Commercial Litigation and Arbitration

Do Iqbal and Twombly Apply to Affirmative Defenses? (Circuit Split) — Affirmative Defenses Fail If So Unrelated to the Claims As to Be Unworthy of Any Consideration (Good Quote)

Two Cases on the Circuit Split:

1.  Sodexo Mgmt., Inc. v. Benton Harbor Area Sch. Dist., 2016 U.S. Dist. LEXIS 26115 (W.D. Mich. Mar. 2, 2016):

Initially, the parties' disagreement about the sufficiency of BHASD's affirmative defenses requires the Court to weigh in on whether the pleading standard enunciated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937 (2009), for the sufficiency of claims for relief under Federal Rule of Civil Procedure 8(a), also applies to affirmative defenses under Rule 8(c). If the Twombly/Iqbal standard applies, there is no serious argument that BHASD's affirmative defenses are insufficiently pled.

Courts within the Sixth Circuit are split on the issue, applying either the Twombly/Iqbal standard or adhering to the Sixth Circuit's pre-Twombly/Iqbal "fair notice" standard. The court in Paducah River Painting, Inc. v. McNational Inc., No. 5:11-CV-135-R, 2011 WL 5525938 (W.D. Ky. Nov. 14, 2011), aptly summarized the arguments on both sides of the issue:

   Courts adopting the new Twombly and Iqbal standard for affirmative defenses have offered differing rationales. Some have dissected the language of Federal Rule of Civil Procedure 8. In doing so, they noted the similarities between section [*22]  (a)'s requirement of a "short and plain statement" for a claim showing relief and subsection (b)'s requirement of a statement in "short and plain terms" of any defenses. Still others have used this higher pleadings bar to discourage the use of "boilerplate" defenses because they are frequently offered without a factual basis.

Those courts abiding by the "fair notice" standard provide contrasting reasons for doing so. Some noticed that subsection (c) of Rule 8 only asks that defendants "state . . . any affirmative defense." The absence of the word "show" caused these courts to believe Rule 8(c) represented a lower threshold then Rule 8(a). A few addressed the practical concerns of requiring defendants to assert affirmative defenses sufficient to defeat a motion to dismiss under Rule 12(b)(6) in light of the temporal constraints facing a defendant in preparing an answer. Finally, there is the argument that the increased pleading standard for defendants will inevitably spawn more motions to strike by plaintiffs, a result at odds with the prevailing case law discouraging Rule 12(f)'s usage.

Id. at *2 (internal citations omitted). Some courts have also cited, as justification for rejecting a heightened pleading standard, the Sixth Circuit's post-Twombly decision in Montgomery v. Wyeth, 580 F.3d 455 (6th Cir. 2009), which [*23]  held that the defendant's statute of repose affirmative defense comported with the pre-Twombly "fair notice" standard. See, e.g., McLemore v. Regions Bank, Nos. 3:08-cv-21, 3:08-cv1003, 2010 WL 1010092, at *13-14 (M.D. Tenn. Mar. 18, 2010).3 One district judge in this district, Judge Neff, has addressed the issue. In Quality Edge, Inc. v. Rollex Corp., No. 1:10-CV-278, 2014 WL 4983504 (W.D. Mich. Sept. 19, 2014), Judge Neff adopted the magistrate judge's recommendation that the "fair notice" standard remains intact in the Sixth Circuit. Id. at *2, 4.

3   The Court notes that in a recent decision the Sixth Circuit recognized that it had not previously addressed whether the Twombly/Iqbal heightened standard applies to affirmative defenses, but declined to so because the district court had not applied the Twombly/Iqbal standard. Depositors Ins. Co. v. Estate of Ryan, Nos. 15-5507, 15-5516, 2016 WL 66545, at *3 (6th Cir. Jan. 6, 2016).

Having considered the reasons given for and against the adoption of the Twombly/Iqbal standard, the Court agrees with Judge Neff and other district judges that the "fair notice" standard remains intact in the Sixth Circuit, particularly in light of the language or Rule 8(c) and the Sixth Circuit's post-Twombly decision in Montgomery. But, even though BHASD's affirmative defenses generally meet the "fair notice" standard, [*24]  they cannot survive if they are "so unrelated to the plaintiff's claims as to be unworthy of any consideration as a defense and . . . their presence in the pleading throughout the proceeding will be prejudicial to the moving party." Damron v. ATM Cent. LLC, No. 1:10-cv-1219-JDB-egb, 2010 WL 6512345, at *1 (W.D. Tenn. Oct. 29, 2010) (quoting 5C Wright & Miller § 1380 (3d ed. 2004)); see also Cent. States, Se. & Sw. Areas Pension Fund v. Lloyd L. Sztanyo Trust, 693 F. Supp. 531, 540 (E.D. Mich. 1988) (noting that an affirmative defense should be stricken only if it is "patently defective"). Many of BHASD's affirmative defenses fail under this standard. To begin, BHASD concedes that its equity-based defenses--laches and unclean hands--are inapplicable to the account stated and breach of contract claims. (Dkt. # 23 at Page ID155-56.) Others are also "not applicable under any circumstances," id. at 541:

   o The first defense of failure to state a claim is inapplicable because Sodexo has established its claims as a matter of law.

o Under Michigan law, account stated and breach of contract actions are subject to the six-year statute of limitations set forth in M.C.L. § 600.5807(8). Fisher Sand & Gravel Co. v. Neal A. Sweebe, Inc., 494 Mich. 543, 561-62, 837 N.W.2d 244, 255 (2013). The second defense--statute of limitations--fails because the parties entered into the Agreement on June 13, 2011 and Sodexo filed the instant case on August 28, 2015--well within the limitations period.

o By its admissions, [*25]  BHASD has waived any defense that Sodexo committed the first substantial breach of the Agreement. BHASD admitted that Sodexo provided BHASD services in accordance with the Agreement, that BHASD accepted such services and expressly agreed to pay for them, and that BHASD did not challenge or respond to Sodexo's invoices.

o BHASD's eighth defense, failure to mitigate damages, is inapplicable under the circumstances of this case. Sodexo is seeking to recover past due amounts for services provided and invoiced to BHASD. Its only means to mitigate damages was by terminating the Agreement, which it did effective November 10, 2014. (Dkt. # 10 at PageID69.)

o BHASD's ninth defense, that Sodexo engaged in improper or fraudulent conduct to procure the contract, is patently defective because affirmative defenses alleging fraud must be pled with particularity pursuant to Federal Rule of Civil Procedure 9(b). See Sprint Solutions, Inc. v. Shoukry, No. 2:14-cv127, 2014 WL 5469877, at *3 (S.D. Ohio Oct. 28, 2014); Holley Performance Prods., Inc. v. Quick Fuel Tech., Inc., No. 1:07-CV-185-JHM, 2011 WL 3159177, at *3 (W.D. Ky. July 26, 2011). The fraud defense falls far short of complying with Rule 9(b).

BHASD's only remaining defenses are that it lacked authority to enter into the Agreement and that the Agreement is voidable, in whole or in part. [*26]  These defenses should not require discovery because BHASD likely possesses all of the information it needs to assert them. These are the only remaining issues in the case. Thus, the Court will hold Sodexo's motion in abeyance pending its receipt of further information from BHASD. In accordance with Rule 1 of the Federal Rules of Civil Procedure, which provides that the rules "should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding," the Court will require BHASD to explain, in accordance with Federal Rule of Civil Procedure 11(b), the factual and legal bases for its two remaining defenses within twenty-one days. After receipt of such information, the Court will determine whether judgment may be entered for Sodexo or if additional proceedings are necessary.


2. Terry v. Gary Community Sch. Corp., 2016 U.S. Dist. LEXIS 25332 (N.D. Ind. Feb. 26, 2016):


1   The Seventh Circuit Court of Appeals has yet to rule on whether affirmative defenses must meet the plausibility standard established in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), and district courts within this Circuit are split on the question. See, e.g., Ford v. Psychopathic Records, Inc., No. 12-CV-0603-MJR-DGW, 2013 WL 3353923 (S.D. Ill. July 3, 2013) (summarizing cases on either side of the split).

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