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In Re: Beacon Associates Litigation Solis v. Beacon Associates Management Corp. et al

August 11, 2011


The opinion of the court was delivered by: Sand, J.


Before the Court is Plaintiff the Secretary of Labor's Motion to Strike Affirmative Defenses pleaded by the Ivy, Beacon, and Jeanneret Defendants. For the reasons stated herein, the Motion is granted is part and denied in part.

The parties in this case have been referred to Magistrate Judge Andrew Peck for pre-trial matters, including settlement and discovery. The Secretary's Motion to Stay Judge Peck's June 28, 2011 Order Requiring Disclosure of Documents from Other Investigations is also before this Court and will be ruled upon in a separate decision. The facts underlying this dispute are set forth in the Court's Opinion of October 5, 2010 in the related case In re Beacon Associates Litigation, 745 F. Supp. 2d 386 (S.D.N.Y. 2010).

I.Legal Standard

Under Rule 12(f), a court "may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). "The standard for striking an affirmative defense is three-pronged: (1) there must be no question of fact that might allow the defense to succeed; (2) there must be no substantial question of law that might allow the defense to succeed; and (3) the plaintiff must be prejudiced by the inclusion of the defense." Specialty Minerals, Inc. v. Pluess-Staufer AG, 395 F. Supp. 2d 109, 111 (S.D.N.Y. 2005). "An increase in the time, expense and complexity of a trial may constitute sufficient prejudice to warrant granting a plaintiff's motion to strike." S.E.C. v. McCaskey, 56 F. Supp. 2d 323, 326 (S.D.N.Y. 1999).

In assessing the sufficiency of an affirmative defense, the Court "should construe 'the pleadings liberally to give the defendant a full opportunity to support its claims at trial, after full discovery has been made.'" Coach, Inc. v. Kmart Corps., 756 F. Supp. 2d 421, 425 (S.D.N.Y. 2010) (quoting McCaskey, 56 F. Supp. 2d at 326). A motion to strike an affirmative defense "is not favored and will not be granted 'unless it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense.'" 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) (quoting Durham Indus., Inc. v. N. River Ins. Co., 482 F. Supp. 910, 913 (S.D.N.Y. 1979)). "[E]ven when the defense presents a purely legal question, the courts are very reluctant to determine disputed or substantial issues of law on a motion to strike; these questions quite properly are viewed as determinable only after discovery and a hearing on the merits." Id.(quoting 5 C. Wright & A. Miller, Federal Practice & Procedure § 1381, at 800--01).

However, "conclusory assertions, absent any supporting factual allegations are insufficient as a matter of law." Coach v. Kmart, 756 F. Supp. 2d at 425; PaineWebber Inc. v. Int'l Mobile Machs. Corp., No. 91 Civ. 7353, 1992 WL 75068, at *2 (S.D.N.Y. Mar. 30, 1992) ("[W]hile an answer need not include a detailed statement of the applicable defenses, a defendant must do more than make conclusory allegations."). The existence of "some unknown and hypothetical set of facts that could support these defenses" will not create a question of fact. Coach v. Kmart, 756 F. Supp. 2d at 426. The pleadings themselves must provide the plaintiff and the Court with notice as to how the defense applies to the plaintiff's claims. See Obabueki v. Int'l Bus. Machs. Corp., 145 F. Supp. 2d 371, 401 (S.D.N.Y. 2001) (striking defense on ground that pleading the words "unclean hands" without more offered the plaintiff no indication about how the doctrine would bar his claims).


The Secretary moves to strike the following affirmative defenses: those claiming that the Secretary lacks constitutional and statutory standing; the Ivy Defendants' defenses claiming that they lacked fraudulent intent; defenses of estoppel, unclean hands, and laches; defenses claiming that the parties Plaintiff purports to represent failed to mitigate losses;defenses claiming reduced liability because of the conduct of others;defenses claiming thatdamages should be offset for the value of benefits received; the Ivy Defendants' defenses based on lack of assets; and defenses asserting a right to amend the Answers. The Secretary also moves to strike, and the Beacon and Jeanneret Defendants voluntarily withdraw, the defenses of waiver and ratification*fn1 and the defenses purporting to adopt by reference any applicable defense pleaded by another Defendant.*fn2

a.Constitutional & Statutory Standing

The Secretary moves to strike the affirmative defenses of lack of constitutional and statutory standing as legally insufficient on the grounds that Employee Retirement Income Security Act ("ERISA") explicitly confers standing upon the Secretary of Labor.*fn3 Defendants object on the ground that ERISA limits the Secretary's standing to bring suit; she may only seek relief "with respect to a plan," as defined by ERISA, for "actual principal losses," against a "person who is a fiduciary." 29 U.S.C. §§ 1109(a), 1132(a)(2). Because the plans the Secretary purports to represent are not named in the Complaint, Defendants argue that they do not know if the plans qualify under the statute and if they sustained actual principal losses. The Ivy Defendants also contest the Secretary's allegation that they qualify as fiduciaries. Similarly, Defendants argue that they cannot know whether the plans have suffered an "actual or threatened injury" as required by Article III. See Fin. Insts. Ret. Fund v. Office of Thrift Supervision, 964 F.2d 142, 147 (2d Cir. 1992) (quoting Warth v. Seldin, 422 U.S. 490, 500 (1975)). Whatever doubts the Court may have regarding the merits of these defenses, it does not appear that their persistence would prejudice the Secretary, given that the status of the individual plans and their losses will in any event be the subject of discovery. Accordingly, the Motion to Strike the affirmative defenses based on lack of standing is denied. If the Secretary would like to move for summary judgment with respect to these defenses, she may do so in due course.

b.Fraudulent Intent

The Secretary next argues that the Ivy Defendants' affirmative defenses alleging that they lacked fraudulent intent should be stricken as legally insufficient. See Ivy Answer (10th Affirmative Defense); Simon Answer (10th Affirmative Defense); Wohl Answer (10th Affirmative Defense). The parties apparently agree that fraudulent intent is not an element of the Secretary's claims for fiduciary imprudence or disloyalty under ERISA section 404, 29 U.S.C. § 1104, and co-fiduciary liability under ERISA section 405, 29 U.S.C. § 1105. See LaScala v. Scrufari, 479 F.3d 213, 219--20 (2d Cir. 2007) (discussing elements of ERISA claims under sections 404 and 405). The absence of fraudulent intent is, however, relevant to the Ivy Defendants' separately asserted statute of limitations defense, because Plaintiff has alleged "fraud or concealment" under ERISA's statute of limitations provision. 29 U.S.C. ยง 1113. While its relevance does not cure its improper pleading as an affirmative defense, its inclusion and treatment as a specific denial is not prejudicial, as it will in no way expand the scope of discovery or complexity of issues at trial. See, e.g., In Re Merck & Co., Inc. Vytorin ERISA Litig., No. 08 Civ. 1974 (DMC), 2010 WL 2557564, at *4 (D.N.J. June 23, 2010) (because "good faith is not an affirmative defense to a breach of ...

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