Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D. Nev.: Affirmative defenses survive FTC motion to strike in payday lending suit, (Oct 29, 2014)

By Jody Coultas, J.D.

In an action against payday lenders, affiliated with American Indian tribes, for engaging in deceptive practices in connection with high-fee short-term payday loans, the FTC’s motion to strike affirmative defenses raised by the payday lenders was denied by the federal district court in Las Vegas (FTC v. AMG Services, Inc., October 27, 2014, Ferenbach, C.).

Earlier this year, the court entered summary judgment in part in the FTC’s favor. Now, in the relief phase of the action, the defendants have pled affirmative defenses that contest the FTC Act’s applicability and the defendants’ liability. The FTC moved to strike affirmative defenses as insufficient.

At issue was whether the Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009) or its decision in Conley v. Gibson, 355 U.S. 41 (1957) governed a Federal Rule of Civil Procedure 12(f) motion to strike an insufficient defense. No circuit court had addressed the issue, and district courts were split in their holdings. Some courts had concluded that Twombly and Iqbal’s heightened-pleading standard governs a Rule 12(f) motion and require a party’s pleading to contain “a short and plain” statement of their case. Other courts had concluded that Twombly and Iqbal do not apply because Rule 8(b)(1)(A) does not, like Rule 8(a)(2), require the pleader to “show” that the pleader is entitled to relief.

To determine whether a defense is “insufficient” under Rule 12(f), the court’s decision will depend on what type of defense is in controversy. Iqbal and Twombly’s heightened-pleading standard applies to Rule 8(b)(1)(A) defense because Rule 8(b)(1)(A), like Iqbal and Twombly, requires a “short and plain” statement. Conley’s fair-notice standard applies to Rule 8(c) because neither Rule 8(c) nor Conley require factual support. The court found it unnecessary to address the various policy and pragmatic considerations raised by prior district courts.

The FTC’s motion to strike was denied by the court. The court held that Conley applied. Under Conley, an affirmative defense may be struck only if “no set of facts” support the defense. The FTC argued the affirmative defenses should be struck because they failed as a matter of law, would prejudice the FTC by increasing the cost of discovery, and would prejudice consumers awaiting relief. However, prejudice considerations were not relevant under Rule 12(f). Also, the affirmative defenses were sufficient because they responded to the allegations of the FTC’s complaint and provided fair notice of the grounds upon which they rest. Determining whether each affirmative defense failed as a matter of law, as requested by the FTC, would waste judicial resources and would not streamline discovery, in the court’s view.

The case is No. 2:12-cv-536-GMN-VCF.

Attorneys: Blaine T. Welsh, U.S. Attorney's Office, for FTC. Andrew A. Kassof (Kirkland & Ellis LLP), Nicole Ducheneaux (Fredericks Peebles & Morgan LLP), and Joshua M. Dickey (Bailey Kennedy) for AMG Services, Inc., Red Cedar Services, Inc., and SFS, Inc. Von S. Heinz (Lewis Roca Rothgerber LLP) for AMG Capital Management, LLC, and Level 5 Motorsports, LLC.

Companies: AMG Services, Inc.

Cases: ConsumerProtection FederalTradeCommissionNews NevadaNews