In re Kmart Corp.

• Decision Date: 07 July 2004
• Docket Number: Bankruptcy No. 02 B 2474.,Adversary No. 03 A 1818.
• Citation: 318 B.R. 409
• Parties: In re KMART CORPORATION, et al., Debtors. Kmart Corporation, Plaintiff, v. Uniden America Corporation, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

318 B.R. 409

In re KMART CORPORATION, et al., Debtors.

Kmart Corporation, Plaintiff, v. Uniden America Corporation, Defendant.

Bankruptcy No. 02 B 2474.

Adversary No. 03 A 1818.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

July 7, 2004.

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William J. Barrett, Barack, Ferrazzano, Kirschbaum, Perlman & Nagelberg, LLC, Chicago, IL, for Kmart Corporation.

Douglas J. Lipke, Eric S. Prezant, Vedder, Price, Kaufman & Kammholz, P.C., Chicago, IL, for Uniden America Corporation.

MEMORANDUM OPINION

SUSAN PIERSON SONDERBY, Bankruptcy Judge.

This matter comes before the court on the motion of the plaintiff Kmart Corporation to Strike and/or for Judgment on the Pleadings with Respect to Certain Affirmative Defenses. For the reasons stated herein, the motion is granted in part and denied in part.

I. BACKGROUND

This court has jurisdiction over this matter pursuant to 28 U.S.C. § 157(a), 28 U.S.C. § 1334, and Internal Operating Procedure 15 of the United States District Court for the Northern District of Illinois. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F). Venue lies in this court pursuant to 28 U.S.C. §§ 1408 and 1409.

On January 22, 2002 (the "Petition Date"), Kmart Corporation and thirty-seven affiliates filed voluntary petitions for reorganization under chapter 11 of title 11 of the United States Code (the "Code"). On May 2, 2003, Kmart Corporation ("Kmart") filed an adversary complaint against Uniden America Corporation ("Uniden") seeking to recover $5,666,485 in transfers made to Uniden within the 90 days preceding the Petition Date pursuant to sections 547 and 550 of the Code. Uniden filed an answer and eleven affirmative defenses on July 1, 2003. On January 8, 2004, Kmart filed a Motion to Strike and/or for Judgment on the Pleadings With Respect to Certain Affirmative Defenses.

II. DISCUSSION

A. Standards on a Motion to Strike Affirmative Defenses

Rule 8(c) of the Federal Rules of Civil Procedure, which is made applicable herein by Federal Bankruptcy Rule 7008(a), requires a party to set forth affirmative defenses in a responsive pleading. An affirmative defense is not a simple denial of the allegations of the complaint. Van Schouwen v. Connaught Corp., 782 F.Supp. 1240, 1246 (N.D.Ill.1991). Rather when asserting an affirmative defense, the defendant is essentially admitting the allegations of the complaint, but pleading some reason extraneous to the plaintiff's prima facie case that would excuse or exculpate the defendant from liability. Id.; In re National Lumber and Supply, Inc., 184 B.R. 74, 77 (9th Cir. BAP 1995).

Because they are pleadings, affirmative defenses are subject to being stricken. Motions to strike affirmative defenses are governed by Rule 12(f) of the Federal Rules of Civil Procedure, which is made applicable herein by Federal Bankruptcy Rule 7012(b). That rule provides:

Upon motion made by a party before responding to a pleading or, if no responsive pleading is permitted by these rules, upon motion made by a party within 20 days after the service of the pleading upon the party or upon the court's own initiative at any time, the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.

Kmart's motion to strike is untimely, as it was filed beyond the deadline. Rule 12(f), however, permits a court, in its discretion and on its own initiative, to strike defenses at any time. Accordingly, although the motion is untimely, the court has authority to and will consider striking the questioned defenses. See Williams v. Jader Fuel Co., Inc., 944 F.2d 1388, 1399 (7th Cir.1991), cert. denied 504 U.S. 957, 112 S.Ct. 2306, 119 L.Ed.2d 228 (1992); Stafford v. Connecticut Gen. Life Ins. Co., 1996 WL 197677, *1 (N.D.Ill. April 22, 1996); Continental Illinois Nat. Bank and Trust Co. of Chicago v. Indemnity Ins. Co. of North America, 1990 WL 133216, *2 (N.D.Ill. Sept. 11, 1990)(relying on the need to construe federal rules of civil procedure to secure the just, speedy and inexpensive determination of every action and finding it inefficient to allow a legally insufficient defense to stand, the court considered an untimely motion to strike).

Motions to strike are disfavored, sparingly used, and should not be granted unless "it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense, ... and are inferable from the pleadings." Williams 944 F.2d at 1400 (citations omitted). In other words, before granting a motion to strike an affirmative defense, "the court must `be convinced that there are no questions of fact, that any questions of law are clear and not in dispute, and that under no set of circumstances could the defense succeed.'" Codest Engineering v. Hyatt Intern. Corp., 954 F.Supp. 1224, 1228 (N.D.Ill.1996)(quoting Lirtzman v. Spiegel, Inc., 493 F.Supp. 1029, 1031 (N.D.Ill.1980)).

The examination of affirmative defenses on a motion to strike, essentially involves three considerations, i.e., whether the matter is appropriately plead as an affirmative defense, whether the defense is adequately plead under the requirements of Rules 8 and 9, and the legal sufficiency of the defense. Franklin Capital Corp. v. Baker & Taylor Entertainment, Inc., 2000 WL 1222043, *2 (N.D.Ill. Aug. 22, 2000)(citing Bobbitt v. Victorian House, Inc., 532 F.Supp. 734, 737 (N.D.Ill.1982)).

A matter is not appropriately plead as an affirmative defense if it is a denial of an element of the prima facie case. See Bobbitt, 532 F.Supp. at 736 (citing 2A Moore's Federal Practice ¶ 8.27(3) at 8-251 and 5 Wright and Miller, Federal Practice and Procedure § 278 at 351-52). An affirmative defense that is really a denial of an element of the plaintiff's case is said to be mislabeled or mistakenly titled. See, Id. It is understandable that cautious pleaders sometimes mislabel defenses given the potential for waiver of a defense that is not asserted in a responsive pleading. Under these circumstances, the benefit should be given to the cautious pleader and the mistaken labeling will usually be excused. Id.

An affirmative defense is inadequately plead if it fails to satisfy the federal notice pleading requirements. Under Rules 8 and 9, a pleader must state his defense in short and plain terms, and if the defense is grounded in fraud or mistake, the circumstances constituting the fraud or mistake must be stated with particularity. Heller Financial, Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir.1989)

In this circuit, "bare-bones," conclusory allegations do not meet the pleading requirements. Id. "It is unacceptable for a party's attorney simply to mouth [affirmative defenses] in formula — like fashion (`laches,' `estoppel,' `statute of limitations,' or what have you), for that does not do the job of apprising opposing counsel and this court of the predicate for the claimed defense — which after all is the goal of notice pleading." State Farm Mut. Auto. Ins. Co. v. Riley, 199 F.R.D. 276, 279 (N.D.Ill.2001).

Even if an affirmative defense is appropriately and adequately plead, it may still be stricken for lack of legal sufficiency. The legal sufficiency of an affirmative defense is gauged under the same standards as a motion to dismiss a complaint pursuant to Rule 12(b)(6). Franklin Capital, 2000 WL 1222043, *2. That is, the defense will be stricken as legally insufficient, "[i]f it is impossible for defendants to prove a set of facts in support of the affirmative defense that would defeat the complaint ..." Id., (citing Bobbitt, 532 F.Supp. at 737).

The sufficiency of the defense turns, at least in part, on the substance of the cause of action it seeks to defeat. The complaint here seeks the recovery of transfers from Uniden that Kmart asserts are preferential under section 547 of the Code. Section 547(b) of the Code empowers the trustee to,

avoid any transfer of an interest of the debtor in property —

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made —

(A) on or within 90 days before the date of the filing of the petition; or

(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and

(5) that enables such creditor to receive more than such creditor would receive if —

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

11 U.S.C. § 547(b).

The trustee's power to avoid any transfer that meets the stated requirements is limited by section 547(c) of the Code, which sets forth a number of exceptions to that avoidance power. For example, the trustee may not avoid a transfer to the extent that the transfer was intended by the debtor and the creditor to be a contemporaneous exchange for new value given to the debtor and in fact was a substantially contemporaneous exchange. 11 U.S.C. § 547(c)(1). Section 547(b) thus establishes the scope of the trustee's avoidance powers relating to preferences and section 547(c) limits that power by enumerating specific exceptions to it.¹

Those enumerated exceptions are typically brought as and considered affirmative defenses to the preference complaint. See National Lumber, 184 B.R. at 77-78 (because the 547(c) preference exceptions do not negate the prima facie case, but raise matters extraneous thereto, they should be considered affirmative defenses). Many courts, including this one, have held that the enumerated 547(c) preference exceptions are the exclusive defenses to liability for an otherwise avoidable preferential transfer. In re Intrastate Elec....