by Stephen V. Iglesias
In government litigation, affirmative defenses typically allege the government is pre-empted from taking action, or that it has been involved with, permitted, or encouraged the misconduct at issue. For example, when a mid-level government employee makes representations about an administrative rule promulgated by the agency during an informal phone conversation with a defendant’s attorney, can these representations trump administrative regulations? What if the attorney contacts several employees in the same agency and gets different answers to the same question? Suddenly, representations from these informal discussions turn up in formal litigation. Unfortunately for the hapless persons who rely on (or sometimes manipulate) the bureaucracy for answers to complex legal questions, it is unlikely they will get any traction with equitable affirmatives defenses. Asserting legally insufficient affirmative defenses comes at a cost, which at the very least will require you to expend litigation resources at a motion hearing noticed by the government to strike your affirmative defenses under Fla. R. Civ. P. 1.140(f). Some affirmative defenses are inapplicable in government litigation, while others carry heightened pleading requirements. Affirmative defenses, such as estoppel, laches, and waiver, are particularly vulnerable. It is important to note, however, that motions to strike affirmative defenses are disfavored by the courts.1
Another common practice is to plead all defenses, whether or not the defenses are affirmative defenses, under a general category called “affirmative defenses.” For example, affirmative defenses should be pled separately from Fla. R. Civ. P. 1.140(b) defenses. While this may be a technical point, taking care in pleading provides a pretrial layer of protection to affirmative defenses. Regarding form over substance issues in pleading, the court will likely grant the defendant leave to amend his or her answer to properly plead affirmative defenses.
Affirmative defenses enumerated under Fla. R. Civ. P. 1.110(d) are: accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense. An affirmative defense in civil litigation attacks the plaintiff’s legal right to bring a claim, as opposed to attacking the truth of a claim. Defenses and objections not stated in compliance with Fla. R. Civ. P 1.140(h) may be waived. The test for validity of an affirmative defense under Florida law is whether the defense admits the cause of action and supporting facts asserted by a preceding pleading, but raises some new matter which defeats the opposing party’s otherwise apparently valid claim.2 Purported affirmative defenses that do not satisfy this test are properly stricken.3 Affirmative defenses that merely deny the allegations in a pleading and do not raise any new matter to defeat the allegations fail the test for the sufficiency of affirmative defenses. A conclusory statement that the “defendant did not engage in XYZ violation,” for example, is a general denial and not a legally sufficient affirmative defense.
To successfully assert the affirmative defense of estoppel against a government agency, a party must establish all elements of estoppel and additionally show “rare and exceptional” circumstances justifying this defense.4 The court uses terms such as “unbearably egregious, bureaucratic ineptitude and indifference, dishonesty, illegality, fraud, oppression, or misconduct” in describing the type of government conduct that must be established to overcome the “very high bar” in asserting estoppel against the government. Further, the government cannot be estopped through erroneous statements by a government employee.5 In Sutron v. Lake County Water Authority, 870 So. 2d 930 (Fla. 5th DCA 2004), the executive director of the Lake County Water Authority erroneously represented to Sutron that the company’s participation in the bid process as a sub-consultant to the engineering firm preparing the general request for bids (RFB) on behalf of the authority would not preclude it from bidding individually on the project. Although Sutron was the lowest bidder, it did not win the project because it was also a sub-consultant on preparing the RFB. Despite the misstatement by the authority employee, the court refused to uphold an estoppel defense. According to the court, the misstatement was not “callous, negligent, or intentional” nor did it cause “potentially severe economic consequences” to Sutron. The authority simply made a mistake and the economic losses were limited to the time Sutron spent on preparing its bid. In addition, the doctrine of equitable estoppel may be more leniently applied in permit and zoning matters.
In AHCA v. MIED, Inc., 869 So. 2d 13, 20-22 (Fla. 1st DCA 2004), AHCA refused to recognize MIED as an unrelated party purchaser of a nursing home, thereby rendering the company ineligible for a “rate step up” in its Medicaid reimbursements. The nursing home at issue was unprofitable under the original corporate owner, Southlake, Inc. Southlake was co-owned by John Carter, who also sat on Southlake’s board of directors. In an effort to increase the profitability of the nursing home, Carter decided to purchase Southlake’s assets through MIED, Inc. Part of Carter’s plan to operate a profitable business was to obtain a rate step up in Medicaid reimbursements. This was only possible if AHCA determined that MIED was an unrelated party purchaser, despite Carter’s connections to Southlake. According to Carter, an AHCA administrator represented to him that MIED would be an unrelated party purchaser. The court found that any cause of action based on misstatements of law by an AHCA employee is barred by sovereign immunity.6 The court further held that equitable estoppel is a defensive doctrine, not an offensive cause of action. In suing AHCA, MIED inappropriately attempted to plead equitable estoppel as a stand-alone cause of action in its complaint, and prayed for judgment of damages, costs, and further relief.
In Dept. of Revenue v. Anderson, 403 So. 2d. 397, 400 (Fla. 1981), the Florida Department of Revenue assessed taxes, late payment penalties, and interest against a yacht dealer who claimed his business activities were tax exempt. The yacht dealer purchased boats for the purpose of renting them to third parties, an activity which is tax exempt if the dealer possesses a state dealer registration and retail certificate at the time of resale. Although the yacht dealer did not have the proper registration and certificate at the time of the allegedly tax exempt transactions, he retroactively applied for and received a tax refund after his corporation obtained the appropriate registration. According to the dealer, a Department of Revenue examiner communicated to him that late registration as a dealer and late tender of a resale certificate could establish a tax exemption on an earlier sale for resale. This communication was in contradiction with the applicable law. Further, the record showed that the dealer had knowledge this practice was illegal. In remanding the case to the trial court, the Florida Supreme Court refused to apply equitable estoppel against the department due to the examiner’s representations and found the department was entitled to recover sales taxes from the dealer.
Bad Faith, Unclean Hands, In Pari Dilecto
The standards are high when the defense strategy is to prosecute the prosecutor or allege a government conspiracy. The unclean hands doctrine is derived from the maxim that “he who comes into equity must come with clean hands.”7 Deference is provided to a government agency in taking enforcement action to serve the public interest.8 Although bad faith may be pled as an affirmative defense against a government agency, “where [the government’s] position is analogous to that of a private suitor, these defenses are generally unavailable where the government is acting in the public interest.”9 Alleging the government is bringing an action in bad faith or with unclean hands requires the defendant to plead with specificity.10 The only exception to this rule is if the agency’s misconduct is egregious and the resulting prejudice will rise to a constitutional level. A defendant cannot allege the government has acted with unclean hands and then conduct later discovery to support a conclusory allegation. In United States v. Phillip Morris, Inc., 300 F. Supp. 2d 61 (D.C. Cir. 2004), none of the following demonstrated the government acted with unclean hands: 1) government scientists questioning whether smoking truly causes disease; 2) failure to communicate to the public the dangers of nicotine; 3) subsidizing cigarette sales to military servicemen; 4) subsidization of domestic tobacco farming; and 5) encouraging smokers to switch to low tar tobacco products.11
The defense of “in pari delicto” alleges the government acted in concert with the defendant in engaging in conduct which the government pleads is illegal.12 In pari delicto means “in equal fault” and is based on the “common law notion that a plaintiff’s recovery may be barred by his own wrongful conduct.” In granting the government’s motion for summary judgment on the in pari delicto affirmative defense, the court held that this affirmative defense is also unavailable against a government agency which brings an action in the public interest. Defendants in Phillip Morris did not allege that the government fraudulently misrepresented anything or that it committed mail and wire fraud (RICO predicate acts).
Failure to Exhaust Administrative Remedies
Under the exhaustion of administrative remedies rule, the circuit court will withhold invoking jurisdiction until the administrative process has run its course. In AHCA,13 MIED abandoned its administrative action against AHCA in regard to the Medicaid rate increase. AHCA argued that the exhaustion of remedies doctrine barred MIED from proceeding in the circuit court on the rate issue. The court agreed with AHCA and reiterated the following elements to avoid the exhaustion of administrative remedies rule:
(1) the complaint must demonstrate some compelling reason why the APA (Administrative Procedure Act, Chapter 120, Florida Statutes) does not avail the complainants in their grievance against the agency; or (2) the complaint must allege a lack of general authority in the agency and, if it is shown, that the APA has no remedy for it; or (3) illegal conduct by the agency must be shown and, if that is the case, that the APA cannot remedy that illegality; or (4) agency ignorance of the law, the facts, or public good must be shown and, if any of that is the case, that the Act provides no remedy; or (5) a claim must be made that the agency ignores or refuses to recognize related or substantial interests and refuses to afford a hearing or otherwise to recognize that the complainants’ grievance is cognizable administratively.14
MIED was unable to show that no administrative remedy was available under this test. The fact that MIED initiated an administrative complaint and then unilaterally abandoned it prior to a finding on whether it was entitled to any administrative relief further diminished MIED’s standing in circuit court.
The doctrine of primary jurisdiction defense is similar to exhaustion of administrative remedies. This doctrine requires that when a party seeks to invoke the original jurisdiction of the court by asserting an issue which is “beyond the ordinary experience of judges and juries,” the court should refrain from exercising jurisdiction until the issue has been ruled upon by the administrative agency.15 Although the trial court may defer to the administrative agency, such deference is at the absolute discretion of the trial court. The difference between the doctrines of exhaustion of remedies and primary jurisdiction is as follows:
The doctrine of exhaustion arises as a defense to judicial review of an administrative action and is based on the need to avoid premature interruption of the administrative process; whereas primary jurisdiction operates where a party seeks to invoke the original jurisdiction of a court to decide issues which may require resort to administrative expertise.16
As to both primary jurisdiction and exhaustion of administrative remedies, the Supreme Court in Flo-Sun, Inc. v. Kirk, et al., 783 So. 2d 1029 (Fla. 2001), required that the party seeking to circumvent the administrative process plead ultimate facts showing errors that are so “egregious or devastating that the promised administrative remedy is too little or too late.” This is in addition to showing the APA provides no recourse whatsoever to the complainant. In Flo-Sun, complainant’s “general and vague allusions relating to a governmental conspiracy propelled by campaign contributions” were insufficient to meet this requirement.
In asserting exhaustion as an affirmative defense, attention should be paid to the statutory enforcement authority afforded to government agencies. Dual enforcement authority may be convened upon a regulatory agency (i.e., Agency for Health Care Administration) and a law enforcement agency (i.e., Office of the Attorney General). In Medicaid, for example, although the Agency for Health Care Administration administers and audits the Medicaid program, the Office of the Attorney General oversees fraud prevention through its Medicaid Fraud Control Unit.17 The Medicaid Fraud Unit may seek to recover overpayments in civil actions under the Florida False Claims Act, while AHCA may take administrative action to recover overpayments. Another example is in the area of consumer protection. Pursuant to F.S. §501.203(2), the Office of the Attorney General is an enforcing authority of the Florida Unfair and Deceptive Trade Practices Act.18 This broad enforcing authority may cover persons, acts, and practices which are “regulated” by other government agencies.19
Federal preemption, as contemplated under the supremacy clause of the Constitution, Art. VI. cl. 2, may apply where parallel state and federal laws apply to a person, act, or practice. For example, FDUTPA is modeled after its federal counterpart at §5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. Sec. 45(a)(1).20 A definition of what constitutes an unfair or deceptive practice is not set forth within FDUTPA. Rather, FDUTPA directs Florida courts to give “due consideration and great weight” to the interpretations of the federal court’s interpretation of the FTC act.21 If both the Federal Trade Commission and the Office of the Attorney General have the authority to enforce consumer protection laws, can federal preemption be asserted as an affirmative defense? The answer is probably no, at least in the area of consumer protection law. All 50 states and the District of Columbia have enacted consumer protection laws prohibiting unfair and deceptive trade practices, many of which are modeled on the FTC act. No federal law, expression, or intent of Congress, or conflict between state and federal law exists which preempts the field in this matter or otherwise precludes the Office of the Attorney General from pursuing consumer protection claims under FDUTPA.22
Good Faith Compliance with Law and Industry Customers and Standards
Compliance with industry standards or good faith efforts to comply with the law are akin to the “going with the flow of traffic” excuse that we have all used when being issued a traffic citation. In consumer protection law, good faith efforts to avoid violating FDUTPA are not a legally sufficient defense.23 In Orkin Exterminating Company, Inc. v. FTC, 849 F. 2d 1354, 1368 (11th Cir. 1988), the defendant’s alleged good faith reliance on its attorney’s advice that its business practices, which the FTC alleged were unfair and deceptive, were in compliance with the law was an insufficient defense. According to the court, the purpose of the unfairness standard under the FTC act is to focus on the effects of the conduct, not the mental state of the wrongdoer.24
Compliance with industry-wide customs and standards is similarly insufficient to defeat an FDUTPA claim. There is a long line of case law, including U.S. Supreme Court cases, which hold that such compliance is a legally insufficient defense.25
Waiver and Laches
In Phillip Morris,26 the U.S. government filed an action under the federal Racketeer Influenced and Corrupt Organizations Act (RICO) against defendant tobacco companies for intentionally deceiving the public about the dangers of smoking. Defendants pled a laundry list of equitable affirmative defenses, including estoppel, laches, waiver, unclean hands, and in pari delicto. Defendants alleged that the government had knowledge of the dangers of smoking. By remaining silent and failing to convey the dangers of smoking to the public, defendants argued the government waived its rights to bring a RICO claim.
Waiver is generally defined as the intentional relinquishment of a known right. In granting the U.S. Attorney General’s motion for summary judgment on the waiver defense, the court noted that the U.S. Attorney General is statutorily authorized to bring civil RICO suits in its sovereign capacity. When a government agency brings an action in its sovereign capacity, a heightened level of scrutiny applies to the affirmative defense of waiver beyond the general definition. According to the U.S. district court, “waiver of a sovereign authority will not be implied, but instead must be surrendered in unmistakable terms.”27 Silence by the government is not sufficient to support waiver.
Laches is the equitable version of the statute of limitations. When the government delays commencement of a legal action to the detriment of the adverse party, laches has been asserted as an affirmative defense.28 According to the defendants, laches applied because the large amount of profits the government sought to disgorge from the tobacco industry was attributable to the amount of time it waited to file its RICO claim. Defendants also asserted that many witnesses had died and that documents had been destroyed over the decades the U.S. government was aware of defendants’ conduct. In granting the government’s motion for summary judgment on laches, the court stated that laches, as a general rule, is not available against the government in an action brought to enforce a public right or protect the public interest.29 Laches is inapplicable even where the government has been neglectful in its duty by waiting to pursue an action.
In general, equitable affirmative defenses cannot be asserted against the government when a government agency brings an enforcement action in the public interest. Exceptions are when the government acts in bad faith or affirmatively engages in wrongdoing. The holdings and analysis in relevant case law will require the defendant to plead such defenses with specificity. A conclusory pleading of equitable defenses without factual support will likely be stricken as insufficient. The defendant cannot make conclusory allegations that the government has acted in bad faith, for instance, and then conduct later discovery to support such a defense. Equitable affirmative defenses in litigation are vulnerable to being stricken pretrial in light of these heightened pleading standards and broad deference afforded to the government in taking enforcement action.
1 FDIC v. Gonzalez-Gorrondona, 1994 U.S. Dist. LEXIS 21094 (S.D. Fla. 1994).
2 Gatt v. Keyes Corp., 446 So. 2d 211 (Fla. 3d D.C.A. 1984); Wiggins v. Portmay Corp., 430 So. 2d 541 (Fla. 1st D.C.A. 1983); Tropical Exterminators, Inc. v. Murray, 171 So. 2d 432 (Fla. 2d D.C.A. 1965), cert. denied, 177 So. 2d 475 (Fla. 1965).
3 Gatt, 446 So. 2d at 212.
4 Sutron v. Lake County Water Authority, 870 So. 2d 930 (Fla. 5th D.C.A. 2004).
5 Id.; see also State of Florida, Agency for Health Care Administration (AHCA) v. MIED, Inc., 869 So. 2d 13, 20-22 (Fla. 1st D.C.A. 2004); Dept. of Revenue v. Anderson, 403 So. 2d. 397, 400 (Fla. 1981).
6 AHCA, 869 So. 2d 13, 20-22, citing County of Brevard v. Miorelli Eng’g, Inc., 703 So. 2d 1049, 1051 (Fla. 1997), finding that estoppel could not be used to alter the terms of an express written contract because otherwise an “unscrupulous or careless government employee could alter or waive the terms of the written agreement, thereby leaving the sovereign with potentially unlimited liability.”
7 United States v. Phillip Morris, Inc., 300 F. Supp. 2d at 74.
8 SEC v. Weil, et al., 1980 U.S. Dist. LEXIS 12144 (M.D. Fla. 1980).
10 See FTC v. Image Sales and Consultants, Inc., 1997 U.S. Dist. LEXIS 18942 (N.D. Ind. 1997).
11 See Phillip Morris, 300 F. Supp. 2d at 75-76.
13 AHCA, 869 So. 2d at 18.
15 See Flo-Sun, Inc. v. Kirk, et al., 783 So. 2d 1029, 1036-1040 (Fla. 2001).
17 See Fla. Stat. §16.59.
18 See Fla. Stat., Ch. 501, Pt. II.
19 See also Fla. Stat. §501.212. Sets forth persons, acts, and practices exempt from FDUTPA.
20 See Fla. Stat. §501.203(3)(a).
21 See Fla. Stat. §501.204(2).
22 See also Department of Legal Affairs v. Rogers, 329 So. 2d 257 (Fla. 1976). Florida Supreme Court upheld the constitutionality of FDUTPA.
23 See Orkin Exterminating Company, Inc. v. FTC., 849 F. 2d 1354, 1368 (11th Cir. 1988).
24 Id.; see also Fla. Stat. §501.2075. Conduct is considered “willful” for purposes of imposing civil penalties for violations of FDUTPA when the person knew or should have known that his or her conduct was unfair or deceptive or prohibited by rule.
25 See FTC v. Keppel & Bro., Inc., 291 U.S. 304, 54 S. Ct. 423 (1934).
26 Phillip Morris, 300 F. Supp. 2d 61 (D.C. Cir. 2004).
27 Id. citing United States v. Cherokee Nation of Oklahoma, 480 U.S. 700, 707 (1987).
28 Id. at 72 - 74.
29 Id. citing United States. v. Summerlin, 310 U.S. 414, 416 (1940); c.f. United State v. Administrative Enterprises, 46 F. 3d 670, 672-673 (7th Cir. 1995). The Seventh Circuit has considered the possibility that laches could be applied against the government in the “most egregious circumstances,” or when the government seeks to enforce its own private rights, including its commercial rights.
Stephen V. Iglesias is an assistant attorney general in the Office of the Attorney General, Medicaid Fraud Control Unit. His practice areas include healthcare fraud, government false claims, asset forfeiture, RICO, and consumer protection. Mr. Iglesias received his J.D. from Southern Methodist University in 1997.
This column is submitted on behalf of the City, County and Local Government Law Section, Kathryn K. Collie, chair, and Jewel W. Cole, editor.