Halperin v. Richards

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) Chapter 11

)

OLDAPCO, INC., et al., )

) Case No. 17-12082 (MFW)

Debtors. ) Jointly Administered

___________________________________)

)

ALAN D. HALPERIN AND EUGENE I. )

DAVIS, AS CO-TRUSTEES OF THE )

APPVION LIQUIDATING TRUST, )

)

Plaintiffs, )

)

v. )

) Adv. No. 18-50955

MARK R. RICHARDS, THOMAS J. )

FERREE, TAMI L. VAN STRATEN, )

JEFFREY J. FLETCHER, KERRY S. )

ARENT, STEPHEN P. CARTER, TERRY )

M. MURPHY, ANDREW F. REARDON, )

KATHI P. SEIFERT, MARK A. SUWYN, )

CARL J. LAURINO, DAVID A. )

ROBERTS, KEVIN GILLIGAN, ARGENT )

TRUST COMPANY, STOUT RISIUS ROSS )

INC., STOUT RISIUS ROSS, LLC, )

JOHN/JANE DOES 1-40 )

) Related Doc. Nos. 124,

) 125, 127, 128, 129

Defendants. )

OPINION1

Before the Court are the Motions of Stout Risius Ross, Inc.

and Stout Risius Ross LLC (together “Stout”) and Argent Trust

Company (“Argent”) (collectively, the “Defendants”) to Strike

portions of the Appvion Liquidating Trust’s Revised Second

Amended Complaint. Alan D. Halperin and Euqene I. Davis, Co-

1 The Court is not required to state findings of fact or

conclusions of law on these procedural motions pursuant to Rule

7052 of the Federal Rules of Bankruptcy Procedure.

Trustees of the Appvion Liquidating Trust (the “Plaintiffs”)

oppose both Motions. For the reasons set forth below, the Court

will deny both Motions to Strike.

I. BACKGROUND

On October 1, 2017, Appvion, Inc., and its affiliates

(collectively, the “Debtors”) filed voluntary petitions for

relief under chapter 11. Under the Debtors’ confirmed Combined

Plans of Liquidation, the Plaintiffs were given authority to

pursue certain of the estates’ causes of action. (D.I. 836 at

Art. VIII. B.)

On November 30, 2018, the Plaintiffs commenced this

adversary proceeding against certain former directors and

officers of the Debtors (the “former D&Os”) and the Defendants.

In the complaint, the Plaintiffs asserted nine state law tort

causes of action against the former D&Os and causes of action

against the Defendants for aiding and abetting breaches of

fiduciary duty by the former D&Os.

On January 29, 2019, the Defendants filed Motions to Dismiss

the complaint (and to transfer venue of Counts I through VIII).2

In response, the Plaintiffs filed the First Amended Complaint,

2 Four days before this adversary proceeding was commenced,

the ESOP Administrative Committee commenced an action in the

United States District Court for the Eastern District of

Wisconsin, asserting several similar causes of action to the

state law claims in the Plaintiffs’ complaint.

2

which added nine avoidance actions, Counts X through XVIII,

against the former D&Os and the Defendants. After another round

of amendments, the Plaintiffs filed the Revised Second Amended

Complaint (the “Complaint”), and the parties agreed that the

Defendants’ Motions to Dismiss were ripe for decision as if they

applied to the Complaint.

On October 23, 2019, the Court issued an Opinion and Order

transferring venue of Counts I through VIII to the United States

District Court for the Eastern District of Wisconsin. As a

result of that decision, the only claims remaining before the

Court are Counts IX through XVIII of the Revised Second Amended

Complaint. The only claims remaining against Argent are a

preference (Count XII) and a fraudulent conveyance claim (Count

XIII), and the only claims remaining against Stout are a

preference (Count X) and a fraudulent conveyance claim (Count

XI).

Following the Court’s Opinion, a dispute arose between the

parties over how the Defendants should answer the Complaint. The

Plaintiffs demanded that Argent answer 328 paragraphs and that

Stout answer 338 paragraphs. Argent and Stout countered that

they only needed to answer a fraction of the allegations in the

Complaint because most of the allegations related to the

transferred counts and were, therefore, irrelevant to the counts

against them.

3

Unable to resolve the dispute, the Defendants filed Motions

to Strike significant portions of the Complaint and a Joint

Opening Brief on December 20, 2019. On January 3, 2020, the

Plaintiffs filed their Memorandum of Law in Opposition and on

January 10, 2020, the Defendants filed a Reply Brief. The

Motions have been fully briefed and the matter is now ripe for

decision.

II. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28

U.S.C. §§ 157 and 1334(b) and Article XV of the Combined Plan of

Liquidation. This adversary proceeding is a core matter pursuant

to 28 U.S.C. § 157(b), as it involves administration of the

bankruptcy case. Furthermore, Counts X through XIII are core

proceedings because they assert avoidance actions under chapter 5

of the Bankruptcy Code. 28 U.S.C. § 157(b)(2)(F) & (H).

III. DISCUSSION

The Defendants argue that hundreds of paragraphs in the

Revised Second Amended Complaint should be stricken under Rule

12(f) because the paragraphs are immaterial and impertinent to

the avoidance actions against them. The Defendants maintain that

those paragraphs are material and relevant only to Counts I

through VIII, which were transferred.

4

The Plaintiffs now assert that Argent must answer 274

paragraphs of the Complaint, while Argent argues it must answer

only 45 paragraphs.3 The Plaintiffs contend that Stout must

answer 307 paragraphs, whereas Stout maintains it must answer

only 79 paragraphs.4

According to the Defendants, the Plaintiffs’ arguments

opposing the prior Motions to Dismiss and the Court’s Opinion

denying the Motions, indicate that hundreds of the paragraphs of

the Complaint are immaterial and impertinent. They argue that,

in response to their prior Motions to Dismiss, the Plaintiffs

cited only a few paragraphs of the Complaint as proof that the

avoidance actions were properly pled. Similarly, they note that

the Court’s Opinion cited only a handful of paragraphs in

concluding that the avoidance actions were sufficiently pled.

The Defendants maintain that even if the hundreds of

paragraphs are material and pertinent to the Plaintiffs’ claims,

the paragraphs should be stricken for violating Rule 8. The

Defendants contend that the Complaint is excessively long and

3 The parties disagree as to whether Argent must answer the

following paragraphs of the Complaint: ¶¶ 2-9; 14-20; 63-68; 71-

72, 82-88; 90-91; 94-97; 112-117; 119-124; 126-139; 167; 181-189;

192-219; 203; 220-235; 237-250; 252-289; 298; 307-308; 310-316;

318-325; 327-345; 359-375.

4 The parties disagree as to whether Stout must answer the

following paragraphs of the Complaint: ¶¶ 1-9; 14; 16-20; 58-61;

63-68; 71-72; 82-88; 90-91; 112-117; 119-124; 126-139; 150-156;

167; 237-250; 252-289; 293-295; 298; 307-345; 359-375.

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cumbersome, contrary to the requirements of Rule 8. Further, the

Defendants contend that many of the allegations plead evidence,

which accelerates discovery to the pleading stages and is

discouraged by the Federal Rules.

The Plaintiffs argue that the Defendants have failed to meet

their burden under Rule 12(f) by failing to demonstrate that the

allegations in dispute are immaterial and impertinent. By

focusing on the evolution of the Complaint, rather than on its

substance, the Plaintiffs contend that the Defendants have failed

to explain why any specific allegations are immaterial and

impertinent. The Plaintiffs maintain that many of the paragraphs

that the Defendants move to strike are material to the

preferential and fraudulent transfer claims because the

paragraphs contain allegations about transfers between the

Debtors and the Defendants, antecedent debts, whether the Debtors

received reasonably equivalent value, and the solvency of the

Debtors. Furthermore, the Plaintiffs argue that the Defendants

have failed to demonstrate that they will suffer any prejudice by

answering the allegations. Lastly, the Plaintiffs contend that

the Defendants’ Motions to Strike are procedurally barred by Rule

12(g).

A. Rule 12(g) Procedural Bar

Rule 12(g) of the Federal Rules of Civil Procedure states

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that “[e]xcept as provided in Rule 12(h)(2) or (3),5 a party that

makes a motion under this rule must not make another motion under

this rule raising a defense or objection that was available to

the party but omitted from its earlier motion.” Fed. R. Civ. P.

12(g)(2).

However, when an amended complaint “contain[s] new

information or different allegations making it subject to a

defense or objection that was not previously apparent . . . a

party may move to dismiss on the basis of the newly discovered

ground even if she filed a Rule 12 motion previously.” 5C

Charles Alan Wright & Arthur R. Miller, Federal Practice and

Procedure § 1388 (3d ed. 2018). See, e.g., Roma Concrete Corp.

v. Pension Assocs., No. CV 19-1123, 2019 WL 3683561, at *3 (E.D.

Pa. Aug. 6, 2019) (finding that Rule 12(g) does not bar a second

Rule 12 motion when the plaintiff files an amended complaint

containing new factual averments).

The issue before the Court is whether the arguments raised

by the Defendants in their Motions to Strike were available and

apparent when the Defendants filed their initial Rule 12(b)

Motions to Dismiss.

5 Rule 12(h)(2) allows a motion to dismiss to be raised even

after a prior Rule 12 motion has been decided, if the second

motion contends the complaint fails to (1) state a claim for

relief, (2) join a person required under Rule 19(b), or (3) state

a legal defense to a claim. Rule 12(h)(3) allows parties to

raise subject matter jurisdiction at any time. Fed. R. Civ. P.

12(h)(2), (3). Neither is applicable here.

7

In this case, the Defendants’ Motions to Dismiss were filed

before the Revised Second Amended Complaint was filed.

Nonetheless, the Revised Second Amended Complaint is nearly

identical to the First Amended Complaint,6 and, as a result, the

parties agreed that the issues raised by the Motions to Dismiss

could be treated as being applicable to the Revised Second

Amended Complaint.

While the Court’s order transferring Counts I through VIII

to the Eastern District of Wisconsin did not require that the

Plaintiffs file a further amended complaint, the Defendants argue

that the transfer resulted in a new basis for a Rule 12 motion by

them: namely, that the Complaint now contains numerous extraneous

allegations that are not relevant to the remaining counts.

The Court agrees with the Defendants. Until Counts I

through VIII were transferred, the Defendants could not credibly

argue that the Revised Second Amended Complaint contained

allegations that were not relevant to any of the remaining

parties or counts. Thus, the Court concludes that the Defendants

are not barred by Rule 12(g) from filing their Motions to Strike.

B. Rule 12(f) Motion to Strike

Rule 12(f) provides that “[t]he court may strike from a

6 The only differences between the First and Second Amended

Complaints are: (1) the Revised Second Amended Complaint removed

Kevin Gilligan as a defendant and (2) the Revised Second Amended

Complaint provides dates for the transaction described in

paragraphs 98, 469, and 473.

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pleading an insufficient defense or any redundant, immaterial,

impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). The

purpose of a Rule 12(f) motion to strike is to “clean up the

pleadings, streamline litigation, and avoid the unnecessary

forays into immaterial matters.” Karpov v. Karpov, 307 F.R.D.

345, 348 (D. Del. 2015).

Allegations are “immaterial” if they have no essential or

important relationship to the claim for relief. Del. Health Care

Inc. v. MCD Holding Co., 893 F. Supp. 1279, 1291-92 (D. Del.

1995); Donnelly v. Commonwealth Fin. Sys., Inc., No. 3:07-CV-

1881, 2008 WL 762085, at *4 (M.D. Pa. Mar. 20, 2008).

“Impertinent” matters “do not pertain, and are not necessary, to

the issues in question.” Delaware Health Care, 893 F. Supp. at

1291-92; Donnelly, 2008 WL 762085, at *4. Allegations are

“scandalous” if they “reflect cruelly upon the plaintiff’s moral

character” or are “repulsive” or “detract from the dignity of the

court.” Donnelly, 2008 WL 762085, at *4.

Motions to strike are generally disfavored. See, e.g.,

Welsh v. Male, No. 05-CV-6838, 2007 WL 906182, at *1 (E.D. Pa.

Mar. 22, 2007). See also Dann v. Lincoln Nat’l Corp., 274 F.R.D.

139, 142 (E.D. Pa. 2011) (noting that striking a pleading is a

“drastic remedy” that should be used sparingly). Courts possess

considerable discretion when resolving a motion to strike under

Rule 12(f). ETC v. Hope Now Modifications, No.09-1204, 2011 WL

883202, at *1 (D.N.J. Mar. 10, 2011).

In part due to their disfavored status, courts generally

grant motions to strike only when the disputed allegations have

no possible relation to the controversy and will cause prejudice

to one of the parties. Tonka Corp. v. Rose Art Indus., 836 F.

Supp. 200, 218 (D.N.J. 1993). Thus, even when the motion is

technically appropriate, a motion to strike redundant,

immaterial, impertinent, or scandalous material should not be

granted unless the movant demonstrates that the material will

also prejudice it. Kokinda v. Penn. Dep’t of Corrections, No.

16-1303, 2017 WL 11461507, at *1 (W.D. Pa. Nov. 24, 2017); Hope

Now, 2011 WL 883202, at *1. “Prejudice occurs when the

challenged pleading confuses the issues or is so lengthy and

complex that it places an undue burden on the responding party.”

Karpov, 307 F.R.D. at 348.

In this case, the Court concludes that the Defendants have

failed to meet their burden of showing that: (1) the material

they seek to strike is “redundant, immaterial, impertinent, or

scandalous” and (2) the necessity of responding to the

allegations prejudices the Defendants. While the Defendants

describe the evolution of the Complaint, they neglect to explain

why any of the specific allegations are redundant, immaterial,

impertinent, or scandalous. In particular, the Defendants do not

establish that any of the allegations in the Complaint are

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scandalous. At most, the Defendants argue they are redundant,

impertinent, or immaterial to the claims against the Defendants.

The Court disagrees. Many of the allegations that the

Defendants seek to strike provide pertinent background

information about the Debtors, their prepetition capital

structure, and the bankruptcy filing. ¶¶ 63-68; 71-72; 126-139;

359-375. Similarly, allegations relating to the twice annual

fair market value determinations, Stout’s services, and market

perceptions of the Debtors are relevant to the fraudulent

transfer claims, namely whether the Debtors received reasonably

equivalent value from the Defendants and whether the Debtors were

insolvent. ¶¶ 112-124; 181-289; 334-345.7

Further, it is significant that the Complaint alleges claims

against other defendants in addition to those against these

Defendants. When a complaint alleges facts and pleads claims

against multiple parties, it makes little sense for a court to

strike portions of the complaint that are irrelevant to some

defendants but relevant and material to other defendants.

Balabanos v. N. A. Inv. Group, Ltd., 708 F. Supp. 1488, 1493-94

(N.D. Ill. 1988) (noting that, otherwise, plaintiffs would have

to file separate complaints against each individual defendant).

7 Other paragraphs provide context to the services provided by

the Defendants to the Debtors and the value of those services: ¶¶

82-88, 298, 318-33 ESOP Structure and Transactions; ¶¶ 171-172

the Defendants’ presence at the Debtors’ corporate board

meetings; and ¶¶ 307-309 Compensation and Benefits.

11

Because the allegations of the Complaint are relevant to the

claims of other defendants as well as to these Defendants, the

Court concludes that they are not redundant, immaterial,

impertinent, or scandalous.

Further, the Defendants have not shown how being required to

respond to any of the allegations in the Complaint puts an undue

burden on them sufficient to prejudice them. As a result, the

Court will not take the drastic step of striking those

allegations from the Complaint.

C. Rule 8

Although the plain text of Rule 12(f) does not incorporate

Rule 8 by reference, many courts have held that Rule 12(f) can be

used to reinforce Rule 8’s requirements that pleadings be simple,

concise, and direct. See, e.g., Doe v. Brown Univ., 304 F. Supp.

3d 252, 266 (D.R.I. 2018) (noting that Rule 12(f) is designed to

reinforce Rule 8’s brevity requirements); Carney v. Town of

Weare, No. 15-CV-291-LM, 2016 WL 320128, at *3 (D.N.H. Jan. 26,

2016) (same); 5C Wright & Miller, Federal Practice and Procedure

at § 1380. See also Brejcak v. Cty of Bucks, No. 03-4688, 2004

WL 377675, at *3 (E.D. Pa. Jan. 28, 2004) (granting motion to

strike pursuant to Rules 8 and 12(f)).

Rule 8 states that pleadings must contain “a short and plain

statement of the claim showing that the pleader is entitled to

relief.” Fed. R. Civ. P. 8(a). It also requires that

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allegations be “simple, concise, and direct.” Fed. R. Civ. P.

8(d). The purpose of this rule is to “give the defendant fair

notice of what the . . . claim is and the grounds upon which it

rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

“Threadbare recitals of the elements of a cause of action,

supported by conclusory statements, do not suffice.” Ashcroft v.

Igbal, 556 U.S. 662, 678 (2009). However, verbose, excessive,

and overly long complaints violate Rule 8 as well. Kamdem-Ouaffo

v. Task Mgmt., Inc., No. 1:17-CV-7506, 2018 WL 3360762 (D.N.J.

July 9, 2018). See also Brejcak, 2004 WL 377675, at *3.

A complaint that is clearly written, logically organized,

and clearly reveals the nature of the claims asserted typically

does not violate Rule 8, even if it is lengthy. Bhatt v.

Hoffman, 716 Fed. Appx. 124, 127 (3d Cir. 2017). “Thus,

dismissal for violation of Rule 8 ‘is usually confined to

instances in which the complaint is so verbose, confused and

redundant that its true substance, if any, is well disguised.’”

Bhatt, 716 Fed. Appx. at 127 (quoting Hearns v. San Bernardino

Police Dep’t, 530 F.3d 1124, 1131 (9th Cir. 2008)).

The Defendants argue that courts have dismissed lengthy,

cumbersome complaints for violating Rule 8, even when the

pleading did not have any disguised substance. Brejcak, 2004 WL

377675, at *3 (holding 216-paragraph, 45-page complaint was

excessive under notice pleading); Drysdale v. Woerth, No. 98-

13

3090, 1998 WL 966020, at *2 (E.D. Pa. Nov. 18, 1998) (holding 93-

paragraph complaint violated Rule 8); Untracht v. Fikri, 368 F.

Supp. 2d 409 (W.D. Pa. 2005) (holding that 522-paragraph, 96-page

and 655-paragraph, 112-page complaints violated Rule 8).

However, in finding Rule 8 violations, those courts observed

that the objectionable pleadings are unnecessarily detailed or

contained extended sections of novel-like narrative in addition

to being lengthy. See, e.g., Brejcak, 2004 WL 377675, at *3

(finding complaint meticulously recounts unnecessary factual

background and is deficient because of its “guileless recitation

of all potentially relevant facts”); Drysdale, 1998 WL 966020, at

*2 (finding complaint describes events in unnecessary and

burdensome detail and reads more like a novel than a legal

pleading). Those courts also observed that the complaints

contain allegations that recite evidence, which the Federal Rules

discourage. Brejcak, 2004 WL 377675, at *3; Drysdale, 1998 WL

966020, at *2.

While length is a factor in the cases cited by the

Defendants, “there is no precise algorithm that answers at what

length a complaint becomes objectionable.” Brejcak, 2004 WL

377675, at *3.

In this case, the Court finds insufficient cause to strike

any allegations from the Complaint under Rule 8. The Complaint

is not so verbose, confused, and redundant that its true

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substance is disguised. Furthermore, unlike in Drysdale, the

Complaint is not written like a novel. Nor does it contain

guileless recitations of all potentially relevant facts like in

Brejcak. The content of the Complaint spans several years. It

provides factual context to the allegations against the

Defendants, such as describing the services that the Defendants

provided to the Debtors and factors relevant to the value of

those services. It details transfers made to the Defendants, and

it contains allegations bearing on the solvency of the Debtors

throughout the relevant period. There is no precise algorithm

for deciding when a complaint is too long under Rule 8, but the

Court finds that the roughly 300+ paragraphs relevant to the

Defendants are not objectionably long, given the temporal scope

and the complexity of the claims. Accordingly, the Court will

deny the Defendants’ Motions to Strike under Rules 8 and 12(f).

IV. CONCLUSION

For the foregoing reasons, the Court will deny the

Defendants’ Motions to Strike.

An appropriate Order is attached.

Dated: June 25, 2020 BY THE COURT:

Mow WSS

Mary F. Walrath

United States Bankruptcy Judge

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