Vyas v. Taglich Brothers, Inc.

Background

Sanket Vyas, acting as liquidating agent for and on behalf of Q3 I, L.P., moved under Federal Rule of Civil Procedure 12(f) to strike 15 affirmative defenses asserted by Taglich Brothers, Inc. and Taglich Private Equity, LLC in their answer to Vyas’s amended complaint. A motion to strike asks the court to remove matter from a pleading when it is legally insufficient, redundant, immaterial, irrelevant, or scandalous. Such motions are generally disfavored.

The court explained that an affirmative defense ordinarily should be stricken only when there is no factual issue that could make the defense plausible, no legal issue that could allow it to succeed, and the plaintiff would be prejudiced by leaving it in the pleading. The court generally applied the same plausibility standard used for a motion to dismiss, but noted that the standard may be relaxed when the facts needed to support a defense are likely to become available only through discovery.

Defenses the Court Allowed to Remain

The court denied the motion to strike Taglich’s first, third, fifth, and twelfth defenses. Those defenses asserted, respectively, that Vyas failed to state a claim; Taglich did not violate Vyas’s rights; Taglich’s conduct did not cause Vyas’s loss; and the loss resulted from intervening events outside Taglich’s control. The court treated these defenses as functioning like general denials of liability and found no prejudice from their inclusion.

The court also denied the motion as to the fourth, sixth, seventh, and fourteenth defenses. Those defenses concerned failure to reduce damages, Vyas’s own acts or failures to act, the rule barring recovery by a party whose own intentional wrongdoing contributed to the injury, and offsets for funds Vyas allegedly had already received. Although Taglich had not provided supporting facts, the court applied a more flexible plausibility standard because information about Vyas’s conduct might become available only through discovery. The court also found that Vyas had not shown specific prejudice from these defenses.

The court denied the motion as to the ninth, eleventh, and thirteenth defenses, which concerned standing or legal capacity and the absence or speculative nature of damages. The court reasoned that Vyas would have to establish standing and concrete, legally recognizable damages regardless of whether Taglich listed these issues as affirmative defenses.

Finally, the court denied the motion as to the fifteenth defense, which asserted that third parties caused some or all of the alleged harm and that any damages should be reduced according to those parties’ share of fault. The court found that this defense addressed a central factual dispute: whether the person allegedly responsible for negligent management of the cryptocurrency fund was acting within the scope of employment for Taglich when managing the fund.

Defenses the Court Struck

The court granted the motion as to the second, eighth, and tenth defenses. The second defense relied on statutes of limitations and repose. The eighth relied on waiver, estoppel, delay, and the doctrine sometimes called “unclean hands.” The court found that these defenses generally depend on information a defendant would know before extensive discovery. Because Taglich had not alleged facts making them plausible and requiring Vyas to investigate them would cause some prejudice, the court ordered those defenses stricken.

The tenth defense relied on the business judgment rule, which generally limits judicial review of good-faith decisions by corporate directors or officers made for legitimate corporate purposes. The court held that the rule did not apply because Vyas had not sued individual directors or officers. It also found that leaving the defense in place could require discovery into the motivations of Taglich’s directors, which would otherwise be irrelevant.

Disposition

The court granted in part and denied in part Vyas’s motion to strike. It granted the motion as to Taglich’s second, eighth, and tenth defenses and denied it in all other respects. The court stated that Taglich may seek permission to amend its answer to cure the identified deficiencies, provided any proposed amendment includes a redline showing all differences from the operative pleading. The Clerk of Court was directed to terminate the motion at ECF No. 262.