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Federal Trade Commission v. Hope Now Modifications

March 10, 2011


The opinion of the court was delivered by: Hon. Jerome B. Simandle


SIMANDLE, District Judge:


This matter is before the Court upon Plaintiff Federal Trade Commission's ("FTC") motion to strike as insufficient the affirmative defenses of the law firm Kwasnik, Rodio, Kanowitz & Buckley and attorney Michael Kwasnik ("Kwasnik Defendants" or "Defendants") pursuant to Rule 12(f), Fed. R. Civ. P. [Docket Item 101]. For the reasons stated below, the Court will grant in part and deny in part the motion.


This case was initially brought on March 17, 2009 by the FTC against a different set of defendants, who were affiliated with a mortgage modification corporation titled Hope Now Modifications, LLC ("Hope Now Defendants"). [Docket Item 1.] The FTC subsequently submitted an amended complaint, also naming as defendants the Kwasnik Defendants presently at issue. [Docket Item 60.] On July 12, 2010, the Hope Now Defendants entered into a settlement agreement with the FTC and were subsequently terminated from this action. [Docket Item 104.] The FTC has alleged that the Kwasnik Defendants engaged in unfair and deceptive practices in violation of Section 5(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45(a), and the regulations implementing the Telemarketing and Consumer Fraud Abuse Prevention Act, 16 C.F.R. §§ 310.1-310.9.

This present motion is the second time the FTC has moved to strike the Kwasnik Defendants' affirmative defenses during the pendency of this case. The FTC first moved to strike the affirmative defenses contained in the Kwasnik Defendants' Answer on November 5, 2009 [Docket Item 83], which the Defendants did not oppose and the Court granted on April 12, 2010 [Docket Items 91 & 92]. The Kwasnik Defendants subsequently requested leave to file an amendment to their Answer, which was granted by Magistrate Judge Joel Schneider in a telephone status conference held on June 10, 2010. The Kwasnik Defendants filed the amendment to the Answer on June 15, 2010 [Docket Item 99], listing ten new affirmative defenses. Specifically, Defendants plead the following affirmative defenses: (1) laches, (2) estoppel, (3) unclean hands, (4) unconscionability, (5) waiver, (6) accord and satisfaction, (7) settlement, (8) judicial estoppel, (9) release, and (10) good faith. The pleading, like most answers received by this Court, lists the asserted affirmative defenses without alleging any facts upon which the defenses might be based. On July 1, 2010, the FTC again moved to strike under Rule 12(f) as insufficient the new affirmative defenses.


A. Standard of Review

Rule 12(f) provides the means to challenge the sufficiency of affirmative defenses. In deciding a Rule 12(f) motion, a court "may strike from a pleading an insufficient defense . . . " either on its own or "on motion made by a party . . . within 21 days after being served with the pleading." Fed. R. Civ. P. 12(f)(2). As a general matter, motions to strike under Rule 12(f) are highly disfavored. See Garlanger v. Verbeke, 223 F. Supp. 2d 596, 609 (D.N.J. 2002). This is because "it is often sought by the movant simply as a dilatory tactic." Waste Mgmt. Holdings v. Gilmore, 252 F.3d 316, 347 (4th Cir. 2001). The successful motion to strike is granted to "save time and expense" by clearing away pleadings "which will not have any possible bearing on the outcome of the litigation." Garlanger, 223 F. Supp. 2d at 609. However, "even where the challenged material is redundant, immaterial, impertinent, or scandalous, a motion to strike should not be granted unless the presence of the surplusage will prejudice the adverse party." Symbol Techs., Inc. v. Aruba Networks, Inc., 609 F. Supp. 2d 353, 359 (D. Del. 2009) (quotations omitted).

An affirmative defense is insufficient if "it is not recognized as a defense to the cause of action." Tonka Corp. v. Rose Art Indus., Inc., 836 F. Supp. 200, 217 (D.N.J. 1993) (quoting Total Containment, Inc. v. Environ Products, Inc., Civ. No. 91-7911, slip op. 1992 WL 208981 at *1 (E.D. Pa. Aug. 19, 1992)). Thus, on the basis of the pleadings alone, "an affirmative defense can be stricken only if the defense asserted could not possibly prevent recovery under any pleaded or inferable set of facts." Id. at 218 (quoting Linker v. Custom-Bilt Machinery, Inc., 594 F. Supp. 894, 898 (E.D. Pa. 1984)). The district court's decision whether to grant a motion to strike under Rule 12(f) is discretionary. Id. at 217 (citing River Road Devel. Corp. v. Carlson Corp. Civ. No. 89-7073, slip op. 1990 WL 69085 at *2 (E.D. Pa. May 23, 1990)).

B. Rule 12(f) under Twombly and Iqbal Pleading Standard

The FTC argues first that all ten of Defendants' affirmative defenses should be struck under Rule 12(f) because the defenses do not meet the pleading standards for stating a claim for relief in a complaint as announced first in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) and later elaborated in Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009), requiring a party seeking relief to plead "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. Both parties state, and the Court's research confirms, that no Federal Circuit Court has yet considered whether to extend the pleading requirements of Twombly and Iqbal to affirmative defenses. As this question appears to be one of first impression in this District, and has not been addressed by the Third Circuit Court of Appeals, the Court has given it more attention than would normally be called for in deciding a motion to strike.

The FTC, in arguing that the plausibility pleading standard of Iqbal should apply to affirmative defenses, points to the plaintiff's need of adequate notice. Specifically, FTC argues that allowing a defendant merely to assert an affirmative defense without alleging any facts which could plausibly support the defense will prejudice the plaintiff by not giving adequate notice of the nature of the defense. Consequently, FTC alleges, allowing such "bare bones" pleading forces the plaintiff to engage in discovery to find out whether such a defense even exists. See Holtzman v. B/E Aerospace, Inc., Civ. No. 07-80551, slip op. 2008 WL 2225668 at *2 (S.D. Fla. May 29, 2008). Thus, the FTC ...

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