Defendant Did Not Forfeit Affirmative Defenses by Failing to Answer Second Amended Complaint, Holds Ninth Circuit

In KST Data, Inc. V. Enterprise Servs. LLC, No. 19-55422 (9th Cir. Nov. 17, 2020), the Ninth Circuit holds that the district court erred in granting summary judgment sua sponte in a contact case when it denied the defendant the opportunity to argue its affirmative defenses.

“Defendant Enterprise Services, LLC (‘ES’) entered into a contract with KST Data, Inc. (‘KST’) to provide services to the National Aeronautics and Space Administration (‘NASA’). KST sued ES following ES’s nonpayment of invoices totaling over $5.4 million.” KST filed two amended complaints. On cross-motions for summary judgment, the district court ruled sua sponte in favor of KST and against ES on the breach of contract claim under Fed. R. Civ. P 56(f).

KST subsequently moved for entry of judgment on the breach of contract claim. “ES argued in response that KST could not recover damages for breach of contract because of its affirmative defenses of unclean hands, fraud, and misrepresentation. This was ES’s first opportunity to raise its affirmative defenses. The district court, however, rejected ES’s argument. It found that ES had not filed an answer to the Second Amended Complaint that pled these affirmative defenses” and thus waived them. The same defenses had, nonetheless, been pleaded in ES’s prior answers.

The Ninth Circuit reverses and remands the summary judgment. The panel summarizes the issue presented as one of law, applying de novo review: “Does the filing of an amended complaint require the defendant to file a new answer specifying its affirmative defenses [under Fed. R. Civ. P. 8(c)] when the claims in the amended complaint remain unchanged?” As a rule, an affirmative defense omitted from an answer is waived or forfeited. “But the circumstances of this case do not allow for the simple application of this rule,” because “[h]ere, ES [had] asserted its affirmative defenses” in the first two answers.

“ES asks us to adopt the rulings of several federal district courts in California that have held it is the defendant’s option to file an answer to an amended complaint … when an amended complaint ‘does not add new parties, new claims, or significant new factual allegations.” KST countered with Fed. R. Civ. P. 15(a)(3), which provides that “[u]nless the court orders otherwise, any required response to an amended pleading must be made within the time remaining to respond to the original pleading or within 14 days after service of the amended pleading, whichever is later.” But because the district court did not order – but only invited – an answer to the amended complaint, ES was not obligated to answer even under that rule.

In sum, “[a] defendant is not required to file a new answer to an amended complaint when the allegations in the amended complaint do not ‘change the theory or scope of the case’ … Here, the Second Amended Complaint contained the same material allegations with respect to the breach of contract claim as the First Amended Complaint. Therefore, ES did not waive its affirmative defenses to that claim by not filing an answer to the Second Amended Complaint.”

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