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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

FIRST FINANCIAL SECURITY, INC.,

Plaintiff,

v.

MICHAEL W JONES, et al.,

Defendants.

Case No. 17-cv-00773-BLF 

(1) GRANTING FIRST FINANCIAL’S

MOTION TO DISMISS DEFENDANTS’ 

FIRST COUNTERCLAIM WITHOUT 

LEAVE TO AMEND; 

(2) GRANTING FIRST FINANCIAL’S 

MOTION TO DISMISS DEFENDANTS’ 

SECOND COUNTERCLAIM WITH 

LEAVE TO AMEND; 

(3) GRANTING WITH LEAVE TO 

AMEND IN PART, WITHOUT LEAVE 

TO AMEND IN PART, AND DENYING 

IN PART FIRST FINANCIAL’S 

MOTION TO STRIKE

[Re: ECF 67]

Presently before the Court is Plaintiff First Financial Security, Inc.’s (“First Financial”) 

motion to dismiss Defendants Michael W. Jones (“Jones”), Insurance Distribution Consulting, 

LLC (“IDC”), and Supreme Alliance, LLC’s (“Supreme Alliance”) (collectively, “Defendants”)

amended counterclaims, as well as First Financial’s motion to strike portions of Defendants’ 

Answer and all ten of their affirmative defenses. See Mot., ECF 67. Defendants assert two 

counterclaims against First Financial for (1) declaratory judgment; and (2) violation of California 

Business & Professions Code §§ 17200 et seq. See Answer and Amended Counterclaims 

(“Answer”), ECF 66 at 14-17. First Financial moves to dismiss both counterclaims for lack of 

standing, and also moves to strike all of Defendants’ affirmative defenses and portions of their

Answer on the grounds that they fail to provide fair notice of defenses, some defenses are not 

actually defenses, and other allegations are immaterial and impertinent to the action. See generally 

Mot. 
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The Court vacated the hearing on First Financial’s motion to dismiss and motion to strike

pursuant to Civil Local Rule 7-1(b). See ECF 70. For the reasons that follow, First Financial’s 

motion to dismiss the First Counterclaim is GRANTED WITHOUT LEAVE TO AMEND. First 

Financial’s motion to dismiss the Second Counterclaim is GRANTED WITH LEAVE TO 

AMEND. First Financial’s motion to strike is GRANTED WITH LEAVE TO AMEND IN 

PART, WITHOUT LEAVE TO AMEND IN PART, AND DENIED IN PART. 

I. BACKGROUND

A. The Instant Action

First Financial is a life insurance brokerage agency that brings this lawsuit against 

Defendants for their roles in allegedly orchestrating a mass resignation of approximately 1,400 

licensed insurance sales contractors who left to work for First Financial’s competitor, non-party 

Freedom Equity Group (“FEG”), beginning on May 10, 2014 and continuing for approximately 

two weeks. See Compl. ¶¶ 55-62, ECF 1. At all relevant times, Defendant Michael Jones was an 

actuary in the insurance industry who developed and sold life insurance products to insurance 

brokerage companies. Id. ¶ 34. Jones performed his actuarial services through his consulting firm, 

IDC. Id. ¶ 35. Jones is also the indirect owner of Supreme Alliance, which engages in the 

development and sale of life insurance products. Id. ¶ 37. The Complaint alleges, and Defendants 

admit, that First Financial’s competitor FEG—whom all of the sales contractors left First 

Financial to go work for—was a primary client of Jones or his entities. Id. ¶ 41; Answer ¶ 13. 

The instant dispute requires the Court to examine an agreement entered into between First 

Financial and each of its former sales contractors. In order to work within First Financial’s sales 

network, each sales contractor was required to enter into the Sales Contractor Agreement and 

Terms and Conditions. See Compl. ¶ 17; Answer ¶ 79; Compl. Ex. A. (the “Agreement”), ECF 1-

1. The Agreement contained an anti-raiding covenant in Section C.3.i whereby each sales 

contractor covenants that he or she “will not, at any time during the term of this Agreement, and 

for a period of two (2) years thereafter, directly or indirectly: i) induce or attempt to induce any 

person who is contractually affiliated with FFS as a Sales Contractor or in other capacity, or any 
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member of FFS's administrative staff, to terminate their relationship with FFS.” See Agreement at 

3-4 (“Anti-Raiding Covenant”). 

After an unsuccessful motion to dismiss the Complaint, see ECF 43, Defendants filed an 

Answer and Counterclaim against First Financial. See ECF 53. After First Financial moved to 

dismiss the Counterclaim, Defendants filed an Answer and Amended Counterclaims on October 

10, 2017, which became the operative pleading. See Answer, ECF 66. First Financial now moves 

to dismiss the amended counterclaims and to strike portions of the Answer, including all ten

affirmative defenses. See ECF 67.

Defendants allege two counterclaims against First Financial. First, Defendants seek a 

declaratory judgment that the anti-raiding provision of the Agreement is invalid under California 

law. Second, Defendants assert a claim against First Financial for unfair competition in violation 

of California Business & Professions Code §§ 17200 et seq. See Answer at 14-17. Both of the 

counterclaims appear to be based on Defendants’ contentions that the anti-raiding provision in the 

Agreement is invalid. This exact anti-raiding provision has already been the subject of an ongoing 

and separate class action proceeding in the Central District of California: Do, et al. v. First 

Financial Security, Inc., No. 2:14-cv-7608-SVW (C.D. California) (the “Do Action”). 

B. The Related Do Action

The Do Action involves the same mass exodus of sales contractors who left First Financial 

to join its competitor, FEG. In Do, the former sales contractors brought a class action against First 

Financial alleging that First Financial withheld rightfully owed commissions from them after the 

sales contractors resigned sometime after May 10, 2014. See Declaration of Clifford Davidson 

(“Davidson Decl.”) ECF 67-1, Exh. A (the “Do Order”) ECF 67-2. The Do plaintiffs further 

alleged that First Financial sent them harassing letters and submitted derogatory credit listings 

called “vectors” against them. Id. at 1-2. The former sales contractors brought claims against First 

Financial for breach of contract for the nonpayment of their commissions, and for unfair 

competition arising from the contractual restraints in the Agreement. 

In their complaint, the Do plaintiffs alleged that the very same anti-raiding provision at 

issue here violates California Business & Professions Code § 16600 and therefore is also unlawful
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under § 17200. See Do Order at 2. First Financial filed a counterclaim in the Do Action seeking a 

declaratory judgment that the anti-raiding provision was not invalid under § 16600, and moved for 

summary judgment on its counterclaim for declaratory relief and for partial summary judgment on 

the Do plaintiffs’ claims for violations of §§ 16600 and 17200. Id.; see also Mot. at 3. 

On August 23, 2017, Judge Stephen V. Wilson of the District Court for the Central District 

of California granted summary judgment in favor of First Financial, holding that the anti-raiding 

provision does not violate § 16600 and thus could not form the basis of the Do plaintiffs’ claims. 

Do Order at 3-5. 

II. LEGAL STANDARD

A. Rule 12(b)(1)

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) raises a 

challenge to the Court’s subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). “Article 

III...gives the federal courts jurisdiction over only cases and controversies.” Public Lands for the 

People, Inc. v. United States Dep’t of Agric., 697 F.3d 1192, 1195 (9th Cir. 2012) (internal 

quotation marks and citation omitted). “The oft-cited Lujan v. Defenders of Wildlife case states 

the three requirements for Article III standing: (1) an injury in fact that (2) is fairly traceable to the 

challenged conduct and (3) has some likelihood of redressability.” Id. at 1195-96 (citing Lujan v. 

Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). If these requirements are not satisfied, the 

action should be dismissed for lack of subject matter jurisdiction. See Steel Co. v. Citizens for a 

Better Env’t, 523 U.S. 83, 109-10 (1998).

“For purposes of ruling on a motion to dismiss for want of standing, both the trial and 

reviewing courts must accept as true all material allegations of the [counterclaim] and must 

construe the [counterclaim] in favor of the complaining party.” Maya v. Centex Corp., 658 F.3d 

1060, 1068 (9th Cir. 2011) (internal quotation marks and citation omitted). The Court also may 

consider affidavits containing further particularized allegations of fact supportive of Article III 

standing. Id. at 1067. “At the pleading stage, general factual allegations of injury resulting from 

the [counter defendant’s] conduct may suffice, for on a motion to dismiss we presume that general 

allegations embrace those specific facts that are necessary to support the claim.” Id. at 1068 
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(internal quotation marks, citation, and brackets omitted). “Twombly and Iqbal are ill-suited to 

application in the constitutional standing context because in determining whether [counterclaimant] states a claim under 12(b)(6), the court necessarily assesses the merits of [counterclaimant’s] case.” Id. (citing Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atl. Corp. v. Twombly, 

550 U.S. 544 (2007)). “But the threshold question of whether [counter-claimant] has standing (and 

the court has jurisdiction) is distinct from the merits of his claim.” Id. “This is not to say that 

[counter-claimant] may rely on a bare legal conclusion to assert injury-in-fact, or engage in an 

ingenious academic exercise in the conceivable to explain how [counter-defendant’s] actions 

caused his injury.” Id. (internal quotation marks and citation omitted). But “the jurisdictional 

question of standing precedes, and does not require, analysis of the merits.” Id. (internal quotation 

marks, citation, and brackets omitted).

B. Rule 12(b)(6)

“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 

claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 

Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 

729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 

as true all well-pled factual allegations and construes them in the light most favorable to the 

plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the 

Court need not “accept as true allegations that contradict matters properly subject to judicial 

notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 

unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 

(internal quotation marks and citations omitted). While a complaint need not contain detailed 

factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to 

relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 

Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 

court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
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C. Rule 12(f) 

Federal Rule of Civil Procedure 8(b) demands that a party “state in short and plain terms 

its defenses to each claim asserted against it. Fed. R. Civ. P. 8(b)(1). Rule 12(f) governs motions

to strike defenses, and permits a court to “strike from a pleading an insufficient defense or any 

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

stricken when they fail to give a plaintiff “fair notice” of the defense asserted. See, e.g., Wyshak v. 

City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Courts in this district apply the heightened 

pleading standards of Twombly and Iqbal to affirmative defenses when adjudicating a motion to

strike. See, e.g., Barnes v. AT & T Pension Benefit Plan–Nonbargained Program, 718 F.Supp.2d 

1167, 1172 (N.D. Cal. 2010); see also Perez v. Gordon & Wong Law Grp., P.C., 2010 WL 

1029425, at *7–8 (N.D. Cal. Mar. 26, 2012) (collecting cases within this district, and stating that 

“the vast majority of federal district courts presented with [this] issue have reached the same 

conclusion”). “While a defense need not include extensive factual allegations in order to give fair 

notice, bare statements reciting mere legal conclusions may not be sufficient.” Id. at * 8 (citing 

Scott v. Fed. Bond & Collection Servs., Inc., 2011 WL 176846, at *4 (N.D. Cal. Jan. 19, 2011)). 

“While a Rule 12(f) motion provides the means to excise improper materials from 

pleadings, such motions are generally disfavored because the motions may be used as delaying 

tactics and because of the strong policy favoring resolution on the merits.” Barnes v. AT & T 

Pension Ben. Plan–Nonbargained Program, 718 F.Supp.2d 1167, 1170 (N.D.Cal.2010). The 

decision to strike a portion of a party’s pleading is within the sound discretion of the court. Nurse 

v. United States, 226 F.3d 996, 1000 (9th Cir.2000). When striking an affirmative defense, leave 

to amend should be freely given so long as it causes no prejudice to the moving party. See, 

e.g., Wyshak, 607 F.2d 824, 826.

 III. DISCUSSION

A. Motion to Dismiss Defendants’ Counterclaims

1. First Counterclaim for Declaratory Judgment

In their First Counterclaim, Defendants seek a declaratory judgment that the anti-raiding 

provision of the Agreement is invalid under California Business & Professions Code § 16600. See 
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Answer ¶¶ 49-51, 81, 91. Defendants allege that they had “relationships and dealings” with 

members of First Financial’s sales force, and that those sales contractors entered into the 

Agreement containing the anti-raiding covenant with First Financial. Id. ¶¶ 78-80. Defendants 

further allege that “[h]undreds, if not thousands” of First Financial sales contractors wanted to or 

still want to leave First Financial and join FEG, but they are unable to in the face of the threat that 

First Financial will withhold their duly earned commissions and residuals if the contractors refuse 

to honor the anti-raiding provision and leave First Financial. Id. ¶¶ 86-87. Defendants assert that 

these allegedly wrongful actions by First Financial have damaged Defendants “[t]hrough their 

relationship with FEG.” Id. ¶ 88.

a. Standing

First Financial moves to dismiss the First Counterclaim on the grounds that Defendants’ 

allegations are insufficient to establish that Defendants have standing to seek a declaratory 

judgment. See Mot at 5. Although the First Counterclaim does not cite to any statutory authority 

on which Defendants’ base their request for a declaratory judgment, First Financial “presumes that 

Counterclaimants rely on the Federal Declaratory Judgment Act, 28 U.S.C. § 2201(a).” See Mot at 

5 n.2. Defendants do not contest that § 2201(a)’s “actual controversy” requirement applies, or that 

its requirement is coterminous with Article III’s “actual cases or controversies” standard. See 

Opp’n at 4, ECF 69. Rather, Defendants argue that their First Counterclaim complies with Article 

III’s standing requirements because the anti-raiding provision creates a “substantial controversy” 

between First Financial and Defendants, even though Defendants concede they are not parties to 

the Agreement. Id.

In order to satisfy Article III’s “cases and controversies” requirement, a dispute between 

parties must be “definite and concrete, touching the legal relations of parties having adverse legal 

interests,” as well as be “real and substantial” and “admi[t] of specific relief through a decree of a 

conclusive character, as distinguished from an opinion advising what the law would be upon a 

hypothetical state of facts.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)

(internal citations and quotations omitted). “Basically, the question in each case is whether the 

facts alleged, under all the circumstances, show that there is a substantial controversy, between 
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parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance 

of a declaratory judgment.” Id. (quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 

U.S. 270, 273 (1941)).

Absent a true case or controversy, Defendants’ counterclaim for declaratory relief under 28 

U.S.C. § 2201 will fail for lack of jurisdiction under Rule 12(b)(1). See Rhoades v. Avon Prod., 

Inc., 504 F.3d 1151, 1157 (9th Cir. 2007); see also Fleck and Assoc., Inc. v. Phoenix, an Arizona 

Mun. Corp., 471 F.3d 1100, 1103–04 (9th Cir. 2006) (holding that a true “case or controversy” is 

required to withstand a Rule 12(b)(1) motion for lack of jurisdiction in an action for declaratory 

relief). Defendants must also satisfy three requirements for Article III standing: (1) an injury in 

fact that (2) is fairly traceable to First Financial’s challenged conduct and (3) has some likelihood 

of redressability. See Lujan v. Defenders of Wildlife, 504 U.S. at 560-61. 

First Financial’s primary argument is that the validity of the anti-raiding provision does not 

create a substantial controversy because Defendants are not parties to the Agreement, which was 

only entered into between First Financial and its sales contractors. See Mot. at 6. Thus, First 

Financial argues that Defendants fail to allege an adverse legal interest that would permit the 

Court to issue declaratory relief to protect that legal interest. Id. at 6-7. Defendants, in a highly 

conclusory fashion, argue that “it is absurd to assert” that they are not affected by the Agreement 

between First Financial and its contractors because there “is clearly a controversy.” See Opp’n at 

5. Defendants attempt to explain their theory that Article III’s requirements are satisfied because 

many other sales contractors would have left First Financial to join “their mentors” at FEG, but 

cannot take the chance of leaving, which somehow results in harm to Defendants. Id. 

The Court finds that Defendants lack standing to pursue a declaratory judgment in this case 

because they have not alleged that they and First Financial have “adverse legal interests” with 

respect to the anti-raiding provision. Defendants focus only on the damage that they will suffer 

from the “hundreds” of First Financial sales contractors that have been prevented from leaving 

First Financial and joining FEG due to the anti-raiding provision. But the Ninth Circuit is 

abundantly clear that even suffering “substantial economic effects” does not alone create a 

justiciable case or controversy. See Shell Gulf of Mexico Inc. v. Ctr. for Biological Diversity, Inc., 
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771 F.3d 632, 637 (9th Cir. 2014). Moreover, Defendants’ disagreement with First Financial 

regarding the legality of the anti-raiding provision is also not an adverse legal interest. “It is 

axiomatic that differing views of the law are not enough to satisfy Article III.” Id. (citing 

Hollingsworth v. Perry, 133 S.Ct. 2652, 2661 (2013) (“The presence of a disagreement, however 

sharp and acrimonious it may be, is insufficient by itself to meet Art. III’s requirements.”)). 

The Ninth Circuit’s guidance in Shell speaks directly to Defendants here. In that case, 

petroleum companies including Shell brought an action against environmental organizations 

seeking a declaratory judgment that the Bureau of Safety and Environmental Enforcement’s 

approval of their oil spill response plans did not violate the Administrative Procedure Act 

(“APA”). 771 F.3d at 634. The district court originally denied the environmental organizations’ 

motion to dismiss Shell’s complaint for lack of standing, but the Ninth Circuit reversed and held 

that Shell did not satisfy Article III or the Declaratory Judgment Act’s “case or controversy” 

requirement. Id. at 638. The Ninth Circuit explained that Shell did not have an adverse legal

interest in the environmental organizations’ APA challenge to the Bureau’s approval. Id. at 637. 

The Ninth Circuit further rejected Shell’s argument that an adverse legal interest is present merely 

because the parties “have opposing legal positions” regarding the lawfulness of the Bureau’s 

approval. Id. at 635-36. Similarly, Defendants here rely on their dispute with First Financial

regarding the legal validity of the anti-raiding provision. Compare Answer ¶ 81 with ¶ 89.

“A party’s legal interest must relate to an actual claim arising under federal law that 

another asserts against him.” Shell, 771 F.3d at 637. It is the sales contractors, not Defendants, 

who have legal obligations and could be sued under the anti-raiding provision. As the Ninth 

Circuit explained, “it would be odd to conclude that a case or controversy exists merely because 

[Defendants] seek[] to know who would prevail if [First Financial] asserted [a] claim against the 

[sales contractors].” Id. In fact, as explained above and discussed further below, there is a 

simultaneous action proceeding in the Central District of California where First Financial has 

prevailed on this very issue against the sales contractors themselves who are the actual parties to 

the Agreement’s anti-raiding provision. With respect to Defendants, it is simply “not enough for a 

declaratory judgment plaintiff to assert...a practical interest in the outcome of a lawsuit between 
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other parties. Instead, Article III requires the existence of adverse legal interests arising from a 

legal claim, and that is absent from this case.” Id. As such, the Court finds that Defendants lack 

Article III standing to bring a claim for declaratory relief. Without citing to a single case in 

support of their position, or distinguishing Shell in any way, Defendants utterly fail to convince 

the Court otherwise. See Opp’n 4-5. First Financial’s motion to dismiss the First Counterclaim is 

therefore GRANTED. 

b. Leave to Amend and the Court’s Discretion to Exercise 

Jurisdiction

Although leave to amend should generally be freely given “when justice so requires,” 

certain factors can weigh against generous leave to amend. See Fed. R. Civ. P. 15(a)(2); Foman v. 

Davis, 371 U.S. 178,182 (1962). Those factors include “undue delay, bad faith or dilatory motive 

on the part of the movant, ... undue prejudice to the opposing party by virtue of allowance of the 

amendment, [or] futility of the amendment.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 

1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to be considered when deciding 

whether to grant leave to amend).

Additionally, although the party invoking federal jurisdiction may generally amend the 

complaint to correct a defective jurisdictional allegation, see 28 U.S.C. § 1653, or to prove that 

jurisdiction does in fact exist, federal jurisdiction cannot be created by amendment if it does not 

exist at the outset. See 3 James Wm. Moore et al., Moore’s Federal Practice ¶ 15.14[3], at 15–40, 

(3d ed. 2013); see also Morongo Band of Mission Indians v. California State Bd. of Equalization, 

858 F.2d 1376, 1380-81 (9th Cir. 1988) (if district court lacked subject matter at the outset, then 

“court’s various orders, including that granting leave to amend the complaint, were nullities”);

Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1065 (9th Cir. 1979) (complaint filed in state 

court and removed to federal court did not state any basis for federal jurisdiction, thus there was 

no jurisdiction to entertain a later amendment to the complaint).

First Financial does not address whether the First Counterclaim should be dismissed with 

or without leave to amend. Defendants request that they be granted leave to amend under Rule 

15’s liberal standard to correct any deficiencies. See Opp’n at 9. The Court determines that leave 
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to amend is not warranted because even if it was legally permissible to grant Defendants’ leave to 

amend their standing allegations, this Court would exercise its discretion and decline to exercise

jurisdiction over the claim for a declaratory judgment. 

In the alternative to its above standing arguments, First Financial argues that even if 

subject matter jurisdiction exists with respect to the First Counterclaim, the Court should decline 

to exercise jurisdiction over it. See Mot at 8. Defendants concede that they do not have an 

“absolute right” to a declaratory judgment, but argue that there is “no reason” why the Court 

should give up its jurisdiction prior to summary judgment. See Opp’n at 5. 

The language of the Declaratory Judgment Act is “deliberately cast in terms of permissive, 

rather than mandatory, authority,” Public Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 250 

(1952) (J. Reed, concurring), and a district court is vested with the discretion to dismiss 

declaratory judgment actions based on prudential concerns. A motion to dismiss an otherwise 

appropriate suit for declaratory judgment is accordingly addressed to discretion of the court. See 

Brillhart v. Excess Insurance Company of America, 316 U.S. 491 (1942) (reaffirmed in Wilton v. 

Seven Falls Co., 515 U.S. 277 (1995)). 

A court, in determining whether to exercise jurisdiction over a declaratory judgment suit, 

may consider a number of factors: “A district court should avoid needless determination of state 

law issues; it should discourage litigants from filing declaratory actions as a means of forum 

shopping; and it should avoid duplicative litigation.” Huth v. Hartford Ins. Co. of the Midwest, 

298 F.3d 800, 803 (9th Cir. 2002). These three primary factors, though not exclusive, are the 

“philosophic touchstone” of the Brillhart /Wilton analysis. See R.R. St. & Co. Inc. v. Transp. Ins. 

Co., 656 F.3d 966, 975 (9th Cir. 2011) (quoting Gov’t Employees Ins. Co. v. Dizol, 133 F.3d 1220 

(9th Cir. 1998)); see also Brillhart, 316 U.S. at 495; Wilton, 515 U.S. at 282–83.1

The Court has considered the relevant factors and concludes that it would decline to 

 

1 Other considerations may include “whether the declaratory action will settle all aspects of the 

controversy; whether the declaratory action will serve a useful purpose in clarifying the legal 

relations at issue; whether the declaratory action is being sought merely for the purposes of 

procedural fencing or to obtain a ‘res judicata’ advantage; or whether the use of a declaratory 

action will result in entanglement between the federal and state court systems.” Dizol, 133 F.3d at 

1225 n.5. 
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exercise jurisdiction over Defendants’ claim for declaratory judgment under these circumstances. 

In the recent Do Order, Judge Wilson interpreted the exact same anti-raiding provision under state 

law and held that Section C.3.i of the Agreement does not violate § 16600. As the Do Order 

pointed out, the anti-raiding provision is similar to countless anti-raiding provisions in contracts 

that have been upheld by California district courts. Do Order at 3-5. The Court agrees with First 

Financial that even if Defendants were able to establish this Court’s subject matter jurisdiction

through amendment of the First Counterclaim, the Court should avoid a “needless determination 

of state law” that has already been determined by another federal judge.

2

 

Thus, even if Defendants were somehow able to allege an adverse legal interest or 

substantial controversy sufficient to confer standing, such amendment would be futile because the 

Court would also dismiss the request for declaratory relief based on prudential concerns. See 

Brillhart, 316 U.S. at 495. For these reasons, First Financial’s motion to dismiss the First 

Counterclaim for a declaratory judgment is GRANTED WITHOUT LEAVE TO AMEND.

2. Second Counterclaim for Violation of § 17200

The Court turns to First Financial’s motion to dismiss Defendants’ Second Counterclaim 

for a violation of California Business and Professions Code §§ 17200 et seq. See Answer at 16. 

California’s Unfair Competition Law (“UCL”) prohibits any “unlawful, unfair or fraudulent 

business practices.” Cal. Bus. & Prof. Code § 17200; see also Cel–Tech Commc’ns, Inc. v. Los 

Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). Because the statute is written in the 

disjunctive, it applies separately to business practices that are (1) unlawful, (2) unfair, or (3) 

fraudulent. See Pastoria v. Nationwide Ins., 112 Cal. App. 4th 1490, 1496 (2003). Each prong of 

the UCL provides a separate and distinct theory of liability. See Lozano v. AT&T Wireless Servs., 

Inc., 504 F.3d 718, 731 (9th Cir.2007). Although it is unclear from Defendants’ allegations, 

Defendants appear to contend that First Financial’s conduct has violated the “unlawful” and 

“unfair” prongs based on their general allegation that First Financial has “engaged in wrongful 

 

2 Again, Defendants cite to no authority for their legal position and offer no arguments regarding 

the Brillhart factors. See Opp’n at 5. Defendants’ argument on this point consists of two 

sentences urging the Court to keep their declaratory relief claim alive until summary judgment 

when the Court may come to a “completely different determination” from Judge Wilson. Id. 
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and/or unlawful acts or practices.” Answer ¶ 93. 

This pleading deficiency alone warrants dismissal of the Second Counterclaim. However, 

the Court must first determine whether Defendants have standing to bring the claim at all, which is 

where First Financial focuses its motion to dismiss. First Financial argues that Defendants lack 

standing under the UCL because they have not alleged a cognizable injury, and have also failed to 

plausibly allege any injury that was “caused by” acts of unfair competition. See Mot. at 9-10. 

Defendants’ opposition does nothing to clarify the issue for the Court, and consists of a conclusory 

statement that First Financial’s arguments “are simply without merit,” followed by a block 

quotation taken from the Second Counterclaim. See Opp’n at 6. 

In order to establish standing under the UCL, “a plaintiff must make a twofold showing: he 

or she must demonstrate injury in fact and a loss of money or property caused by unfair 

competition.” In re Anthem, Inc. Data Breach Litig., 162 F. Supp. 3d 953, 985 (N.D. Cal. 2016)

(quoting Susilo v. Wells Fargo Bank, N.A., 796 F.Supp.2d 1177, 1195–96 (C.D. Cal. 2011)) The 

California Supreme Court has referred to these elements for standing as the “economic injury” and 

“caus[ation]” requirements. See Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 326 (2011) 

(holding that a UCL plaintiff must show a “causal connection” between the economic injury and 

the alleged unfair conduct). This requirement is meant to confine standing to those actually 

injured by a challenged business practice and “to curtail the prior practice of filing suits on behalf 

of clients who have not...had any other business dealing with the defendant.” Clayworth v. Pfizer, 

Inc., 49 Cal. 4th 758, 788 (2010). 

a. Economic Injury

First Financial argues that Defendants have failed to allege sufficient facts to establish 

either requirement for standing under the UCL, which requires allegations that they have suffered 

economic injury as a result of the challenged unfair competition. See Cal. Bus. & Prof. § 17204; 

see also Kwikset, 51 Cal. 4th at 326. The Court agrees with First Financial that the Second 

Counterclaim fails to allege a cognizable economic injury under the UCL. Again, Defendants’ 

theory under the UCL appears to be that First Financial has engaged in unfair competition against 

Defendants through its “relationship with FEG,” by threatening First Financial’s sales contractors 
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by withholding duly earned commissions if any contractor refuses to honor the anti-raiding 

provision of the Agreement. See Answer ¶ 93(c); see also Opp’n at 6. Defendants allege that 

First Financial has profited and benefited from such wrongful threats and intimidation. Id. In their 

prayer for relief, Defendants allege that they seek “restitutionary damages” against First Financial 

“including disgorgement of payments received...based on prospective sales of prospective agents, 

that were intimidated and unlawfully prevented from bettering their employment status.” Answer 

at 17.

Private individuals such as Defendants are limited to pursuing remedies under the UCL for 

restitution and injunctive relief. See Anthem, 162 F.Supp.3d at 984. Defendants’ “restitution” 

theory is fatally flawed under the UCL because Defendants do not plausibly allege that they have a 

cognizable ownership interest in such payments from First Financial to its sales contractors. See 

Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1149 (2003) (“The remedy sought 

by plaintiff in this case is not restitutionary because plaintiff does not have an ownership interest 

in the money it seeks to recover from defendants.”) As currently pled, the Answer and Second 

Counterclaim contain insufficient factual allegations that Defendants themselves, as opposed to 

the sales contractors or FEG, have suffered an actual injury or sustained any economic loss 

sufficient to confer standing under the UCL. 

b. Causation

Defendants have also failed to allege a logical causal connection between damage to them 

(which they have independently not alleged adequately) and First Financial’s alleged unfair 

business practices. To survive a motion to dismiss for lack of standing under the UCL, 

Defendants must allege facts that link their purported injuries to the anti-raiding provision or any 

other challenged conduct by First Financial. Defendants’ allegations do not come close to alleging 

the clear causal connection required by the UCL, and their opposition again adds nothing to 

explain the causal theory underlying their Second Counterclaim. Until Defendants can allege facts 

showing that they suffered economic damages resulting from First Financial’s challenged 

practices, Defendants cannot proceed with a UCL claim.

For the foregoing reasons, First Financial’s motion to dismiss Defendants’ Second 
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Counterclaim for a violation of § 17200 is GRANTED WITH LEAVE TO AMEND. See Fed. R. 

Civ. P. 15(a)(2) (leave to amend should be freely given “when justice so requires.”) 

B. First Financial’s Motion to Strike

Defendants’ Answer contains ten affirmative defenses to First Financial’s Complaint: 

(1) failure to state a claim; (2) good faith; (3) business justification privilege; (4) failure to mitigate 

damages; (5) laches; (6) no unlawful conduct under Reeves v. Hanlon, 33 Cal.4th 1140 (2004); 

(7) release; (8) mootness; (9) offset; and (10) the anti-raiding provision is invalid under California 

Business & Professions Code § 16600. See Answer ¶¶ 62-75. First Financial moves under Rule 

12(f) to strike all ten affirmative defenses, and to strike certain allegations in the Answer asserting 

that the anti-raiding provision is void. See Mot. at 10-13. 

First Financial argues that the First through Ninth affirmative defenses are deficient on 

several grounds including that they are not pled with the requisite specificity required under Bell 

Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 566 U.S. 662 (2009), 

because some are “not a defense” or “invalid,” and others are “immaterial and impertinent.” See 

Mot. at 10-11. First Financial then moves to strike the Tenth affirmative defense and allegations 

in the Answer concerning the anti-raiding provision because they are “immaterial and 

impertinent,” and should be stricken along with the Court’s dismissal of the First Counterclaim for 

a declaratory judgment that the anti-raiding provision is invalid. Id. at 13. 

Defendants argue that their affirmative defenses are sufficiently pled, and request that the 

Court grant them leave to amend to cure any deficiencies that the Court finds in its affirmative 

defenses. Opp’n at 6-9. The Court agrees that if an affirmative defense is stricken, leave to amend 

should be freely given so long as First Financial is not prejudiced. See, e.g., Wyshak, 607 F.2d at

826. For the reasons that follow, First Financial’s motion to strike is GRANTED WITH LEAVE 

TO AMEND IN PART AND WITHOUT LEAVE TO AMEND IN PART, and DENIED IN 

PART. 

1. First Affirmative Defense 

Defendants’ first affirmative defense states simply that the “Complaint fails to state 

sufficient facts to constitute a cause of action against [Defendants].” Answer ¶ 62. First Financial 
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argues that this is “not a defense,” but is a mere denial of the Complaint’s allegations and should 

be stricken. The Court agrees. “[D]enials of the allegations in the Complaint or allegations that 

the Plaintiff cannot prove the elements of his claims are not affirmative defenses.” G & G Closed 

Circuit Events, LLC v. Nguyen, 2010 WL 3749284, at *5 (N.D. Cal. Sept. 23, 2010) (citing Solis v. 

Couturier, 2009 WL 2022343, at *3 (E.D. Cal. July 8, 2009)); see also Barnes v. AT & T Pension 

Benefit Plan–Nonbargained Program, 718 F.Supp.2d 1167, 1174 (N.D. Cal. 2010) (“Failure to 

state a claim is not a proper affirmative defense, but, rather, asserts a defect in [Plaintiff’s] prima 

facie case.”). The Court GRANTS First Financial’s motion to strike the first affirmative defense 

WITHOUT LEAVE TO AMEND. Because this is not actually a defense, amendment would be 

futile.

2. Second Affirmative Defense

First Financial argues that the Second affirmative defense, that Defendants acted in “good 

faith” and “without malice,” is immaterial because it essentially asserts ignorance of the law which 

is not a defense to liability. See Mot. at 11 (citing Joe Hand Promotions, Inc. v. Davis, No. C 11-

6166 CW, 2012 WL 4803923, at *7 (N.D. Cal. Oct. 9, 2012)). The Court is not convinced that the 

Second affirmative defense that Defendants acted in good faith is tantamount to an “ignorance of 

the law” defense. Rather, Defendants assert that they acted reasonably and without a culpable 

state of mind. Even if this is not a true affirmative defense, the statement should come as no 

surprise to First Financial, and its veracity can be borne out in discovery and at trial. Moreover, 

First Financial has identified no prejudice from maintaining the “good faith” language in the 

pleadings. Accordingly, First Financial’s motion to strike the Second affirmative defense is 

DENIED.

3. Third Affirmative Defense

Defendants’ third affirmative defense asserts that First Financial’s recovery is barred by 

the “business justification privilege” which applies to claims for alleged interference with 

contracts. See Answer ¶¶ 64-65. First Financial argues that this defense is “invalid” because it 

lacks factual allegations regarding how Defendants are competitors of First Financial. See Mot. at 

11. Rather than a proper means to strike matter in a pleading, this constitutes First Financial’s 
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legal argument that Defendants cannot ultimately prove that they are entitled to claim a defense of 

privileged competition. The Court finds that the allegations are sufficient and First Financial has 

fair notice of the defense, which is easily understandable even if Defendants may not ultimately 

prevail on the privilege. First Financial’s motion to strike the Third affirmative defense is 

therefore DENIED.

4. Fourth Affirmative Defense

First Financial also argues that the Fourth affirmative defense that First Financial “failed to 

mitigate its damages” is invalid. See Mot. at 11. Defendants allege that when the leader of the 

sales contractor exodus, Gilles Moua, submitted his resignation, First Financial could have sought 

an unspecified “resolution of the issue” rather than precipitate the “mass defection.” See Answer 

¶ 66. The Court concludes that this affirmative defense is insufficiently pled under Twombly and 

Iqbal, despite Defendants’ general contention that any missing facts “are supplied by the 

Complaint itself.” See Opp’n at 8. Defendants fail to allege facts to show that First Financial 

could have avoided its injuries by taking “reasonable efforts after the wrong was committed.” 

Ansari v. Elec. Document Processing, Inc., No. 5:12-CV-01245-LHK, 2013 WL 664676, at *4 

(N.D. Cal. Feb. 22, 2013) (internal citation and quotation omitted). First Financial’s motion to 

strike the Fourth affirmative defense is therefore GRANTED WITH LEAVE TO AMEND for 

failure to provide the underlying factual basis for the defense. 

5. Fifth Affirmative Defense

Defendants’ Fifth affirmative defense of laches alleges that Defendants should have been 

included in the case First Financial Security v. Freedom Equity Group, Case No. 5:15-cv-01893 

(N.D. California). Defendants allege that they have been prejudiced by First Financial’s delay in 

bringing this suit which requires Defendants to “start all over” and “relitigat[e] the same issues.” 

See Answer ¶ 67. Defendants have not alleged sufficient facts to make their laches affirmative 

defense plausible. There are no specific facts indicating that First Financial’s alleged “delay” was 

unreasonable. Moreover, Defendants have not factually alleged any prejudice by the delay 

because Defendants were not a party to First Financial’s lawsuit against FEG and thus it is unclear 

how Defendants themselves are required to “start over” and “relitigate” issues that they never 
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litigated in the first place. Defendants do not cite to any authority or offer further argument for the 

proposition that their failure to be joined in the separate lawsuit against their client constitutes 

prejudice. See Opp’n at 8. The Court leaves open the possibility that Defendants may be able to 

cure this affirmative defense with additional factual pleadings of an unreasonable delay by First 

Financial or prejudice to Defendants. First Financial’s motion to strike is therefore GRANTED 

WITH LEAVE TO AMEND as to the Fifth affirmative defense. 

6. Sixth Affirmative Defense 

Defendants rely on Reeves v. Hanlon, 33 Cal. 4th 1140 (2004) in their Sixth affirmative 

defense to allege that they used “no unlawful methods.” Answer ¶ 68. First Financial argues that 

this is not an affirmative defense because it is an attack on the sufficiency of the Complaint, and it 

is also insufficiently pled. The Court agrees on both fronts. Again, “[a] defense which 

demonstrates that plaintiff has not met its burden of proof is not an affirmative defense.” Zivkovic 

v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). Such an attack on the Complaint is 

properly addressed through a denial in the Answer or an appropriate motion. 

The Sixth affirmative defense is also a barebones recitation of a legal doctrine that has no 

supporting facts or connection to the allegations in the Complaint. A mere reference to a legal 

doctrine in an affirmative defense is insufficient notice to the plaintiff. See Qarbon.com Inc. v. 

eHelp Corp., 315 F.Supp.2d 1046, 1049 (N.D. Cal. 2004). Defendants offer no clarification or 

helpful argument in their opposition to explain the validity of this affirmative defense. Therefore, 

First Financial’s motion is GRANTED and the Sixth affirmative defense will be stricken 

WITHOUT LEAVE TO AMEND because this is not actually a defense and amendment would be 

futile.

7. Seventh Affirmative Defense

In their Seventh affirmative defense, Defendants allege that they have been released from 

all liability by the Settlement Agreement entered into between First Financial and the two primary 

sales contractors who left First Financial. Answer ¶¶ 69-71. The Court finds that First Financial 

has adequate notice of this defense and the facts underlying it, as Defendants have alleged that 

they are covered by paragraph 2 of the Settlement Agreement due to their relationship with the 
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sales contractors. The Court DENIES First Financial’s motion to strike this defense because First 

Financial is on notice of the factual basis for this defense and has failed to show that it will suffer 

any prejudice from leaving this defense in the Answer.

8. Eighth Affirmative Defense 

The Eighth affirmative defense suffers from similar deficiencies to those in the Fifth 

affirmative defense, explained above. See supra at 17-18. Defendants raise a sort of “mootness” 

defense, alleging that all or nearly all of the factual issues, including damages, have been resolved 

by the case First Financial Security v. Freedom Equity Group, Case No. 5:15-cv-01893 (N.D. 

California). See Answer ¶ 72. Defendants admit that they were not a party to that lawsuit, but do 

not allege how that ongoing lawsuit against their client resolves any factual or damages issues 

related to First Financial’s claims against Defendants. Defendants argue that their attachment of 

the Jury Verdict Form from the other case, where the jury found FEG to be liable for $1.2 million 

in damages, serves to focus the issues for First Financial and the Court. See Opp’n at 9. The Jury 

Verdict Form does nothing to explain the factual basis for Defendants’ affirmative defense that the 

lawsuit against FEG somehow resolves all claims against Defendants. The Court GRANTS First 

Financial’s motion to strike the Eighth affirmative defense WITH LEAVE TO AMEND.

9. Ninth Affirmative Defense

Defendants’ Ninth affirmative defense for offset alleges that First Financial unlawfully 

stopped paying commissions and residuals in excess of $10 million to its lead sales contractor who 

left for FEG. See Answer ¶¶ 73-74. In conjunction with the commission and residuals withheld 

from other agents, Defendants allege that these amounts should be offset against any recovery by 

First Financial in this action. Id. First Financial moves to strike this affirmative defense as

insufficiently pled. See Mot. at 13. Neither party addresses whether any of First Financial’s 

claims permit an offset. However, Defendants have alleged a specific, even if far-fetched, amount 

for the offset and it is unclear what further factual allegations First Financial requires to be put on 

fair notice of this defense. First Financial’s motion to strike the Ninth affirmative defense is 

therefore DENIED.
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10. Tenth Affirmative Defense and Anti-Raiding Allegations

Finally, First Financial moves to strike the Tenth affirmative defense and various 

allegations in the Answer regarding the anti-raiding provision on the grounds that they are 

immaterial, impertinent, and redundant. See Mot. at 13. The Tenth affirmative defense alleges 

that First Financial’s claims against Defendants are barred because the Agreement between First 

Financial and its sales contractors, including the anti-raiding provision, are invalid under 

California law. See Answer ¶ 75. Similarly, portions of fifteen (15) paragraphs in the Answer 

include some form of the following legal conclusion: “Answering Defendants allege that to the 

extent the SC Agreement contains a ‘non- solicitation’ provision, the SC Agreement is void, and 

cannot be enforced under California law, specifically California Business and Professions Code, 

§ 16600.” Id. ¶¶ 5, 20, 25, 36, 37, 40, 41, 43, 45, 48-51, 54, 59. 

First Financial argues that the Tenth affirmative defense and related allegations regarding 

the invalidity of the anti-raiding provision should be stricken as they serve no purpose other than 

to repeat Defendants’ basis for their First Counterclaim. See Mot. at 13. As discussed above, the 

Court dismisses Defendants’ First Counterclaim without leave to amend for lack of standing, and 

because the Court would decline to exercise jurisdiction over the declaratory judgment claim even 

if Defendants had standing to pursue it. See supra, at 6-12. Defendants argue that the Tenth 

affirmative defense is sufficient “whether or not the First Counterclaim is dismissed.” Opp’n at 9. 

The Court is not convinced that the Tenth affirmative defense and related must be stricken

along with the dismissal of the First Counterclaim for a declaratory judgment. However, the Court 

agrees that the Tenth affirmative defense is not sufficiently pled and fails to provide First 

Financial with fair notice of the grounds for this defense as it relates to Defendants’ liability. 

Moreover, a mere reference to a legal doctrine in an affirmative defense, “like a reference to 

statutory provisions, is insufficient notice.” Qarbon.com, 315 F.Supp.2d at 1049. First Financial’s 

motion to strike the Tenth affirmative defense as well as the portions of the fifteen paragraphs in 

the Answer regarding the alleged invalidity of the Agreement is GRANTED WITH LEAVE TO 

AMEND.
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IV. ORDER

For the foregoing reasons, it is hereby ORDERED that:

(1) First Financial’s motion to dismiss Defendants’ First Counterclaim for a 

declaratory judgment is GRANTED WITHOUT LEAVE TO AMEND;

(2) First Financial’s motion to dismiss the Second Counterclaim for a violation 

of § 17200 is GRANTED WITH LEAVE TO AMEND;

(3) First Financial’s motion to strike is GRANTED WITH LEAVE TO 

AMEND IN PART, WITHOUT LEAVE TO AMEND IN PART, AND 

DENIED IN PART as follows:

(i) Defendants’ First and Sixth affirmative defenses are STRICKEN 

WITHOUT LEAVE TO AMEND because they are not actually 

defenses.

(ii) Defendants’ Fourth, Fifth, Eighth, and Tenth affirmative 

defenses, as well as the portions of fifteen paragraphs in the 

Answer regarding the alleged invalidity of the Agreement are 

STRICKEN WITH LEAVE TO AMEND because they are 

insufficiently pled but First Financial has not articulated any 

prejudice that would result from granting leave to amend.

(iii) First Financial’s motion to strike Defendants’ Second, Third, 

Seventh, and Ninth affirmative defenses is DENIED.

Defendants shall file an amended Answer and § 17200 Counterclaim with this Court on or 

before December 18, 2017. Failure to cure the deficiencies identified above may result in the 

dismissal of Defendants’ Counterclaim and/or striking of the affirmative defenses with prejudice. 

IT IS SO ORDERED.

Dated: November 28, 2017

______________________________________

BETH LABSON FREEMAN

United States District Judge