GEOMC Co. v. Calmare Therapeutics Inc.
Not provided in the case text (2019)
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Rule of Law:
The Twombly/Iqbal plausibility standard applies to the pleading of affirmative defenses, but its application is context-specific, considering the defendant's shorter time to plead. Late-filed affirmative defenses and counterclaims that unduly expand the scope of litigation and cause prejudice to the opposing party may be stricken by the court.
Facts:
- GEOMC Co., Ltd. (GEOMC), a South Korean corporation, and Calmare Therapeutics, Inc. (Calmare), a Delaware corporation, were parties to a business relationship involving the sale of medical devices for managing pain.
- The parties operated under a license agreement originating in 2007.
- Calmare later alleged that GEOMC breached the 2007 license by entering into a separate agreement with a third party, Radiant Health Management Corp. (Radiant).
- Calmare also alleged that GEOMC engaged in tortious interference with the 2007 license through its interactions with Radiant.
- In a separate matter, Calmare alleged that a Security Agreement between the parties was unenforceable because GEOMC should have known that Calmare's CEO lacked the authority to execute it.
Procedural Posture:
- GEOMC filed an amended complaint in the U.S. District Court for the District of Connecticut.
- Calmare filed an answer with nine affirmative defenses but no counterclaims.
- Nearly a year later, Calmare moved for leave to amend its answer to add defenses and counterclaims, which GEOMC opposed.
- Simultaneously, GEOMC moved for leave to file a second amended complaint.
- The District Court denied Calmare's motion but granted GEOMC's motion, permitting GEOMC to file a second amended complaint adding a breach of contract claim.
- The court allowed Calmare to file an answer to the new complaint but made it subject to a motion to strike by GEOMC under Rule 12(f).
- Calmare filed an answer to the second amended complaint, adding six new affirmative defenses and six new counterclaims.
- GEOMC moved to strike all new defenses and five of the new counterclaims.
- The District Court granted GEOMC's motion in part, striking two affirmative defenses and five counterclaims.
- Following a bench trial, judgment was entered in favor of GEOMC.
- Calmare (Appellant) appealed to the U.S. Court of Appeals for the Second Circuit, challenging the District Court's order striking its defenses and counterclaims against GEOMC (Appellee).
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Issue:
Does a district court abuse its discretion by striking affirmative defenses and counterclaims from an answer to a second amended complaint when they are factually insufficient, asserted late in the litigation, and would cause undue prejudice by expanding the scope of the case?
Opinions:
Majority - Newman, J.
No. A district court does not abuse its discretion by striking factually insufficient and prejudicial affirmative defenses and counterclaims asserted late in litigation. First, the plausibility standard from Twombly and Iqbal applies to affirmative defenses, meaning they must be supported by some factual allegations to be plausible. However, this standard is 'context-specific,' and courts should recognize that defendants have a much shorter time to plead defenses than plaintiffs have to draft a complaint. Second, prejudice to the opposing party is a critical factor when defenses or counterclaims are raised late in the proceedings. In this case, Calmare's two affirmative defenses—alleging GEOMC's own negligence and failure to join a necessary party—were struck because they were vague, lacked any supporting factual allegations, and were presented at a late stage where they would prejudice GEOMC by expanding the litigation. Similarly, Calmare's new counterclaims, which introduced complex issues involving a third party (Radiant), were properly rejected because they went far beyond the scope of GEOMC's new breach of contract claim. Allowing these counterclaims late in the litigation would have 'greatly expand[ed]' the case, substantially increased costs, and caused undue prejudice to GEOMC.
Analysis:
This decision clarifies the pleading standards for affirmative defenses in the Second Circuit post-Twombly/Iqbal, formally adopting the plausibility standard while tempering it with a 'context-specific' approach that acknowledges the practical constraints on defendants. The ruling reinforces the district court's discretionary power to manage litigation by preventing parties from injecting new, complex, and prejudicial issues late in the process. It establishes that late-filed counterclaims in response to an amended complaint should generally be limited to the scope of the new claims, thereby preventing defendants from using amended pleadings as a tool to derail or unduly complicate nearly-concluded litigation.
