Red Lion Hotels Franchising, Inc. v. First Capital Real Estate Invs., LLC

Decision Date22 May 2018
Docket NumberNO: 2:17-CV-145-RMP,: 2:17-CV-145-RMP
CourtU.S. District Court — District of Washington
PartiesRED LION HOTELS FRANCHISING, INC., Plaintiff, v. FIRST CAPITAL REAL ESTATE INVESTMENTS, LLC, a California limited liability company; MR. SUNEET SINGAL and MRS. MAJIQUE LADNIER, individually and as the marital community comprised thereof, Defendants.
ORDER STRIKING DEFENDANTS' FIRST, SECOND, FOURTH, AND FIFTH AFFIRMATIVE DEFENSES

BEFORE THE COURT is Plaintiff's Partial Motion to Dismiss Defendants' Affirmative Defenses, ECF No. 20. Plaintiff moves to dismiss Defendants' first, second, fourth, and fifth affirmative defenses. See ECF No. 20. The Court has reviewed the pleadings and the record, and is fully informed.

BACKGROUND

Plaintiff Red Lion Hotels Franchising, Inc., brings this breach of contract suit against Defendants to recover amounts under three contracts of guaranty for payments allegedly owed by three entities under franchise license agreements ("FLAs") made with Plaintiff. ECF No. 1. Plaintiff alleges that the three franchise entities in question are in default of amounts owed to Plaintiff under their FLAs. Id. Plaintiff alleges that Defendant First Capital Real Estate Investments, LLC, is the managing member of the three franchise entities. Id., ¶ 3.3. Plaintiff further alleges that the named Defendants, as the principals behind the franchise entities, signed the guaranty contracts that Plaintiff alleges have been breached. Id., ¶ 3.5.

The Court has subject matter jurisdiction over this matter pursuant 28 U.S.C. § 1332 based on the diversity of the parties and the amount in controversy. Plaintiff is a corporation licensed in Washington. ECF No. 1, ¶ 1.1. Defendant First Capital Real Estate Investments, LLC, is a foreign limited liability company. Id., ¶ 1.2. Defendants Suneet Singal and Majique Ladnier reside in California. Id., ¶ 1.3. The amount in controversy is $1,265,220.53, which exceeds the statutory requirement of $75,000. Id., ¶¶ 4.6, 4.12, 4.18.

DISCUSSION

In its motion to dismiss several of Defendants' affirmative defenses, Plaintiff argues that four of the five asserted affirmatives defenses are not legally sustainable. ECF No. 20 at 5. Plaintiff brings this motion pursuant to Federal Rule of Civil Procedure 12(c), a motion for judgment on the pleadings. See id. at 9.

"The Court notes that a plaintiff's motion for judgment on the pleadings shall not be granted unless all of the defenses raised in the answer are legallyinsufficient." Burns v. Consol. Amusement Co., 182 F.R.D. 609, 611 (D. Haw. 1998) (emphasis in original) (citing Fed. R. Civ. P. 12(c)). Instead, "if one or more of the defenses are viable, plaintiff's motion should be brought as a motion to strike within [21] days after service of the answer." Id. (citing Fed. R. Civ. P. 12(f)). The court may also act on its own to strike from a pleading an insufficient defense. Fed. R. Civ. P. 12(f).

Plaintiff does not argue that all of Defendants' affirmative defenses are insufficient as a matter of law. Therefore, the Court will construe Plaintiff's motion as a motion to strike Defendants' first, second, fourth, and fifth affirmative defenses pursuant to Fed. R. Civ. P. 12(f).

Defendants filed their answer on May 19, 2017. See ECF No. 9. Plaintiff filed its motion for dismissal of Defendants' affirmative defenses, which the Court construes as a motion to strike, on February 20, 2018. See ECF No. 20. To comply with Rule 12(f), Plaintiff needed to file its motion by June 9, 2017. See Fed. R. Civ. P. 12(f). Plaintiff delayed eight months in filing its motion.

However, Defendants also did not respond timely to Plaintiff's motion. According to LR 7.1(b), counsel in a civil case has 21 days after the filing of a dispositive motion to file a response. "The failure to comply with the requirements of LR 7.1(a) or (b) may be deemed consent to the entry of an Order adverse to the party who violates these rules." LR 7.1(d).

Although both parties have failed to follow the relevant procedural rules, Fed. R. Civ. P. 12(f) authorizes the Court to act on its own to strike from a pleading an insufficient defense.

Legal Standard for Striking Affirmative Defense

Federal Rule of Civil Procedure 12(f) provides that "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." A defense may include both denials and affirmative defenses. Defense, Black's Law Dictionary (10th ed. 2014); see also Fed. R. Civ. P. 8. A responding party must make general or specific denials to the substance of the allegations asserted against it by an opposing party. Fed. R. Civ. P. 8(b). A responding party also "must affirmatively state any avoidance or affirmative defense." Fed. R. Civ. P. 8(c).

Federal Rule of Civil Procedure 8(c) defines whether the procedural pleading of an affirmative defense is "sufficient." Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Rule 8(b) requires a party responding to a pleading to "state in short and plain terms its defenses to each claim asserted against it." Fed. R. Civ. P. 8(b)(1)(A). Rule 8(c) states that "a party must affirmatively state any avoidance or affirmative defense," including such defenses as laches and violations of a statute of limitations. Fed. R. Civ. P. 8(c). "Of course, affirmative defenses, like all pleadings, must also satisfy Rule 11." In re Washington Mut., Inc. Secs., Derivative & ERISA Litig., 08-MD-1919 MJP, 2011 WL 1158387, at *1 (W.D. Wash. Mar. 25,2011) (striking certain affirmative defenses). Federal Rule of Civil Procedure 11 requires all pleadings to be presented for a proper purpose; warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law; and supported or likely to be supported by evidence. Fed. R. Civ. P. 11(b).

Following the Supreme Court decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), courts were left with a heightened pleading standard: "While a plaintiff need not provide detailed factual allegations, he does need to allege the grounds for entitlement to relief beyond mere labels and conclusions." See Barnes v. AT & T Pension Ben. Plan-Nonbargained Program, 718 F. Supp. 2d 1167, 1171 (N.D. Cal. 2010) (applying the heightened pleading standard to affirmative defenses). Courts are in disagreement about whether or not affirmative defenses are subject to the heightened standard. Although the court in Barnes v. AT & T Pension Ben. Plan-Nonbargained Program applied the heightened standard, see 718 F. Supp. 2d at 1171, numerous other courts within the Ninth Circuit have held that the heightened standard should not apply to affirmative defenses. See e.g., Rockwell Automation, Inc. v. Beckhoff Automation, LLC, 23 F. Supp. 3d 1236, 1241-42 (D. Nev. 2014) (holding that an affirmative defense must identify the legal theory upon which it rests but need not assert facts making it plausible). The common thread throughout this line of cases is the Ninth Circuit standard from Wyshak v. City Nat. Bank that "[t]he key to determining thesufficiency of pleading an affirmative defense is whether it gives plaintiff fair notice of the defense." Wyshak, 607 F.2d at 827 (citing Conley v. Gibson, 355 U.S. 41, 47-48 (1957)).

Pursuant to Fed. R. Civ. P. 15(a), if a court finds that a defense is inadequately pled, "[i]n the absence of prejudice to the opposing party, leave to amend should be freely given." Wyshak, 607 F.2d at 826-27 (citing Foman v. Davis, 371 U.S. 178, 182 (1962), and Howey v. United States, 481 F.2d 1187, 1190 (9th Cir. 1973)).

Plaintiff argues that the following four of Defendants' five asserted affirmative defenses should be stricken. See ECF No. 20. Defendants' first affirmative defense states that Defendants' obligations under the relevant FLAs were satisfied and/or discharged. ECF No. 9 at 6-7. Defendants' second affirmative defense states that "Plaintiff failed to mitigate its damages stemming from the franchisees/licensees' failure to perform their obligations under the relevant FLAs." ECF No. 9 at 7. Defendants' fourth affirmative defense states that "Plaintiff's claims are barred in full or part by its violation of its duties under RCW 19.100 et seq." ECF No. 9 at 7. Defendants' fifth affirmative defense states that the action should be stayed pending the completion of arbitration of the disputes by Plaintiff and the franchisees/licensees. ECF No. 9 at 7.

Principles Underlying Guaranty Agreements

The common law of guaranty contracts defines a "guaranty" as an "undertaking or promise on the part of one person which is collateral to a primary orprincipal obligation on the part of another, and which binds the obligor to performance in the event of nonperformance by such other, the latter being bound to perform primarily." In re Bond Issuance of Greater Wenatchee Reg'l Events Ctr. Pub. Facilities Dist., 287 P.3d 567, 575 (Wash. 2012) (quoting Robey v. Walton Lumber Co., 135 P.2d 95, 101 (Wash. 1943)). "A contract of guaranty, being a collateral engagement for the performance of an undertaking of another, imports the existence of two different obligations, one being that of the principal debtor and the other that of the guarantor." Wilson Court Ltd. P'ship v. Tony Maroni'S, 952 P.2d 590, 598 (Wash. 1998) (quoting Robey, 135 P.2d at 101-02). "The debtor is not a party to the guaranty, and the guarantor is not a party to the principal obligation." Robey, 135 P.2d at 102. The undertaking of a primary obligation is independent of the promise of the guaranty, "and the responsibilities which are imposed by the contract of guaranty differ from those which are created by the contract to which the guaranty is collateral." Id.

A guaranty may be either absolute or conditional. In re Bond Issuance, 287 P.3d at 575.

An absolute guaranty is one by which the guarantor unconditionally promises payment or performance of the
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