Opinion
No. CV-S-92-178-LDG(RJJ).
June 10, 1992
Order
*1 This matter is before the court on plaintiff's motion to strike affirmative defenses of defendants Danny Sterk and Codima, Inc. (# 35).
1. Facts
This suit was filed by the Federal Trade Commission ("FTC") under Section 13(b) of the Federal Trade Commission Act ("the Act"), 15 U.S.C. § 53(b), to secure injunctive and other equitable relief against various individual and corporate defendants. The FTC alleges that these defendants have violated Section 5 of the Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices. In their answer to the FTC's complaint, defendants Sterk and Codima, Inc. asserted a number of "affirmative defenses." The FTC objects to a number of these defenses and requests that they be stricken from the defendants' answer.
2. Law
The defendants have filed an opposition (# 57) stating that they intend to adopt arguments made by their co-defendants in response to a separate motion to strike filed by the plaintiff, see opposition (# 47). The court has reviewed the memorandum adopted by these defendants and finds that few, if any, of the arguments made therein would suggest that the plaintiff is not entitled to the relief requested in the present motion. The court will deal with each of the defendants' "affirmative defenses" in turn.
A. "The complaint fails to state a claim upon which relief can be granted." `The defendants initially asserted this as an "affirmative defense," but now concede that it should be stricken. Accordingly, the court will strike this portion of the defendants' answer.
B. "The court and the plaintiff lack subject matter jurisdiction over the transactions offered by the defendants." The FTC argues that this is merely a denial of the complaint's assertion of subject matter jurisdiction, not an affirmative defense. The defendants have not offered any argument to the contrary. The plaintiffs have already stipulated to a preliminary injunction in this case. The preliminary injunction order contains a specific finding of subject matter jurisdiction. Therefore, the court finds that, even if this is a valid "affirmative defense," it has been waived and should be stricken.
C. "The plaintiff is barred by the doctrine of laches from pursuing this action; the plaintiff is barred from bringing this action under the principle of equitable estoppel."
The FTC argues that, as a general rule, laches and equitable estoppel are not recognized defenses against the government in a civil suit to enforce a public right or protect a public interest. See United States Immigration and Naturalization Service v. Hibi, 414 U.S. 5, 8, S.Ct., L.Ed.2d (1973). The defendants have not offered any argument to the contrary. The court agrees with the FTC; the law is well established that principles of laches and equitable estoppel are not available as defenses in a suit brought by the government to enforce a public right or a public interest. United States v. Ruby Co., 588 F.2d 697, 705 n. 10 (9th Cir.), cert, denied, 442 U.S. 917, 99 S.Ct. 2838, 61 L.Ed.2d 284 (1978). Therefore, these affirmative defenses will be stricken from the defendants' answer.
4. "Any and all actions undertaken by these defendants were at the instruction and under the supervision of [co-defendants] Microtel, Halo Holdings and Greenbaum, who created, formulated and enacted the application preparation services which are at issue in this action; any and all actions undertaken by these defendants were undertaken pursuant to the assurance by Microtel, Halo Holdings and Greenbaum, and other individuals not named herein, that the application preparation services were a bona fide and legal program that were not in violation of any Federal or State Statute, Rule or Regulation."
*2 The FTC argues that these defenses are legally insufficient to extinguish the defendants' liability, given that the FTC may obtain both injunctive and other equitable relief from a defendant, even if that defendant's actions were taken at the instruction and under the supervision of others, as long as (1) the defendant had knowledge of the fraudulent conduct, (2) the defendant directly participated in the wrongful acts, (3) the misrepresentation was of a type upon which a reasonable person would rely and (4) consumer injury resulted. See FTC v. Amy Travel Service [1989-1 TRADE CASES ¶ 68,549], 875 F.2d 564, 573 (7th Cir.), cert. denied, 110 S.Ct. 366 (1989). The defendants have not offered any argument to the contrary. The court agrees that these "affirmative defenses" would not extinguish the defendants liability even if the facts alleged therein were proven. Accordingly, they will be stricken.
5. "Any misrepresentation of material fact made by salesmen or any misrepresentations made by salesmen were not approved by these defendants, were made without the knowledge, consent or authority of these defendants and were done in direct violation of these defendants' instructions and training."
The court agrees with the FTC's argument that this "defense" is merely a reiteration of the defendants' previous denial that they were individually, or in concert with others, involved in directing, controlling, formulating or participating in the practices outlined in the complaint. Therefore, this defense will also be stricken.
Accordingly, for the reasons above stated,
It Is Ordered that the plaintiff's motion to strike affirmative defenses of defendants Danny Sterk and Codima, Inc. (# 35) is granted.