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U.S. Securities and Exchange Commission v. Custable

United States District Court, N.D. Illinois
Jan 29, 2004
Case No. 03 C 2182 (N.D. Ill. Jan. 29, 2004)

Opinion

Case No. 03 C 2182

January 29, 2004


ORDER


Plaintiff United States Securities and Exchange Commission ("SEC") has filed this lawsuit against Suburban Capital Corporation ("Suburban Capital"), Frank J. Custable, Jr. and Sara Wetzel, among others, alleging various violations of the federal securities laws. Before the court are three motions filed by the SEC. For the reasons explained below, the SEC's motion to strike portions of the answer is granted; its motion to dismiss counterclaim is granted; and its motion to strike certain affirmative defenses is granted.

Motion to Strike Answer

As the SEC correctly points out, Suburban Capital has failed to answer properly any of the complaint's allegations that are not specifically addressed to Suburban Capital. Instead, Suburban Capital responds with some variation of the following: "These allegations are directed against other defendants, therefore Suburban Capital neither admits nor denies such allegations and demands strict proof thereof," These responses do not comply with Federal Rule of Civil Procedure 8(b) which allows for only three possible responses: (1) admit; (2) deny, or (3) a statement that the party is "without knowledge or information sufficient to form a belief as to the truth of an averment." Further, Suburban Capital has a duty to comply with Rule 8(b) even for those allegations concerning parties other than Suburban Capital. Village of Arlington Heights Police Pension Fund v. Poder, No. 88 C 3892, 1989 WL 75189, *2 (N.D. Ill. June 28, 1989). Now that a receiver has been appointed in this case, he can make the appropriate inquiries necessary to respond to the SEC's allegations and comply with Rule 8(b). Suburban Capital shall have thirty days from the date of this order to file an amended answer to cure the deficiencies explained above. If Suburban Capital does not file an amended answer within thirty days, all factual allegations in the complaint which have not been answered in accordance with Rule 8(b) shall be deemed admitted. Fed.R.Civ.P. 8(d).

Motion to Dismiss Counterclaim

The SEC has also moved to dismiss Suburban Capital's counterclaim in which Suburban Capital seeks a declaratory judgment that its conduct was not unlawful. Relying on Section 21(g) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78u(g), the SEC argues that Suburban Capital's counterclaim must be dismissed. Section 21(g) states that:

Notwithstanding the provisions of section 1407(a) of Title 28, United States Code or any provision of law, no action for equitable relief instituted by the Commission pursuant to the securities laws shall be consolidated or coordinated with other actions not brought by the Commission, even though such other actions may involve common questions of fact, unless such consolidation is consented to by the Commission.
15 U.S.C. § 78u(g).

Although it does not specifically refer to "intervention, cross-claims, counter-claims or third-party complaints by name, many courts have concluded such procedural devices to be barred because § 21(g) acts as an 'impenetrable wall.'" SEC v. Heartland Group, Inc., No. 01 C 1984, 2003 WL 103015, *2(N.D. Ill. Jan. 10, 2003). In light of this, and because the SEC has not consented to Suburban Capital's counterclaim, Suburban Capital's counterclaim must be dismissed. SEC v. Randy, No. 94C 5902, 1995 WL 616788, *3 (N.D. Ill. Oct. 17, 1995) (barring counterclaim against the SEC where SEC did not consent); SEC v. Sprecher, No. Civ. A 92-2860, 1993 WL 544306 (D.D.C. Dec. 16, 1993) (same); SEC v. Elec. Warehouse, Inc., 689 F. Supp. 53, 71-72 (D. Conn. 1988) (same).

Motion to Strike Affirmative Defenses

The SEC has moved to strike Suburban Capital's affirmative defenses 2 through 13 and 15. Motions to strike affirmative defenses are generally not favored unless they "serve a useful purpose by eliminating insufficient defenses and saving the time and expense that otherwise would be spent litigating issues that will not affect the outcome of the case." United States v. Walerko Tool and Eng'g Corp., 784 F. Supp. 1385, 1387-1388 (N.D. Ind. 1992). Under Federal Rule of Civil Procedure 12(f), upon motion of a party or upon the court's own initiative, the court may "order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f).

As an initial matter, the court cannot discern what paragraphs constitute Suburban Capital's affirmative defenses. In its answer, in a section titled "Affirmative Defenses," Suburban Capital lists 15 separately numbered paragraphs. In its response brief, Suburban Capital explains that some of the paragraphs are not intended to be separate affirmative defenses, but rather are factual statements supporting its defenses. Suburban Capital, however, fails to identify which paragraphs serve as background only, and which paragraphs constitute an affirmative defense. In light of this, the court grants the SEC's motion to strike and strikes Suburban Capital's paragraphs 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, and 15. Suburban Capital is reminded that an affirmative defense is not merely a denial of an allegation in the complaint. Rather, an affirmative defense admits the allegations of the complaint, but asserts facts which would defeat recovery by the plaintiff. Amelio v. Yazoo Manufacturing Co., 98 F.R.D. 691, 693 (N.D.Ill. 1983). Suburban Capital has thirty days to file an amended pleading which clearly identifies separate affirmative defenses.


Summaries of

U.S. Securities and Exchange Commission v. Custable

United States District Court, N.D. Illinois
Jan 29, 2004
Case No. 03 C 2182 (N.D. Ill. Jan. 29, 2004)
Case details for

U.S. Securities and Exchange Commission v. Custable

Case Details

Full title:UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. FRANK J…

Court:United States District Court, N.D. Illinois

Date published: Jan 29, 2004

Citations

Case No. 03 C 2182 (N.D. Ill. Jan. 29, 2004)