Opinion ID: 3048909
Heading Depth: 3
Heading Rank: 1

Heading: Waiver of an Earmarking Defense

Text: [5] The trustee argues that the Metcalfs waived their earmarking defense entirely by failing to plead it as an affirmative defense in their answer to the preference action complaint. Federal Rule of Civil Procedure 8(a) and (c) provide that a defendant’s failure to raise an “affirmative defense” in his answer effects a waiver of that defense. See Morrison v. Mahoney, 399 F.3d 1042, 1046 (9th Cir. 2005); 5 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 1278 (2d ed. 1990). It is not well-settled, however, whether earmarking is an affirmative defense and therefore waived if not pled in the answer. We have not directly addressed the issue and out-of-circuit cases reach contrary conclusions. Compare In re Winstar Comm’ns., Inc., 348 B.R. 234, 273 (Bankr. D. Del. 2005) (earmarking is an affirmative defense and waived because not pled in the answer), with In re Libby Int’l., Inc., 247 B.R. 463, 467 (B.A.P. 8th Cir. 2000) (“The earmarking doctrine is not strictly an affirmative defense under Section 547(c),” but rather “is derived from an element of the plaintiff’s proof . . . .” ), and In re Int’l Ventures, Inc., 207 B.R. 618, 620 (Bankr. E.D. Ark. 1997) (“[T]he earmarking doctrine is not required to be pleaded as an affirmative defense since it is an element of the plaintiff’s proof rather than an affirmative defense.”) (citations omitted). 6684 IN RE ADBOX, INC. [6] The reasoning of the Eighth Circuit’s Bankruptcy Appellate Panel in Libby International is persuasive, and we adopt it here. Earmarking is not one of the affirmative defenses enumerated in Rule 8, and we decline to construe it as such under Rule 8’s residuary clause for “any other matter constituting an avoidance or affirmative defense.”2 Properly understood, the earmarking doctrine is not an affirmative defense under Rule 8, but rather a challenge to the trustee’s claim that particular funds are part of the bankruptcy estate under 11 U.S.C. § 547. See Libby Int’l., 247 B.R. at 467. Thus, the Metcalfs did not waive their earmarking defense by failing to plead it in their answer in the preference action.