Case 8:19-cv-00448-VMC-CPT Document 57 Filed 07/24/19 Page 1 of 8 PageID 459

UNITED STATES DISTRICT COURT

UNITED STATES SECURITIES

Plaintiff,

v. Case No. 8:19-cv-448-T-33CPT

SPARTAN SECURITIES GROUP, LTD,

Defendants.

______________________________/

ORDER

Before this Court is Plaintiff Securities and Exchange

Commission’s Motion to Strike Defendants’ Affirmative

Defenses (Doc. # 51), filed on July 5, 2019. Defendants

Spartan Securities Group, LTD, Island Capital Management,

Carl Dilley, Micah Eldred, and David Lopez responded on July

18, 2019. (Doc. # 56). For the reasons that follow, the Motion

is denied.

I. Background

The SEC brings this civil enforcement action against

Defendants for their alleged roles in creating nineteen

undisclosed blank check companies in violation of the

Securities Act of 1933 (Securities Act) and the Securities

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Exchange Act of 1934 (Exchange Act). (Doc. # 1). Defendant

Eldred filed a motion to dismiss the Complaint on April 22,

2019. (Doc. # 22). The remaining Defendants jointly filed a

separate motion to dismiss that same day. (Doc. # 23). All

Defendants argued, among other things, that most of the SEC’s

claims were time-barred. (Docs. ## 22 at 27; 23 at 31). The

Court disagreed and denied both motions on June 5, 2019. (Doc.

# 44).

Defendants filed a joint answer to the action on June

14, 2019, wherein they deny all nineteen counts and assert

six affirmative defenses: (1) statute of limitations; (2)

waiver/estoppel; (3) unclean hands/bad faith; (4)

disgorgement not proper remedy; (5) good faith reliance; and

(6) any additional affirmative defenses that might develop.

(Doc. # 46 at 69-70). On July 5, 2019, the SEC filed its

Motion to Strike all six affirmative defenses. (Doc. # 51).

Defendants responded in opposition on July 18, 2019 (Doc. #

56), and the Motion is ripe for review.

II. Analysis

The SEC argues that the Court “should strike Defendants’

affirmative defenses because the majority of those arguments

were already considered and dismissed by the Court in

[Defendants’] Motion to Dismiss [or] . . . are simply wrong

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as a matter of law.” (Doc. # 51 at 1). According to the SEC,

“an affirmative defense must give the plaintiff ‘fair notice’

of the nature of the defense and the grounds upon which it

rests.” (Id. at 4). According to the SEC, none of Defendants’

affirmative defenses allege facts in support and are legally

insufficient. (Id. at 5).

This Court has previously held that affirmative defenses

are not subject to the pleading standard described in Bell

Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft

v. Iqbal, 556 U.S. 662 (2009). See Hamblen v. Davol, Inc.,

No. 8:17-cv-1613-T-33TGW, 2018 WL 1493251, at *2 (M.D. Fla.

Mar. 27, 2018)(“[T]his Court finds persuasive the logic of

those district courts in the Eleventh Circuit that have found

that affirmative defenses should not be held to the Twombly

pleading standard.”). As such, the SEC’s “arguments based

upon Twombly and its progeny are roundly rejected.” Id.

Still, “affirmative defenses are . . . evaluated against

the touchstone of Rule 12(f), Fed. R. Civ. P.” Grasso v.

Grasso, No. 8:13-cv-3186-T-33AEP, 2015 WL 12843863, at *1

(M.D. Fla. Feb. 18, 2015). Rule 12(f) allows courts to “strike

from a pleading an insufficient defense or any redundant,

immaterial, impertinent, or scandalous matter.” Fed. R. Civ.

P. 12(f). Motions to strike are generally disfavored due to

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their drastic nature. Id.; see also Hamblen, 2018 WL 1493251,

at *3; Royal Ins. Co. of Am. v. M/Y Anastasia, No. 95-cv-

30498, 1997 WL 608722, at *3 (N.D. Fla. Jan. 30, 1997).

Courts in this District have held that “[a]n affirmative

defense will only be stricken . . . if the defense is

‘insufficient as a matter of law.’” Hamblen, 2018 WL 1493251,

at *3 (quoting Microsoft Corp. v. Jesse’s Computs. & Repair,

Inc., 211 F.R.D. 681, 683 (M.D. Fla. 2002)). An affirmative

defense is insufficient as a matter of law if: (1) on the

face of the pleadings, it is patently frivolous, or (2) it is

clearly invalid as a matter of law. Jesse’s Computs. & Repair,

Inc., 211 F.R.D. at 683.

The SEC argues that Defendants’ first affirmative

defense — that the SEC’s claims and recovery are barred by

the applicable statute of limitations set forth in 28 U.S.C.

§ 2462 — should be stricken because the Court already ruled

on the issue. Indeed, the Court previously ruled that the

relief sought by the SEC in this matter is not barred by the

statute of limitations contained within Section 2462. (Doc.

# 44 at 20-22).

However, as the SEC acknowledges, “motions to strike

defenses are generally not favored.” (Doc. # 51 at 3). Such

motions “will usually be denied unless the allegations have

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no possible relation to the controversy and may cause

prejudice to one of the parties.” Poston v. American President

Lines, Ltd., 452 F. Supp. 568, 570 (S.D. Fla. 1978)(citing

Augustus v. Board of Public Instruction, 306 F.2d 862 (5th

Cir. 1962)). Given that Defendants’ first affirmative defense

relates directly to the SEC’s claims and that the SEC has

failed to show it would experience undue prejudice if the

Court did not strike the defense, the Court declines to strike

Defendants’ first affirmative defense.

The SEC next argues that Defendants’ second affirmative

defense of waiver/estoppel should be stricken because

estoppel claims against the government “only lie in the most

extreme circumstances.” Gibson v. Resolution Trust Corp., 51

F.3d 1016, 1025 (11th Cir. 1995). However, it does not follow

that Defendants’ second affirmative defense is insufficient

as a matter of law simply because such defense is only

available in extreme circumstances. As such, the Court

declines to strike Defendants’ second affirmative defense.

The SEC similarly argues that Defendants’ third

affirmative defense — that the SEC’s claims are barred by the

doctrine of unclean hands or bad faith — should be stricken

because the defense is “only available in strictly limited

circumstances.” SEC v. KPMG LLP, No. 03 Civ. 671(DLC), 2003

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WL 21976733, at *3 (S.D.N.Y. Aug. 20, 2003). Again,

Defendants’ affirmative defense is not insufficient as a

matter of law merely because such defense generally is not

available. Therefore, the Court declines to strike

Defendants’ third affirmative defense.

The SEC then argues that Defendants’ fourth affirmative

defense — that the SEC’s request for disgorgement is not a

proper remedy — should be stricken because the Court

previously ruled on the issue. The Court did find that

disgorgement in the securities-enforcement context is a

penalty within the meaning of Section 2462 as announced in

Kokesh v. SEC, 137 S.Ct. 1635, 1639 (2017). (Doc. # 44 at

21). Nonetheless, the Supreme Court expressly did not rule on

whether disgorgement is an appropriate remedy in enforcement

proceedings. Kokesh, 137 S.Ct. at 1642 n. 3 (“Nothing in this

opinion should be interpreted as an opinion on whether courts

possess authority to order disgorgement in SEC enforcement

proceedings.”). Therefore, the Court declines to strike

Defendants’ fourth affirmative defense because it is not

insufficient as a matter of law.

The SEC next argues that Defendants’ fifth affirmative

defense — that Defendants acted in good faith without

knowledge of wrongdoing — is not an affirmative defense and

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is instead a denial of an element of the SEC’s prima facie

case. (Doc. # 51 at 11). Still, even if good faith in this

context is a denial and not a defense, the SEC fails to

provide any grounds for striking the denial/defense. In fact,

“[a]ffirmative defenses that . . . are treated as denials by

courts within this district . . . are generally not stricken.”

CFTC v. Montano, No: 6:18-cv-1607-Orl-31GJK, 2019 U.S. Dist.

LEXIS 39852, at *3 (M.D. Fla. 2019)(citing Heath v. Deans

Food T.G. Lee, No. 6:14-cv-2023-ORL-28, 2015 WL 1524083, at

*2 (M.D. Fla. Apr. 2, 2015); Taney v. Holding Co. of the

Villages, Inc., No. 5:10-cv-134-Oc-32JRK, 2010 WL 4659604, at

*1 (M.D. Fla. Nov. 9, 2010)). So, the Court will not strike

Defendants’ fifth affirmative defense.

Finally, the SEC argues that Defendants’ sixth

affirmative defense, in which Defendants reserve the right to

add additional affirmative defenses, should be stricken

because it is not a defense at all. (Doc. # 51 at 12). The

Court agrees that a reservation of rights is not a defense

and is ineffective at reserving the right to assert other

affirmative defenses. See Wiebe v. Zakheim & Lavrar, P.A.,

No. 6:12-cv-1200-Orl-18, 2012 WL 5382181, at *3 (M.D. Fla.

Nov. 1, 2012)(“The Defendant’s Eleventh Affirmative Defense

is not a defense at all; it is merely an ineffective and

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unnecessary reservation of right.”). Nevertheless, the Court

disagrees that the reservation of rights should be stricken.

See Moore v. R. Craig Hemphill & Assocs., No. 3:13–CV–900–J–

39–PDB, 2014 WL 2527162, at *1 (M.D. Fla. May 6, 2014)(noting

that “striking a reservation-of-rights paragraph” is

“purposeless”). Thus, the Court declines to strike

Defendants’ sixth affirmative defense.

Accordingly, it is

ORDERED, ADJUDGED, and DECREED:

Plaintiff Securities and Exchange Commission’s Motion to

Strike Defendants’ Affirmative Defenses (Doc. # 51) is

DENIED.

DONE and ORDERED in Chambers in Tampa, Florida, this

24th day of July, 2019.