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Case 4:18-cv-00806-SBA Document 178 Filed 10/09/18 Page 1 of 15 

ALDEN F. ABBOTT 

General Counsel 

SARAH SCHROEDER, Cal. Bar No. 221528 

ROBERTA TONELLI, Cal. Bar No. 278738 

EVAN ROSE, Cal. Bar No. 253478 

Federal Trade Commission 

901 Market Street, Suite 570 

San Francisco, CA 94103 

sschroeder@ftc.gov, rtonelli@ftc.gov, erose@ftc.gov 

Tel: (415) 848-5100; Fax: (415) 848-5184 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

OAKLAND DIVISION 

FEDERAL TRADE COMMISSION, 

Plaintiff, 

vs. 

AMERICAN FINANCIAL BENEFITS CENTER, 

a corporation, also d/b/a AFB and AF STUDENT 

SERVICES; 

AMERITECH FINANCIAL, a corporation; 

 

FINANCIAL EDUCATION BENEFITS CENTER,

a corporation; and 

BRANDON DEMOND FRERE, individually and 

as an officer of AMERICAN FINANCIAL 

BENEFITS CENTER, AMERITECH 

FINANCIAL, and FINANCIAL EDUCATION 

BENEFITS CENTER,

 

Defendants. 

Case No. 18-cv-00806-SBA 

FTC’S REPLY IN SUPPORT OF 

MOTION TO STRIKE 

DEFENDANTS’ LACHES, 

ESTOPPEL, AND OFFSET 

AFFIRMATIVE DEFENSES 

Hearing: November 14, 2018 

Time: 2:00 p.m. 

Location: Courtroom 210 

1301 Clay Street, 2nd Floor 

Oakland, CA 94612 

Judge: Hon. Saundra Brown 

 Armstrong 

FTC’s Reply in Support of Motion to Strike Certain Affirmative Defenses 

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Case 4:18-cv-00806-SBA Document 178 Filed 10/09/18 Page 2 of 15 

TABLE OF CONTENTS 

TABLE OF AUTHORITIES .......................................................................................................... ii 

I. Introduction ............................................................................................................................. 1 

II. Courts Routinely Grant Motions to Strike in the Interest of Judicial Economy and to Prevent 

Prejudice to a Party.................................................................................................................. 1 

III. Defendants Do Not Plead Facts Sufficient to Support Plausible Laches and Estoppel 

Defenses.................................................................................................................................. 2 

IV. Prevailing Opinion in the Ninth Circuit Is that Laches Is Unavailable as a Defense in a 

 Government Action ................................................................................................................. 4 

V. Defendants Can Assert an Estoppel Defense Only Under Extraordinary Circumstances, 

 None of Which Are Present Here ........................................................................................... 6 

A. Estoppel by Silence Is Inapplicable Against the Government ....................................... 6 

B. Delay Is Not Grounds for Estoppel Against the Government ........................................ 7 

C. A Law Enforcement Agency Filing a Routine Lawsuit Is Not Grounds For Estoppel .. 7 

VI. “Consumer Benefit” Is Not an Affirmative Defense to FTC Act Violations .......................... 8 

VII. Legally Insufficient Defenses Should Be Denied With Prejudice ....................................... 10 

VIII. Conclusion ........................................................................................................................... 10 

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Case 4:18-cv-00806-SBA Document 178 Filed 10/09/18 Page 3 of 15 

TABLE OF AUTHORITIES 

Cases 

Barnes v. AT&T Pension Benefit Plan, 718 F. Supp. 2d 1167 (N.D. Cal. 2010) .......................... 3 

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)........................................................................... 3 

Chevron USA, Inc. v. United States, 705 F.2d 1487 (9th Cir. 1983).............................................. 4 

Dion v. Fulton Friedman & Gullace LLP, No. 11-2727, 2012 U.S. Dist. LEXIS 5116 (N.D. Cal. 

Jan. 17, 2012).............................................................................................................................. 2 

FDIC v. Hursley, 22 F.3d 1472 (10th Cir. 1994)............................................................................ 5 

Fishman v. Tiger Natural Gas, Inc., Case No. C-17-05351-WHA, 2018 U.S. Dist. LEXIS 

159425 (N.D. Cal. Sept. 18, 2018) ................................................................................... 2, 3, 10 

FTC v. BF Labs Inc., No. 4:14-CV-00815-BCW, 2015 WL 12806580 (W.D. Mo. Aug. 28. 

2015). ........................................................................................................................................ 10 

FTC v. BlueHippo Funding, LLC, 762 F.3d 238 (2d Cir. 2014) .................................................... 9 

FTC v. BlueHippo Funding, LLC, No. 08 Civ. 1819-PAC, 2016 U.S. Dist. LEXIS 52594 

(S.D.N.Y. April 19, 2016) .......................................................................................................... 9 

FTC v. Dantuma, 2018 U.S. App. LEXIS 24893 (9th Cir. August 31, 2018)................................ 8 

FTC v. DirecTV, Inc., No. 15-cv-01129-HSG, 2015 U.S. Dist. LEXIS 170370 (N.D. Cal. Dec. 

21, 2015) ..................................................................................................................................... 5 

FTC v. Figgie Int’l., 994 F.2d 595 (9th Cir. 1993)......................................................................... 9 

FTC v. Kuykendall, 371 F.3d 745 (10th Cir. 2004) .................................................................... 8, 9 

FTC v. Moneymaker, No. 2:11-CV-461 JCM, 2011 U.S. Dist. LEXIS 83913 (D. Nev. July 28, 

2011) ........................................................................................................................................... 4 

FTC v. Neovi, Inc., No. 06-1952, 2010 U.S. Dist. LEXIS 101583 (S.D. Cal. Sept. 27, 2010) .... 7 

Jaa v. I.N.S., 779 F.2d 569 (9th Cir. 1986)................................................................................. 6, 7 

Lavin v. Marsh, 644 F.2d 1378 (9th Cir. 1981) .............................................................................. 6 

Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880 (9th Cir. 1983) ................................................ 1 

Simmons v. Navajo City, Ariz., 609 F.3d 1011 (9th Cir. 2010) ...................................................... 3 

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Smith v. Wal-Mart Stores, No. C 06-2069 SBA, 2006 U.S. Dist. LEXIS 72225 (N.D. Cal. Sept. 

United States v. Global Mortg., No. SACV 07-1275 DOC, 2008 U.S. Dist. LEXIS 102897 (C.D. 

United States v. Nevada Power Co., No. CV-S-87-861 (RDF), 1990 WL 149660 (D. Nev. June 

20, 2006) ................................................................................................................................. 1, 4 

Cal. May 15, 2008) ....................................................................................................... 4, 6, 8, 10 

United States v. Menator, 925 F.2d 333 (9th Cir. 1991) ................................................................ 4 

1, 1990) ....................................................................................................................................... 4 

United States v. Summerlin, 310 U.S. 414 (1940) ...................................................................... 4, 5 

Worley v. Harris, 666 F.2d 417 (9th Cir. 1982) ............................................................................. 6 

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Case 4:18-cv-00806-SBA Document 178 Filed 10/09/18 Page 5 of 15 

I. Introduction 

On August 29, 2018, Defendants filed an Answer to the FTC’s Complaint (“Answer”) 

that asserted eight affirmative defenses. (Dkt. 162). On September 18, 2018, the Federal Trade 

Commission (“FTC”) filed a narrowly tailored Motion to Strike Defendants’ Laches, Estoppel, 

and Offset Affirmative Defenses (“Motion”) (Dkt. 169).1 On October 2, 2018, Defendants filed 

an Opposition to the FTC’s Motion to Strike (“Opp.”) (Dkt. 175). However, Defendants’ 

Opposition ignores controlling caselaw, cites a bevy of non-binding or distinguishable cases, and 

does not cure the fatal flaws with their affirmative defenses. For the reasons described below, 

the FTC respectfully requests the Court strike Defendants’ sixth, seventh, and eighth affirmative 

defenses. 

II. Courts Routinely Grant Motions to Strike in the Interest of Judicial Economy 

and to Prevent Prejudice to a Party 

Defendants argue that the Court should not dismiss their defenses at this stage in the 

litigation because the Court has not reviewed evidence relating to the defenses. Opp. at 5, 10, 12 

(distinguishing numerous cases cited by the FTC because they had a different procedural posture 

than this matter). According to Defendants’ logic, even if their defenses cannot possibly 

succeed, the Court should allow Defendants to go on a fishing expedition, and then reject their 

legally deficient defenses closer to trial. This waste of money and resources on legally deficient 

defenses is exactly “the evils that Rule 12(f) is intended to avoid . . .” Smith v. Wal-Mart Stores, 

No. C 06-2069-SBA, 2006 U.S. Dist. LEXIS 72225, at *11-12 (N.D. Cal. Sept. 20, 2006) (Judge 

Saundra Brown Armstrong). As this Court has stated, “the function of a Rule 12(f) motion to 

strike is to avoid the expenditure of time and money that must arise from litigating spurious 

issues by dispensing with those issues prior to trial.” Id. at *4-5 (citing Sidney-Vinstein v. A.H. 

Robins Co., 697 F.2d 880, 885 (9th Cir. 1983)). Eliminating insufficient defenses early, 

especially those that could not possibly succeed under any facts pleaded, is an exercise of the 

1

 The Defendants are American Financial Benefits Center, Ameritech Financial, Financial 

Education Benefits Center, and Brandon Frere (collectively “Defendants”). 

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district court’s inherent power to expedite the administration of justice and prevent abuse of its 

process. 

As described in the FTC’s Motion and further detailed below, Defendants’ affirmative 

defenses cannot succeed under any circumstances and the FTC will suffer prejudice if they are 

allowed to stand. Defendants’ laches, estoppel, and offset defenses are not applicable against the 

FTC under the circumstances of this case. As a practical matter, entertaining discovery on these 

insufficient defenses will prejudice the FTC by unnecessarily consuming valuable time and 

resources. Motion at 2. For example, Defendants have already sought “internal policies, 

discussions, and documents” regarding the FTC’s deliberative process. Declaration of Kelly 

Ortiz (“Ortiz Decl.”) Att. A-2 (letter from Defendants’ counsel to the FTC). Although the FTC 

has already produced more than 5,400 documents to Defendants, responded to numerous 

requests for information, and produced an FTC investigator for a full day deposition, Defendants 

still demand more. Ortiz Decl. ¶ 5. Defendants also falsely state that the “FTC has refused to 

produce documents about its secret investigation . . . ” Opp. at 4 (emphasis in original). The 

FTC has produced to Defendants all relevant and non-privileged documents relating to its routine 

non-public investigation of Defendants. 

Unless the Court strikes Defendants’ legally deficient defenses, this case will likely be 

delayed while the FTC continues to expend significant resources on Defendants’ thinly veiled 

attempt to distract the FTC and Court from the real issue in this case – Defendants’ illegal 

conduct. 

III. Defendants Do Not Plead Facts Sufficient to Support Plausible Laches and 

Estoppel Defenses 

Defendants’ laches and estoppel defenses cannot survive a motion to strike because they 

are not supported by sufficient facts to make them plausible. Courts in this district generally 

apply the heightened pleading standard of the Supreme Court cases Twombly and Iqbal to 

affirmative defenses. See Fishman v. Tiger Natural Gas Inc., No. C-17-05351-WHA, 2018 U.S. 

Dist. LEXIS 159425, at *7-8 (N.D. Cal. Sept. 18, 2018) (Judge William Alsup); Dion v. Fulton 

Friedman & Gullace LLP, No. 11-2727-SC, 2012 U.S. Dist. LEXIS 5116, at *4-6 (N.D. Cal. 

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Jan. 17, 2012) (Judge Samuel Conti); Barnes v. AT&T Pension Benefit Plan, 718 F. Supp. 2d 

1167, 1171-1172 (N.D. Cal. 2010) (Judge Marilyn Hall Patel) (“[a]pplying the standard for 

heightened pleading to affirmative defenses serves a valid purpose in requiring at least some 

valid factual basis for pleading an affirmative defense”).2

 Thus, “a party pleading an affirmative 

defense must state ‘enough supporting facts to nudge a legal claim across the line separating 

plausibility from mere possibility.’” Fishman, 2018 U.S. Dist. LEXIS at *8 (citing Bell Atl. 

Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Defendants must also plead each element of the 

defense. Id. (striking laches defense because it did not “point plaintiffs to specific elements, the 

alleged applicable statue, nor to any specific conduct or allegation that could plausibly entitle 

[them] to relief.”). 

Defendants focus on the specificity of their claims, arguing that the length of their 

Answer secures their affirmative defenses a place in this case. Opp. at 3 (“the level of specificity 

is at least as great as that pled in” another FTC matter). However, the real issue is not the 

amount of detail in an Answer, but whether the facts alleged present a plausible defense. 

Defendants could submit a 10-page Answer detailing in great specificity their perceived 

mistreatment by the government, but that does not automatically mean that their defense is 

sufficiently supported by facts. 

Similarly, Defendants state that they do not “have the burden to prove their defenses 

now” and that the “FTC seems to believe that Defendants must have a trial-ready case during the 

pleading stage.” Opp. at 4, 12. Again, the focus is not on the amount of evidence Defendants 

submit in support of their defenses, but whether Defendants present plausible facts and 

applicable law supporting their defenses. Barnes, 718 F. Supp. 2d at 1172 (“‘Under the Iqbal 

standard, the burden is on the defendant to proffer sufficient facts and law to support an 

affirmative defense.’” (citation omitted)). 

2

 The case Defendants rely on for their pleading standard does not address the applicability of the 

Twombly/Iqbal standard to affirmative defenses. Opp. at 2, 4 (citing Simmons v. Navajo City., 

Ariz., 609 F.3d 1011, 1023 (9th Cir. 2010)). 

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Case 4:18-cv-00806-SBA Document 178 Filed 10/09/18 Page 8 of 15 

Here, Defendants fail to plead plausible facts supporting each element of their laches and 

estoppel defenses. Answer at 20-21. First, Defendants ignore key elements of their defenses. 

They plead no facts indicating egregious misconduct by the FTC, nor do they indicate how the 

FTC caused them serious injury. Motion at 4. They also fail to show that estopping this 

litigation will not harm the public’s interest. In fact, Defendants’ estoppel defense in so vague 

that it is unclear what type of estoppel they are asserting. Smith, 2006 U.S. Dist. LEXIS at *25 

(striking estoppel defense and noting, “the defense of estoppel alone could refer to any of several 

legal doctrines”). Second, some of the facts that purportedly support their defenses are facially 

insufficient. For example, Defendants argue that their laches defense provides “fair notice of 

delay on the part of the FTC.” Opp. at 3. Defendants rely heavily on a supposed four-month 

delay between receiving a draft complaint and the complaint being filed. This so-called “delay,” 

however, occurred at Defendant’s own request, and is not the basis for a plausible laches defense 

against the FTC. See Infra, Section V.B. 

IV. Prevailing Opinion in the Ninth Circuit Is that Laches Is Unavailable as a 

Defense in a Government Action 

A string of Ninth Circuit precedent, relying on the Supreme Court decision United States 

v. Summerlin, 310 U.S. 414, 415 (1940), states that the defense of laches categorically does not 

apply to the government in a civil suit to enforce public rights.3 Because a laches defense is not 

available under these circumstances, courts have stricken laches defenses in prior FTC matters. 

Mot. at 4-5 (citing three FTC cases); see also FTC v. Moneymaker, No. 2:11-CV-461 JCM, 2011 

U.S. Dist. LEXIS 83913, at *5-6 (D. Nev. July 28, 2011) (“the equitable doctrine of laches . . . is 

not viable if asserted against the government in this context”); United States v. Global Mortg., 

3 See United States v. Menator, 925 F.2d 333, 335 (9th Cir. 1991) (citing Summerlin) (“The 

government is not subject to the defense of laches when enforcing its rights”); Chevron USA, 

Inc. v. United States, 705 F.2d 1487, 1491 (9th Cir. 1983) (citing Summerlin) (“The government 

is not bound by . . . laches in enforcing its rights”); SEC v. Sands, 902 F. Supp. 1149, 1167 (C.D. 

Cal. 1995) (“It is well established that laches is not an affirmative defense against the United 

States”); United States v. Nevada Power Co., No. CV-S-87-861 (RDF), 1990 WL 149660, at 

*31-32 (D. Nev. June 1, 1990) (“it is ‘settled beyond controversy’ that the United States is not 

subject to laches when asserting public rights”) (citations omitted). 

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No. SACV 07-1275 DOC, 2008 U.S. Dist. LEXIS 102897, at *7 (C.D. Cal. May 15, 2008) (in 

matter where the Department of Justice pursued a lawsuit on behalf of the Federal Trade 

Commission, court held that “it is well settled that the United States is not . . . subject to the 

defense of laches in enforcing its rights.” (citing Summerlin)). 

The Defendants rely on Clearfield Trust, Co. v. United States to argue “there simpy is no 

‘general rule’ that laches is not a recognized defense against the government.” Opp. at. 7; 318 

U.S. 363 (1943). However, Clearfield and a handful of other cases “attempted to carve out 

exceptions to the general rule by allowing laches against the United States in specific cases,” 

such as contract disputes. FDIC v. Hursley, 22 F.3d 1472, 1490 (10th Cir. 1994). These narrow 

exceptions are not present here, where the FTC brings this action to enforce a public right. 

To overcome Summerlin and its progeny, which Defendants ignore entirely, Defendants 

cite to Judge Gilliam’s order in FTC v. DirecTV, Inc., No. 15-cv-01129-HSG, 2015 U.S. Dist. 

LEXIS 170370 (N.D. Cal. Dec. 21, 2015).4 Opp. at 6. DirecTV is distinguishable from this 

matter because DirecTV alleged specific affirmative misconduct by the FTC that “plausibly 

could support” the defense, and detailed how those alleged acts prejudiced the company. Due to 

this unusual fact pattern, Judge Gilliam declined to strike the affirmative defense, but stated that 

“DirecTV very likely will have to prove affirmative misconduct to prevail on its laches defense.” 

Id. at *8. Here, Defendants have not alleged facts sufficient to show affirmative misconduct or 

prejudice. Motion at 3-4. 

As the Supreme Court, Ninth Circuit, and numerous courts in this circuit have held, 

laches does not apply when the government is enforcing public rights. For that reason, the FTC 

respectfully requests that the Court strike Defendants’ laches defense. If the Court concludes in 

theory that laches may be asserted, it still should strike Defendants’ laches defense because 

Defendants do not plausibly allege that the FTC engaged in affirmative misconduct or explain 

how they suffered prejudice by continuing to operate while the FTC completed its investigation. 

4

 Defendants mistakenly attribute this order to Judge Griffith. 

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Case 4:18-cv-00806-SBA Document 178 Filed 10/09/18 Page 10 of 15 

V. Defendants Can Assert an Estoppel Defense Only Under Extraordinary 

Circumstances, None of Which Are Present Here 

Defendants can assert an estoppel defense against the government only under 

extraordinary circumstances showing “affirmative misconduct beyond mere negligence” by the 

government, such as a “deliberate lie” or “pattern of false promises.” Global Mortg., 2008 U.S. 

Dist. LEXIS at *10 (citing Ninth Circuit cases). “A mere failure to inform or assist does not 

justify application of equitable estoppel.” Lavin v. Marsh, 644 F.2d 1378, 1384 (9th Cir. 1981). 

In addition to affirmative misconduct, Defendants have to plead facts sufficient to show 

prejudice to themselves, and no harm to the public if the Court estops the case. Jaa v. I.N.S., 779 

F.2d 569, 572 (9th Cir. 1986) (“even affirmative misconduct will not estop the government 

unless ‘the government’s wrongful conduct threatened to work a serious injustice and . . . the 

public’s interest would not be unduly damaged by the imposition of estoppel.’”) (citing Worley v. 

Harris, 666 F.2d 417, 421 (9th Cir. 1982)). As described below, Defendants fail to meet this 

stringent standard. 

A. Estoppel by Silence Is Inapplicable Against the Government 

The crux of Defendants’ estoppel argument is that the FTC “sat silently” and did not 

respond to their unsolicited letter.5 Answer at 22. Defendants fail to cite to any authority that 

supports their estoppel by silence defense. This is unsurprising, given the absurdity of the 

defense. Silence is not affirmative misconduct, especially where there is no duty to act. Motion 

at 5-6. Such a defense would paralyze law enforcement agencies. Practically speaking, 

Defendants are suggesting that if a company asks the FTC if it is complying with the law, the 

FTC must immediately give it guidance and disclose any non-public investigation, or the agency 

is barred from suing the company. That unrealistic standard is a sweeping abrogation of agency 

5

 Even if the FTC was required to respond to Defendants’ unsolicited letter, the letter contained 

material inaccuracies. For example, Defendants submitted an altered mailer to the FTC that 

included different information than the mailers Defendants actually sent to consumers. 

Defendants’ letter also omitted the important fact that most of Defendants’ profit came from 

monthly fees they collected for “financial education” memberships unrelated to consumers’ 

student loans. Perhaps for this reason, Defendants did not plead another required element of 

estoppel – that the FTC knew all the facts. Motion at 3. 

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authority, prosecutorial discretion, and disclosure rules. It also would result in a huge, probably 

impossible, drain on agency resources. It would play out in reality as a gigantic loophole to the 

FTC Act. Defendant’s estoppel by silence defense is ludicrous and legally insufficient, and 

should be stricken. 

B. Delay Is Not Grounds for Estoppel Against the Government 

Defendants also allege that the FTC’s “claims are barred in part or in whole by the 

doctrine of estoppel because [the FTC] delayed bringing any action” for over a year. Answer at 

22. Specifically, they allege the FTC engaged in “gross delay” by sending Defendants a draft 

complaint and then “wait[ing] over four months to file its Complaint in this action.” Id. Even if 

Defendants’ allegation of gross delay were plausible, it is not grounds for an estoppel defense. 

Motion at 3, citing Jaa, 779 F.2d at 572 (58-month delay not grounds for estoppel); see also FTC 

v. Neovi, Inc., No. 06-1952, 2010 U.S. Dist. LEXIS 101583, at *9-11 (S.D. Cal. Sept. 27, 2010) 

(no grounds for estoppel where the FTC raised a new challenge to defendants’ marketing 

practices after a years-long investigation and after the court had issued a final order). 

Defendants’ allegation of delay is particularly jaw dropping because they asked the FTC 

to hold the Complaint. As detailed in the FTC’s Opposition to Defendants’ Motion to Dismiss 

the Complaint, (Dkt. 130 at 9), the Commission waited to vote on the Complaint so the 

Defendants could meet with the Commissioners and engage in settlement negotiations with staff. 

Because Defendants have not pleaded a plausible estoppel defense based on delay, the Court 

should strike this defense. 

C. A Law Enforcement Agency Filing a Routine Lawsuit Is Not Grounds for 

Estoppel 

Defendants’ vague allegation that the FTC “engaged in an indiscriminate industry 

‘sweep’” is also legally insufficient to support an estoppel defense.6 Answer at 22. Filing 

6

 The FTC cases that Defendants imply were part of an illegitimate “sweep” have resulted in 

court orders in favor of the FTC or in court-approved settlements. Opp. at 14; See, e.g, FTC v. 

Alliance Document Prep., No. 17-7048 (C.D. Cal. Sept. 24, 2018) (final order awarding FTC 

$10.2 million); FTC v. A1 DOCPREP, No. 17-07044 (C.D. Cal. May 7, 2018) (final order 

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lawsuits against companies and individuals that violate the law is not affirmative misconduct; it 

is the FTC’s congressionally mandated mission. See 15 U.S.C. § 45(a). Furthermore, “vague 

allegations about a strategic decision by the Government are insufficient to rise to the level 

required to justify the disfavored remedy of estopping the government.” Global Mortg., 2008 

U.S. Dist. LEXIS at *11 (striking estoppel defense). The Court should strike Defendants’ legally 

insufficient estoppel defense to prevent prejudice to the FTC and preserve judicial resources. 

VI. “Consumer Benefit” Is Not an Affirmative Defense to FTC Act Violations 

The law does not support Defendants’ argument that they are entitled to offset the FTC’s 

injury figure by consumer benefits. Opp. at 11-13. First, the prevailing Ninth Circuit law sets 

forth the standard for monetary relief in FTC cases – gross revenue minus refunds. Motion at 6-

8. Defendants ignore Ninth Circuit law that clearly prohibits offsets for alleged consumer 

benefits. See FTC v. Dantuma, Case No. 17-15600, 2018 U.S. App. LEXIS 24893, at *4 (9th 

Cir. Aug. 31, 2018) (“there is ‘no authority’ for the proposition that equitable monetary awards 

in the consumer protection context should be reduced by amounts paid by customers who were 

‘satisfied’ or obtained a benefit from the defendant’s services.” (citations omitted)). Defendants 

fail to discuss Dantuma, and instead cite opinions from other circuits that predate Dantuma, 

because they have no response to the Ninth Circuit’s pronouncement. 

In addition to ignoring Ninth Circuit precedent, Defendants attempt to distinguish cases 

in the FTC’s Motion by claiming that a reduction in student loan payments differs from other 

products and services.7 Opp. at 12-13. However, the law makes no such distinction. Defendants 

also claim that FTC v. Kuykendall “supports an offset defense here.” 371 F.3d 745, 766 (10th 

Cir. 2004); Opp. at 12-13. The full quote from Kuykendall shows otherwise: 

awarding FTC $9.1 million); FTC v. M&T Fin. Grp., No. 17-06855 (C.D. Cal. June 8, 2018) 

(final order awarding FTC $11.6 million). 

7

 Assuming consumers received a legitimate loan modification, the U.S. Department of 

Education granted consumers the reduction in their loan payments, not the Defendants. 

Defendants have made no payments towards consumers’ student loans. 

FTC’s Reply in Support of Motion to Strike Certain Affirmative Defenses Page 8

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Case 4:18-cv-00806-SBA Document 178 Filed 10/09/18 Page 13 of 15 

The defendants maintain that the district court should also offset gross receipts 

by the value of the magazines the consumers received. Other courts have 

addressed this issue in the context of unfair and deceptive trade practices. In 

Figgie, a case involving unwanted heat detectors, the court analogized its case 

to that of a dishonest jeweler who represented that the rhinestones he sold 

were diamonds and held that a customer’s recover should not be limited “to 

the difference between what they paid and a fair price for rhinestones” 

because if the customers had known the truth, they might not have bought any 

rhinestones at all. 994 F.2d at 606. Thus, “the fraud in the selling, not the 

value of the thing sold, is what entitles consumers . . . to full refunds.” Id.; 

see also McGregor, 206 F.3d at 1388-89 (applying this principle in contempt 

proceedings). 

We follow the above analysis and conclude that the district court need 

not offset the value of any product the defrauded consumers received. 

Id. (emphasis added). The Kuykendall court did note, as is undisputed here, that Defendants 

could present evidence showing that consumers received refunds and the existence of satisfied 

consumers who were not deceived. Id. at 766-67. Another case Defendants cited, FTC v. 

BlueHippo Funding, LLC, relies on Kuykendall and focuses on consumer refunds. 762 F.3d 

238, 244-45 (2d Cir. 2014);8

 Opp. at 13. Neither case permits the type of “consumer benefit” 

offset that Defendants seek here. 

Contrary to Defendants’ assertion, the Court can consider evidence that rebuts the FTC’s 

injury calculation, such as consumer refunds or the percentage of deceived consumers. This 

information is part of Defendants’ denial of the FTC’s claims. Thus, Defendants will suffer no 

8

 In BlueHippo, the Defendant “proffered [f]our categories of proposed offsets: (i) consumers 

who ordered merchandise other than computers; (ii) cash refunds; (iii) payments to settle state 

enforcement actions; and (iv) consumers residing in states where no fees were charge[d].” FTC 

v. BlueHippo Funding, LLC, No. 08 Civ. 1819-PAC, 2016 U.S. Dist. LEXIS 52594, at *2-3 

(S.D.N.Y. April 19, 2016). 

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prejudice if the Court strikes their offsets affirmative defense. However, the FTC will suffer 

prejudice if it has to waste resources debating the alleged benefits Defendants provided to 

deceived consumers, an issue the Ninth Circuit has held is irrelevant in FTC matters involving 

misleading sales tactics.9

 Consumer benefit is simply not an affirmative defense to deception, 

and the Court should strike this defense. 

VII. Legally Insufficient Defenses Should Be Denied With Prejudice 

Defendants request that if the Court strike any of Defendants’ affirmative defenses that it 

“do so without prejudice and grant leave to amend the Answer.” Opp. at 15. However, 

permitting Defendants to re-plead legally insufficient defenses will simply result in another 

round of unnecessary briefing. Because Defendants’ laches, estoppel, and offset defenses cannot 

succeed under the circumstances of this case or are inappropriate as a matter of law, the Court 

should dismiss them with prejudice. Global Mortg., 2008 U.S. Dist. LEXIS at *13 (striking 

laches defense with prejudice). If Defendants want to amend their Answer, the Court should 

require them to file a motion seeking leave to amend that “include[s] a proposed pleading (and a 

redlined copy)” and “clearly explain[s] why the foregoing problems are overcome by the 

proposed pleading.” Fishman, 2018 U.S. Dist. LEXIS at *22. 

VIII. Conclusion 

Defendants’ laches, estoppel, and offset defenses, if allowed to remain in this case, will 

serve only to needlessly prolong the discovery process and waste time and resources of the Court 

and the parties. The Court should use its inherent power to strike these defenses and streamline 

the ultimate resolution of this case. 

9

 Unlike here, there was “no discernable prejudice to Plaintiff” in a case where the court declined 

to strike an offset defense. See, e.g., FTC v. BF Labs Inc., No. 4:14-CV-00815-BCW, 2015 U.S. 

Dist. LEXIS 184242, at *8-9 (W.D. Mo. Aug. 28. 2015); Opp. at 12. 

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Respectfully submitted, 

ALDEN F. ABBOTT 

General Counsel 

Dated: October 9, 2018 /s/ Sarah Schroeder 

Sarah Schroeder 

Roberta Tonelli 

Evan Rose 

Attorneys for Plaintiff 

FEDERAL TRADE COMMISSION 

FTC’s Reply in Support of Motion to Strike Certain Affirmative Defenses Page 11

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