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striking affirmative defenses as insufficiently pled under Rule 12(f)
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CIV. NO. 2:15-2624 WBS CKD
04-25-2016
KEYEANNA SAUNDERS, suing individually and by and on behalf of all others similarly situated, and the general public, Plaintiffs, v. FAST AUTO LOANS, INC., a California Corporation dba FAST AUTO AND PAYDAY LOANS; COMMUNITY LOANS OF AMERICA, INC., a Georgia Corporation; and ROBERT REICH, an individual, Defendants. AND RELATED COUNTERCLAIMS.
ORDER RE: PLAINTIFF'S MOTIONS TO STRIKE AND DISMISS
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Plaintiff Keyeanna Saunders initiated this putative class action against defendants Fast Auto Loans, Inc. ("Fast Auto Loans"), Community Loans of America, Inc. ("CLA"), and Robert Reich, alleging wage and hour violations under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201 et seq., and California law. Presently before the court is plaintiff's motion to dismiss defendant Fast Auto Loans' four counterclaims pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) and to strike defendants' forty-one affirmative defenses pursuant to Rule 12(f). (Docket No. 6.)
I. Motion to Dismiss
A. Subject Matter Jurisdiction
Plaintiff moves to dismiss defendant Fast Auto Loans' four state law counterclaims for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) on the basis that supplemental jurisdiction over the claims is improper. (Pl.'s Mot. at 10 (Docket No. 6-1).) Under 28 U.S.C. § 1367, district courts have supplemental jurisdiction over state law counterclaims "that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy." Section 1367 applies to state law claims brought by a plaintiff as well as to counterclaims brought by a defendant. Sparrow v. Mazda Am. Credit, 385 F. Supp. 2d 1063, 1066 (E.D. Cal. 2005) (Wanger, J.).
Rule 13 defines two types of counterclaims: compulsory and permissive. A compulsory counterclaim "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed. R. Civ. P. 13(a). The Ninth Circuit applies the "logical relationship" test to determine if a counterclaim is compulsory by analyzing "whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit." Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir. 1987) (citations omitted); see also Mattel, Inc. v. MGA Entm't, Inc., 705 F.3d 1108, 1110 (9th Cir. 2013) ("A logical relationship exists when the counterclaim arises from the same aggregate set of operative facts as the initial claim, in that the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant." (citation omitted)). "The traditional rule is that federal courts have supplemental jurisdiction over compulsory counterclaims, since a plaintiff would otherwise lose his opportunity to be heard on that claim" and they, by definition, form part of the same case or controversy. Sparrow, 385 F. Supp. 2d at 1066-67.
A permissive counterclaim need not arise out of the same transaction or occurrence as the opposing party's claim. See Fed. R. Civ. P. 13(b) ("A pleading may state as a counterclaim against an opposing party any claim that is not compulsory."); id. R. 13 Advisory Committee's note to 2009 amendment ("The meaning of former Rule 13(b) is better expressed by deleting 'not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim.' Both as a matter of intended meaning and current practice, a party may state as a permissive counterclaim a claim that does grow out of the same transaction or occurrence as an opposing party's claim even though one of the exceptions in Rule 13(a) means the claim is not a compulsory counterclaim.").
Defendant Fast Auto Loans' counterclaims are not compulsory. The four counterclaims for breach of contract, fraud (false representations), fraud (omission/nondisclosure of material facts), and unjust enrichment all arise out of plaintiff's alleged failure to repay a $260 payday loan that she obtained from Fast Auto Loans. (Fast Auto Loans' Countercls. at 1-3 (Docket No. 5).) The operative facts underlying Fast Auto Loans' counterclaim revolve around plaintiff's failure to repay the loan and allegedly fraudulent intent never to do so. In contrast, the operative facts underlying plaintiff's wage and hour claims are that defendants required her to clock out in the middle of the day to travel between branch locations and then clock in again upon arrival in order to avoid providing the required meal and rest breaks and overtime compensation. (See Compl. ¶ 13.) The facts necessary to prove the two claims do not substantially overlap.
Because Fast Auto Loans' counterclaims are not compulsory, the next question is whether supplemental jurisdiction over the permissive counterclaims nevertheless exists under § 1367(a). The Ninth Circuit has yet to decide the question of whether, under § 1367(a), federal courts may exercise supplemental jurisdiction over certain permissive counterclaims. The Second and Seventh Circuits, however, have found that "§ 1367 has extended the scope of supplemental jurisdiction, as the statute's language says, to the limits of Article III--which means that '[a] loose factual connection between the claims' can be enough." Channell v. Citicorp Nat. Servs., Inc., 89 F.3d 379, 385 (7th Cir. 1996) (citing Ammerman v. Sween, 54 F.3d 423, 424 (7th Cir. 1995)); see also, Jones v. Ford Motor Credit Co., 358 F.3d 205, 213 (2d Cir. 2004). This court joins the several others in the Eastern District of California that have made the same determination. See, e.g., Sparrow, 385 F. Supp. 2d at 1067 ("However, just because a state law claim does not arise out of the same transaction or occurrence as the federal law claim does not mean that the state law claim does not arise out of facts that bear some relationship to the facts from which the federal claim arises so that the state claim and the federal claim are considered part of the same constitutional 'case.'"); Fidelity Nat. Title Col v. U.S. Small Bus. Admin., Civ. No. 2:13-2030 KJM AC, 2014 WL 1883939, at *6 (E.D. Cal. May 12, 2014); Clear Connection Corp. v. Comcast Cable Commc'ns Mgmt., LLC, Civ. No. 2:12-2910 TLN CKD, 2014 WL 8214006, at *13 (E.D. Cal. Dec. 8, 2015).
In this case, there is a sufficient factual connection between plaintiff's federal claims and Fast Auto Loans' state counterclaims. If nothing else, Fast Auto Loans' counterclaims are at least relevant to its defense that it is entitled to offset against any recovery by plaintiff on her wage and hour claims due to her default on the loan. Accordingly, the court finds Fast Auto Loans' counterclaims form part of the same case or controversy and the court therefore has supplemental jurisdiction.
Under § 1367(c), district courts may decline to exercise supplemental jurisdiction over claims otherwise allowed if:
(1) the claim raises a novel or complex issue of State
law,28 U.S.C. § 1367(c). Plaintiff argues the court should decline to exercise supplemental jurisdiction because allowing Fast Auto Loans to bring a debt collection counterclaim against plaintiff would have a chilling effect on people who might otherwise bring suits for relief under FLSA. (Pl.'s Mot. at 12.) At this stage of the proceedings, the court cannot determine that any of the above conditions exist here.
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.
The record presently before the court does not present compelling reasons to grant plaintiff's motion to dismiss Fast Auto Loans' counterclaims under § 1367(d). If it appears later in the proceedings that Fast Auto Loans' counterclaims should be severed or dismissed, a motion can be made at that time.
B. Failure to State a Claim
On a motion to dismiss under Rule 12(b)(6), the court must accept the allegations in the counter-complaint as true and draw all reasonable inferences in favor of the nonmoving party. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, a counterclaimant must plead "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a [counter- ]defendant has acted unlawfully," and where a counter-complaint pleads facts that are "merely consistent with a [counter-] defendant's liability," it "stops short of the line between possibility and plausibility." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557).
"While a [counter-]complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a [counterclaimant's] obligation to provide the 'grounds' of his entitle[ment] to relief' requires more than labels and conclusions . . . ." Twombly, 550 U.S. at 555 (citations omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678; see also Iqbal, 556 U.S. at 679 ("While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.").
Plaintiff first argues that Fast Auto Loans' breach of contract counterclaim should be dismissed because it did not state with sufficient specificity which of its responsibilities were excused due to plaintiff's nonperformance. (Pl.'s Mot at 13.) The elements of a breach of contract are: "(1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff." Reichert v . Gen . Ins . Co . of Am ., 68 Cal. 2d 822, 830 (1968). Fast Auto Loans alleges that (1) plaintiff obtained a payday loan on May 7, 2015 in the amount of $260 and signed a promissory note obligating her to repay the loan on May 15, 2015, (2) "Fast Auto performed all of its obligations and conditions under the Loan except those that were excused by Plaintiff's nonperformance, conduct, or breach," (3) plaintiff did not make the payment when it became due, and (4) as a result of plaintiff's breach, it has been damaged in the amount of $260 plus the $39 service fee. (Fast Auto Loans' Countercls. at 1.) While Fast Auto Loans included somewhat ambiguous language about having performed all of its obligations "except those that were excused by Plaintiff's nonperformance," Fast Auto Loans clearly explained the nature of the loan and the manner in which plaintiff allegedly breached the loan agreement. Accordingly, the court will deny plaintiff's motion to dismiss the breach of contract counterclaim.
Plaintiff next moves to dismiss Fast Auto Loans two fraud counterclaims. "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). Thus, where a complaint alleges fraud, Rule 9(b) "requires more specificity including an account of the 'time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.'" Swartz v . KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (citation omitted). The counter-defendant must have "'notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.'" Id . (citation omitted). "Mere failure to pay without more does not plausibly show any intent to defraud or induce reliance--a necessary element of fraud." Yamauchi v . Cotterman, 84 F. Supp. 3d 993, 1019 (N.D. Cal. 2015).
Fast Auto Loans alleges that plaintiff submitted the application for the payday loan without ever intending to repay it, "as evidenced by her immediate failure to make the required payment." (Fast Auto Loans' Countercls. at 2.) It further alleges that plaintiff "concealed the true facts and her intentions" and "by doing so, she made deceptive and misleading those facts, representations, and promises she did disclose." (Id .) The only fact that Fast Auto Loans offers in support of its fraud claims is plaintiff's failure to pay. This fact alone is not sufficient to meet the Iqbal/Twombly plausibility standard, let alone the heightened Rule 9(b) standard. The innocent inference that plaintiff failed to pay for some other reason, such as a lack of funds or negligence, is far more plausible than the guilty inference of fraud. Accordingly, the court will grant plaintiff's motion to dismiss both fraud counterclaims.
Lastly, plaintiff moves to dismiss Fast Auto Loans' unjust enrichment counterclaim. (Pl.'s Mot. at 15.) "[U]njust enrichment is a common law obligation implied by law based on the equities of a particular case and not on any contractual obligation." Fed . Deposit Ins . Corp . v . Dintino, 167 Cal. App. 4th 333, 346 (4th Dist. 2008). "It is synonymous with restitution." McBride v . Boughton, 123 Cal. App. 4th 379, 387 (1st Dist. 2004). "[R]estitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason. . . . Alternatively, restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct." Id . at 388. Fast Auto Loans alleges only that "[b]y virtue of the acts and conduct alleged above, Plaintiff has been unjustly enriched. On information and belief, Plaintiff obtained benefits of $260.00 by obtaining a Loan that she intended never to, and did not, repay. By right and equity, such amount belongs to Fast Auto." (Fast Auto Loans' Countercls. at 3.) Given that Fast Auto Loans failed to plausibly allege its fraud counterclaims, its unjust enrichment counterclaim must also fail. Accordingly, the court will grant plaintiff's motion to dismiss Fast Auto Loans' unjust enrichment counterclaim.
II. Motion to Strike
Under Rule 8(c), an affirmative defense "is a defense that does not negate the elements of the plaintiff's claim, but instead precludes liability even if all of the elements of the plaintiff's claim are proven." Barnes v. AT&T Pension Benefit Plan-Nonbargained Program, 718 F. Supp. 2d 1167, 1173 (N.D. Cal. 2010) (citation omitted). "A defense which demonstrates that plaintiff has not met its burden of proof is not an affirmative defense." Zivkovic v . S . Cal . Edison Co ., 302 F.3d 1080, 1088 (9th Cir. 2002); see also G&G Closed Circuit Events, LLC v . Nguyen, Civ. No. 10-00168 LHK, 2010 WL 3749284, at *5 (N.D. Cal. Sept. 23, 2010) ("[A]llegations that the Plaintiff cannot prove the elements of his claims are not affirmative defenses.").
Rule 12(f) provides that "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). The Ninth Circuit has held an affirmative defense is sufficiently pled if it provides plaintiff with "fair notice" and describes the affirmative defenses in "general terms." Kohler v . Flava Enters . , Inc ., 779 F.3d 1016, 1019 (9th Cir. 2015); see also Beco Dairy Automation, Inc . v . Global Tech Sys . , Inc ., Civ. No. 1:12-1310 LJO SMS, 2015 WL 5732595, at *10 (E.D. Cal. Sept. 28, 2015); Aubin Indus . , Inc . v . Caster Concepts, Inc ., Civ. No. 2:14-2082 MCE CKD, 2015 WL 3914000, at *6 (E.D. Cal. June 25, 2015). "While this is less demanding than the Twombly/Iqbal standard, it still requires a party to plead some factual basis for its allegations." Beco Dairy Automation, Inc . v . Global Tech Sys . , Inc ., Civ. No. 1:12-1310 LJO SMS, 2015 WL 9583012, at *2 (E.D. Cal. Dec. 31, 2015); see also Qarbon . com Inc . v . eHelp Corp ., 315 F. Supp. 2d 1046, 1049 (N.D. Cal. 2004) ("A reference to a doctrine, like a reference to statutory provisions, is insufficient notice.").
Plaintiff moves to strike the following defenses, arguing that defendants improperly labeled these negative defenses as affirmative defenses: (1) failure to state a claim, (3) failure to plead with certainty and particularity, (11) good faith reliance, (12) no willful or intentional violation, (13) not compensable time pursuant to the Portal-to-Portal Act of 1947, 29 U.S.C. § 251, (14) non-compensable time because plaintiff was not subject to the control of employer, (17) improper collective action because plaintiff is not similarly situated to members of the class, (18) failure to satisfy the opt-in requirements, 29 U.S.C. § 216(b), (19) improper class action because of a lack of adequacy, typicality, and superiority, (20) improper representative action under the Private Attorneys General Act ("PAGA"), (22) no injury, (23) unconstitutionally vague standards of liability, (24) plaintiff's request for exemplary, double, or punitive damages violates defendants' procedural due process rights, (25) unconstitutionally excessive fines, (26) no malice, fraud, or oppression, (27) equitable relief improper, (28) injunctive relief improper for non-current employees, (29) unclean hands, (34) equitable indemnity, (35) any unlawful conduct was the product of employees' unauthorized contravention of established company policies, (36) unavailability of compensatory or punitive damages under alleged causes of action, (37) Complaint is barred by the de minimus doctrine, (38) plaintiff lacks standing, (41) entitlement to offset due to plaintiff's default on a payday loan. (Pl.'s Mot. at 3-5.)
Except with regard to defendants' unclean hands, offset, and equitable indemnity defenses, the court agrees with plaintiff that the above-enumerated defenses are not true affirmative defenses but rather attacks on plaintiff's prima facie case. In addition to the defenses identified by plaintiff, the court also finds that the following were improperly designated as affirmative defenses: (5) damages under FLSA should be calculated as fluctuating workweeks, 29 C.F.R. § 778.114, (6) defendants did not suffer or permit the alleged overtime work, (7) defendants had no knowledge of hours and overtime hours worked, (8) plaintiff was provided all required meal periods, (10) plaintiff was permitted to take all required rest breaks, and (21) no entitlement to waiting time penalties because there was no willful failure to pay wages owed at termination. Accordingly, the court will designate these mischaracterized affirmative defenses as defenses but deny plaintiff's motion to strike.
Plaintiff also moves to strike defendants' affirmative defenses on the grounds that they are insufficiently pled and fail to provide fair notice. The court will individually address each of defendants' remaining affirmative defenses.
Defendants' second affirmative defense alleges that plaintiff's "Complaint, and each purported cause of action alleged therein, is barred in whole or in part by the applicable statutes of limitation and/or time bars, including without limitation Sections 337, 338(a), 340(a) of the California Code of Civil Procedure, Section 203(b) of the California labor Code, Section 17208 of the California Business and Professions Code, and Section 255 of Title 29 of the United States Code." (Defs.' Answer at 27 (Docket No. 5).) While defendants cite to the relevant legal authority, they fail to point to any relevant facts to support their statute of limitations defense. For example, defendants do not identify plaintiff's dates of employment or when her claims allegedly expired. As a result, the court finds this defense is insufficiently pled and will grant plaintiff's motion to strike.
In their fourth affirmative defense, defendants claim the court lacks personal jurisdiction over defendants CLA and Reich due to insufficient minimum contacts in California. (Id.) Defendants allege CLA has no offices in California and has not entered into contracts for the sale or purchase of merchandise in California; Reich is not a resident of California; and neither CLA nor Reich have consented to be sued in California. (Id.) While defendants fail to identify the relevant legal authority, the court finds that they nonetheless pled this affirmative defense with sufficient particularity to put plaintiff on notice.
In their ninth affirmative defense defendants assert plaintiff waived any right to a meal period. (Id. at 28.) Defendants do not identify relevant law authorizing meal break waivers or identify when or how plaintiff may have waived this right. Accordingly, the court finds this defense insufficiently pled.
Defendants' fifteenth affirmative defense avers plaintiff's claims are barred because plaintiff failed to comply with the notice requirements of California's Private Attorneys General Act, Cal. Labor Code § 2698. (Id. at 30.) Defendants allege that the notice did not identify the specific provisions of the code alleged to have been violated or the facts and theories of the case. As a result, defendants state they were "unable to determine what practices or policies were the subject of Plaintiff's complaint." (Id.) Defendants identified both the relevant portion of the California Labor Code and the reasons why plaintiff's notice allegedly fell short. The court therefore finds this defense is sufficiently pled and denies plaintiff's motion to strike.
In contrast, in their sixteenth affirmative defense defendants vaguely allege plaintiff has "no private right of action" under the applicable California law. (Id. at 30.) It is entirely unclear why plaintiff may not have a private right of action and, as a result, the court will grant plaintiff's motion to strike this defense.
Defendants also thinly allege their thirtieth defense of laches, thirty-first defense of waiver, thirty-second defense of estoppel, and thirty-third defense of res judicata. Defendants state that plaintiff's claims are barred on each of these grounds and allege no supporting facts whatsoever. (Id. at 35.) Accordingly, the court will grant plaintiff's motion to strike these affirmative defenses.
Defendants' thirty-ninth affirmative defense states that class members' claims are barred to the extent they have entered into settlements, compromises, or releases encompassing claims asserted in this motion. (Id. at 37.) The court will grant plaintiff's motion to strike as defendants fail to specifically identify any relevant compromises or settlements or individual class members who might be barred.
Defendants also vaguely contend in their fortieth affirmative defense that class members are exempt from overtime or premium compensation. (Id.) Defendants state that "the claims of various persons on whose behalf relief is sought are barred because such persons are and were at all relevant times exempt from overtime, premium compensation and the other allegedly relevant provisions of the Fair Labor Standards Act ("FLSA"), California law and applicable regulations and wage orders." (Id.) Defendants further contend that even if class members do not fall within an exemption, they are exempt because they were "not meeting the realistic expectations of his/her employer or the realistic requirements of the job." (Id.) Defendants again fail entirely to specify which Fast Auto Loans employees may have been exempt or why defendants have reason to believe employees were not meeting the expectations of the job. The court will therefore also grant plaintiff's motion to strike the fortieth affirmative defense.
Lastly, the court will deny plaintiff's motion to strike defendants' forty-first affirmative defense for offset. Defendants allege in detail why they are allegedly entitled to offset and recoup against any recovery by plaintiff due to her default on a payday loan. (Id. at 37.)
Accordingly, the court will grant plaintiff's motion to strike the following of defendants' affirmative defenses: (2) statute of limitations, (9) meal break waiver, (16) no private right of action, (30) laches, (31) waiver, (32) estoppel, (33) res judicata, (39) compromise and release, and (40) exemptions from overtime or premium compensation.
IT IS THEREFORE ORDERED that plaintiff's motion to dismiss (Docket No. 6) be, and the same hereby is, GRANTED without prejudice with respect to Fast Auto Loans fraud and unjust enrichment counterclaims and DENIED with respect to its breach of contract counterclaim.
IT IS FURTHER ORDERED that plaintiff's motion to strike (Docket No. 6) be, and the same hereby is, GRANTED with respect to defendants' affirmative defenses of statute of limitations, meal break waiver, no private right of action, laches, waiver, estoppel, res judicata, compromise and release, and exemption from overtime or premium compensation and DENIED with respect to the remaining defenses.
Defendants have thirty days from the date this Order is signed to file an amended Answer, if they can do so consistent with this Order. Dated: April 25, 2016
/s/ _________
WILLIAM B. SHUBB
UNITED STATES DISTRICT JUDGE
See Kendall-Jackson Winery, Ltd. v. Superior Court, 76 Cal. App. 4th 970, 977-78 (5th Dist. 1999) (describing unclean hands as an affirmative defense); Interstate Grp. Adm'rs, Inc. v. Cravens, Dargan & Co., 174 Cal. App. 3d 700, 706 (1st Dist. 1985) ("[S]etoffs must generally be affirmatively pleaded."); Kroll & Tract v. Paris & Paris, 72 Cal. App. 4th 1537, 1545 (4th Dist. 1999) ("Even without the indemnity cross-complaint, Kroll & Tract can show the negligence of Paris & Paris was the cause of San Jose Crane's injury through the affirmative defense of comparative negligence, thereby reducing any liability it may have.").