Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_12-cv-00784/USCOURTS-almd-2_12-cv-00784-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1452 Removal of claims related to bankruptcy case

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

FEDERAL DEPOSIT INSURANCE )

CORPORATION AS RECEIVER )

FOR COLONIAL BANK, a domestic )

banking corporation, )

 )

Plaintiff, )

 )

v. ) CASE NO. 2:12-CV-784-WKW

 ) [WO]

CREDIT SUISSE SECURITIES )

(USA) LLC, a limited liability )

company; RBS SECURITIES INC., )

a corporation; and UBS )

SECURITIES LLC, a limited )

liability company, )

)

Defendants. )

ORDER

Before the court are the motion to strike defenses (Doc. # 45) filed by the 

Federal Deposit Insurance Corporation as Receiver for Colonial Bank (“FDIC-R”), 

the memorandum of law in opposition (Doc. # 56) filed by Defendants Credit Suisse 

Securities (USA) LLC, RBS Securities Inc., and UBS Securities LLC,

1 and the 

FDIC-R’s reply (Doc. # 63). The FDIC-R moves to strike Defendants’ affirmative 

defenses alleging a lack of loss causation and failure to mitigate damages. As 

 1 Morgan Stanley & Co. LLC also joined the memorandum of law in opposition, but it has 

since reached a settlement with the FDIC-R. Accordingly, Morgan Stanley & Co. LLC is no longer 

a defendant in this action.

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grounds, the FDIC-R contends that the multidistrict litigation court (“MDL court”), 

in its decision denying Defendants’ motion for summary judgment, found that these 

two affirmative defenses were not legally cognizable under § 8-6-19(a)(2) of the 

Alabama Securities Act. (See Doc. # 12-393 (Order Denying Defs.’ Mot. Summ. 

J.).) Defendants dispute the FDIC-R’s characterization of the MDL court’s rulings

and assert that they are entitled to invoke these affirmative defenses at trial. 

This Order presumes the court’s and the parties’ familiarity with the 

protracted history of this lawsuit, which will not be repeated here. Based upon 

careful consideration of the arguments of counsel and the relevant law, the FDICR’s motion to strike defenses is due to be granted in part and denied in part.

Federal Rule of Civil Procedure 12(f) governs motions to strike. Rule 12(f) 

provides that “[t]he court may strike from a pleading an insufficient defense or any 

redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f)

(emphasis added). Although Rule 12(f) is not a favored remedy, its use is proper if

an affirmative defense is insufficient as a matter of law. Fabrica Italiana 

Lavorazione Materie Organiche, S.A.S. v. Kaiser Aluminum & Chem. Corp., 684 

F.2d 776, 779 (11th Cir. 1982). “A defense is insufficient as a matter of law if, on 

the face of the pleadings, it is patently frivolous, or if it is clearly invalid as a matter 

of law.” Morrison v. Executive Aircraft Refinishing, Inc., 434 F. Supp. 2d 1314, 

1318 (S.D. Fla. 2005) (citation and internal quotation marks omitted). While a court 

may invoke Rule 12(f)’s remedy “on its own” at any time, Rule 12(f) imposes a 

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timeliness requirement on a party. A party must file a motion to strike “either before 

responding to the pleading or, if a response is not allowed, within 21 days after being 

served with the pleading.” Fed. R. Civ. P. 12(f). 

Defendants raised lack of loss causation and failure to mitigate damages as

affirmative defenses in their Answer to the First Amended Complaint filed on July 

5, 2013. (See Doc. # 12-2 (MDL Docket Sheet); Doc. # 12-191 (Answer to 1st Am. 

Compl.).) Because a party is not permitted to file a responsive pleading to an answer,

the FDIC-R had twenty-one days after being served with the Answer to file a motion 

to strike. The twenty-one-day deadline had long passed when the FDIC-R filed its 

motion to strike on August 24, 2015. While the FDIC-R’s motion to strike is 

untimely, the court will consider the motion on its own initiative and will not deny 

it as untimely. See Fed. R. Civ. P. 12(f); see also Katz v. Chevaldina, No. 12-22211-

CIV, 2013 WL 2147156, at *2 (S.D. Fla. May 15, 2013) (“The Court’s discretion 

under Rule 12(f) ‘renders the twenty-[one-]day rule essentially unimportant, as the 

Court has the authority to hear a motion to strike at any time after the twenty-

[one-]day period.” (quoting Emmpresa Cubana Del Tabaco v. Culbro Corp., 213 

F.R.D. 151, 155 n.2 (S.D. Fla. 2003)). Consideration of the motion is an appropriate 

exercise of the court’s discretion under Rule 12(f) because the motion has some merit 

and pretrial resolution of the motion will streamline the issues for trial. Cf. Fed. R. 

Civ. 12(h)(2) (“Failure . . . to state a legal defense to a claim may be raised . . . at 

trial.”). 

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The FDIC-R contends that the MDL court’s rulings on summary judgment

establish that Defendants’ affirmative defenses of lack of loss causation and failure 

to mitigate damages are insufficient as a matter of law and, therefore, should be 

stricken. The summary judgment ruling as to each affirmative defense and that 

ruling’s bearing on the motion strike is addressed in turn.

During the consolidated pretrial proceedings in this action, the MDL court 

entered an opinion denying Defendants’ motion for summary judgment. The MDL 

court found that Defendants’ affirmative defense of lack of loss causation was not 

cognizable under § 8-6-19(a)(2) of the Alabama Securities Act (“ASA”). It

recognized that the Alabama Supreme Court had not addressed whether a defendant 

could assert lack of loss causation as an affirmative defense to a claim under 

§ 8-6-19(a)(2). However, it found the answer in the plain language of the statute and 

through guidance from analogous precedent: “[T]here is no mention of loss 

causation” in § 8-6-19(a)(2), and the Alabama Supreme Court “has clarified that 

there is no causation element to § 8-6-19(a)(1), which is essentially identical to § 8-

6-19(a)(2).” (Doc. # 12-393, at 4 (citing Ritch v. Robinson-Humphrey Co., 748 So. 

2d 861, 862 (Ala. 1999) (“A cause of action based on § 8-6-19(a)(1), part of the 

Alabama Securities Act, . . . does not contain a causation element”)).) The MDL 

court also rejected Defendants’ urging to find an affirmative defense for lack of loss

causation implicit in the ASA based upon Alabama’s reluctance to find “implicit 

causation elements in its blue sky law.” (Doc. # 12-393, at 5 (internal footnote 

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omitted).) Finally, the MDL court observed that the ASA tracked § 12(2) of the 

Securities Act of 1933, but that Alabama’s legislature had not amended the ASA in 

response to a later congressional amendment that added a defense of lack of loss 

causation to § 12(2). 

Absent a change in the law or other substantial change in circumstances, the 

court will not disturb the MDL court’s well-reasoned conclusions of law on 

summary judgment as to the unavailability of the affirmative defense of lack of loss 

causation under § 8-6-19(a)(2). The MDL’s conclusions demonstrate that an

affirmative defense of lack of causation is legally insufficient as a matter of law 

under § 8-6-19(a)(2). Accordingly, based upon the MDL court’s ruling, the court 

will strike Defendants’ affirmative defense of lack of loss causation. 

The court does not reach the same conclusion as to the FDIC-R’s argument 

that the MDL court’s denial of summary judgment renders Defendants’ affirmative 

defense of failure to mitigate damages legally insufficient. The FDIC-R reads that 

ruling too broadly. On summary judgment, Defendants contended that the FDIC-R 

is not “entitled to damages under the ASA as [it] did not dispose of the certificates 

at suit at fair [market] value.” (Doc. # 12-393, at 3.) Rejecting that argument, the 

MDL court found that the plain language of § 8-6-19 contains “no requirement that 

plaintiff show disposition at fair market value” in order to recover damages. (Doc. 

# 12-393, at 10.) That the MDL court found that the FDIC-R need not prove that it 

received fair market value for a security in order to recover damages is not to say 

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that the MDL court found that failure to mitigate damages is not a legally cognizable 

affirmative defense under § 8-6-19(a)(2). (See Doc. # 12-191 (Answer to 1st Am. 

Compl. ¶ 22) (alleging as an affirmative defense that the FDIC-R failed “to take 

reasonable action to minimize any damages”).) The court finds that the narrow 

ruling of the MDL court on damages provides an insufficient basis upon which to 

impose Rule 12(f)’s drastic remedy and strike in toto Defendants’ affirmative 

defense of failure to mitigate damages. 

Accordingly, it is ORDERED that the FDIC-R’s motion to strike affirmative 

defenses (Doc. # 45) is GRANTED in part and denied in part. The motion is 

GRANTED as to Defendants’ affirmative defense of lack of loss causation and that 

affirmative defense is STRICKEN. The motion is DENIED as to Defendants’ 

affirmative defense of failure to mitigate damages.

DONE this 31st day of March, 2016.

 /s/ W. Keith Watkins

 CHIEF UNITED STATES DISTRICT JUDGE

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