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City of Portland v. Iheanacho

United States District Court, D. Oregon, Portland Division

March 22, 2018



          JOHN V. ACOSTA United States Magistrate Judge.


         Plaintiff City of Portland (the "City") brings suit against Defendants Charles Iheanacho and Cheryl D. Iheanacho (collectively, "the Iheanachos") for breach of contract, alleging the Iheanachos failed to report required compliance information in conjunction with a government-administered affordable housing program loan. Presently before the court is the Iheanachos' motion to strike the City's answer to their counterclaims or, in the alternative, for leave to amend their answer. The Iheanachos move to strike the answer and affirmative defenses to Defendants' counterclaims contained therein as untimely under Federal Rule of Civil Procedure ("Rule") 12(f) and also, specifically, to strike the City's statute of limitations affirmative defense based on judicial estoppel. Alternatively, the Iheanachos move for leave to amend their answer to the City's complaint, including affirmative defenses and counterclaims, pursuant to Rule 15(a).

         For the reasons set forth below, the court denies the Iheanachos' motion to strike, and grants the Iheanachos' leave to amend their answer.[1]

         Factual Background

         The U.S. Department of Housing and Urban Development ("HUD") administers a national funding program known as the HOME Investment Partnerships Program ("HOME"), which provides funds to assist state and local governments to create affordable housing for low-income households. (ECF No. 1, Ex. 1 ("Complaint"), ¶ 3.) The Portland Development Commission ("PDC"), an agency of the City of Portland, provides funding to developers of affordable housing under terms that are significantly more favorable than those from traditional lending sources and for which the developer may not otherwise qualify. (Compl. ¶ 2.) In exchange, the developer accepts certain responsibilities, including renting designated units only to qualified low-income tenants, and providing information, reports, and access to demonstrate compliance with program requirements. (Id.)

         From 1995 through 2001, the Iheanachos applied to the HOME program but the PDC repeatedly denied their applications. (ECF No. 6, ("Answer"), ¶¶ 45, 47.) However, from 2002 through 2006, the Iheanachos and the PDC entered into a series of agreements to finance the rehabilitation and construction of two multi-family housing developments: Buka's Place and Roselyn Villa. (Compl. ¶ 4; Answer ¶5.) Under the agreements, the Iheanachos received funding from the HOME program and other local and state programs and, in return, promised to provide and maintain a minimum number of affordable units and meet all program compliance reporting requirements. (Compl. ¶ 4.)

         According to the Iheanachos, the PDC "took over all aspects of the project with very little or no input from Defendants, " "disbursed funds at their own discretion, " and retained authority to issue change orders. (Answer ¶¶ 52, 53.) Certain portions of the project failed city inspections, which necessitated change orders. (Id. ¶ 55.) The project exceeded its budget, the Iheanachos soon ran out of money, and subcontractors placed liens on the project. (Id. ¶¶ 55-57.) As a result, the Iheanachos "were forced to take a home equity loan against their residence to rescue the project." (Id. ¶ 58.)

         Unlike Buka's Place, the Roselyn Villa project progressed on budget and the Iheanachos did not incur losses of the same magnitude as from the Buka's Place development. (Answer ¶ 64.)

         In 2010, the Portland Housing Bureau ("PHB") assumed PDC's rights and interests in both Buka's Place and Roselyn Villa. (Compl. ¶ 9; Answer ¶¶ 68, 69.) Subsequently, according to the Iheanachos, the PHB changed the compliance reporting requirements and mandated that the reports be submitted electronically, through an online reporting system. (Answer ¶ 70.) The Iheanachos were "unable to comply with this mandate" but assert that they "remained current with their HUD mandating reporting through the State of Oregon." (Id. ¶ 70.)

         Procedural Background

         The City filed suit in Multnomah County Circuit Court on November 10, 2016, asserting claims for breach of contract, alleging the Iheanachos "utterly failed in their obligations under the agreements" and failed to meet the required compliance obligations. (Compl. ¶ 11.) On January 12, 2017, the Iheanachos moved to dismiss under Oregon Rule of Civil Procedure ("ORCP") 21. (ECF No. 32-1, Ex. A, ("ORCP 21 Motion").) Oral argument on the ORCP 21 Motion was held on February 21, 2017. (ECF No. 37, Ex. A, ("OA Transcript").) On March 4, 2017, the circuit court denied the Iheanachos' motion. (ECF No. 32-1, Ex. C.)

         On March 13, 2017, the Iheanachos timely removed the case to federal court, (Notice of Removal, ECF No. 1), and filed their answer, asserting counterclaims for breach of contract, breach of good faith and fair dealing, and civil rights violations. (ECF No. 6.) Simultaneously, the City moved to remand the suit to state court. (ECF No. 4.) On July 6, 2017, this court entered an order "staying all current discovery and pretrial deadlines until after the court has made a ruling on plaintiff pending motion to remand." (ECF No. 12.) Subsequently, however, both parties consented to jurisdiction in federal court and, on August 23, 2017, the court granted the City's withdrawal of its motion to remand. (ECF No. 14, 15, 18, 22.)

         On August 23, 2017, the court entered a scheduling order stating, "No later than 11/20/2017, parties are to amend all pleadings and complete joinder of all parties and claims." (ECF No. 23 ("Scheduling Order").) The City answered the Iheanachos' counterclaims on November 20, 2017, asserting several affirmative defenses, including one based on the applicable statute of limitations, alleging the Iheanachos' claims were time barred. (ECF No. 28, ("City's Answer").)

         The Iheanachos filed the present motion on December 11, 2017, seeking to strike the City's Answer in its entirety on timeliness grounds; to strike its statute of limitations defense on the ground of judicial estoppel; and, alternatively, for leave to amend their complaint. (ECF No. 32, ("Motion").)

         Legal Standards

         I. Rule 12(f)

         Under Rule 12(f), a court may, on its own or on a motion, "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). The purpose of a Rule 12(f) motion is to avoid the costs that arise from litigating spurious issues by dispensing with those issues prior to trial. Fantasy, Inc. v. Fogerty, 984 F.2d. 1524, 1527 (9th Cir. 1993). Motions to strike are generally viewed with disfavor and are not frequently granted. Bassiri v. Xerox Corp., 292 F.Supp.2d 1212, 1220 (CD. Cal. 2003), rev'd on other grounds, Bassiri v. Xerox Corp., 463 F.3d 927 (9th Cir. 2006); Freeman v. ABC Legal Services, Inc., 877 F.Supp. 2d. 919, 923 (N.D. Cal. 2012). There is a judicial preference for deciding matters on their merits when possible. Patapoff v. Vollstedt's, Inc., 267 F.2d 863, 865 (9th Cir. 1959).

         Courts must view the challenged pleading in the light most favorable to the pleader. Id. Generally, "motions to strike should be denied unless it can be shown that no evidence in support of the allegation would be admissible, or those issues could have no possible bearing on the issues in the litigation." Gay-Straight Alliance Network v. Visalia Unified School Dist.,262 F.Supp.2d 1088, 1099 (E.D. Cal. 2001). However, a motion to strike "may be proper if it will make the trial less complicated or if allegations being challenged are so unrelated to plaintiffs claims as to be unworthy of any consideration as a defense and that their presence in the pleading will be prejudicial to the moving party." Thornton v. Solutionone Cleaning Concepts, Inc., No. CIV F 06-1455 AWI SMS, 2007 WL 210586, at *1 (E.D. Cal. Jan. 26, 2007) (citing ...

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