defenses asserting intervening causes in actions against liquidators and
receivers. 3
3
See, e.g., Kochan v. Kowalski, 478 F. Supp. 3d 440,454 (W.D.N.Y. 2020) (recognizing
affirmative defenses asserting intervening causes existed were "essentially denials of liability"
but declining to strike them because "their inclusion causes no prejudice to Plaintiff'); FD.LC
v. Hanson, 2013 WL 12074983, at *2 (W.D. Wash. Dec. 10, 2013) ("[E]ven assuming they were
pleaded as affirmative defenses, Defendants should not be penalized for exercising caution in
pleading superseding intervening causes as affirmative defenses in an effort to put Plaintiff on
notice of the issues that may arise as this litigation proceeds.") (alterations adopted) (internal
quotation marks omitted); Clark v. Milam, 152 F.R.D. 66, 72 (S.D.W. Va. 1993) (denying
motion to strike intervening cause affirmative defense because "regardless of whether Plaintiff
owed Defendants a duty, Plaintiffs acts [as a regulator] could still theoretically break the chain
of causation and absolve Defendants of liability").
7
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When a defendant pleads affirmative defenses that are actually denials of the
plaintiffs claim, courts in the Second Circuit generally find the GEOMC standard
inapplicable and refuse to strike them. 4 "Just as there is no reason or mechanism for a
court to review a defendant's denials of factual allegations in an answer, there is similarly
no more reason to call upon the resources of a court to strike defenses that essentially
amount to denials of facts pled." Rich v. Miller, 2022 WL 7748176, at *4 (S.D.N.Y. Oct.
4, 2022). If the First Affirmative Defense asserts an intervening cause defense, it
essentially constitutes a denial of liability which "need not have been pled as an
affirmative defense in the first place" and the motion to strike should be denied. Town &
Country Linen Corp. v. Ingenious Designs LLC, 2020 WL 3472597, at* 11 (S.D.N.Y.
June 25, 2020).
To the extent that the First Affirmative Defense asserts a regulatory comparative
negligence defense 5 based on actions or omissions by Plaintiff in his regulatory capacity,
it is a true affirmative defense properly subject to a motion to strike and the GEOMC
three-prong standard applies. See Saks v. Franklin Covey Co., 316 F.3d 337, 350 (2d Cir.
2003) ("An affirmative defense is defined as '[a] defendant's assertion raising new facts
and arguments that, if true, will defeat the plaintiffs or prosecution's claim, even if all
4
See, e.g., Rich v. Miller, 2022 WL 7748176, at *7 (S.D.N.Y. Oct. 4, 2022) (denying motion to
strike an affirmative defense where it was "in effect a denial that plaintiff will be able to prove an
element of his claim and thus amount[ed] to a denial of the allegations of the complaint"); Town
& Country Linen Corp. v. Ingenious Designs LLC, 2020 WL 3472597, at* 11 (S.D.N.Y. June 25,
2020) (denying motion to strike affirmative defense because it was "clearly a denial, and a denial
is not required to be pled in conformance with GEOMC'); Jablonski v. Special Couns., Inc.,
2020 WL 1444933, at *5 (S.D.N.Y. Mar. 25, 2020) (treating affirmative denials which "appear
to negate elements of Plaintiffs claims" as "specific denials" and denying motion to strike on
that basis).
5
"Under [Vermont's] comparative negligence statute, a plaintiff in a negligence action may
recover damages if his or her own causal negligence is not greater than that of the defendant."
Barber v. LaFromboise, 2006 VT 77, ,i 7, 180 Vt. 150,154,908 A.2d 436,440 (emphasis
supplied) (citing 12 V.S.A. § 1036); see also Rankins v. Sys. Sols. of Kentucky, 2021 WL
5415148, at *1 (N.D. Ill. Nov. 19, 2021) ("[Illinois] does, however, recognize a theory of
modified comparative negligence [as an affirmative defense]. Under this standard, the plaintiff
cannot recover damages ifhe is more than 50% of the proximate cause of the damage.").
8
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allegations in the complaint are true.") (quoting BLACK'S LAW DICTIONARY (7th ed.
1999)) (alteration in original). Plaintiff urges this court to consider legislative intent and
look to the decisions of other state and federal courts in order to construe the Vermont
Supervision, Rehabilitation and Liquidation of Insurance Companies Act, 8 V.S.A.
§§ 7031-7100 ("VSRLIC"), and determine that Plaintiff, as liquidator, acts in an
independent legal capacity. As such, he cannot be held liable in comparative negligence
for VFDR's acts as a regulatory agency.
The Vermont Supreme Court has not yet squarely decided whether an entity may
be liable as a liquidator or receiver for its conduct as a regulator. The "bedrock rule of
statutory construction is to determine and give effect to the intent of the Legislature."
Delta Psi Fraternity v. City of Burlington, 2008 VT 129, 17, 185 Vt. 129, 132, 969 A.2d
54, 56 (internal quotation marks omitted). Nothing in the VSRLIC supports a conclusion
that acts or omissions of a regulator state a claim against that same entity in its capacity
as a liquidator, nor has Vermont common law ever recognized such a claim. Generally,
liquidators in Vermont "are officers of the state who are required to protect policyholders,
other creditors, and the public interest in the administration of an estate in liquidation." In
re Ambassador Ins. Co., Inc., 2015 VT 4,123, 198 Vt. 341,351, 114 A.3d 492,498.
This purpose would be frustrated if a defendant could defend against an action brought by
a court-appointed liquidator by pointing to alleged misconduct by the liquidator acting in
its separate regulatory capacity and asserting that had the regulator been more vigilant,
liquidation would not have occurred.
In determining legislative intent, courts often look to other states' interpretations
of similar statutes. See Hum. Rts. Comm 'n v. Benevolent & Protective Ord. of Elks of
US., 2003 VT 104, 1 13, 176 Vt. 125, 130, 839 A.2d 576, 581 ("Where there are similar
statutes in other jurisdictions, we are also guided by the interpretations of those
statutes."). Other state courts agree that no comparative or contributory negligence claim
lies against a liquidator for its actions as a regulator. 6 Federal courts have reached the
6
See, e.g., Benjamin v. Ernst & Young, L.L.P., 855 N.E.2d 128, 134 (Ohio Ct. App. 2006)
(affirming dismissal of counterclaims based on lower court's conclusion that "the superintendent
9
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same conclusion when applying state law7 and when rejecting affirmative defenses
against the Federal Deposit Insurance Corporation based on its pre-receivership conduct. 8
In an analogous context, the Vermont Supreme Court has distinguished between a
receiver's personal capacity and his official capacity in equity receivership cases. See,
e.g., Clifford v. W. Hartford Creamery Co., 153 A. 205, 210 (Vt. 1931) (observing that
"[t]he ordinary receiver" "is not personally liable for acts done under and in conformity
to the orders of the court, but only in his official capacity; and actions brought against
him as receiver are actions against the receivership or the property in his hands").
as liquidator is not subject to counterclaims arising from acts or omissions of the superintendent
in her capacity as regulator"); Foster v. Monsour Med. Found., 667 A.2d 18, 20 (Pa. Commw.
Ct. 1995) ("[T]he Statutory Liquidator's power to recover damages against the officers and
directors and to recoup the assets of the liquidated insurer should not be encumbered by this
Court's examination of the correctness of ... the Insurance Commissioner's regulatory
actions."); Foster v. Rockwood Holding Co., 632 A.2d 335, 338 (Pa. Commw. Ct. 1993) (same);
Matter of Ideal Mut. Ins. Co., 532 N.Y.S.2d 371,374 (N.Y. App. Div. 1988) (holding that the
Superintendent acting as "plaintiff Liquidator" of [an insurance company] is "a separate and
distinct legal entity from the Superintendent oflnsurance as Regulator of the industry");
Corcoran v. Nat'[ Union Fire Ins. Co. of Pittsburgh, Pa., 532 N.Y.S.2d 376,378 (N.Y. App.
Div. 1988)(same).
7
See, e.g., Clarkv. Allen, 139 F.3d 888, at *5 (4th Cir. 1998) (unpublished table decision) ("In a
suit brought by a receiver, actions taken in his capacity as regulator technically represent thirdparty conduct and, therefore, provide no support for defenses requiring proof of a plaintiffs
conduct."); Williams v. Cont'[ Stock Transfer & Tr. Co., 1 F. Supp. 2d 836, 844 (N.D. Ill. 1998)
("If the allegedly negligent acts of the Commissioner were committed by her while exercising
her regulatory function as a receiver, prior to liquidation, these acts cannot be charged against
her. The Commissioner is only responsible for negligent conduct committed as the plaintiff,
liquidator.") (internal citation omitted); State of NC. ex rel. Long v. Alexander & Alexander
Servs., Inc., 711 F. Supp. 257,263 (E.D.N.C. 1989) ("To the extent that these counterclaims seek
to recover against the Commissioner and his deputy individually for actions taken beyond the
scope of their statutory authority, they are impermissible because they are not asserted against
'opposing parties' within the meaning of [Fed. R. Civ. P.] 13[.]") (internal citation omitted).
8
See Fed. Deposit Ins. Corp. v. Bernstein, 944 F.2d 101, 106 (2d Cir. 1991) (observing that "the
FDIC is authorized by statute to function in two separate and distinct capacities" and that "the
wrongful conduct attributed to the FDIC as corporation cannot be attributed to the FDIC as
receiver"); Fed. Deposit Ins. Corp. v. Ornstein, 73 F. Supp. 2d 277,281 (E.D.N.Y. 1999) (citing
Bernstein as justification for striking affirmative defenses against the FDIC as receiver based on
FDIC corporate conduct).
Case 2:21-cv-00273-cr Document 120 Filed 07/18/23 Page 11 of 13
Although Crowe argues that this is a question of law that should await further
briefing, it fails to cite a single case in which a liquidator was found comparatively or
contributorily negligent for its acts and omissions as regulator. "Under the 'separate
capacities doctrine,' the actions of an insurance commissioner, while in a regulatory
capacity and prior to the order of liquidation, cannot be asserted as affirmative defenses
in an action commenced by the commissioner in the capacity of the liquidator of an
insurer." 44 C.J.S. Insurance § 252 (2023). Plaintiff acts in distinct legal capacities as a
regulator and as a liquidator under Vermont law and brings this action solely in his
capacity as a court-appointed liquidator. As a result, any alleged misconduct by Plaintiff
in his regulatory capacity cannot be the basis of a comparative negligence defense against
him in this action. If the First Affirmative Defense asserts a regulatory comparative
negligence defense, it is legally insufficient and must be stricken. See GEOMC Co., 918
F Jd at 98 (holding an affirmative defense that provides "a legally insufficient basis for
precluding a plaintiff from prevailing on its claims" is improper); Aparicio v. Compass
Recovery Grp., LLC, 2021 WL 3684566, at *2 (W.D.N.Y. Aug. 19, 2021) ("Inclusion of
a defense that must fail as a matter of law prejudices the plaintiff because it will
needlessly increase the duration and expense of litigation.").
For the foregoing reasons, the court DENIES Plaintiffs motion to strike Crowe's
First Affirmative Defense to the extent that it asserts an intervening defense and
GRANTS Plaintiffs motion to strike to the extent the First Affirmative Defense asserts a
regulatory comparative negligence defense.
C.
Whether to Strike Crowe's Third Affirmative Defense.
Crowe's Third Affirmative Defense asserts that Plaintiffs claims are barred in
whole or in part under the doctrine of in pari delicto because, as liquidator, he steps into
the shoes of Global Hawk. Plaintiff argues that, as a matter oflaw, Global Hawk's bad
acts cannot be imputed to him as a liquidator and do not bar his claims. Crowe counters
that it would be inappropriate to resolve the issue of whether an in pari delicto defense is
available in ruling on a motion to strike.
The court previously considered the availability of Crowe's in pari delicto defense
11
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in its October 17, 2022 Opinion and Order denying Crowe's motion to dismiss. Although
it predicted that the Vermont Supreme Court would agree with the Seventh Circuit that a
liquidator or receiver's appointment "removes the wrongdoer from the scene" and thus
the "sting" from the in pari delicto defense, the court held that "[b]ecause the in pari
delicto defense is often fact-intensive and requires the weighing of the evidence, it cannot
be resolved for purposes of the pending motion to dismiss other than to conclude that the
doctrine may not be available in the facts and circumstances of this case." Pieciak v.
Crowe LLP, 2022 WL 10010523, at *9-10 (D. Vt. Oct. 17, 2022) (internal quotation
marks omitted) (quoting Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995)). That
same ruling is warranted here.
"[I]t is well established that close or new questions of law should not be resolved
on a motion to strike." Kochan v. Kowalski, 478 F. Supp. 3d 440, 453-54 (W.D.N.Y.
2020) (internal quotation marks omitted) (emphasis in original). "Without this
requirement, 'courts would run the risk of offering an advisory opinion on an abstract and
hypothetical set of facts."' Car-Freshner Corp. v. Just Funky LLC, 2019 WL 6270991, at
*2 (N.D.N.Y. Nov. 25, 2019) (internal quotation marks omitted) (quoting Canadian St.
Regis Band of Mohawk Indians ex rel. Francis v. New York, 278 F. Supp. 2d 313,325
(N.D.N.Y. 2003)). Absent further development of the factual record since the court's
October 17, 2022 Opinion and Order, Plaintiffs motion to strike does not provide an
appropriate vehicle to resolve the availability of the in pari delicto defense as a matter of
law. Accordingly, the court DENIES Plaintiffs motion to strike the Third Affirmative
Defense.
12
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CONCLUSION
For the foregoing reasons, Plaintiffs motion to strike Crowe's First and Third
Affirmative Defenses (Doc. 45) is GRANTED IN PART and DENIED IN PART.
~
SO ORDERED.
Dated at Burlington, in the District of Vermont, this
18
day of July, 2023.
~ct.fudge
United States District Court
13
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