5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA 

NOSSAMAN LLP 

JAMES H. VORHIS (SBN 245034)

jvorhis@nossaman.com

JILL N. JAFFE (SBN 286625)

jjaffe@nossaman.com

50 California Street, 34th Floor 

San Francisco, CA 94111 

Telephone: 415.398.3600 

Facsimile: 415.398.2438 

TODD A. ROBERTS (SBN 129722)

NICOLE S. HEALY (SBN 157417)

Document 175 Filed 10/02/18 Page 1 of 21 

ROPERS, MAJESKI, KOHN & BENTLEY 

1001 Marshall Street, Suite 500 

Redwood City, CA 94063-2052

Telephone: (650) 364-8200

Facsimile: (650) 780-1701

Email: todd.roberts@rmkb.com 

nicole.healy@rmkb.com 

Attorneys for Defendants AMERICAN FINANCIAL BENEFITS

CENTER, AMERITECH FINANCIAL, FINANCIAL EDUCATION 

BENEFITS CENTER, and BRANDON DEMOND FRERE 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

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: 4:18-cv-00806-SBA 

Assigned for all purposes to the Honorable

Saundra Brown Armstrong 

DEFENDANTS AMERICAN FINANCIAL 

BENEFITS CENTER, AMERITECH 

FINANCIAL, FINANCIAL EDUCATION 

BENEFITS CENTER, AND BRANDON 

DEMOND FRERE’S OPPOSITION TO 

FEDERAL TRADE COMMISSION’S 

MOTION TO STRIKE DEFENDANTS’ 

LACHES, ESTOPPEL, AND OFFSET 

AFFIRMATIVE DEFENSES 

Date: November 14, 2018 

Time: 1:00 p.m. 

Location: Courtroom 210 

1301 Clay Street, 2nd Floor

Oakland, CA 94612 

Date Action Filed: February 7, 2018 

Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 2 of 21 

TABLE OF CONTENTS 

Page(s) 

I. INTRODUCTION ......................................................................................................................... 1 

II. LEGAL STANDARD.................................................................................................................... 2 

III. THE DEFENSES OF LACHES AND ESTOPPEL ARE ADEQUATELY PLED. ..................... 2 

A. Defendants have Provided Fair Notice of their Laches Defense. ...................................... 2 

B. Defendants have Adequately Pled the Elements of their Estoppel Defense...................... 4 

IV. LACHES AND ESTOPPEL ARE NOT INSUFFICIENT DEFENSES AS A 

MATTER OF LAW, AND MAY BE ASSERTED AS AFFIRMATIVE DEFENSES 

AGAINST THE FTC..................................................................................................................... 6 

A. Laches is Properly Asserted in Defendants’ Answer......................................................... 6 

B. Defendants’ Estoppel Defense is Applicable Against the FTC......................................... 8 

V. OFFSET IS APPROPRIATELY RAISED IN CASES WHERE CONSUMERS 

HAVE REALIZED BENEFITS THAT IMPACT THE DETERMINATION OF 

CONSUMER LOSSES................................................................................................................ 11 

VI. THE PRESENCE OF THESE AFFIRMATIVE DEFENSES WILL NOT RESULT 

IN WASTEFUL LITIGATION ................................................................................................... 13 

VII. LEAVE TO AMEND SHOULD BE GRANTED IF THE COURT IS INCLINED TO 

STRIKE ANY DEFENSE ........................................................................................................... 14 

VIII. CONCLUSION............................................................................................................................ 15 

- i - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 3 of 21 

TABLE OF AUTHORITIES 

Page(s) 

Cases 

Cal. Dep’t of Toxic Substances Control v. Alco Pac., Inc., 

217 F. Supp. 2d 1028 (C.D. Cal. 2002) .................................................................................................2 

Cayuga Indian Nation of N.Y. v. Pataki, 

413 F.3d 266 (2d Cir. 2005)...................................................................................................................7 

Clearfield Trust Co. v. United States, 

318 U.S. 363 (1943)...............................................................................................................................7 

Cromwell v. Deutsche Bank Nat’l Trust Co., 

No. C 11-2693 PJH, 2012 U.S. Dist. LEXIS 8528 (N.D. Cal., Jan. 25, 2012)......................................2 

Dickow v. United States, 

654 F.2d 144 (1st Cir. 2011)................................................................................................................10 

Evergreen Safety Council v. RSA Network, Inc., 

697 F.3d 1221 (9th Cir. 2012) ...............................................................................................................3 

FTC V. Accusearch, Inc., 

No. 06-cv-105-D, 2007 WL 9709752 (D. Wyo. Mar. 28, 2007)...........................................................9 

FTC v. Affiliate Strategies, Inc., 

No. 09-4104-JAR, 2010 WL 11470103 (D. Kan. June 8, 2010) .........................................................12 

FTC v. Alcoholism Cure Corp., 

No. 3:10-cv-00266-J-34JBT, 2010 WL 11474441 (M.D. Fla. Dec. 13, 2010) .....................................8 

FTC v. Amy Travel Serv., Inc., 

875 F.2d 564 (7th Cir. 1989) ...............................................................................................................13 

FTC v. BF Labs Inc., 

No. 4:14-CV-00815-BCW, 2015 WL 12806580 (W.D. Mo. Aug. 28, 2015).................................9, 12 

FTC v. BlueHippo Funding, LLC, 

762 F.3d 238 (2d Cir. 2014).................................................................................................................13 

FTC v. Bronson Partner, LLC, 

No. 3:04CV1866 SRU, 2006 WL 1973572006 (D. Conn., Jan. 25, 2006) .........................................12 

FTC v. Commerce Planet, Inc., 

815 F.3d 593 (9th Cir. 2016) ...............................................................................................................13 

- ii - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 4 of 21 

FTC v. Debt Solutions, Inc., 

Case No. 2:06-cv-00298JLR (W.D. Wash, Aug. 7, 2006) ....................................................................7 

FTC v. DirecTV, Inc., 

No. 15-cv-01129-HSG, 2015 WL 9268119 (N.D. Cal. Dec. 21, 2015) ...................................... passim 

FTC v. DirecTV, Inc., 

No. 15-cv-01129-HSG, 2016 WL 6947503 (N.D. Cal. Nov. 26, 2016)............................................6, 8 

FTC v. EDebitPay, LLC, 

2011 U.S. Dist. LEXIS 15750 (C.D. Cal. Feb. 3, 2011)........................................................................4 

FTC v. Hope New Modifications, LLC, 

No. 09-1204(JBS/JS), 2011 WL 883202 (D.N.J. Mar. 10, 2011) .........................................................6 

FTC v. Image Sales & Consultants, 

1997 U.S. Dist. LEXIS (N.D. Ind. Sep. 17, 1997).................................................................................8 

FTC v. Image Sales & Consultants, Inc., 

1997 U.S. Dist. LEXIS 18902 (N.D. Id. Nov. 17, 1997).......................................................................7 

FTC v. Kuykendall, 

371 F.3d 745 (10th Cir. 2004) .......................................................................................................12, 13 

FTC v. Magazine Solutions, LLC, 

No. 07-692, 2007 WL 2815695 (W.D. Pa. Sep. 25, 2007)....................................................................9 

FTC v. Medicor LLC, 

2001 U.S. Dist. LEXIS 26774 (C.D. Cal. June 27, 2001) .....................................................................6 

FTC v. Medlab, Inc., 

615 F.Supp.2d 1068 (N.D. Cal. 2009) .................................................................................................13 

FTC v. Medlab, Inc., 

Case No. CV-08-0822-SI (N.D. Cal. July 22, 2008) .......................................................................9, 10 

FTC v. N. Am. Mktg. & Assocs., LLC, 

2012 U.S. Dist. LEXIS 150102 (D. Ariz. Octo 18, 2012).................................................................7, 8 

FTC v. National Urological Group, Inc., 

No. 1:04-cv-3294-CAP, 2005 WL 8155166 (N.D. Ga. June 24, 2005) ................................................6 

FTC v. Publishers Bus. Servs., Inc., 

540 Fed. Appx. 555 (9th Cir. 2013), cert denied, 134 S. Ct. 2724 (2014) ..........................................13 

FTC v. Stratford Career Institute, 

NO. 16-cv-371, 2016 WL 3769187 (N.D. Ohio July 15, 2016)............................................................9 

FTC v. U.S. Work Alliance, Inc., 

2009 WL 10669724 (N.D. Ga. Feb. 24, 2009) ................................................................................9, 14 

- iii - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 5 of 21 

Holmes v. Elec. Document Processing, Inc., 

966 F. Supp. 2d 925 (N.D. Cal. 2013) ...................................................................................................2 

I.N.S. v. Miranda, 

459 U.S. 14 (1982).................................................................................................................................5 

Jaa v. I.N.S., 

779 F.2d 569 (9th Cir. 1986) .................................................................................................................5 

Lavin v. Marsh, 

644 F.2d 1378 (9th Cir. 1981) ...............................................................................................................5 

Mukherjee v. I.N.S., 

793 F.2d 1006 (9th Cir. 1986) ...............................................................................................................5 

Platte Anchor Bolt, Inc. v. IHI, Inc., 

352 F. Supp. 2d 1048 (N.D. Cal. 2004) .................................................................................................2 

Roe v. City of San Diego, 

289 F.R.D. 604 (S.D. Cal. 2013) .........................................................................................................15 

Rosales v. Citibank Fed. Sav. Bank, 

133 F. Supp. 2d 1177 (N.D. Cal. 2001) .............................................................................................1, 2 

S.E.R., Jobs for Progress, Inc. v. United States, 

759 F.2d 1 (Fed. Cir. 1985)....................................................................................................................7 

Sanchez v. City of Fresno, 

914 F. Supp. 2d 1079 (E.D. Cal. 2012)..................................................................................................2 

SEC v. Des Champs, 

No. 2:08-CV-01279, 2009 WL 3068258 (D. Nev. Sept. 21, 2009).......................................................5 

SEC v. Sands, 

902 F.Supp. 1149 (C.D. Cal. 1995) .......................................................................................................5 

Shaterian v. Wells Fargo Bank, N.A., 

829 F. Supp. 2d 873 (N.D. Cal. 2011) ...............................................................................................1, 2 

Simmons v. Navajo Cty., Ariz., 

609 F.3d 1011 (9th Cir. 2010) .......................................................................................................2, 4, 5 

U.S. v. Gamboa-Cardenas, 

508 F.3d 491 (9th Cir. 2007) .................................................................................................................5 

United States v. Admin. Enters., Inc., 

46 F.3d 670 (7th Cir. 1995) ...................................................................................................................7 

United States v. Bell, 

602 F.3d 1074 (9th Cir. 2010) ...............................................................................................................4 

- iv - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 6 of 21 

United States v. Martell, 

844 F.Supp. 454 (N.D. Ind. 1994) .........................................................................................................7 

United States v. Rhodes, 

788 F.Supp. 339 (E.D. Mich. 1992).......................................................................................................7 

Watkins v. U.S. Army, 

875 F.2d 699 (9th Cir. 1989) .................................................................................................................4 

Williams v. Jader Fuel Co., 

944 F.2d 1388 (7th Cir. 1991) .........................................................................................................2, 14 

Wyshak v. City Nat’l Bank, 

607 F.2d 824 (9th Cir. 1979) .................................................................................................................2 

Statutes 

26 U.S.C. § 6511(a) ...................................................................................................................................10 

Other Authorities 

Fed. R. Civ. P., Rule 8 ...........................................................................................................................2, 14 

Fed. R. Civ. P., Rule 12(f) ...........................................................................................................................2 

- v - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 7 of 21 

I. INTRODUCTION 

The Federal Trade Commission’s (“FTC”) motion to strike (“Motion”) must be denied because 

the affirmative defenses at issue – laches, estoppel, and offset – are properly raised against the FTC and 

are adequately pled. As many courts have noted, motions to strike are a disfavored tool. Shaterian v. 

Wells Fargo Bank, N.A., 829 F. Supp. 2d 873, 879 (N.D. Cal. 2011) (quoting Rosales v. Citibank Fed. 

Sav. Bank, 133 F. Supp. 2d 1177, 1180 (N.D. Cal. 2001). The FTC’s Motion reveals exactly why courts 

express this sentiment. 

First, the FTC argues that Defendants have not provided fair notice of their laches defense, and 

fail to assert certain factual elements of the estoppel defense. The FTC is wrong on both counts. 

Defendants’ Answer provides ample factual support for both defenses, and closely follows the level 

detail provided by other defendants to FTC actions in the Northern District that have survived motions 

to strike. In contrast, the cases cited by the FTC in the Motion involved affirmative defenses with no 

factual support. Defendants have provided fair notice here, but even if this Court determines otherwise 

the Court should grant Defendants leave to amend their Answer. 

Second, the FTC argues that the defenses of laches, estoppel, and offset are “legally insufficient 

and prejudicial.” That argument lacks any merit, and suggests that the FTC enjoys a unique status 

stripping Defendants of affirmative defenses. In so arguing, the FTC ignores dozens of rulings from 

across the United States denying motions to strike and permitting defendants to raise these exact 

defenses against the FTC. The cases cited by the FTC are universally dissimilar or, alternatively, 

support Defendants’ arguments. 

For the reasons that follow, Defendants respectfully request that this Court deny the Motion. 

The FTC clearly believes itself to be a privileged litigant, exempt from affirmative defenses and routine 

procedural vehicles such as responding to discovery and retaining experts. All Defendants have asked 

from the inception of this litigation is the opportunity to defend themselves in court. The FTC has taken 

every step in their power to prevent that from happening and to unnecessarily increase litigation costs. 

However, there is simply no legal authority that prevents Defendants from asserting these meritorious 

affirmative defenses. Basic fairness and due process require they be allowed to do so. 

/// 

- 1 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 8 of 21 

II. LEGAL STANDARD 

Under Rule 12(f), “[a]ffirmative defenses will be stricken only when they are insufficient on the 

face of the pleadings.” Williams v. Jader Fuel Co., 944 F.2d 1388, 1400 (7th Cir. 1991) (quotation and 

citation omitted), emphasis added. “Motions to strike ‘are generally disfavored because they are often 

used as a delaying tactic and because of the limited importance of pleadings in federal practice.’” 

Shaterian, 829 F.Supp.2d at 879 (quoting Rosales, 133 F. Supp. 2d at 1180). Given the disfavored 

status of Rule 12(f) motions, “‘courts often require a showing of prejudice by the moving party before 

granting the requested relief.’” Sanchez v. City of Fresno, 914 F. Supp. 2d 1079, 1122 (E.D. Cal. 2012) 

(quoting Cal. Dep't of Toxic Substances Control v. Alco Pac., Inc., 217 F. Supp. 2d 1028, 1033 (C.D. 

Cal. 2002)). “If there is any doubt whether the portion to be stricken might bear on an issue in the 

litigation, the court should deny the motion.” Holmes v. Elec. Document Processing, Inc., 966 F. Supp. 

2d 925, 930 (N.D. Cal. 2013) (quoting Platte Anchor Bolt, Inc. v. IHI, Inc., 352 F. Supp. 2d 1048, 1057 

(N.D. Cal. 2004)). 

III. THE DEFENSES OF LACHES AND ESTOPPEL ARE ADEQUATELY PLED. 

Being subject to the rules of pleading, an affirmative defense must be pled in “short and plain 

terms.” Fed. R. Civ. Proc. 8(b)(1)(A). The FTC suggests that Defendants must allege additional facts, 

and do so with “sufficient particularity.” Motion, p. 2. That is not the correct standard. Defendants are 

not required to aver allegations to establish a prima facie claim or defense. Boykin v. KeyCorp., 521 

F.3d 202, 212 (2d Cir. 2008). Nor does Rule 8 require answers or complaints to state evidentiary facts. 

Cromwell v. Deutsche Bank Nat’l Trust Co., No. C 11-2693 PJH, 2012 U.S. Dist. LEXIS 8528, at *2 

(N.D. Cal., Jan. 25, 2012) (“[s]pecific facts are unnecessary”). A defendant need only provide “fair 

notice” to sufficiently plead affirmative defenses. Simmons v. Navajo Cty., Ariz., 609 F.3d 1011, 1023 

(9th Cir. 2010); Wyshak v. City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Here, Defendants have 

more than met this notice pleading standard, and the Court should reject the FTC’s suggestion of a 

heightened pleading standard. 

A. Defendants have Provided Fair Notice of their Laches Defense. 

The FTC contends that Defendants have provided “no factual basis” for the defense of laches. 

Motion, p. 3. The FTC is demonstrably wrong. Below is how Defendants pled their affirmative 

- 2 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 9 of 21 

defense of laches: 

. . . Plaintiff delayed bringing any action despite having full knowledge of

the corporate actions of Defendants for over a year before bringing this

lawsuit. Specifically, Plaintiff refused to respond to a letter sent by

corporate Defendants on December 30, 2016 to the Chairwoman of

Plaintiff, Edith Ramirez, in which the Corporate Defendants sought

guidance from the FTC regarding their standard business practices, and

provided samples of their mailers and the scripts used by Account

Specialists. Plaintiff understood that it would be important to respond to

the letter because they had already opened an investigation into Corporate

Defendants. Despite that, Plaintiff sat silently and did not respond to the

letter at all. In addition, Plaintiff refused to file its lawsuit promptly after

Defendants first filed a lawsuit against Plaintiff on August 18, 2017 for

declaratory relief. Plaintiff was considering the filing of a lawsuit, as it

sent a draft complaint to Defendants on October 3, 2017, yet waited over

four months to file its Complaint in this action. Furthermore, Plaintiff

engaged in an indiscriminate industry “sweep” that it described as “Game

of Loans,” and only decided to sue Defendants after gross delay, prejudice

to Defendants and in response to Defendants’ suit for declaratory relief. In 

short, it would be inequitable for Plaintiff to seek equitable relief,

including an injunction and the appointment of a receiver, when it

had full knowledge of Corporate Defendants business practices yet

refused to provide any guidance about what it thought the Corporate

Defendants were doing wrong or how such actions could be corrected,

and refused to file any lawsuit. 

Answer, ECF No. 162, ¶108 (emphasis added). 

The FTC’s Motion ignores all of the actual facts alleged, which go far beyond simply alleging 

the defense. The elements of laches are (1) an unreasonable delay by the plaintiff and (2) prejudice to 

the plaintiff. Evergreen Safety Council v. RSA Network, Inc., 697 F.3d 1221, 1226 (9th Cir. 2012). 

Here, the asserted affirmative defense provides fair notice of each element. 

The affirmative defense provides fair notice of delay on the part of the FTC. In characteristic 

fashion, the FTC simply ignores the actual facts alleged. The FTC focuses on the allegations regarding 

the delay in filing the lawsuit after it shared a draft complaint, but the Answer provides more detail. 

Specifically, the Answer sets forth that the FTC “refused to respond” to a December 2016 inquiry to the 

Chairman of the FTC after the FTC had already opened an investigation into Defendants’ practices. See 

Answer, ECF No. 162, ¶108. The Answer also references the prejudice suffered by Defendants who 

could not modify their practices to meet the FTC’s unknowable standards. This level of specificity is at 

least as great as that pled in the answer before Judge Griffith when he denied the FTC’s motion to strike 

on the same defense. See FTC v. DirecTV, Inc., No. 15-cv-01129-HSG, 2015 WL 9268119 (N.D. Cal. 

- 3 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 10 of 21 

Dec. 21, 2015) (DirecTV I); Declaration of James Vorhis (“Vorhis Decl.”), ¶ 2, Exh. A [DirecTV 

Answer]. 

Moreover, the FTC incorrectly argues that “Defendants here meet neither prong” as if 

Defendants have the burden to prove their defenses now; but, that is not the question this Court must 

address. Defendants do not need to prove each element at this stage of the litigation. This is an 

affirmative defense, and Defendants need only provide “fair notice.” Simmons, 609 F.3d at 1023. The 

Answer plainly meets Rule 8’s requirement to state a defense in “plain and short terms.” 

Finally, from a pragmatic perspective, what additional information does the FTC seek? The FTC

refused to respond to Defendants’ requests for guidance while concurrently conducting a secret 

investigation dubbed “Operation Game of Loans” where it was obtaining declarations, as early as March

2017 to support a motion for injunctive relief. See ECF Nos. 50-71. To date, the FTC has refused to 

produce documents about its secret investigation, including its delay and whether it abandoned its 

“sweep” at some point, during discovery. Vorhis Decl., ¶ 3, Exh. C (see, e.g., FRC response to Request 

for Production No. 4). Thus, Defendants have limited information regarding the scope or timing of that 

investigation due to the FTC’s positions in this litigation. Nevertheless, for purposes of the Motion, 

Defendants have provided more than adequate detail. 

B. Defendants have Adequately Pled the Elements of their Estoppel Defense. 

The FTC contends that Defendants have failed to “plead adequately” their estoppel defense. 

Motion, p. 3.1 Again, the FTC is wrong. To prove equitable estoppel, defendants must show that 1) the 

FTC knew the facts, 2) the FTC intended that its conduct be acted on, or acted so that Defendants had a 

right to believe it is so intended, 3) Defendants were ignorant of the true facts, and 4) Defendants relied 

on the FTC’s conduct to their injury. FTC v. EDebitPay, LLC, 2011 U.S. Dist. LEXIS 15750, at *29-30 

(C.D. Cal. Feb. 3, 2011) (citing Watkins v. U.S. Army, 875 F.2d 699, 707 (9th Cir. 1989)). A party 

raising the estoppel defense against the government must also establish 1) affirmative misconduct 

beyond mere negligence, 2) the government’s wrongful act will cause a serious injustice, and 3) the 

public’s interest will not suffer undue damage by imposition of the liability. Id. at *30 (citing United 

1 Defendants pled estoppel with the same factual detail as their laches defense. Answer, ECF No. 162, 

¶110. 

- 4 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 11 of 21 

States v. Bell, 602 F.3d 1074, 1082 (9th Cir. 2010)). Again, at this stage, Defendants need not prove 

these elements. Defendants provide fair notice of these elements in their Answer. 

The Answer specifically alleges, among other facts. that the FTC was investigating the corporate 

Defendants, that the FTC failed to then respond to Defendants’ inquiry and submission in December 

2016, and that Defendants were ignorant of that investigation. Answer, ECF No. 162, ¶110. When 

coupled with the other facts included on the face of the Answer, Defendants assert a viable estoppel 

defense. See, e.g., SEC v. Sands, 902 F.Supp. 1149, 1166 (C.D. Cal. 1995). 

The FTC’s Motion seems to request this Court to make certain factual and legal determinations 

to rule on the Motion that require consideration of evidence. See Mukherjee v. I.N.S., 793 F.2d 1006, 

1009 (9th Cir. 1986) (citing Lavin v. Marsh, 644 F.2d 1378, 1382 fn. 6 (9th Cir. 1981)) (“The 

appropriateness of estoppel turns on the facts of the individual case.”). But “[t]he Court should not 

weigh the evidence for purposes of a motion to strike an affirmative defense.” Sands, 902 F.Supp. at 

1166. Such a determination would be premature, as it is improper for the Court to “delve into an 

examination of the evidence before it at this time” to determine whether the FTC’s conduct, as alleged in 

the Answer, may constitute affirmative misconduct going beyond mere negligence. SEC v. Des 

Champs, No. 2:08-CV-01279, 2009 WL 3068258, *3 (D. Nev. Sept. 21, 2009) (citing U.S. v. GamboaCardenas, 508 F.3d 491, 502 (9th Cir. 2007)). 

The FTC also suggests that “unexplained delay does not constitute affirmative misconduct.” 

Motion, p. 3 (citing Jaa v. I.N.S., 779 F.2d 569, 572 (9th Cir. 1986) and I.N.S. v. Miranda, 459 U.S. 14, 

18-19 (1982)). The Answer does not rely solely on delay, and at this stage of the litigation the citation 

to those cases is misguided. Both Jaa and Miranda involved final decisions by the Board of 

Immigration Appeals to deny applications for citizenship. They were not decided in the context of a 

motion to strike, and the reviewing courts carefully analyzed the evidence to determine if there had been 

affirmative misconduct. Miranda, 459 U.S. at 17-18 (“Although the time was indeed long, we cannot 

say in the absence of evidence to the contrary that the delay was unwarranted); Jaa, 779 F.2d at 572 

(“There is no evidence that the government’s delay in this case was anything but neglect.”) At this 

stage of the litigation, the Court is not tasked with a full analysis of the evidence; particularly where the 

FTC is reticent to produce documentation related to its own press release about the Complaint in this 

- 5 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 12 of 21 

action.2 

In sum, the answer includes allegations that provide fair notice, and the FTC has not met its 

burden of showing that the estoppel affirmative defense should be stricken. 

IV. LACHES AND ESTOPPEL ARE NOT INSUFFICIENT DEFENSES AS A MATTER OF 

LAW, AND MAY BE ASSERTED AS AFFIRMATIVE DEFENSES AGAINST THE FTC 

A. Laches is Properly Asserted in Defendants’ Answer. 

In its Motion, the FTC argues that “[a]s a general rule, laches is not a recognized defense against 

the government in a civil suit to enforce a public right or protect a public interest.” Motion, p. 4. This 

bald assertion is contradicted by clear authority that holds laches to be a valid defense against the FTC. 

First, the FTC ignores numerous decisions where courts have denied motions to strike and 

determines that the defense of laches may apply to the FTC. Most notably, Judge Griffith rejected 

multiple attempts by the FTC to strike the defendants’ laches defense in the DirecTV litigation.3 There, 

the FTC initially filed a motion to strike on the same faulty premise that laches may not be raised against 

the government in civil lawsuits. Judge Griffith denied that motion in DirecTV I, 2015 WL 9268119, 

noting that DirecTV adequately pled the defense because laches may be pled against the government 

where there is some “government misconduct” and that the existence of that defense is an issue of fact. 

Id. at *3. The law on that point is quite clear. 

Later in the same litigation, the Court denied the FTC’s motion for summary judgment on the 

laches defense because the defense implicated numerous factual issues. FTC v. DirecTV, Inc., No. 15-

cv-01129-HSG, 2016 WL 6947503, at *3 (N.D. Cal. Nov. 26, 2016) (DirecTV II). Other courts 

throughout the country have reached the same conclusion. See, e.g., FTC v. Hope New Modifications, 

LLC, No. 09-1204(JBS/JS), 2011 WL 883202, at *5 (D.N.J. Mar. 10, 2011); FTC v. National Urological 

Group, Inc., No. 1:04-cv-3294-CAP, 2005 WL 8155166, at *5 (N.D. Ga. June 24, 2005). The FTC 

2 The FTC also cites to FTC v. Medicor LLC, 2001 U.S. Dist. LEXIS 26774, at *11 (C.D. Cal. June 27,

2001) in support of its position. Neither the answer nor the motion to strike briefing from that case is

available on PACER. However, that court noted that the defendants indicated that “there are facts 

supporting a defense of estoppel” in the briefing, which implies there were no facts to support the

defense in the answer. However, because this Court cannot evaluate what the Medicor court had in front 

of it when it determined that the essential elements of estoppel were not pled, that case should be

disregarded.

3 The FTC’s failure to reference this litigation is telling. Not only are Judge Griffith’s opinions directly

on point, but attorneys who represented the FTC in the DirecTV litigation are participating in this case. 

- 6 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 13 of 21 

conveniently ignores these authorities in favor of its baseless arguments that the defense always fails “as 

a matter of law.” 

Second, there simply is no “general rule” that laches is not a recognized defense against the 

government. A number of courts—including the Supreme Court—have indicated that there is no such 

general principle. See, e.g., Clearfield Trust Co. v. United States, 318 U.S. 363, 369 (1943) (ruling that 

a federal standard applied to determine whether delay was unreasonable and prejudicial and that the 

sovereignty of the United States did not shield it from such defenses, and stating that “[t]he fact that the 

drawee [of the check] is the United States and the laches those of its employees are not material”); 

United States v. Martell, 844 F.Supp. 454, 459 (N.D. Ind. 1994) (holding that laches may be asserted 

against the government); S.E.R., Jobs for Progress, Inc. v. United States, 759 F.2d 1, 3 (Fed. Cir. 1985) 

(the court considered the application of the doctrine against the government by assuming without 

deciding that such a defense may be brought against the government).4 

The FTC cites FTC v. Image Sales & Consultants, Inc., 1997 U.S. Dist. LEXIS 18902, at *3-4 

(N.D. Id. Nov. 17, 1997), FTC v. N. Am. Mktg. & Assocs., LLC, 2012 U.S. Dist. LEXIS 150102, at *5 

(D. Ariz. Octo 18, 2012), and FTC v. Debt Solutions, Inc., Case No. 2:06-cv-00298JLR (W.D. Wash, 

Aug. 7, 2006) to argue the application of a broad general rule that laches may not be asserted against the 

FTC. These decisions do not undermine the well-reasoned decision of Judge Griffith from this very 

district. Most egregiously, Debt Solutions involved an unpublished decision on an unopposed motion 

to strike. Ortiz Declaration, Exh. B, Order at p. 1 (“Despite repeated extensions, Defendants have not 

opposed the motion.”).5 But Image Sales and North American Marketing are no more helpful as both 

courts noted the absence of any factual allegations to support the affirmative defenses in making those 

rulings. The FTC cites to the District Court ruling on Image Sales, 1997 U.S. Dist. LEXIS 18902 at *3-

4 See also United States v. Rhodes, 788 F.Supp. 339, 343 (E.D. Mich. 1992) (finding that laches applies

when the government brings an action); United States v. Admin. Enters., Inc., 46 F.3d 670, 672-73 (7th

Cir. 1995) (listing potential scenarios in which a valid laches defense may be asserted, including when

the United States acts as a holder of commercial paper) (citing Clearfield Trust Co. v. United States, 318

U.S. 363, 369 (1943)); Cayuga Indian Nation of N.Y. v. Pataki, 413 F.3d 266, 278-79 (2d Cir. 2005)

(agreeing with the Seventh Circuit that a laches defense may be asserted against the United States in

three main situations: in the most egregious instances of laches, when there is no relevant statute of

limitations, and when the government seeks to enforce private rights).

5 Moreover, as with almost every case cited by the FTC, the answer provides no factual specificity in

the affirmative defense. See Vorhis Decl., ¶ 5, Exh. E (“For their seventh Affirmative Defense, the

Defendants assert that Plaintiff’s claims are barred by the doctrine of laches.”). 

- 7 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 14 of 21 

4, but conveniently omits the preceding Magistrate’s Recommendation, which specifically notes that the 

defendants had provided no factual support of that defense. FTC v. Image Sales & Consultants, 1997 

U.S. Dist. LEXIS at *5-6 (N.D. Ind. Sep. 17, 1997) (“Moreover, the Defendants offer no specifics as to 

how the FTC could be guilty of laches even if the doctrine was available”). In North American 

Marketing, the Court specifically stated, “[t]hese defenses contain no reference to supporting facts.” 

2012 U.S. Dist. LEXIS 150102 at *8. 

But as Judge Griffith explained in DirecTV I, all that is required are allegations supporting the 

laches defense sufficient to provide notice to the FTC of Defendants’ theory and specific facts that 

“plausibly” could support such a finding of laches. Id. at *3. As discussed above, Defendants did just 

that. See Answer, ECF 162, ¶ 108. Defendants’ Answer includes numerous allegations regarding the 

FTC’s unreasonable delay, including specific references to a letter they sent to the FTC, the FTC’s draft 

complaint, and the FTC’s industrywide sweep. Id.6 These facts are similar to those alleged in the 

Answer filed by DirecTV, which survived a motion to strike and motion for summary judgment. Vorhis 

Decl., ¶ 2, Exh. B. Similarly, this Court should deny the Motion as to the laches defense. 

B. Defendants’ Estoppel Defense is Applicable Against the FTC. 

In its Motion, the FTC contends that “Defendants have not properly pleaded their estoppel 

defense and, in any event, it is insufficient as a matter of law.” Motion, p. 5. The FTC is wrong again. 

As with the laches defense, numerous courts have expressly held that estoppel may be raised 

against the FTC. See, e.g., DirecTV I, 2015 WL 9268119, at *3; DirecTV II, 2016 WL 6947503, at *3; 

FTC v. Alcoholism Cure Corp., No. 3:10-cv-00266-J-34JBT, 2010 WL 11474441, at *3 (M.D. Fla. Dec. 

13, 2010) (“In support of his affirmative defense of estoppel, Defendant has alleged, among other things, 

that Plaintiffs have harassed him for years without a ‘serious grounding in the law.’ . . . Further, he 

6 The FTC suggests laches will lead to a “fishing expedition”, but that characterization is both

inaccurate and irrelevant. The FTC filed a complaint against Defendants with the goal to shutter the

Corporate Defendants. On the day of the filing, the FTC issued a press release stating that the complaint

was part of a nationwide operation called Game of Loans (referring to the HBO Series, Game of

Thrones, though shuttering legitimate businesses is no game). Vorhis Decl., ¶ 4, Exh. D. Since that 

time, the FTC has backtracked and attempted to characterize the Game of Loans as a “term to generate

media interest” and thereby contradicted its own press releases that had indicated this was a single

initiative. See, e.g., Vorhis Decl., ¶ 4, Exh. D [FTC Responses to RFPs, Specific Objection No. 8, 

response no. 4]. The Court should not credit the FTC’s gripe that it might have to participate in

discovery on topics related to the Complaint that it filed. 

- 8 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 15 of 21 

alleges that Plaintiffs have stopped their investigations multiple times, leading him to believe his actions 

were not illegal. Thus, given the liberal construction owed to his pleadings, Defendant has sufficiently 

pleaded his affirmative defense of estoppel, and the Court will not strike it.”); FTC v. U.S. Work 

Alliance, Inc., 2009 WL 10669724, at *3 (N.D. Ga. Feb. 24, 2009); FTC v. Accusearch, Inc., No. 06-cv105-D, 2007 WL 9709752, at *2 (D. Wyo. Mar. 28, 2007); FTC v. Magazine Solutions, LLC, No. 07-

692, 2007 WL 2815695, at *1 (W.D. Pa. Sep. 25, 2007) (denying motion to strike estoppel defense 

because the defense was not “redundant, insufficient or immaterial to the matters at issue”); FTC v. 

Stratford Career Institute, NO. 16-cv-371, 2016 WL 3769187, at *2-3 (N.D. Ohio July 15, 2016). 

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

Aug. 28, 2015) aptly reasoned: 

Regardless of the impact of these defenses on liability, the Court finds that

there are scenarios where this factual information may be relevant to the

appropriate remedy. Because the Court is reticent to strike even a 

potentially marginal defense that causes no discernible prejudice to

Plaintiff, the Court declines to strike these defenses. Id. (explaining that

“the mere presence of redundant and immaterial matter not affecting the

substance of the lawsuit is insufficient grounds to strike a pleading”). Id. 

at *3. Denied MTS estoppel and latches (different defendants, same action

as above). The Court is not convinced that these defenses are 

universally inapplicable in FTC Act cases. See, e.g., Hang-Ups Art 

Enters., 1995 WL 914179 at *4 (declining to strike similar defense and 

explaining that “[t]he facts of the case should decide whether there has

been affirmative misconduct by the government such that laches might

apply”). Because factual scenarios may exist where the defenses might

apply, the Court declines to strike these defenses before Defendants have

the benefit of some discovery. 

Id. at *3, emphasis added. Similarly, here, the Court should deny the FTC’s motion as to the estoppel 

defense because this defense does not fail as a matter of law, and because the FTC has not even 

attempted to argue any legitimate prejudice. 

The cases cited by the FTC are easily distinguished. For example, the FTC relies on FTC v. 

Medlab, Inc., Case No. CV-08-0822-SI (N.D. Cal. July 22, 2008), for the purported proposition that 

“District courts in this circuit have held that the estoppel defense may not be asserted against 

sovereigns who act to protect the public welfare, such as the FTC.” Motion, p. 5. That is not at all 

what the Medlab order states. It does not reference sovereign entities or the public welfare. Instead, 

the order merely strikes the defense without any elaboration. See ECF 170-3 (Ortiz Declaration, Exh. 

- 9 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 16 of 21 

C). This omission is critical because – yet again – the defendants’ answer in that matter provided no 

factual support for the laches or estoppel defenses. See ECF No. 170-4 (Ortiz Declaration, Exh. D, 

“The causes of action are barred by the doctrine of laches, estoppel, and/or waiver.”). And, the FTC’s 

characterization of any impact from the Medlab opinion is patently inaccurate. More recently, in 2015, 

this District has permitted the estoppel defense to survive the FTC’s motion to strike. See DirecTV I, 

2015 WL 9268119, at *3. 

The FTC also argues that “[c]ourts have rejected Defendants ‘estoppel by silence’ argument, 

holding that mere inaction cannot support a claim of estoppel because it does not rise to the level of 

affirmative misconduct.” Motion, p. 6. But the cases cited by the FTC are distinguishable. The FTC’s 

citation to Dickow v. United States, 654 F.2d 144, 152 (1st Cir. 2011) is particularly egregious. That 

case involved a challenge by an estate seeking a refund of money paid as part of estate taxes. Under 

federal law, a taxpayer must file a refund claim within a proscribed time period. Id. at 146. The estate 

argued that the IRS should be estopped from denying a refund claim as tardy because the IRS failed to 

tell the estate that a second extension had been granted. Id. at 151. The Court rejected the estate’s 

argument because the specific federal statute, 26 U.S.C. § 6511(a), is not subject to equitable exceptions 

under a Supreme Court ruling. Id. Thus, the ruling in Dickow on the equitable defenses was limited to 

that specific statute. More important, the Court expressly considered evidence regarding the estoppel by 

silence argument. Id. at 152-153. The FTC omits a key portion of the ruling in the parenthetical 

contained in its Motion: 

The FTC’s citation in the Motion: 

“The argument of estoppel by silence on the part of the busy IRS

is...simply a non-starter.” 

The actual citation from Dickow: 

“The argument of estoppel by silence on the part of the busy IRS is, on 

these facts, simply a non-starter.” 

The omission of these words “on these facts” changes the entire meaning of the sentence in the context 

of this Motion – the incomplete and misleading quote reflects a stunning lack of candor. Did the FTC 

think this Court would not read the actual Dickow opinion?7 

7 FTC v. Algoma Lumber Co., 291 U.S. 67, 80 (1934), involved a final FTC proceeding regarding the 

- 10 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 17 of 21 

The authorities the FTC relies upon for its misguided estoppel by silence theory, which did not 

involve motions to strike or comment on the propriety of the estoppel defense as applied against the 

FTC, in no way undermine the many cases that have found estoppel to apply, including the DirecTV 

rulings. 

V. OFFSET IS APPROPRIATELY RAISED IN CASES WHERE CONSUMERS HAVE 

REALIZED BENEFITS THAT IMPACT THE DETERMINATION OF CONSUMER 

LOSSES 

The FTC broadly states that it is “well settled that for violations of the FTC Act, consumer loss is 

calculated by the amount of money paid by the consumers, less any refunds made.” Motion, p. 6. The 

FTC further suggests that “[t]he Ninth Circuit has specifically rejected the notion that defendants in FTC 

cases are entitled to offset the alleged value of a product when determining the amount of consumer 

injury.” Motion, p. 7. The FTC is offering an overly simplistic – and incorrect – argument regarding 

the law on offset. The Court should deny the FTC’s argument because (1) the FTC requests that the 

Court strike the offset defense in its entirety; (2) courts have denied motions to strike offset filed by the 

FTC because this defense implicates numerous factual issues and is not barred as a matter of law; and 

(3) the services and financial impact at issue here are distinct from those considered in the authorities the 

FTC relies upon in the Motion – here consumers received reduced student loan payments that impact the 

“consumer loss” standard referenced by the FTC. 

As an initial matter, the FTC’s statement of the rule applicable to the calculation of damages, that 

refunds must be considered by the Court, demonstrates that Defendants’ offset defense is valid. See 

Motion, p. 6. In their Answer, Defendants specifically pleaded that any damages should be offset by 

“benefits received by customers, and/or chargebacks or refunds paid to customers.” See Answer, ¶ 

112, emphasis added. The FTC has not, and cannot, claim that it is improper for the Court to consider 

evidence or arguments related to chargebacks or refunds in this litigation. The prayer for relief in the 

FTC’s Complaint does not recognize any credit for refunds. Accordingly, offset is a necessary 

affirmative defense. See ECF No. 1, p. 17. Thus, there is no basis for the Court to strike this entire 

defense. 

description of lumber products. However, it is clear that the Algoma Lumber court reviewed significant 

evidence regarding the defendants’ estoppel defense. 

- 11 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 18 of 21 

Second, and more important, offset is a valid affirmative defense to be raised against the FTC. 

Numerous courts have denied motions to strike on the offset defense because it is not per se invalid 

when raised against the FTC. See, e.g., FTC v. Bronson Partner, LLC, No. 3:04CV1866 SRU, 2006 

WL 1973572006, at *1-2 (D. Conn., Jan. 25, 2006); FTC v. Affiliate Strategies, Inc., No. 09-4104-JAR, 

2010 WL 11470103, at *13-14 (D. Kan. June 8, 2010); FTC v. BF Labs Inc., No. 4:14-CV-00815-BCW, 

2015 WL 12806580, at *3 (W.D. Mo., Aug, 28, 2015). As the FTC knows, the defense of offset is 

highly factual, and it cannot be summarily defeated on a motion to strike by citation to cases with no 

factual similarity to this litigation. For example, the court in BF Labs Inc., declined to strike defendants’ 

offset defenses explaining that “there are scenarios where this factual information may be relevant to the 

appropriate remedy. Because the Court is reticent to strike even a potentially marginal defense that 

causes no discernible prejudice to Plaintiff, the Court declines to strike these defenses.” Id. at *3; see 

also Affiliate Strategies, Inc., 2010 WL 11470103 at *13-15 (declining to strike offset defense due to 

limited case law on the subject and because the applicability of the defense was a question of fact). 

Third, cases cited by the FTC should be disregarded. Again, the FTC seems to believe that 

Defendants must have a trial-ready case during the pleading stage. Not so. The FTC fails to recognize a 

critical distinction between the current case and those it cites. In each of those cases, defendants 

proposed that equitable monetary relief be decreased by the value of the positive benefits received from 

the product or services being sold. This case is entirely differently because the services consumers 

purchased resulted in reduced student loan payments, thereby reducing the amount of consumer loss. 

The FTC fails to cite any case that says Defendants may not raise offset as a defense against the 

FTC in litigation. None of the cases cited by the FTC involved a product or service that would reduce 

consumers’ overall expenses such as is the case here. As one example, the FTC relies on FTC v. 

Kuykendall, 371 F.3d 745, 766 (10th Cir. 2004). That case involved a company marketing magazine 

sales. Id. at 749-750. After the FTC obtained a judgment, the defendant continued to engage in the 

marketing of magazine sales. The FTC was forced to bring a contempt motion. In evaluating the issue 

of the equitable damages, the Court expressly stated that “[t]o accurately calculate actual loss, the 

defendants must be allowed to put forth evidence showing that certain amounts should offset the 

sanctions assessed against them...[f]or instance, the defendants might be able to show that some 

- 12 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 19 of 21 

customers received full refunds of their payments or that others were wholly satisfied with their 

purchases and thus suffered no damages.” Id. at 766; see also FTC v. BlueHippo Funding, LLC, 762 

F.3d 238, 245 (2d Cir. 2014) (after the court uses the defendants’ gross receipts as a baseline for 

calculating damages, the court must permit the defendants “to put forth evidence showing that certain 

amounts should offset the sanctions assessed against them”) (emphasis added); see also FTC v. Amy 

Travel Serv., Inc., 875 F.2d 564, 572 (7th Cir. 1989) (the court affirmed the magistrate judge's decision 

to acknowledge satisfied customers and exclude them in the computation of the restitution damages). 

Thus, contrary to the FTC’s position, Kuykendall supports an offset defense here. 

FTC v. Commerce Planet, Inc., 815 F.3d 593, 603 (9th Cir. 2016) involved a company that sold 

membership services for on-line marketing. 815 F.3d at 597-598. The Court considered evidence to 

offset the FTC’s proposed damages figure, but found Defendants could not reliably quantify that 

amount. And in FTC v. Publishers Bus. Servs., Inc., 540 Fed. Appx. 555, 558 (9th Cir. 2013), cert 

denied, 134 S. Ct. 2724 (2014), the court remanded the case to determine the injury to consumers, and 

stated “that does not mean the district court must assume the calculation proposed by the FTC” while 

referencing express arguments made by the Defendants. It explored one fact that is at issue here – what 

was the loss to consumers? The issues of offset and consumer loss are highly factual, and require the 

consideration of evidence from Defendants to contradict the FTC’s claimed damages.8 Cases cited by 

the FTC do not refute this point, and should be disregarded when considering the applicability of offset 

as a defense against the FTC. Thus, the Court should deny the Motion and permit the offset defense to 

remain part of Defendants’ Answer. 

VI. THE PRESENCE OF THESE AFFIRMATIVE DEFENSES WILL NOT RESULT IN 

WASTEFUL LITIGATION 

This Court should disregard entirely the FTC’s suggestions that these affirmative defenses are 

“wasteful” or “prejudicial.” The FTC contends that these affirmative defenses purportedly “distract 

from the real issues in this case.” The FTC’s position is nonsensical, and Defendants regret that they 

8 The FTC also cites two opinions issued by Judge Ilston to suggest offset is appropriately stricken. See 

Ortiz Declaration, Exhibit D; see also FTC v. Medlab, Inc., 615 F.Supp.2d 1068 at *3 (N.D. Cal. 2009).

However, the FTC declines to note that 1) Judge Ilston still considered certain aspects of defendants’

offset affirmative defense at summary judgment, and 2) stated specifically that her ruling on summary

judgment was “light of all of the circumstances of this case.” This Court, of course, is not making a

factual ruling at this stage of the litigation. 

- 13 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 20 of 21 

have to address this frivolous argument. 

The affirmative defenses at issue in the Motion are valid, and Defendants must be permitted to 

assert them just like any other litigant. The FTC attempts to play God when it states that “[a]n agency 

charged with enforcement of an important regulatory scheme in the public interest, such as the FTC, 

should not be thwarted or distracted by conclusory or improbable allegations.” It cites to purported 

“broad, burdensome, and prejudicial” discovery to support that far-fetched notion.9 But it was the FTC 

that sued Defendants as part of a nationwide “sweep.” It was the FTC that publicly acknowledged this 

complaint to be part of that larger effort. Discovery narrowly tailored to terminology in the FTC’s own 

press release is not “wasteful” or “prejudicial” – it should be expected. Also, more importantly, the 

Court should consider only Defendants’ Answer when ruling on the Motion, not the FTC’s extraneous 

submissions. See Williams, 944 F.2d at 1400.10 

As the court noted in FTC v. U.S. Work Alliance, Inc.: 

Despite the FTC's argument to the contrary, the effect of briefing and

ruling on these defenses was to raise several issues before they are

factually ripe and caused the Court to consider purely legal defenses

before the Defendants even attempt to utilize them. The Court is 

essentially ruling in the dark on hypothetical legal defenses. The Court

further notes that in its experience almost every experienced civil litigant

will raise precisely these three affirmative defenses (mootness, laches,

estoppel) in their answer because failure to do so, even if the defense

likely lacks merit, may result in waiver. See Fed. R. Civ. P. 8(c). The

Court considers the motion to strike in this light. 

Id. at *3, emphasis added. The FTC asks this Court to prevent Defendants the ability to defend 

themselves in this litigation. It has been apparent from the outset of this litigation that the FTC has a 

single outcome on its mind. But Defendants have the right to litigate this case like any other party. 

VII. LEAVE TO AMEND SHOULD BE GRANTED IF THE COURT IS INCLINED TO 

STRIKE ANY DEFENSE 

“Unless it would prejudice the opposing party, courts freely grant leave to amend stricken 

9 The discovery cited by the FTC was propounded in a different case, American Financial Benefits 

Center, et al. v. Federal Trade Commission, Northern District of California Case No. 17-cv-04817-SBA.

The FTC cites no authority for the proposition that a court may strike an affirmative defense because of

discovery propounded in a different matter.

10 The FTC also complaint about the possibility of retaining experts when it already submitted a joint

Rule 26(f) report with expert disclosure and discovery deadlines. ECF No. 124, p. 6. 

- 14 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8 
5

10

15

20

25

1 

2 

3 

4 

6 

7 

8 

9 

11 

12 

13 

14 

16 

17 

18 

19 

21 

22 

23 

24 

26 

27 

28 

Case 4:18-cv-00806-SBA Document 175 Filed 10/02/18 Page 21 of 21 

pleadings.” Roe v. City of San Diego, 289 F.R.D. 604, 608 (S.D. Cal. 2013). If the Court is inclined to 

grant the FTC’s Motion and strike any of Defendants’ affirmative defenses, Defendants respectfully 

request that the Court do so without prejudice and grant leave to amend the Answer. 

VIII. CONCLUSION 

For the reasons above, this Court should deny the FTC’s Motion and let this case proceed onto 

discovery with these affirmative defenses. 

Date: October 2, 2018 NOSSAMAN LLP 

JAMES H. VORHIS 

JILL N. JAFFE 

ROPERS, MAJESKI, KOHN & BENTLEY 

TODD A. ROBERTS 

NICOLE S. HEALY 

By: /s/ James H. Vorhis

James H. Vorhis 

Attorneys for Defendants AMERICAN

FINANCIAL BENEFITS CENTER, 

AMERITECH FINANCIAL, FINANCIAL 

EDUCATION BENEFITS CENTER, and 

BRANDON DEMOND FRERE 

- 15 - Case No. 4:18-cv-00806-SBA 

DEFENDANTS’ OPPOSITION TO PLAINTIFF’S MOTION TO STRIKE AFFIRMATIVE DEFENSES 

56642687.v8