United States District Court, S.D. New York
March 31, 2004.
DGM INVESTMENTS, INC., Plaintiff, -against- NEW YORK FUTURES EXCHANGE, INC., BOARD OF TRADE OF THE CITY OF NEW YORK, INC., NEW YORK FUTURES EXCHANGE SETTLEMENT COMMITTEE and its Members Being "RICHARD ROES" NO. 1-10, THE NEW YORK CLEARING CORPORATION, and "JOHN DOES" NO. 1-50, Individually, and as Agents and Representatives of the NEW YORK FUTURES EXCHANGE, INC., BOARD OF TRADE OF THE CITY OF NEW YORK, INC. and THE NEW YORK CLEARING CORPORATION, Defendants
The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge Page 2
DGM Investments, Inc. ("DGM"), Triumph-WEF Venture LLC
("Triumph-WEF"), DGM Trading Specialist Fund LLC ("DGM-TSF"), Triumph
Futures Fund Ltd. ("TFF"), Triumph Premier Traders Ltd. ("TPT"), Triumph
Investment Fund Ltd. ("TIF"), and Triumph-MM Venture Ltd. ("T-MM")
(collectively, the "Plaintiffs") have moved pursuant to Rule 12(f),
Fed.R. Civ. P., to strike the Third, Fourth, Sixth, Seventh, Eighth, and
Twelfth Affirmative Defenses as set forth in the answer of the defendants
Board of Trade of the City of New York, Inc. ("NYCBOT"), New York Futures
Exchange, Inc. ("NYFE"), New York Clearing Corporation ("NYCC"), and the
New York Futures Exchange Settlement Committee and its members except for
Norman Eisler (the "Settlement Committee") (collectively, the "NYBOT
Defendants"). For the reasons set forth below, the motion is granted.
This action was commenced in December 2001, and the NYBOT Defendants
moved to dismiss the complaint. Their motion was granted on October 17,
2002. Another action was commenced, the two actions were consolidated,
and an amended complaint was filed on December 20, 2002.
The NYBOT Defendants again moved to dismiss on the grounds that the
amended complaint failed to allege adequately bad faith, standing, and
fraud. The motion was denied in an opinion of May 27, 2003, DGM
Investments, Inc. v. New York Futures Exchange, Inc., 265 F. Supp.2d 254
(S.D.N.Y. 2003) (the "May 27 Opinion"), and the NYBOT Defendants
moved for reconsideration or interlocutory appeal which motion was denied
by an opinion of October 23, 2003, DGM Investments, Inc. v. New York
Futures Exchange, Inc., 288 F. Supp.2d 519 (S.D.N.Y. 2003) (the
"October 23 Opinion").
The instant motion to strike the Third Affirmative Defense of failure
to allege bad faith, the Fourth Affirmative Defense of lack of standing,
the Sixth Affirmative Defense of failure to allege fraud, the Seventh
Affirmative Defense of failure to comply with Rule 9(b), Fed.R. Civ. P.,
the Eighth Affirmative Defense of failure to plead scienter, and the
Twelfth Affirmative Defense reserving a right to add additional
affirmative defenses and the NYBOT Defendants' opposition were submitted
on January 28, 2004.
Pursuant to Fed.R.Civ.P. 12(f), "the court may order stricken from
any pleading any insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter." It is well established in this
Circuit that " [a] motion to strike an
affirmative defense under Rule 12(f), Fed.R.Civ.P. for legal
insufficiency is not favored." William Z. Salcer, Panfeld, Edelman
v. Envicon Equities Corp., 744 F.2d 935, 939 (2d Cir. 1984),
vacated on other grounds, 478 U.S. 1015 (1986); see also
Estee Lauder, Inc. v. Fragrance Counter, Inc., 189 F.R.D. 269, 271
(S.D.N.Y. 1999); SEC v. Toomey, 866 F. Supp. 719, 722 (S.D.N.Y.
1992). Even so, such motions will be granted where "it appears to a
certainty that plaintiff  would succeed despite any state of the facts
which could be proved in support of the defense." William Z. Salcer,
Panfeld, Edelman, 744 F.2d at 939 (quotation marks and citations
omitted). "Indeed, motions to strike `serve a useful purpose by
eliminating insufficient defenses and saving the time and expense which
would otherwise be spent in litigating issues that would not affect the
outcome of the case.'" Simon v. Manufacturers Hanover Trust
Co., 849 F. Supp. 880, 882 (S.D.N.Y. 1994) (quoting United
States v. Union Gas Co., 743 F. Supp. 1144, 1150 (E.D.Pa. 1990)).
In order to prevail on a motion to strike an affirmative defense, the
moving party must satisfy three prerequisites. "First, there may be no
question of fact which might allow the defense to succeed. . . .
Second, there may be no substantial question of law, a resolution of
which could allow the defense to succeed. . . . Third, plaintiff must
show that it is prejudiced by the inclusion of the defense."
Toomey, 866 F. Supp. at 722. See also County Vanlines Inc.
v. Experian Info. Solutions, Inc.,
205 F.R.D. 148, 153 (S.D.N.Y. 2002); Estee Lauder, Inc.,
189 F.R.D. at 271-72.
The Third, Fourth, Sixth, Seventh and Eighth Affirmative
Defenses Are Stricken
The adequacy of the amended complaint was determined in the May 27 and
October 23 Opinions. As to the issues raised by the affirmative defenses,
Plaintiffs have the burden of proof by virtue of the NYBOT Defendants'
Plaintiffs would be prejudiced by the inclusion of the Third, Fourth,
Sixth, Seventh, and Eighth Affirmative Defenses. The NYBOT Defendants'
attempt to reargue those issues already considered will only serve to
protract this litigation. "Increased time and expense of trial may
constitute sufficient prejudice to warrant granting plaintiff's 12(f)
motion." Toomey, 866 F. Supp. at 722. When a defense is
insufficient as a matter of law, "`the defense should be stricken to
eliminate the delay and unnecessary expense from litigating the invalid
claim.'" Estee Lauder, Inc., 189 F.R.D. at 272 (quoting
FDIC v. Eckert Seamans Cherin & Mellott, 754 F. Supp. 22,
23 (E.D.N.Y. 1990)); see also Metric Hosiery Co. v. Spartans Indus.,
Inc., 50 F.R.D. 50, 51-52 (S.D.N.Y. 1970).
Of course, Plaintiffs must prove their pleaded allegations which have
been found to be adequately pled.
The Twelfth Affirmative Defense Is Stricken
Defendants' Twelfth Affirmative Defense provides, "[t]he NYBOT
Defendants assert all other affirmative defenses that may be revealed
during the course of discovery." By the inclusion of this defense, NYBOT
Defendants seek "`to reserve the unilateral right to add new and
different affirmative defenses as they become known to it at
indeterminate times in the future, . . .[which would violate,] inter
alia, the fair notice requirement of [Fed.R.Civ.P. 8] and circumvent
[Fed.R.Civ.P. 15].'" County Vanlines Inc., 205 F.R.D. at 158
(quoting Boss Prods. Corp. v. Tapco. Int'l Corp., No. 00 Civ.
0689, 2001 WL 135819 at *3 (W.D.N.Y. Feb. 16, 2001)).
In the event additional affirmative defenses are warranted as a result
of discovery, a Rule 15, Fed.R.Civ.P. motion is the appropriate
Plaintiffs' motion is granted and the Third, Fourth, Sixth, Seventh,
Eighth and Twelfth Affirmative Defenses are stricken.
It is so ordered.
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