Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—DAriz: Business Opportunities Promoters’ Affirmative Defenses Mostly Stricken in FTC Action, (Oct 19, 2012)

By William Zale, J.D.

In a Federal Trade Commission action asserting that individuals and companies were engaged in a common enterprise to deceptively market home-based Internet business opportunities and accompanying marketing services, the federal district court in Phoenix struck affirmative defenses, with the exception of mootness and an individual’s defenses not mentioned in the FTC’s motion to strike (Federal Trade Commission v. North America Marketing and Associates, LLC, October 17, 2012, Campbell, D.).

The court rejected the FTC’s argument that the pleading of affirmative defenses must meet the factual basis and plausibility requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). The Ninth Circuit has not yet decided whether the pleadings standards of Twombly and Iqbal apply to affirmative defenses, but the court had held that they do not, in G & G Closed Circuit Events, LLC, v. Mitropoulos, No. CV12-0163-PHX DGC, 2012 WL 3028368, at *1 (D. Ariz. July 24, 2012) and Ameristar Fence Products, Inc. v. Phoenix Fence Co., No. CV10-299-PHX DGC, 2010 WL 2803907, at *1 (D. Ariz. July 15, 2010).

The court applied Ninth Circuit precedent requiring that defendants’ pleading give “fair notice” of the affirmative defense to the plaintiff, citing Wyshak v. City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Fair notice generally requires that the defendant state the nature and grounds for the affirmative defense. An affirmative defense may be legally insufficient if it clearly lacks merit under any set of facts the defendant might allege, or does not plead matters extraneous to the plaintiff’s prima facie case which deny the plaintiff’s right to recover, even if the allegations of the complaint are true, the court added.

The court declined to strike a mootness defense asserting cessation of the challenged activities to the extent that it might be relevant to whether or not an injunction should be granted. The defense was stricken, however, to the extent that it was a factual argument disputing the FTC claims and asserting that the challenged practices never occurred.

The court struck defendants’ assertion that the FTC failed to state a claim because that theory is not an affirmative defense but, rather, asserts a defect in the FTC’s prima facie case. A “reservation of rights” asserted by two defendants also was not a proper affirmative defense, according to the court.

The following defenses were stricken because they were based on mere factual disagreement with the FTC’s claims: protected commercial speech; lack of mens rea and intent to deceive; damages not authorized by law; no knowledge of or control over a corporate defendant’s actions; accord and satisfaction; arbitration and award; assumption of risk; contributory negligence; duress; failure of consideration; fraud; illegality; license; payment; res judicata; and statute of frauds.

The following defenses were stricken for failure to provide a factual basis: estoppel, waiver, or laches; unclean hands; release; non-parties at fault; mitigation of damages; omissions of third parties. A statute of limitations defense was stricken for failure to identify the application statute.

The court declined to strike the affirmative defenses of an individual defendant not mentioned in the FTC’s motion to strike. The FTC must file a motion specifically requesting that those affirmative defenses be stricken, the court said.

The case is No. CV-12-0914-PHX-DGC.

Ann Dorman LeJeune, Federal Trade Commission. Stacey Faith Gottlieb (Greenberg Traurig LLP) North America Marketing and Associates LLC.

Cases: ConsumerProtection ArizonaNews