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Bedrock Financial, Inc., A California Corporation v. the United States of America

June 17, 2011

BEDROCK FINANCIAL, INC., A CALIFORNIA CORPORATION,
PLAINTIFF,
v.
THE UNITED STATES OF AMERICA,
DEFENDANT.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

MEMORANDUM DECISION AND ORDER RE PLAINTIFF‟S MOTION TO STRIKE AND DEFENDANT‟S MOTION TO STRIKE (DOCS. 12, 14)

I. INTRODUCTION

Plaintiff Bedrock Financial, Inc. ("Bedrock") proceeds with this action for equitable subrogation, declaratory relief, and judicial foreclosure of equitable lien against the United States of America ("United States"). Before the court are Bedrock‟s motion to strike answer and counterclaim (Doc. 12) and the United State‟s motion to strike (Doc. 13). The United States filed an opposition to Bedrock‟s motion (Doc. 13), to which Bedrock replied (Doc. 14). Bedrock did not file an opposition to the United States‟ motion to strike. The motions were heard June 13, 2011.

II. BACKGROUND

In August 2006, Jose M. Fuentes and his wife, Irma Fuentes (together, "Debtors"), borrowed $150,000.00 from R.K. Lowe, Trustee of the RK Lowe Revocable Trust ("Lowe Mortgage"), and secured repayment with a first deed of trust ("Lowe Deed of Trust") against a vacant lot with commercial zoning in Atwater, Merced County, California ("Property"). The Lowe Deed of Trust was recorded on August 25, 2006 in Merced County.

On October 24, 2007, the Internal Revenue Service ("IRS") recorded a $42,458.12 tax lien against the Debtors in the Merced County records ("Tax Lien").

The Debtors became delinquent on their payments under the Lowe Deed of Trust in 2007. On February 5, 2008, the Debtors refinanced the Property with a $243,000.00 loan from Bedrock Financial ("Bedrock Refinancing"), securing repayment with a deed of trust encumbering the Property in favor of Bedrock Financial ("Bedrock Deed of Trust"). The Bedrock Financial Deed of Trust was recorded on February 5, 2008 in Merced County. The Debtors defaulted on the Bedrock Deed of Trust, and Bedrock foreclosed on the Property in October 2009.

Bedrock alleges that the Tax Lien was not discovered until long after the Debtors went into default under the Bedrock Deed of Trust. Bedrock alleges that based on the date of recordation of the Tax Lien, the Bedrock Refinancing unintentionally put the United States in a senior lien position on the Property. On May 3, 2010, Bedrock filed a state court action against the United States seeking equitable subrogation and foreclosure of Bedrock‟s equitable lien. The United States removed the action to federal court and added First American ("FirstAm") as a third-party on a counterclaim of conversion of federal funds.

The California Secretary of State suspended Bedrock as a California corporation effective December 24, 2009. Due to Bedrock‟s lack of standing to pursue or defend a lawsuit, on October 12, 2010 the Complaint and the United States' counterclaim against Bedrock were voluntarily dismissed without prejudice; the third-party complaint against FirstAm remains pending.

After Bedrock‟s corporate status was reinstated, it re-filed a complaint for equitable subrogation and judicial foreclosure on December 14, 2010. (Doc. 1). On March 17, 2011, the United States filed an answer and counterclaim for declaratory relief and judicial foreclosure. (Doc. 10). Bedrock filed a motion to strike portions of the United States‟ answer and counterclaim (Doc. 12), and the United States filed a motion to strike Bedrock‟s jury demand (Doc. 13).

III.LEGAL STANDARD

Rule 12(f) provides that the court "may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). The function of a Rule 12(f) motion to strike is to avoid the expenditure of time and money that might arise from litigating spurious issues by dispensing with those issues prior to trial. Fantasy, Inc. v. Fogerty , 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S.Ct. 1023 (1994). Motions to strike are disfavored and infrequently granted. E.g., Natural Res. Def. Counsel v. Kempthorne , 539 F.Supp.2d 1155, 1162 (E.D. Cal. 2008). "A motion to strike under Rule 12(f) should be denied unless it can be shown that no evidence in support of the allegation would be admissible, or those issues could have no possible bearing on the issues in the litigation." Gay-Straight Alliance Network v. Visalia Unified School Dist. , 262 F.Supp.2d 1088, 1099 (E.D. Cal. 2001). "[E]ven when techinically appropriate and well-founded, Rule 12(f) motions often are not granted in the absence of a showing of prejudice to the moving party." 5C CHARLES A. WRIGHT, ARTHUR R. MILLER, MARY KAY KANE & RICHARD L. MARCUS, FEDERAL PRACTICE AND PROCEDURE § 1381, (3d ed. 2011).

"Although motions to strike a defense are generally disfavored, a Rule 12(f) motion to dismiss a defense is proper when the defense is insufficient as a matter of law." Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc. , 677 F.2d 1045, 1057 (5th Cir. 1982). "A defense that might confuse the issues in the case and would not, under the facts alleged, constitute a valid defense to the action can and should be deleted." 5C CHARLES A. WRIGHT, ARTHUR R. MILLER, MARY KAY KANE & RICHARD L. MARCUS, FEDERAL PRACTICE AND PROCEDURE § 1381, (3d ed. 2011). A partial defense is not insufficient. Id.

"‟Immaterial‟ matter is that which has no essential or important relationship to the claim for relief or the defenses being pleaded." Fantasy, 984 F.2d at 1527. ""Impertinent‟ matter consists of statements that do not pertain, and are not necessary, to the issues in question." Id . Scandalous matters are allegations "that unnecessarily reflect [] on the moral character of an individual or state [] anything in repulsive language that detracts from the dignity of the court." Consumer Solutions REO, LLC v. Hillery , 658 F.Supp.2d 1002, 1020 (N.D. Cal. 2009) (quoting Cobell v. Norton , 224 F.Rd.D. 1, 5 (D.D.C. 2004).

IV.DISCUSSION

A.Bedrock‟s Motion to Strike

1.Second Affirmative Defense

Bedrock moves to strike the United States‟ second affirmative defense as an insufficient defense:

(2) Plaintiff has waived by its conduct any contention that the property‟s fair market value in February 2008 was less than $243,000.

Doc. 10, 4. Bedrock contends that the United States‟ second affirmative defense, based on the doctrine of waiver, is legally insufficient to bar recovery under Bedrock‟s claims for equitable subrogation and judicial foreclosure. Bedrock argues that its Complaint seeks an equitable lien on the security itself-regardless of its value in 2008 or any time, and the property‟s fair market value in 2008 has no bearing on any claim.

The United States rejoins that the second affirmative defense is not insufficient because equities are material to this lawsuit, and that valuation, i.e., "windfall" "unjust enrichment," or ...


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