United States Securities and Exchange Commission v. Dragonchain Inc

• Court: District Court, W.D. Washington
• Decided: March 9, 2023
• Docket: 2:22-cv-01145
• Status: Unknown

Opinion

THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE 9 UNITED STATES SECURITIES AND CASE NO. C22-1145-JCC EXCHANGE COMMISSION, 10 ORDER 11 Plaintiff, v. 12 DRAGONCHAIN, INC., et al., 13 Defendants. 14 15 16 This matter comes before the Court on Plaintiff’s motions to strike affirmative defenses 17 (Dkt. No. 18). Having thoroughly considered the parties’ briefing and the relevant record, the 18 Court finds oral argument unnecessary and hereby GRANTS the motion for the reasons 19 explained herein. 20 I. BACKGROUND 21 Plaintiff alleges that Defendants engaged in the unlawful offer and sale of securities in 22 violation of Sections 5(a) and 5(c) of the Securities Act of 1933 (“Securities Act”) 15 U.S.C. §§ 23 77(e)(a) and77e(c). (See Dkt. No. 6.) On December 21, 2022, Defendants filed an answer to the 24 complaint, asserting 12 affirmative defenses. (Dkt. No. 17 at 23–24.) Plaintiff moves to strike 25 three of the affirmative defenses, on the grounds that each defense either lacks sufficient 26 supporting facts to give Plaintiff fair notice or are not valid defenses. (See Dkt. No. 18.) 1 II. DISCUSSION 2 A. Legal Standard 3 Under Federal Rule of Civil Procedure 12(f), a district court “may strike from a pleading 4 an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. 5 Civ. R. 12(f). “[T]he function of a 12(f) motion to strike is to avoid the expenditure of time and 6 money that must arise from litigating spurious issues by dispensing with those issues prior to 7 trial . . . .” Sidney–Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). To determine 8 whether a defense is “insufficient” under Rule 12(f), the Court asks whether it gives the plaintiff 9 fair notice of the defense. Simmons v. Navajo Cty, 609 F.3d 1011, 1023 (9th Cir. 2010) (citing 10 Wyshak v. City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979)). Under Federal Rule of Civil 11 Procedure 8, a party must “state in short and plain terms its defenses to each claim asserted 12 against it.” Fed. R. Civ. P. 8(b); see also Rosen v. Marketing Grp, LLC, 222 F. Supp. 3d 793, 802 13 (C.D. Cal. 2016) (“Affirmative defenses must be supported by at least some facts indicating the 14 grounds on which the defense is based, but need not include facts sufficient to demonstrate 15 plausible entitlement to relief.”). 16 1. Statute of Frauds and Waiver 17 Defendants’ sixth affirmative defense reads in its entirety: “Plaintiff is barred from relief 18 by statute of frauds and waiver.” (Dkt. No. 17 at 24.) Because this case does not involve any 19 contract claims, Defendants’ threadbare reference to the statute of frauds, a contract based 20 affirmative defense, does not give the Plaintiff fair notice of the purported defense. Neither does 21 invocation of the term “waiver.” Simply asserting these defenses as a conclusory statement, with 22 no indication as to which claims Defendants believe are barred from relief by the statute of 23 frauds or by waiver, does not give Plaintiff fair notice. See Rosen, 222 F. Supp. 3d at 797. On 24 this basis, the Court STRIKES Defendants’ sixth affirmative defense with leave to amend. 25 2. Equitable Estoppel, Laches, and Waiver 26 Defendants’ seventh affirmative defense reads in its entirety: “Plaintiff is barred from 1 relief by laches, estoppel, and waiver.” (Dkt. No. 17 at 24.) Defendants concede that the “burden 2 is high to prove estoppel against the Government,” (Dkt. No. 21 at 7), and that it is “well settled” 3 that “the government may not be estopped on the same terms as a private litigant” (Id.) (citing 4 Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 60 (1984)). While 5 the Court recognizes that the defenses of estoppel, laches, and waiver are sometimes available 6 against a government agency, Defendants have not pled any facts to demonstrate why they 7 would be available here. Simply asserting these defenses as a conclusory statement, with no 8 indication as to which claims Defendant believes are collaterally estopped or why they are 9 collaterally estopped, or which claims are barred by the doctrine of laches, does not give Plaintiff 10 fair notice. See Rosen, 222 F. Supp. 3d at 797. On this basis, the Court STRIKES Defendants’ 11 seventh affirmative defense with leave to amend. 12 3. Lack of Specificity and Particularity 13 Defendants’ eighth affirmative defense reads in its entirety: “Plaintiff’s allegations 14 constitute a ‘puzzle pleading’ and fail to identify with specificity and particularity the legal 15 elements that make Defendants’ tokenized software micro-license a security.” (Dkt. No. 17 at 16 24.) By definition, “[a] defense which demonstrates that [a] plaintiff has not met its burden of 17 proof is not an affirmative defense.” Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th 18 Cir. 2002). Such a defense is merely rebuttal against the evidence presented by the plaintiff. On 19 the other hand, “[a]n affirmative defense, under the meaning of Federal Rule of Civil Procedure 20 8(c), is a defense that does not negate the elements of the plaintiff's claim, but instead precludes 21 liability even if all of the elements of the plaintiff's claim are proven.” Roberge v. Hannah 22 Marine Corp., 1997 WL 468330, slip op. at 3 (6th Cir. 1997). 23 Accordingly, Defendants’ assertion that Plaintiff has failed to identify elements of the 24 charge is not an affirmative defense; rather, it simply challenges the legal or factual sufficiency 25 of Plaintiff’s claims argues that Plaintiff cannot meet his or her burden of proof. Therefore, the 26 1 Court STRIKES Defendants’ eighth affirmative defense without leave to amend.1 2 III. CONCLUSION 3 For the foregoing reasons, Plaintiff’s motion to strike Defendants’ affirmative defenses 4 (Dkt. No. 18) is GRANTED. In accordance with this order, the Court STRIKES Defendants’ 5 affirmative defense No. 8 without leave to amend. The Court STRIKES Defendants’ affirmative 6 defenses Nos. 6 and 7 with leave to amend. If Defendants chooses to file an amended answer, 7 they must do so within 14 days from the issuance of this order. 8 DATED this 9th day of March 2023. A 9 10 11 John C. Coughenour 12 UNITED STATES DISTRICT JUDGE

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25 1 This ruling does not preclude Defendants from challenging the legal sufficiency of Plaintiff’s claims in a dispositive motion, such as a motion for judgment on the pleadings under 26 Federal Rule of Civil Procedure 12(c).