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Federal Trade Commission v. Adept Management, Inc.

United States District Court, D. Oregon, Medford Division

March 20, 2017

ADEPT MANAGEMENT, INC., et al, Defendants.


          MARK D. CLARKE United States Magistrate Judge

         Plaintiff, the Federal Trade Commission ("FTC"), brings claims against more than thirty defendants, alleging claims under section 5(a) and section 13(b) the Federal Trade Commission Act, 15 U.S.C. §§ 45(a), 53(b), to obtain preliminary and permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies and other equitable relief. The FTC claims that the defendants, who are a large number of corporate entities, groups, and individuals, engaged in a nationwide campaign using misrepresentations to solicit newspaper renewals and new subscriptions from consumers. Most of the defendants claim that they operated a legitimate and legal solicitation business.

         The case comes before the Court on a motion by the FTC to strike the affirmative defenses, jury demands, and cross claims filed by Dennis Simpson and Reality Kats, Inc., as well as a motion to dismiss the cross claims filed by the Hoyal defendants. The FTC and Attorney David Lennon have also filed motions to dismiss a Third Party Complaint filed by the Simpson defendants. For the reasons below, the FTC's motion (#86) is GRANTED in part and DENIED in part. The Hoyal defendants' motion (#89) is GRANTED. Motions (#107) and (#118) to dismiss the Third Party Complaint are both GRANTED.


         The Federal Trade Commission brings claims against a large number of corporate and individual defendants, alleging a complex scheme to defraud consumers by sending mass mailings designed to look like subscription notices. The FTC alleges that defendants represented that they were authorized by, or acting on behalf of, the publishers to obtain and renew subscriptions, when they did not have such authorization, causing consumers to experience delivery problems, delays, or in some cases failing to receive the requested newspapers at all.

         Defendants are corporate entities and groups from Oregon, Nevada, and New York, as well as individuals, most of whom have been owners or managers or employees of the various corporate entities. The Complaint classifies the corporate defendants into the following five categories: (1) Direct Mail Marketing, (2) Receiving, (3) Processing and Clearing, (4) Owners, and (5) Consultants. The majority of the defendants claim that they operated a legitimate and legal business soliciting magazine and newspaper subscriptions.


         1. Plaintiffs motion to strike Simpson affirmative defenses is denied.

         Under Rule 12(f), the court has the discretion to strike a pleading or portions thereof. MGA Entm't, Inc. v. Mattel, Inc., 2005 WL 5894689, at *4 (CD. Cal. 2005). In considering a motion to strike, the court views the pleadings in the light most favorable to the non-moving party. McDonald v. Alayan Alayan, No. 3:15-CV-02426-MO, 2016 WL 2841206, at *2 (D. Or. May 13, 2016) (citing In re Sees. Litig., 114 F.Supp.2d 955, 965 (CD. Cal. 2000)). The Ninth Circuit has required affirmative defenses to give "fair notice, " which "only requires describing the defense in general terms." Kohler v. Flava Enterprises, Inc., 779 F.3d 1016, 1019 (9th Cir. 2015); Pleading Affirmative Defenses, 5 Fed. Prac. & Proc. Civ. § 1274 (3d ed.). District courts within the Ninth Circuit are split on how the "fair notice" standard relates to the factual plausibility pleading standard the Supreme Court outlined in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), but courts in the District of Oregon have found that '"fair notice' is a different, less stringent standard than the factual plausibility standard articulated in Twombly and Iqbal." Alayan Alayan, No. 3:15-CV-02426-MO, 2016 WL 2841206, at *2. Fair notice does not require a detailed statement of facts. Id. at 3 (citing Roe v. City of San Diego, 289 F.R.D. 604, 609 (S.D. Cal. 2013)). But it does require the defendant state the nature and grounds for the affirmative defense. Id.

         In this case, the Court granted Plaintiffs previous motions to strike affirmative defenses in four of the defendants' Answers (##31, 32, 33, 34). After that opinion was issued (#72), the Simpson defendants filed their Answer (#76), and Plaintiff now brings a similar motion to strike those affirmative defenses as well. The Answers previously dismissed listed many boilerplate affirmative defenses, including "Acts or Omissions of a Third-Party", "Regulations... Inapplicable under the First Amendment, " "Applicable Standards and Duties, " "Lack of Material Representation, Omission, or Practice, " among others. None of these include sufficient factual allegations other than the conclusory recitation of the defense, with the appropriate party and pronoun specified. The Court found that such conclusory statements did not meet the pleading standard required in the Ninth Circuit for affirmative defenses. The defendants did not give "fair notice" as to how any of the defenses applied in the case, or whether each applied to liability, or potential remedy.

         By contrast, and with the benefit of the Court's Order (#72), the Simpson defendants have alleged sufficient factual content to meet the pleading standard for affirmative defenses.

         For example, in the Eight Affirmative Defense (Laches), it is alleged:

The Complaint is barred in whole or in part based on laches. In 2004, the Simson Defendants entered a consent judgment with the State of Oregon. Twelve years later, the FTC brings a claim against the same parties for the same offense. The FTC requested this Court take judicial notice of the Oregon Consent Judgment, which the FTC has been aware of for some time. This twelve-year delay has caused injury and prejudice to the Simpson Defendants because they believed they were following the law during that time period. Had they been given reasonable notice of any alleged violation, if any, steps would have been taken to remedy those actions. Instead, twelve years later, the FTC brings claims of alleged violations, which has resulted in significant financial and business losses to the Simpson defendants.

         Simpson Answer (#76, ¶73). This is not a boilerplate affirmative defense. It alleges specific factual material, and gives more than "fair notice" to the FTC as to how the defense applies to the case. The Court has reviewed all ten affirmative defenses and finds them to be sufficiently pled by the Simpson defendants. Plaintiff may of course dispute the substantive merits of each defense, but at this phase of the ...

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