Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Tex.: Court refuses to strike most affirmative defenses by company accused by FTC of sending spam text messages, (Aug 23, 2013)

By Edward L. Puzzo, J.D.

The federal district court in Houston has refused to strike most of sixteen affirmative defenses raised by a company accused by the FTC of sending spam text messages (Federal Trade Commission v. Verma Holdings, LLC, August 22, 2013, Atlas, N.).

The Federal Trade Commission had sought an injunction, seeking to bar Verma Holdings from sending spam text messages with promises of free gift cards from retailers. Verma's Answer raised sixteen affirmative defenses. The FTC moved to strike all sixteen as either improperly pleaded, or as redundant, immaterial or insufficient as a matter of law. The court denied the FTC's motion to strike certain affirmative defenses; granted their motion to strike as to certain other affirmative defenses, with leave to amend; and granted the motion to strike the remaining affirmative defenses, without leave to amend.

The affirmative defenses the court declined to strike:

Failure to state a claim. Verma's first affirmative defense alleged that the complaint failed to state a claim upon which relief could be granted. Since the "failure to state a claim" affirmative defense mimicked Form 30 of the Federal Rules of Civil Procedure, the court ruled that it was an adequately pled defense and declined to strike it.

Lack of personal jurisdiction. Verma's third affirmative defense alleged that the court lacked personal jurisdiction over the defendants, claiming that the defendants neither resided in nor did business in the court district. While this defense lacked factual specificity, the court did not find it legally insufficient, so it did not strike it.

Limitation period. Verma's fourth affirmative defense was that the claims were bared by the applicable statute of limitations or the doctrine of laches. The FTC responded that no statute of limitations applied to its claims and that laches is not recognized as a defense when the government acts to safeguard public welfare. The court stated that a limitations period could possibly apply, so it declined to strike this affirmative defense, but granted Verma leave to plead them with greater specificity.

Good faith. Verma's eighth affirmative defense was that they acted in good faith towards consumers. The FTC responded that good faith was not a defense to liability under the FTC Act. The court stated that the Fifth Circuit had not determined that good faith is a legally insufficient defense to liability under the FTC Act, so the court declined to strike this affirmative defense.

Failure to Mitigate. Verma's eleventh and twelfth affirmative defenses, respectively, were that consumers failed to make reasonable efforts to mitigate their damages; and that defendants were entitled to set-off. The FTC argued that such defenses are not available in a case where equitable relief not damages, are at stake. Since these defenses may relate to monetary relief necessary to redress consumer injury, the court declined to strike them.

Unspecified defenses. Verma's sixteenth affirmative defense was that they intended to rely on any other unspecified defense that might become available during the course of discovery. The FTC claimed that this affirmative defense circumvented Federal Rule of Civil Procedure 15, but Verma responded that they retained their right to amend their Answer under that rule. The court stated that Verma's acknowledgement of Rule 15 suggested that they were not attempting to circumvent it, so it found no need to strike this defense.

The affirmative defenses the court struck with leave to amend:

Breach of duty. Verma's fifth, sixth, seventh and thirteenth affirmative defenses alleged, respectively, that they did not breach a duty owed to consumers; that they did act in conformance with commercial standards and reasonableness; that consumers did not reasonably rely on their representations; and that consumers had no cause of action for breach of duty because they assumed the risk for all damages alleged. The FTC responded that these defenses were negative, not affirmative, and in any case lacked a factual basis. The court gave leave to Verma to replead with relevant supporting facts.

Consumer conduct creating estoppel. Verma's tenth affirmative defense was that the claims the FTC sought to enforce against them were barred by the conduct of consumers creating estoppel. The court noted that estoppel is rarely valid against the government, but can be established by proof of affirmative misconduct by the government. The court granted Verma leave to amend and replead this defense with greater specificity.

First Amendment rights. Verma's fourteenth affirmative defense was that the FTC claims infringed on First Amendment rights and therefore should be dismissed on constitutional grounds. The FTC responded that the government may prevent the dissemination of false or misleading commercial speech. The court stated that no trier of fact had yet found that Verma's marketing practices were false or misleading, so First Amendment defenses may apply, but this could not be ascertained without more factual allegations. The court granted Verma leave to amend this defense in its pleadings.

The affirmative defenses the court struck, without leave to amend:

Subject matter jurisdiction. Verma's second affirmative defense alleged that the court lacked subject matter jurisdiction over the claims asserted. Since the action arose under the FTC Act and therefore posed a federal question which conferred jurisdiction, the motion to strike was granted.

Lack of misconduct. Verma's ninth affirmative defense was that claims asserted against it did not arise from its misconduct. FTC responded that this defense was negative, not affirmative, and redundant from its denials elsewhere. The court agreed and struck the defense.

Cessation of impermissible conduct. Verma's fifteenth affirmative defense was that the FTC's claims by injunctive relief were barred by Verma's cessation of impermissible conduct. The FTC responded that the voluntary cessation of allegedly illegal conduct was insufficient to moot a claim for injunctive relief. The court agreed, and struck this affirmative defense.

The case is Civil Action No. 4:13-cv-00594.

Attorneys: Eliseo Noel Padilla (Federal Trade Commission) for Federal Trade Commission. James A. Kaminski (Hughes & Bentzen, PLLC) for Verma Holdings, LLC.

Companies: Verma Holdings, LLC

Cases: Privacy Advertising TexasNews