Indiana Insurance Company v. CE Design Ltd.

Filing 27

MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 6/24/2013:Mailed notice(wp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

INDIANA INSURANCE COMPANY,
Plaintiff,
Case No. 12 C 8839
v.
Hon. Harry D. Leinenweber
MATRIX LS, INC. and CE DESIGN
LTD.,
Defendants.

MEMORANDUM OPINION AND ORDER
I.

BACKGROUND

As this Court previously noted “[t]his case has a somewhat
convoluted history.” Indiana Insurance Co. v. Matrix LS, Inc., and
CE Design, Ltd., Memorandum Opinion and Order, *2, No. 06 C 2115,
(N. Dist. Ill. June 27, 2012) (“Matrix One”).

We can now drop the

“somewhat.”
Matrix One, seeking a declaration of rights as to insurance
coverage, was filed in the Lake County Circuit Court by CE Design
in 2006 shortly after it filed a class action lawsuit in the same
court against Matrix alleging violations of the Telephone Consumer
Protection Act.

Matrix at the time was insured under a policy

written by Indiana Insurance Company (“Indiana”), and Matrix One
was filed because Indiana was defending Matrix pursuant to a
reservation of rights. Indiana removed Matrix One to this court in
April 2006.

Indiana filed a Counterclaim against CE Design and a

cross claim against Matrix, likewise seeking a declaration of its
coverage obligations.

At the Court’s suggestion, CE Design agreed

to dismiss its suit without prejudice and Indiana should refile its
Cross-Claim and Counterclaim as a new Complaint. After Indiana had
done so, CE Design filed its Counterclaim against Indiana and
Matrix seeking the same relief as before.
Following this realignment, the parties engaged in discovery
and motion practice which culminated in Indiana filing a Summary
Judgment Motion with respect to CE Design’s Counterclaim contending
that CE Design did not have standing to obtain declaratory relief.
The Court granted the Motion holding that CE Design’s interests
could be adequately protected by being named as a defendant to
Indiana’s

claim.

declaratory relief.

Left

pending

was

Indiana’s

request

for

There was no further activity in the case

until November 17, 2011, when new counsel filed an appearance on
behalf of Indiana. Indiana subsequently moved for summary judgment
on the issue of its duty to defend and indemnify Matrix.

CE Design

then moved to dismiss the case for want of prosecution.

On

June 27, 2012, the Court dismissed the case for want of prosecution
due to Indiana having allowed the case to remain dormant for more
than 4 years.

On July 24, 2012, the Court modified its order to

specify that the dismissal was without prejudice.

On November 5,

2012, Indiana filed the instant suit (which we will call “Matrix

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Four”) again seeking a declaration regarding its coverage and its
obligation to defend and indemnify Matrix.
In the meantime, prior to the dismissal of Matrix One, CE
Design filed two other cases in different state courts seeking the
same declaratory relief.

The first case was filed on November 3,

2011, in the Milwaukee, Wisconsin Circuit Court (“Matrix Two”),
which Indiana removed to the Eastern District of Wisconsin on
December 2, 2011, and subsequently moved to dismiss it.

On

January 10, 2012, after briefing was complete, but before the court
could rule,

CE

Design

voluntarily

dismissed

Matrix Two.

On

December 7, 2011, while both Matrix One and Matrix Two were still
pending, CE Design filed yet another declaratory judgment action in
Massachusetts state court (“Matrix Three”). Indiana did not remove
this action but on March 20, 2012, filed a motion to dismiss on
standing grounds, which was granted on November 5, 2012. Dismissal
occurred on the same date that Indiana filed Matrix Four in this
Court.

CE Design appealed the dismissal of Matrix Three to the

Massachusetts state appellate court, which appeal is still pending.
CE Design has now moved to dismiss or stay or transfer to Michigan
(Matrix’s state of incorporation) Matrix Four.
CE Design argues that the Wilton/Brillhart abstention doctrine
applies and this Court should exercise its discretion to dismiss or
stay this lawsuit because the sole relief sought is declaratory
relief

and

a

parallel

state

court

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proceeding

is

ongoing

in

Massachusetts.

This abstention doctrine, named after two Supreme

Court cases, holds that federal district courts have substantial
discretion in deciding whether to declare the rights of litigants,
and may, in their sound discretion, stay or dismiss an action
seeking a declaratory judgment in favor of a parallel ongoing state
court case.

See Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491,

494-5 (1942) and Wilton v. Seven Falls Co., 515 277, 288 (1995).
CE Design further contends that the fact that the Massachusetts
case is on appeal makes no difference because the trial and appeals
process is treated as a unitary system, and until all appeals are
exhausted, a state judicial proceeding is deemed to be pending,
citing New Orleans Public Service, Inc. v. Council of City of New
Orleans, 491 U.S. 350, 367 (1989).

As an alternative to dismissal

or stay, CE Design moves to transfer Matrix Four to the Eastern
District of Michigan,

pursuant to 28 U.S.C. § 1404(a).

This is

appropriate, it claims, because Matrix was incorporated in Michigan
and much of the activities relating to the issuance of the Indiana
insurance policy occurred there.
Indiana responds by pointing out that the Massachusetts action
is on appeal after the state court dismissed CE Design’s attempt to
get the state to declare Matrix’s rights under the Indiana policy,
and cites James River Ins. Co. v. Rinella & Rinella, Ltd., No. 07
C 4233, 2008 WL 630496, at *2 (N.E. Ill. Mar. 5, 2008) for the
position that the federal court should exercise discretion and keep
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the case in situations where there is insufficient opportunity to
raise and settle the issues in the state court.

It cites Elmendorf

Grafica, Inc. v. D.S. America (East), Inc., 48 F.3d 46, 51 (1st
Cir. 1995), which held that where the state case had been dismissed
and was on appeal, no parallelism existed.

Indiana also argues

against transfer to Michigan because CE Design, itself, picked the
Illinois Courts for filing Matrix One, seeking a declaratory
judgment as to the insurance coverage and that Matrix has been
administratively dissolved by the State of Michigan.
II.
A.

DISCUSSION

Motion to Dismiss or Stay

In 1995, the Supreme Court, ruled that federal courts have
discretion in deciding whether to hear an action filed under the
Federal Declaratory Judgment Act where there is a parallel state
court action pending.

Wilton v. Seven Falls Co., 515 U.S. 277.

In

so ruling, the court declined to follow the “unique circumstances”
test annunciated in Colorado River Water Conservation District v.
United States, 424 U.S. 800 ( 1976).

The discretion should be

exercised with “considerations of practicality and wise judicial
administration.” Wilton, 515 U.S. at 287. In the predecessor case
to Wilton, Brillhart v. Excess Ins. Co. of America, 316 U.S. 491,
495-6 (1942), the Supreme Court set forth some of the factors that
a

federal

court

should

consider

in

deciding

to

refrain

from

exercising of discretion: (1) whether the question in controversy
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between the parties can better be settled in the proceeding pending
in

state

court,

e.g.,

the

scope

of

the

pending

state

court

proceeding, the nature of the defenses; and (2) whether the claims
of all of the parties can be satisfactorily be adjudicated in that
proceeding.

The Seventh Circuit has expanded on the factors to be

considered by adding whether there is a substantial likelihood that
the [state court] litigation will dispose of all claims presented
in the federal case.”

Envision Healthcare, Inc. v. PreferredOne

Ins. Co., 804 F.3d 983, 986-7 (7th Cir. 2010).
When analyzed under these factors, it is clear that this Court
would be abusing its discretion if it dismissed this case in favor
of Matrix Three.

The two cases are clearly not parallel.

Indiana

is a defendant in that case and was successful for the second time
in getting the case dismissed for lack of standing on the part of
CE Design.

That case is on appeal and any further action would

have to await the ruling of the Massachusetts appellate court.
Since two courts have ruled that CE Design does not have standing
to pursue a declaratory judgment action the chances on appeal
appear to be insubstantial.

In any event, Indiana would have to

await the outcome on appeal before it could even present its
counterclaim.

In the meantime, Matrix Four is pending in this

Court and is ready to proceed to dispositive motions which have
previously been briefed but not ruled upon.

While the Court has

not been made aware of the status of the underlying class action

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litigation other than it is still pending, it would appear to be
important for Indiana to obtain a declaration sooner rather than
later.

Based on the foregoing, the Court will exercise its

discretion to decline to dismiss or stay Matrix Four.
B.

Motion to Transfer

The court next must consider CE Design’s Motion to Transfer
the case to the Federal District Court of Eastern Michigan pursuant
to 28 U.S.C. § 1404(a).

The basis for CE Design’s Motion is the

fact that Matrix, Indiana’s insured is (or was) a Michigan entity
and supposedly its material witnesses and sources of proof are
located in Michigan and Michigan law would govern the outcome of
this case.
A

Motion

for

Transfer

Venue

is

governed

by

28

U.S.C.

§ 1404(a), which provides:
For the convenience of parties and witnesses,
in the interest of justice, a district court
may transfer any civil action to any other
district or division where it might have been
brought.
Thus, transfer under Section 1404(a) is appropriate where the
moving party demonstrates that:

(1) venue is proper in the

transfer district; (2) venue and jurisdiction are proper in the
transferee

district;

and

(3)

the

transfer

will

serve

the

convenience of the parties, the convenience of the witnesses, and
the interests of justice.

Coffey v. Van Dorn Iron Works, 796 F.2d

217, 219 (7th Cir. 1986).

Whether these factors justify transfer

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is committed to the sound discretion of the trial court and
requires “individualized, case-by-case consideration of convenience
and fairness” and the movant has the burden of establishing that
the transferee forum is clearly more convenient.

Coffey, 796 F.2d

at 220.
Here CE Design as clearly not established in any way that the
Michigan court would be more convenient.
Corporation.

It is an Illinois

It originally picked this Court in which to file its

declaratory action.

It has no connection to Michigan.

It is

attempting to prove convenience by arguing that Matrix, who has not
joined in the Motion, would find the transfer more convenient.
Moreover, CE Design has not indicated what the witnesses that it
intends to call who currently reside in Michigan and who might, in
fact, be inconvenienced. The fact it has filed three suits seeking
declaratory judgment in three separate states, none of which is
Michigan,

speaks volumes

as

to

its

consideration

of

its

own

First,

the

convenience.
Public

interest

does

not

demand

transfer.

underlying litigation is presently pending in Illinois, so it is
this state’s interest to see that the insurance coverage issue is
resolved.

Second, while Michigan law probably will apply, CE

Design does make any effort to show that Michigan law is so unique
that the issues of insurance coverage would be so complicated that
a court sitting in Illinois would be unable to figure it out.

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Based on the foregoing, the Court finds that CE Design has
failed to show that the Eastern District of Michigan is clearly the
more convenient forum.

Accordingly, the Motion to Transfer is

denied.
One last comment: as befits a case with such a convoluted
history, it is ironic that each party is fighting to litigate in
the other’s back yard.
III.

CONCLUSION

For the reasons stated herein, the Motions of CE Design to
Dismiss or Stay or Transfer are denied.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
DATE:6/24/2013

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