Ritz v. Genius Group Limited

Background

The case arose after Genius Group Limited fired Peter B. Ritz. Ritz had worked as Genius’s Chief Revenue Officer after Genius entered an Asset Purchase Agreement with LZG International Inc., where Ritz had previously been a director and chief executive officer. Ritz alleged that Genius used some employees’ reduced cash compensation for operational purposes rather than investing it for the employees’ benefit. He also alleged that he discovered Genius had generated little revenue despite Roger Hamilton’s public statements that Genius was generating millions in revenue.

Ritz told Hamilton and Genius’s Board that proposed guidance would be false and misleading and would violate federal securities laws. The Board later voted to remove Hamilton as chief executive officer. Ritz alleged that Hamilton and Eva Mantziou fired him in retaliation. Ritz’s amended complaint proceeded only under state law. The court stated that it continued to have subject-matter jurisdiction under the federal diversity statute.

Genius asserted counterclaims against Ritz and third-party claims involving Michael Thomas Moe. Genius alleged that Ritz and Moe failed to vote as required by an April 29, 2024 voting agreement, causing Genius damages of at least $1 million. Genius also asserted a claim for tortious interference with contract.

Motion to Strike

Ritz and Moe each asserted twenty-four identical affirmative defenses and reserved the right to assert additional defenses. Genius moved under Federal Rule of Civil Procedure 12(f) to strike seven of those defenses: res judicata, claim preclusion, excuse of performance, unclean hands, waiver, ratification and estoppel, inequitable conduct, and the reservation of rights.

Rule 12(f) permits a court to strike an insufficient defense or matter that is redundant, immaterial, impertinent, or scandalous. The court explained that motions to strike affirmative defenses are disfavored and generally require the moving party to show that no factual or legal question could allow the defense to succeed and that including the defense would prejudice the moving party. The court also stated that, without a showing of prejudice, the motion must be denied.

Court’s Analysis

Genius argued that the challenged defenses were factually and legally deficient. Ritz and Moe argued that Genius had not shown prejudice, had improperly relied on facts outside the pleadings, and that the defenses were adequately pleaded.

The court agreed with Ritz and Moe on the issue of prejudice and did not address the parties’ other arguments or the merits of each defense. Genius said that striking the defenses would prevent wasted time and resources and avoid prejudice, but the court found those statements conclusory. Genius did not identify how retaining the defenses would increase discovery costs, time, or complexity, or impose additional burdens.

The court also noted that discovery had ended, so retaining the defenses would not expand discovery. It rejected Genius’s reliance on a case involving an affirmative defense alleging misconduct over a fifty-year period that was disconnected from the dispute, finding that the defenses in this case were not similarly expansive.

Disposition

The court denied Genius’s motion to strike. The defenses therefore remained in the pleadings at this stage. The court stated that Genius could address their merits on a motion for summary judgment. The Clerk was directed to close the motion at Docket 66.