Opinion
20cv00706 (DLC)
12-28-2020
FEDERAL TRADE COMMISSION, STATE OF NEW YORK, STATE OF CALIFORNIA, STATE OF OHIO, COMMONWEALTH OF PENNSYLVANIA, STATE OF ILLINOIS, STATE OF NORTH CAROLINA, and COMMONWEALTH OF VIRGINIA, Plaintiffs, v. VYERA PHARMACEUTICALS, LLC, AND PHOENIXUS AG, MARTIN SHKRELI, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, and KEVIN MULLEADY, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, Defendants.
APPEARANCES For plaintiff Federal Trade Commission: Markus H. Meier Bradley S. Albert Armine Black Daniel W. Butrymowicz D. Patrick Huyett Neal J. Perlman J. Maren Schmidt James H. Weingarten Lauren Peay Leah Hubinger Federal Trade Commission 600 Pennsylvania Avenue, NW Washington, DC 20580 (202) 326-3748 For plaintiff State of New York: Letitia James Christopher D'Ange Elinor R. Hoffman Saami Zain Amy McFarlane Jeremy Kasha Bryan Bloom Beau Buffier Office of the New York Attorney General Antitrust Bureau 28 Liberty Street, 20th Floor New York, NY 10005 (212) 416-8262 For plaintiff State of California: Michael D. Battaglia Jacqueline Malafa Office of the Attorney General of California 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102 (415) 510-3769 For plaintiff State of Ohio: Beth Finnerty Elizebeth M. Maag Office of the Ohio Attorney General 150 E. Gay Street, 22nd Floor Columbus, OH 43215 (614) 466-4328 For plaintiff Commonwealth of Pennsylvania: Joseph Betsko Pennsylvania Office of Attorney General Strawberry Square, 14th Floor Harrisburg, PA 17120 For plaintiff State of Illinois: Richard S. Schultz Office of the Attorney General of Illinois 100 W. Randolph Street, 11th Floor Chicago, IL 60601 (312) 814-3000 For plaintiff State of North Carolina: K.D. Sturgis Jessica V. Sutton North Carolina Dept. of Justice Consumer Protection Division 114 West Edenton Street Raleigh, NC 27603 (919) 716-6000 For plaintiff Commonwealth of Virginia: Sarah Oxenham Allen Tyler T. Henry Office of the Attorney General of Virginia 202 North Ninth Street Richmond, VA 23219 For defendants Vyera Pharmaceuticals, LLC and Phoenixus AG: Stacey Anne Mahoney Sarah E. Hsu Wilbur Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178 (212) 309-6000 Scott A. Stempel William Cravens Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, D.C. 20004 Steven A. Reed Francis A. DeSimone Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103 (215) 963-5000 Noah J. Kaufman Morgan, Lewis & Bockius LLP One Federal Street Boston, MA 02210 (617) 341-7700 For defendant Martin Shkreli: Christopher H. Casey, Esq. A.J. Rudowitz, Esq. Jeffrey Pollack Brett Feldman Sarah O'Laughlin Kulik Duane Morris LLP 30 South 17th Street Philadelphia, PA 19103-4196 (215) 979-1155 Edward T. Kang Kandis L. Kovalsky Kang, Haggerty & Fetbroyt LLC 123 S. Broad St. #1670 Philadelphia, PA 19109 (215) 525-5852 For defendant Kevin Mulleady: Kevin J. Arquit Albert Shemmy Mishaan Kenneth R. David Nicholas Rendino Kasowitz Benson Torres LLP 1633 Broadway New York, NY 10023 (212) 506-1700
OPINION AND ORDER
APPEARANCES For plaintiff Federal Trade Commission:
Markus H. Meier
Bradley S. Albert
Armine Black
Daniel W. Butrymowicz
D. Patrick Huyett
Neal J. Perlman
J. Maren Schmidt
James H. Weingarten
Lauren Peay
Leah Hubinger
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
(202) 326-3748 For plaintiff State of New York:
Letitia James
Christopher D'Ange
Elinor R. Hoffman
Saami Zain
Amy McFarlane
Jeremy Kasha
Bryan Bloom
Beau Buffier
Office of the New York Attorney General
Antitrust Bureau
28 Liberty Street, 20th Floor
New York, NY 10005
(212) 416-8262 For plaintiff State of California:
Michael D. Battaglia
Jacqueline Malafa
Office of the Attorney General of California
455 Golden Gate Avenue, Suite 11000
San Francisco, CA 94102
(415) 510-3769 For plaintiff State of Ohio:
Beth Finnerty
Elizebeth M. Maag
Office of the Ohio Attorney General
150 E. Gay Street, 22nd Floor
Columbus, OH 43215
(614) 466-4328 For plaintiff Commonwealth of Pennsylvania:
Joseph Betsko
Pennsylvania Office of Attorney General
Strawberry Square, 14th Floor
Harrisburg, PA 17120 For plaintiff State of Illinois:
Richard S. Schultz
Office of the Attorney General of Illinois
100 W. Randolph Street, 11th Floor
Chicago, IL 60601
(312) 814-3000 For plaintiff State of North Carolina:
K.D. Sturgis Jessica V. Sutton
North Carolina Dept. of Justice
Consumer Protection Division
114 West Edenton Street
Raleigh, NC 27603
(919) 716-6000 For plaintiff Commonwealth of Virginia:
Sarah Oxenham Allen
Tyler T. Henry
Office of the Attorney General of Virginia
202 North Ninth Street
Richmond, VA 23219 For defendants Vyera Pharmaceuticals, LLC and Phoenixus AG:
Stacey Anne Mahoney
Sarah E. Hsu Wilbur
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
(212) 309-6000 Scott A. Stempel
William Cravens
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, D.C. 20004 Steven A. Reed
Francis A. DeSimone
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
(215) 963-5000 Noah J. Kaufman
Morgan, Lewis & Bockius LLP
One Federal Street
Boston, MA 02210
(617) 341-7700 For defendant Martin Shkreli:
Christopher H. Casey, Esq.
A.J. Rudowitz, Esq.
Jeffrey Pollack
Brett Feldman
Sarah O'Laughlin Kulik Duane Morris LLP
30 South 17th Street
Philadelphia, PA 19103-4196
(215) 979-1155 Edward T. Kang
Kandis L. Kovalsky
Kang, Haggerty & Fetbroyt LLC
123 S. Broad St. #1670
Philadelphia, PA 19109
(215) 525-5852 For defendant Kevin Mulleady:
Kevin J. Arquit
Albert Shemmy Mishaan
Kenneth R. David
Nicholas Rendino
Kasowitz Benson Torres LLP
1633 Broadway
New York, NY 10023
(212) 506-1700 DENISE COTE, District Judge:
The plaintiffs seek to strike from the defendants' answers three affirmative defenses that are at odds with legal rulings made in the denial of the defendants' motions to dismiss. The plaintiffs' motion is granted.
Background
In their amended complaint, the Federal Trade Commission and seven states have brought claims for violations of §§ 1 and 2 of the Sherman Act, § 5(a) of the FTC Act, and various state statutes against Vyera Pharmaceuticals, LLC, its parent company, Martin Shkreli, and Kevin Mulleady. The defendants moved to dismiss these claims, arguing inter alia that the amended complaint failed to allege an ongoing violation of the law, and that it did not adequately allege that Shkreli and Mulleady personally participated in unlawful conduct. The motions were largely denied. See Fed. Trade Comm'n v. Vyera Pharm., LLC, No. 20CV706 (DLC), 2020 WL 4891311, at *14 (S.D.N.Y. Aug. 18, 2020) ("Vyera").
On September 15, defendants filed their answers, and on October 6, plaintiffs moved to strike the corporate defendants' and Shkreli's fourth affirmative defense. Defendants' fourth affirmative defense states:
Plaintiffs' claims are barred, in whole or in part, because Plaintiffs have not alleged that [defendants are] presently engaged in ongoing violations of law, as required by, inter alia, Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), and New York Executive Law Section 63(12), N.Y. Exec. Law § 63(12).(Emphasis supplied.) In their opposition brief, the corporate defendants request permission to amend their fourth affirmative defense, if necessary, to read:
Plaintiffs' claims are barred, in whole or in part, because Vyera was not engaged in ongoing violations of law at the time the complaint was filed, as required by, inter alia, Section 13(b) of the Federal Trade Commission Act and New York Executive Law Section 63(12).(Emphasis supplied.)
Plaintiffs have also moved to strike Shkreli's thirteenth and fifteenth affirmative defenses. Shkreli's thirteenth affirmative defense states: "Plaintiffs' claims are barred, in whole or in part, because Mr. Shkreli did not enter into or sign any agreements with any distributors, hospitals, other downstream purchasers, or any API suppliers." His fifteenth defense states, "Plaintiffs' claims are barred, in whole or in part, because Mr. Shkreli, as an individual, does not possess any market power or monopoly power." The motion to strike became fully submitted on October 28, 2020.
Discussion
"In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense[.]" Fed. R. Civ. P. 8. "An affirmative defense is defined as a defendant's assertion raising new facts and arguments that, if true, will defeat the plaintiff's . . . claim, even if all allegations in the complaint are true." Saks v. Franklin Covey Co., 316 F.3d 337, 350 (2d Cir. 2003) (citation omitted). A core purpose of the pleading requirement "is to place the opposing parties on notice that a particular defense will be pursued so as to prevent surprise or unfair prejudice." Id. Exemplars of affirmative defenses include duress, estoppel, res judicata, and statute of limitations. Fed. R. Civ. P. 8.
A court "may strike from a pleading an insufficient defense . . . ." Fed. R. Civ. P. 12(f). A motion to strike an affirmative defense for legal insufficiency, however, is "not favored". William Z. Salcer, Panfeld, Edelman et al. v. Envicon Equities Corp., 744 F.2d 935, 939 (2d Cir. 1985), vacated on other grounds, 478 U.S. 1015 (1986). This is particularly true when it would require a determination of issues more properly "determinable only after discovery and a hearing on the merits." Id. (citation omitted). A motion to strike an affirmative defense will therefore "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." Id. (citation 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." GEOMC Co. v. Calmare Therapeutics Inc., 918 F.3d 92, 98 (2d Cir. 2019). Where the 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." Nat'l Credit Union Admin. Bd. v. Morgan Stanley & Co., No. 13 CIV. 6705 (DLC), 2014 WL 1673351, at *2 (S.D.N.Y. Apr. 28, 2014) (citation omitted). To succeed on a motion to strike an affirmative defense, the movant must show that: (1) applying the plausibility standard from Twombly, and considering the relevant context, "there is no question of fact which might allow the defense to succeed; (2) there is no question of law which might allow the defense to succeed; and (3) the plaintiff would be prejudiced by inclusion of the defense." GEOMC, 918 F.3d at 96-98 (citation omitted).
The plaintiffs have shown that they will be prejudiced if these affirmative defenses are not stricken. Through these asserted defenses, the defendants improperly seek to add to the plaintiffs' burden at trial and to narrow the grounds on which the defendants may be found liable.
A. Fourth Affirmative Defense
Defendants' fourth affirmative defense seeks to reargue the sufficiency of the allegations in the amended complaint and the denial of their motion to dismiss, specifically, the ruling that the amended complaint adequately alleged that, at the time plaintiffs filed suit, the FTC had reason to believe that the defendants were at that very moment engaged in the violations of law on which the FTC relied to bring this action. Vyera, 2020 WL 4891311, at *6. Defendants had a full opportunity to challenge the sufficiency of the pleading at the motion to dismiss stage. Having failed in that challenge, this issue is not properly pleaded as an affirmative defense.
Defendants make principally two arguments in opposition to the plaintiffs' motion to strike the fourth affirmative defense. First, recognizing that the defense is deficiently framed, defendants request the opportunity to amend so that the defense no longer addresses the adequacy of the pleading in the amended complaint. They seek to reframe their defense as an argument that the plaintiffs will not be able to obtain an injunction and equitable monetary relief unless the plaintiffs can prove at trial that the defendants were "engaged in ongoing violations of law at the time the complaint was filed."
That proposed amendment will not cure the problem. It does not constitute an affirmative defense. It misstates the plaintiffs' burden and does not describe facts or law that will defeat the plaintiffs' right to relief. The plaintiffs' right to relief is not confined by their ability to prove at trial that the defendants were engaged in the pleaded violations at the precise moment the complaint was filed.
Defendants next argue that their fourth affirmative defense implicates subject matter jurisdiction. Not so. There is subject matter jurisdiction over this action under 28 U.S.C. § 1331 because this action arises under federal law. Section 13(b) of the FTC Act does not implicate subject matter jurisdiction. Fed. Trade Comm'n v. Shire ViroPharma, Inc., 917 F.3d 147, 154 (3d Cir. 2019). The Supreme Court "has repeatedly warned against construing provisions that limit a statute's coverage as references to subject matter jurisdiction unless that meaning was clearly stated in the statute." United States v. Prado, 933 F.3d 121, 133 (2d Cir. 2019) (citation omitted).
B. Shkreli's Thirteenth and Fifteenth Affirmative Defenses
The two affirmative defenses pleaded by Shkreli that are the subject of this motion must also be stricken. Neither of them raises facts or legal issues sufficient to defeat the plaintiffs' claims.
In pleading these two defenses, Shkreli improperly defines the plaintiffs' burden at trial. Shkreli seeks to narrow the basis for finding him liable. For example, to succeed at trial, the plaintiffs need not prove that Shkreli signed any agreements with any distributors or that he personally possessed any market power. As explained in Vyera, "[p]erforming the activities described in the Amended Complaint as corporate officers and agents is sufficient to subject [defendants] to liability for antitrust violations." Vyera, 2020 WL 4891311, at *12. Shkreli's thirteenth and fifteenth defenses are legally insufficient and do not preclude plaintiffs from prevailing on their claims.
CONCLUSION
The plaintiffs' October 6, 2020 motion to strike is granted. Dated: New York, New York
December 28, 2020
/s/_________
DENISE COTE
United States District Judge