Amling et al v. Harrow Industries LLC
Filing
39
OPINION: This case is DISMISSED without prejudice for lack of subject matter jurisdiction. Alternatively, even if jurisdiction existed, the Court, in its discretion, DECLINES to hear the declaratory judgment suit and dismisses the suit without prejudice. All pending motion are DENIED AS MOOT. This case is closed. SEE WRITTEN OPINION. Entered by Judge Sue E. Myerscough on 04/22/2019. (SKN, ilcd)
E-FILED
Tuesday, 23 April, 2019 04:11:39 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
ROBERT M. AMLING and
DEBORAH AMLING,
)
)
)
Plaintiffs,
)
)
v.
)
)
SCHLAGE LOCK CO., LLC,
)
as alter ego of and/or
)
successor-in-interest to
)
HARROW INDUSTRIES, LLC;
)
and HARROW INDUSTRIES, LLC, )
)
Defendants.
)
No. 3:18-cv-3108
OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
In July 2018, Plaintiffs Robert M. Amling and Deborah
Amling filed a First Amended Complaint against Schlage Lock
Company, LLC (Schlage) and Harrow Industries LLC. Plaintiffs
allege that Harrow Industries LLC is Schlage’s alter ego or,
alternatively, that Schlage is successor-in-interest to Defendant
Harrow Industries LLC. Plaintiffs seek a declaratory judgment that
the Asset Purchase Agreement between Harrow Products, Inc. and
Nexus Corporation did not effectuate a transfer of liability from
Page 1 of 17
Schlage—as alter ego and/or successor-in-interest—to any other
entity regarding the liability stemming from a pending state court
lawsuit filed by Plaintiffs against Harrow Industries LLC.
In October 2018, Defendant Schlage moved to dismiss
Plaintiffs’ First Amended Complaint. This Court directed the
parties to address whether Plaintiffs’ case met the Article III caseor-controversy requirement. Having reviewed the parties’
submissions, the Court DISMISSES this case without prejudice for
lack of subject matter jurisdiction. Alternatively, even if
jurisdiction existed, the Court, in its discretion, DECLINES to hear
the declaratory judgment suit and dismisses the suit without
prejudice because the declaratory judgment Plaintiffs seek would
be immaterial if the state court finds no liability.
I. BACKGROUND
The State Court Lawsuit
In 2016, Plaintiffs filed a complaint in state court against
several defendants, including Ingersoll-Rand Company,
individually and as successor in interest to “Harrow Industries,
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Inc.”1 and to Harrow Products, Inc. individually and as successor
in interest to National Greenhouse Company. See Robert M.
Amling and Deborah Amling v. Burnham, LLC et al., Madison
County, Illinois, Case No. 2016-L-000111 (Underlying Lawsuit).
Plaintiffs also named Nexus Corporation, individually and as
successor in interest to National Greenhouse Company as a
defendant. As is relevant to this case, Plaintiffs allege that Robert
Amling was exposed to asbestos fibers beginning in 1965 and
continuing to the present emanating from products designed,
manufactured, sold, delivered, distributed, processed, applied,
specified, or installed by National Greenhouse Company (among
other defendants). Plaintiffs allege that Mr. Amling was diagnosed
with asbestos-related cancer, including mesothelioma, on October
7, 2015.
The First Declaratory Judgment Action
In October 2017, Harrow Industries LLC filed a declaratory
judgment action against Nexus Corporation in this Court. See
The state court complaint indicates that Plaintiffs sued “Harrow Industries,
Inc.” Plaintiffs herein allege that they sued Harrow Industries LLC in the state
court lawsuit. Compl. ¶ 53 (alleging Plaintiffs sued Harrow Industries LLC);
¶ 42 (alleging that Harrow Products, Inc. is a division within the
corporate structure of Harrow Industries LLC).
1
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Harrow Industries LLC v. Nexus Corporation, Central District of
Illinois, Springfield Division, Case No. 17-3222 (hereinafter, “Case
No. 17-3222”). In that case, Harrow Industries LLC alleged that
Harrow Products, Inc. sold National Greenhouse Company to
Nexus Corporation pursuant to an Asset Purchase Agreement
dated November 14, 1990. Case No. 17-3222, Compl. ¶¶ 9, 11, 12,
14 (d/e 1) (also alleging that Harrow Products, Inc. is a division
within Harrow Industries LLC’s corporate structure). The Asset
Purchase Agreement memorialized the sale of certain assets of
National Greenhouse Company from Harrow Products, Inc. to
Nexus Corporation. Nexus also assumed certain defined liabilities,
including “all claims arising after the Closing date from events
occurring after the Closing date.” The Asset Purchase Agreement
reflects that it will be construed in accordance with Illinois law.
Agreement ¶ 13.12 (d/e 10-1).
Harrow Industries LLC sought a declaratory judgment that,
under the Asset Purchase Agreement, Nexus Corporation was
liable for all amounts expended—including defense costs—by
Harrow Industries LLC regarding National Greenhouse Company
Plaintiffs’ state court case. Harrow Industries LLC also alleged
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that Nexus Corporation owed a contractual duty to defend and
indemnify Harrow Industries LLC against any claims arising after
the closing date of the Asset Purchase Agreement and breached the
Agreement by failing to do so.
Nexus Corporation filed a Motion to Dismiss, asserting that
Harrow Industries LLC sued the wrong Nexus Corporation. In
February 2018, this Court granted Nexus Corporation’s Motion to
Dismiss, finding that Harrow Industries LLC did not plausibly
allege that the named defendant Nexus Corporation was liable
under the Asset Purchase Agreement. See Case No. 17-3222,
Opinion at 10 (d/e 15). Colorado Secretary of State documents—of
which this Court took judicial notice—showed that the defendant
Nexus Corporation was not formed until February 8, 1994 while
another entity called “Nexus Corporation” (Old Nexus) existed in
1990, changed its name to Leroy Greenhouse Corporation on
January 12, 1994 and was administratively dissolved on
September 30, 2004. The Court granted Harrow Industries LLC
leave to conduct limited discovery on how National Greenhouse
Company passed from Old Nexus to defendant Nexus Corporation.
On June 8, 2018, Harrow Industries LLC moved to voluntarily
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dismiss the case. This Court granted the motion on June 26,
2018.
In February 2018, while Case No. 17-3222 was still pending,
the state court judge stayed the state case due to the pendency of
Case No. 17-3222. The state court has not lifted the stay, even
though Case No. 17-3222 has been dismissed.
The Current Declaratory Judgment Action
On May 5, 2018, Plaintiffs filed the lawsuit at issue herein
against Harrow Industries LLC and Schlage as alter ego of and/or
successor-in-interest to Harrow Industries LLC. In the First
Amended Complaint, Plaintiffs allege that the Asset Purchase
Agreement did not transfer any liability stemming from the
allegations of the underlying state lawsuit to Nexus Corporation,
the purchaser of the assets. Plaintiffs allege that Harrow
Industries LLC is liable for any damages attributable to National
Greenhouse Company in the underlying state lawsuit as the
successor-in-interest to all debts and liabilities of Harrow
Products, Inc. Plaintiffs further allege that Schlage is liable for any
damages attributable to National Greenhouse Company in the
underlying state lawsuit as the alter ego of and/or successor-inPage 6 of 17
interest to Defendant Harrow Industries LLC. Plaintiffs ask the
Court to enter judgment in their favor finding that:
the Asset Purchase Agreement did not effectuate a
transfer of liability from Schlage Lock Company LLC (as
alter ego of and/or successor-in-interest to Harrow
Industries LLC and Harrow Products, Inc.), to any other
entity, as to any liabilities stemming from the allegations
in Amling v. Harrow Industries, No. 16 L 111 in the
Third Judicial Circuit, Madison County, Illinois.
Harrow Industries LLC filed an Answer to the First Amended
Complaint (d/e 13). On October 1, 2018, Schlage filed a Motion to
Dismiss. As noted, the Court directed the parties to address
whether this case meets the Article III case-or-controversy
requirement.2
II. LEGAL STANDARD
A federal court is obligated to inquire into the existence of
jurisdiction sua sponte. Evergreen Square of Cudahy v. Wis.
Hous. & Econ. Dev. Auth., 776 F.3d 463, 465 (7th Cir. 2015);
Fed. Civ. P. 12(h)(3) (providing that if a court determines at any
On February 27, 2019, Plaintiffs filed a Motion for Partial Summary
Judgment, asking that the Court declare that the Asset Purchase Agreement
between Nexus and Harrow Products, Inc., a division of Defendant Harrow
Industries, LLC, left Harrow with the liabilities as to the claims asserted in the
Underlying Lawsuit. See d/e 32. Briefing on the Motion is stayed pending a
resolution of jurisdiction. See March 11, 2019 Text Order.
2
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time that it lacks subject-matter jurisdiction, the court must
dismiss the action). When considering a dismissal for lack of
subject matter jurisdiction, the Court accepts as true all wellpleaded factual allegations and draws all reasonable inferences in
favor of the plaintiff. Alicea-Hernandez v. Catholic Bishop of Chi.,
320 F.3d 698, 701 (7th Cir. 2003). However, the plaintiff bears the
burden of proving the jurisdictional requirements have been met.
Ctr. For Dermatology & Skin Cancer Ltd. v. Burwell, 770 F.3d 586,
588 (7th Cir. 2014). “The court may look beyond the jurisdictional
allegations of the complaint and view whatever evidence has been
submitted on the issue to determine whether in fact subject matter
jurisdiction exists. Alicea-Hernandez, 320 F.3d at 701.
III. ANALYSIS
The Declaratory Judgment Act provides that “[i]n a case of
actual controversy . . . any court of the United States, upon the
filing of an appropriate pleading, may declare the rights and other
legal relations of any interested party seeking such declaration,
whether or not further relief is or could be sought.” 28 U.S.C.
§ 2201. When determining whether a declaratory judgment action
satisfies the case-or-controversy requirement, the question is
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“‘whether the facts alleged, under all the circumstances, show that
there is a substantial controversy, between parties having adverse
legal interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.’” Medimmune, Inc. v.
Genetech, Inc., 549 U.S. 118, 127 (2007) (quoting Maryland Cas.
Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).
In their First Amended Complaint, Plaintiffs ask this Court to
enter a declaratory judgment that the Asset Purchase Agreement
did not transfer liability from Schlage (as alter ego of and/or
successor in interest to Harrow Industries LLC and Harrow
Products Inc.) to any other entity as to any liabilities stemming
from the allegations in the Underlying Lawsuit. That is, Plaintiffs
essentially seek a declaration that Schlage will be liable for any
judgment in the Underlying Lawsuit for damages attributable to
National Greenhouse Company.
Plaintiffs seek the interpretation of an Agreement to which
they are not a party, and Plaintiffs do not allege that they are third
party beneficiaries of the Agreement. (The Court also notes that
the other party to the Agreement—Nexus Corporation—is not a
party to this lawsuit, but that is likely because, as stated above, it
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appears that the Nexus Corporation in existence in 1990 is now
defunct). Plaintiffs, however, liken their case to those cases finding
that a tort victim has an interest in the tortfeasor’s insurance
policy. See Pls. Mem. at 7 (d/e 33).
Even if the Asset Purchase Agreement could be equated to an
insurance policy, a declaratory judgment seeking indemnification—
as opposed to a duty to defend—is generally not ripe unless there
has been a finding of liability in the underlying action. See Lear
Corp. v. Johnson Elec. Holdings Ltd., 353 F.3d 580, 583 (7th Cir.
2003) (“We regularly say that decisions about indemnity should be
postponed until the underlying liability has been established.”);
Nationwide Ins. v. Zavalis, 52 F.3d 689, 693 (7th Cir. 1995)
(holding that “the duty to indemnify is not ripe for adjudication
until the insured is in fact held liable in the underlying suit”).
The general rule is not absolute, however. In Bankers Trust
Co. v. Old Republic Ins. Co., 959 F.2d 677, 681 (7th Cir. 1992), the
Seventh Circuit found an actual controversy with respect to the
insurer’s duty to indemnify even though the underlying litigation
regarding the insured’s liability was not resolved.
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In Bankers Trust, the plaintiff lent money to a borrower in
reliance on appraisals by Lee A. Kelling & Associates, Inc. (LKA).
Id. at 679. The borrower defaulted, and the plaintiff lost $30
million. The plaintiff sued LKA in federal court, and that suit
remained pending. Id. The defendant—LKA’s insurer—also sued
LKA in federal court, seeking to rescind the policy. Id. at 679-680.
The plaintiff thereafter filed the instant suit against the defendant
seeking a declaration that, if the plaintiff wins a judgment in its
suit against LKA, the defendant must indemnify LKA up to the
limits of the policy. Id. at 680. Two months later, the defendant
settled its suit with LKA, agreeing that the defendant would be
liable on the policy only up to $425,000. Id.
Recognizing the general rule that a suit to determine an
insurer’s obligations to indemnify is premature until the insured
has been found liable, the Seventh Circuit nonetheless found
jurisdiction. Id. The Court noted that Article III requires only a
“probabilistic injury,” which is a matter of degree, and does not
mean that any probability of injury is enough. Id. at 681.
However, the Seventh Circuit found a real disagreement existed
between the plaintiff and the defendant and the probability that
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the plaintiff would win a judgment in excess of the policy limits
resulting from the settlement was not so slight that the plaintiff
had nothing practical at stake in the case. Id. at 681. The Seventh
Circuit concluded that the plaintiff did not have to wait for a
judgment in plaintiff’s state court suit against LKA to bring the
declaratory judgment action against the defendant.
Courts have described Bankers Trust described as a “rare
circumstance” when the Seventh Circuit deviated from the general
rule that decisions about indemnity should be postponed until the
underlying liability has been established. See Westfield Ins. Co. v.
Sheehan Const. Co., Inc., 575 F. Supp. 2d 956, 960 (S.D. Ind.
2006) (noting the rare circumstances includes a sufficient
probability that the plaintiff will win a judgment governed by the
policy; a high amount of damages; the insured’s inability to pay;
and no other insurance coverage for the potential liability). Other
courts have interpreted the exception as applying when the
plaintiff’s legally protected interest in a recovery is in jeopardy
before the underlying claim is resolved. City of Chi. v. Arvinmeritor
Inc., No. 05 C 6738, 2006 WL 3431910, at *5 (N.D. Ill. Nov. 28,
2006).
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In this case, Plaintiffs have not provided any basis for
deviating from the general rule that a declaratory judgment
seeking indemnification is not ripe until a finding of liability is
made in the underlying action. Here, liability has not been
established in the Underlying Lawsuit. Whether the state court
will find that Mr. Amling was exposed to asbestos fibers from
products designed, manufactured, sold, delivered, distributed,
processed, applied, specified, and/or installed by National
Greenhouse Company and for which Harrow Industries LLC is
responsible is entirely speculative. See Molex Inc. v. Wyler, 334 F.
Supp. 2d 1083, 1087-88 (N.D. Ill. 2004) (finding no basis to deviate
from the general rule against issuing a declaratory judgment
regarding the duty to indemnify before the underlying action is
resolved). Therefore, the Court finds Plaintiffs have not shown a
substantial controversy of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment.
Moreover, even if this Court were to find jurisdiction, this
Court has the discretion whether to grant declaratory relief. The
Declaratory Judgment Act provides that a federal court “may
declare the rights and other legal relations” of the parties. 28
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U.S.C. § 2201 (emphasis added). This language has long been
interpreted as giving federal courts “unique and substantial
discretion in deciding whether to declare the rights of litigants.”
Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995).
The Supreme Court has not identified the exact criteria a
court should use when deciding whether to stay or dismiss a
declaratory judgment action, although the two leading cases
involved situations where a parallel state court proceeding was
pending. See Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491,
495 (1942) (“We do not now attempt a comprehensive enumeration
of what in other cases may be revealed as relevant factors
governing the exercise of the district court’s discretion.”); Wilton,
515 U.S. at 290 (noting that the Court was not attempting to
“delineate the outer boundaries of that discretion in other cases,
for example, cases raising issues of federal law or cases in which
there are no parallel state proceedings”). When a parallel state
court proceeding is pending, relevant factors include the scope of
the state proceeding, whether the claims of all parties can be
adjudicated in the state proceeding, the “‘usefulness of the
declaratory judgment remedy.’” and “‘the fitness of the case for
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resolution.’” Arnold v. KJD Real Estate, LLC, 752 F.3d 700,
707(7th Cir. 2014) (quoting Wilton, 515 U.S. at 289)). And, in any
event, “[e]ven if there is no parallel proceeding, the district court
still has discretion to decline to hear a declaratory judgment suit.”
Medical Assurance Co. v. Hellman, 610 F.3d 371, 379 (7th Cir.
2010).
Plaintiffs argue that this Court should not decline to exercise
jurisdiction because this declaratory judgment action will not
present factual questions that the state court has been asked to
decide. Plaintiffs also argue that issues of comity, efficiency, and
tactical gamesmanship weigh in favor of exercising jurisdiction.
Defendants assert that the underlying state action will ultimately
decide the liability of the parties and this Court should exercise its
discretion and dismiss the action.
The Court finds, in its discretion, that dismissal is warranted.
Whether the liabilities stemming from the Underlying Lawsuit
remained with Schlage as alter ego of or successor-in-interest to
Harrow Industries LLC and Harrow Products, Inc. will depend on
the facts that will be decided in the Underlying Lawsuit—including
when Mr. Amling was exposed to asbestos fibers attributable to
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National Greenhouse Company. Moreover, it would be a mistake
to consume judicial time to produce a decision that may be
irrelevant if the state court finds no liability on the part of National
Greenhouse Company and Harrow Industries LLC. As stated in
Lear, 353 F.3d at 583:
A declaration that A must indemnify B if X comes to
pass has an advisory quality; and if the decision would
not strictly be an advisory opinion (anathema under
Article III) it could be a mistake because it would
consume judicial time in order to produce a decision
that may turn out to be irrelevant.
Therefore, even if this Court were to find Plaintiffs’ claims ripe, the
Court would decline to issue a declaratory judgment in this case.
See, e.g., Daebo Int’l Shipping Co., Ltd. v. Americas Bulk Tranp.
Ltd., No. 12 Civ 7960, 2013 WL 2149595, at *3 (S.D. N.Y. May 17,
2013) (declining to exercise jurisdiction, finding that a judgment
that six entities were alter egos of Americas Bulk Transport, Ltd.
(ABT) was of no value to the plaintiff without a judgment that ABT
was liable, which the plaintiff had not yet obtained).
IV. CONCLUSION
For the reasons stated, this case is DISMISSED without
prejudice for lack of subject matter jurisdiction. Alternatively, even
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if jurisdiction existed, the Court, in its discretion, DECLINES to
hear the declaratory judgment suit and dismisses the suit without
prejudice. All pending motion are DENIED AS MOOT. This case is
closed.
ENTERED: April 22, 2019
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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