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Philadelphia Indemnity Insurance Co. v. Gregory Herrman, P.C.

United States District Court, S.D. California

November 15, 2017



          Thomas J. Whelan United States District Judge

         Pending before the Court is Plaintiff's motion to strike Defendant's affirmative defenses under Federal Rule of Civil Procedure 12(f). (Mot. [Doc. 17].) Defendant opposes. (Opp'n [Doc. 18].) The Court decides the matter on the papers submitted and without oral argument. See Civ. L. R. 7.1(d.1). For the reasons discussed below, the Court GRANTS-IN-PART and DENIES-IN-PART Plaintiff's motion [Doc. 17].

         I. Background

         On March 2, 2017, Plaintiff Philadelphia Indemnity Insurance Company (the “Surety”) initiated this action for negligent misrepresentation against Defendant Gregory Herrman, P.C. a/k/a Herrman & Associates (“Herrman”), a certified public accountant. (Compl. [Doc. 1].) The Surety alleges Herrman failed to meet the standard of care in reviewing NEI Contracting and Engineering, Inc.'s (“NEI”) financial statements (the “Reviews”), which caused the Surety to issue bonds it would not otherwise have issued. (Id., ¶ 21.) Herrman's Amended Answer raises nine affirmative defenses and reserves the right to amend and supplement the answer as discovery progresses. (See Am. Answer [Doc. 12].)

         Plaintiff now seeks to strike all nine of the affirmative defenses on the basis that the defenses “are not legally recognized in the case of a negligent misrepresentation claim, ” “facially invalid in light of the pleadings, ” or “insufficiently pled so as to provide the Surety ‘fair notice' of the defenses.” (P&A [Doc 17-1], 2:2-3:5.)

         II. Legal Standards

         Under Federal Rule of Civil Procedure 12(f), a court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” “[T]he function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial.” Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). At the same time, 12(f) motions are “generally regarded with disfavor because of the limited importance of pleading in federal practice, and because they are often used as a delaying tactic.” Neilson v. Union Bank of Cal., N.A., 290 F.Supp.2d 1101, 1152 (C.D. Cal. 2003). Unless it would prejudice the opposing party, courts freely grant leave to amend stricken pleadings. Wyshak v. City Nat'l Bank, 607 F.2d 824, 826 (9th Cir. 1979); see also Fed.R.Civ.P. 15(a)(2).

         An affirmative defense may be insufficient as a matter of pleading or as a matter of law. Sec. People, Inc. v. Classic Woodworking, LLC, 2005 WL 645592, at *2 (N.D. Cal. 2005). “The key to determining the sufficiency of pleading an affirmative defense is whether it gives the plaintiff fair notice of the defense.” Wyshack, 607 F.2d at 827 (citing Conley v. Gibson, 355 U.S. 41 (1957)) (emphasis added); Simmons v. Navajo, 609 F.3d 1011, 1023 (9th Cir. 2010); Schutte & Koerting, Inc. v. Swett & Crawford, 298 Fed.Appx. 613, 615 (9th Cir. 2008). Fair notice generally requires that the defendant state the nature and grounds for the affirmative defense. See Conley, 355 U.S. at 47. It does not, however, require a detailed statement of facts. Id. at 47-48. On the other hand, an affirmative defense is legally insufficient only if it clearly lacks merit “under any set of facts the defendant might allege.” McArdle v. AT&T Mobility, LLC, 657 F.Supp. 1140, 1149-50 (N.D. Cal. 2009).

         III. Discussion

         A. First Affirmative Defense

         Herrman's first affirmative defense alleges that “insofar as [the Surety] bases its negligent misrepresentation claims upon a statement of opinion by Herrman, there is no actionable alleged false representation or misrepresentation of existing fact.” (Am. Answer 5:11-14.) The Surety argues this affirmative defense is facially invalid in light of the pleadings under Bily, which clarified that an independent accountant's professional opinion is actionable under a negligent misrepresentation cause of action. (P&A 8:3-6.) The Court is not persuaded.

         In Bily v. Aruthur Young & Co., 3 Cal.4th 370 (1992), the California Supreme Court stated that “[u]nder certain circumstances, expressions of professional opinions are treated as representations of fact.” Id. at 408. As the moving party, the Surety bears the burden of demonstrating that this case fits within the “certain circumstances” limitation described in Bily. The Surety has not done so and thus has not established that the first affirmative defense is conclusively negated. The Court DENIES the Surety's motion to strike the first affirmative defense.

         B. Second and Third Affirmative Defenses

         Herrman's second and third affirmative defenses assert the Surety's negligent misrepresentation claim is barred because Herrman provided the Reviews for the benefit of NEI, and it had no specific intent for the Surety to rely upon the Reviews. (Am. Answer 5:16-26.) The Surety argues that because Herrman admits it knew NEI would provide the reviewed financial statements to third parties, the second and ...

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