Castlepoint Insurance Compnay f/k/a SUA Insurance Company v. National Union Fire Insurance Co. of Pittsburgh, PA

Filing 63

MEMORANDUM Opinion and Order. Signed by the Honorable Manish S. Shah on 12/3/2014: National Union Fire Insurance Company of Pittsburgh, PA's motion to dismiss or stay 39 , and CastlePoint National Insurance Company's motion to remand and for attorneys' fees 50 , are denied. A status hearing is hereby set for 1/22/15 at 9:30 a.m. [For further detail see attached order.] Notices mailed by Judicial Staff. (psm, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CASTLEPOINT NATIONAL INSURANCE
COMPANY f/k/a SUA INSURANCE COMPANY,
Plaintiff,

No. 13 CV 3885

v.

Judge Manish S. Shah

BOYER-ROSENE MOVING AND STORAGE,
INC., MIDWEST UNITED SERVICES, INC.,
HARTFORD UNDERWRITERS INSURANCE
COMPANY, and NATIONAL UNION FIRE
INSURANCE COMPANY OF PITTSBURGH,
PA,
Defendants.
MEMORANDUM OPINION AND ORDER
CastlePoint National Insurance Company, Hartford Underwriters Insurance
Company, and National Union Fire Insurance Company of Pittsburgh, PA, are all
insurance companies. In a prior action, CastlePoint and Hartford—but not National
Union—paid money to settle a workers’-compensation claim. Now CastlePoint seeks
a judicial declaration that National Union was primarily obligated to provide the
relevant workers’-compensation insurance. Also, CastlePoint and Hartford seek
reimbursement from National Union for the money paid to the injured worker.
National Union contends that it rescinded the relevant insurance policy, and
it is concurrently litigating that issue in California state court. Before me are
National Union’s motion to dismiss or stay the case, on abstention grounds, and
CastlePoint’s motion to remand the case to state court, on the basis that this court

lacks subject-matter jurisdiction. For the reasons discussed below, those motions
are denied.
I.

Case History
Bruce Knoll was injured, filed a workers’-compensation claim, and obtained

payment from CastlePoint and Hartford through a settlement agreement. [15]
¶¶ 15–28. National Union did not participate in the settlement process or pay Knoll
any money. [15] ¶ 27. CastlePoint and Hartford contend that National Union issued
an insurance policy—Policy No. WC 006-50-6866—that obligated it to pay Knoll’s
claim. [15] ¶ 35; [25] ¶ 4.
CastlePoint brought suit against National Union and several other
defendants, in the Circuit Court of Cook County. [1] at 1. As initially filed, the case
did not present a federal question and the parties were not completely diverse. See,
e.g., [1-5] ¶¶ 1, 5–6, 8. After some defendants settled, CastlePoint filed a second
amended complaint, seeking relief only from National Union (though other parties
were named as “nominal” defendants). [1-6]. National Union removed the case to
this court on the basis of diversity jurisdiction. [1]. Hartford—one of the nominal
defendants—brought a cross-claim seeking relief only from National Union. [25].1

When the case was removed from state court, there were “nominal” defendants named in
the operative complaint, but no relief was sought from them. Their citizenship is irrelevant
for diversity purposes. Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460–61 (1980); R.G.
Wegman Constr. Co. v. Admiral Ins. Co., 629 F.3d 724, 726 (7th Cir. 2011); Walton v. Bayer
Corp., 643 F.3d 994, 999 (7th Cir. 2011) (citing cases). CastlePoint (a Delaware corporation
principally located in Illinois), Hartford (a Connecticut corporation principally located in
Connecticut), and National Union (a Pennsylvania corporation principally located in New
York) are completely diverse. [53] at 2–3. Further, the amount-in-controversy requirement
is met. [1] at 5.
1

2

In this court, National Union moved to dismiss or stay, on abstention
grounds: National Union argued that a pending state-court case might resolve the
issues in this case. [39]. CastlePoint and Hartford opposed that motion. [49]; [49] at
1 n.1. CastlePoint also moved to remand this case to state court, arguing that
National Union’s abstention argument stripped this court of subject-matter
jurisdiction. [50].
II.

National Union’s Motion to Dismiss or Stay
CastlePoint and Hartford’s claims against National Union are based on an

insurance policy—Policy No. WC 006-50-6866—that National Union issued. [15]
¶ 35; [25] ¶ 4. National Union’s primary defense is that it rescinded that policy. [40]
at 5. Indeed, before this suit was filed, National Union sought, from a California
state court, a declaration that it had rescinded the policy. [40] at 2. National Union
was unsuccessful at the trial level, and the case is now on appeal. [40] at 2–3.
In light of that pending California state action, National Union asks me to
dismiss or stay this case, under the Wilton/Brillhart abstention doctrine. [40]. That
doctrine was recently explained by the Seventh Circuit:
Wilton-Brillhart abstention applies when a federal court is called
upon to proceed in a declaratory judgment suit where another suit
is pending in state court presenting the same issues, not governed
by federal law, between the same parties. In such a case, the
question for the district court is whether the questions in
controversy between the parties to the federal suit can better be
settled in the proceeding pending in the state court. A concern for
comity underlies this doctrine. As the Court put it in Wilton, where
another suit involving the same parties and presenting opportunity
for ventilation of the same state law issues is pending in state
court, a district court might be indulging in gratuitous interference
if it permitted the federal declaratory action to proceed.
3

Wilton-Brillhart abstention is possible because of the federal court’s
unique and substantial discretion in deciding whether to declare
the rights of litigants. The Declaratory Judgment Act is an enabling
Act, which confers a discretion upon the courts rather than an
absolute right upon the litigant. The propriety of declaratory relief
in a particular case will depend upon a circumspect sense of its
fitness informed by the teachings and experience concerning the
functions and extent of federal judicial power. In contrast to most
other actions, there is nothing automatic or obligatory about the
assumption of jurisdiction by a federal court to hear a declaratory
judgment action.
Several factors guide the court’s discretion, including the scope of
the pending state court proceeding and whether the claims of all
parties in interest can satisfactorily be adjudicated in that
proceeding. This is an inherently discretionary call for the district
court, because facts bearing on the usefulness of the declaratory
judgment remedy, and the fitness of the case for resolution, are
peculiarly within its grasp.
Arnold v. KJD Real Estate, LLC, 752 F.3d 700, 707 (7th Cir. 2014) (quotations,
citations, and internal marks omitted).
The parties dispute how closely related this suit is to the California action,
but there are two preliminary issues: whether Wilton/Brillhart applies to a suit
initially brought under the Illinois declaratory-judgment statute, and whether this
suit seeks more than purely declaratory relief.
A. This case is governed by the federal Declaratory Judgment Act,
not the Illinois statute concerning declaratory relief.
Wilton/Brillhart abstention is justified by the discretion conferred to courts
by the federal Declaratory Judgment Act. Wilton v. Seven Falls Co., 515 U.S. 277,
286 (1995) (noting that the federal Declaratory Judgment Act provides that a court
may declare the rights of interested parties); Brillhart v. Excess Ins. Co., 316 U.S.
491, 494–95 (1942) (“Although the District Court had jurisdiction of the suit under
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the Federal Declaratory Judgments Act, it was under no compulsion to exercise that
jurisdiction.”). This case was brought under the Illinois declaratory-judgment
statute, 735 ILL. COMP. STAT. § 5/2-701, but “federal courts sitting in diversity apply
state substantive law and federal procedural law.” Gasperini v. Center for
Humanities, Inc., 518 U.S. 415, 427 (1996). The federal Declaratory Judgment Act is
a procedural statute. Medical Assur. Co. v. Hellman, 610 F.3d 371, 377 (7th Cir.
2010). So is the relevant Illinois statute. Office of State’s Attorney v. Illinois Human
Rights Comm’n, 200 Ill.App.3d 151, 155 (2d Dist. 1990) (“The declaratory judgment
procedure does not create substantive rights or duties but merely affords a new,
additional, and cumulative procedural method for their judicial determination.”).
The federal Declaratory Judgment Act therefore governs the present dispute, see
Illinois ex rel. Barra v. Archer Daniels Midland Co., 704 F.2d 935, 939 (7th Cir.
1983) (“The amended complaint does not mention the Declaratory Judgment Act
but instead asks for a declaratory judgment under the Illinois Civil Practice Act,
which is inapplicable to suits in federal court.”), and Wilton/Brillhart may be
applicable.
B. Wilton/Brillhart discretion is curtailed because the claims seek
more than purely declaratory relief.
The Seventh Circuit has held that where a suit includes non-declaratory
claims that can stand on their own, district courts cannot dismiss or stay such
claims under Wilton/Brillhart, and should not exercise their discretion under the
doctrine to dismiss or stay any related declaratory claims. R.R. St. & Co. v. Vulcan
Materials Co., 569 F.3d 711, 717 (7th Cir. 2009). Neither party developed an
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argument, one way or the other, about whether the relief sought in this case is more
than purely declaratory.2 CastlePoint styles its claims as seeking declaratory relief
(see [15]), but Hartford does not (see [25]). Hartford seeks reimbursement for money
it paid to settle Bruce Knoll’s workers’-compensation claim. Hartford seeks that
relief under an equitable subrogation theory ([25] at Count I), an equitable
contribution theory ([25] at Count II), and an unjust enrichment theory ([25] at
Count III). For its part, CastlePoint seeks a declaration of National Union’s
obligations under the relevant insurance policy. [15] at 15, ¶ A. But like Hartford,
CastlePoint also seeks reimbursement for money it has already paid, under
equitable subrogation, equitable contribution, and unjust enrichment theories. [15]
at 15, ¶¶ B–D. I agree with the court in Travelers Property Casualty Company of
America v. Cannon & Dunphy, S.C., 997 F.Supp.2d 937, 940 (E.D. Wis. 2014), that
such reimbursement claims are independent3 from any declaratory relief sought
and Vulcan Materials therefore prevents me from dismissing or staying them under

National Union did repeatedly refer to this as a “declaratory judgment” case, but did not
substantively analyze the relief sought and argue that it was purely declaratory, rather
than coercive, in nature. Such an argument from National Union might have been difficult
to square with earlier filings, which suggest National Union knows the amount that
CastlePoint already paid Knoll and now seeks in reimbursement. Specifically, in its notice
of removal, National Union alleged that “[t]he amount in dispute here is approximately
$166,000, the amount Castle[P]oint paid to settle the Knoll claim.” [1] at 5.
2

The Vulcan Materials court defined “independence” for these purposes: “A claim for nondeclaratory relief is ‘independent’ of the declaratory claim if: 1) it has its own federal
subject-matter-jurisdictional basis, and 2) its viability is not wholly dependent upon the
success of the declaratory claim. . . . In other words, this test requires a court to adjudicate
nondeclaratory claims if it determines there are claims in the case that exist independent of
any request for purely declaratory relief, that is, claims that would continue to exist if the
request for a declaration simply dropped from the case.” Vulcan Materials, 569 F.3d at 716
n.6 (quotation, citation, and internal marks omitted).
3

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Wilton/Brillhart (and counsels me not to dismiss or stay any related declaratory
claims under that same doctrine).
C. The California action will not resolve all of the issues in this
case.
Further, I am not convinced that abstention under Wilton/Brillhart would be
appropriate, even if this case involved only declaratory claims. The Seventh Circuit
has set forth a non-exhaustive list of factors to be considered:
[T]he federal court should consider (among other matters) whether
the declaratory suit presents a question distinct from the issues
raised in the state court proceeding, whether the parties to the two
actions are identical, whether going forward with the declaratory
action will serve a useful purpose in clarifying the legal obligations
and relationships among the parties or will merely amount to
duplicative and piecemeal litigation, and whether comparable relief
is available to the plaintiff seeking a declaratory judgment in
another forum or at another time.
Nationwide Ins. v. Zavalis, 52 F.3d 689, 692 (7th Cir. 1995); see also Envision
Healthcare, Inc. v. PreferredOne Ins. Co., 604 F.3d 983, 986–87 (7th Cir. 2010)
(“Two

actions

are

parallel

when

substantially

the

same

parties

are

contemporaneously litigating substantially the same issues in two fora.”).
There is no dispute that the parties to this case are not identical to the
parties in the California action, though there is some overlap. See [54] at 8
(“[A]lthough the parties in this case and the California Rescission Action are not
identical, National Union, Optima, and Alliance and ACEO—the entities that
allegedly issued policies to or entered into agreements for workers compensation
with Optima—all are named parties to the California Rescission Action. And, the

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claims of both CastlePoint and Hartford in this case hinge on an alleged agreement
between Optima and Alliance.”).
Further, the claims are not the same. National Union acknowledges that the
claims are different, but argues that the issues are substantially the same. [54] at 3.
But that is only true under National Union’s optimistic view that its position on
rescission is meritorious and will completely dispose of this suit. All of the
efficiencies that National Union argues would be gained through abstention are
conditioned upon it prevailing in the California action—it has offered no theory on
how this case would be resolved, or even simplified, if it loses in California. National
Union lost at the trial level, and it has not given me any reason to conclude that it is
especially likely to win on appeal. It failed to argue the merits of the California
decision at all—it merely said that it “believes” the California trial court erred ([40]
at 3) and that “[n]o party in this case can state with certainty the California court’s
decision in its pending appeal, or outcome of further litigation on the merits” ([54]
at 6).
If National Union is unsuccessful in California, many issues would remain to
be resolved here, including the scope and priority of the relevant insurance policies.
Further, National Union has not represented that it will not raise additional
defenses, other than rescission, for this court to resolve. In fact it has suggested the
opposite. [40] at 5 n.4 (“Additionally, although rescission is the primary dispositive
issue in this case, National Union does not waive the right to assert any additional
claims or defenses in the future if necessary.”). Finally, even if National Union

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prevails in California, it has not argued—much less demonstrated—that
CastlePoint and Hartford’s unjust enrichment theories will be automatically
defeated. So even if the present suit sought only declaratory relief, and I thus had
discretion under Wilton/Brillhart to dismiss or stay the case, I would not do so.
III.

CastlePoint’s Motion to Remand
CastlePoint moves to remand this case to state court, under 28 U.S.C.

§ 1447(c), arguing that this court lacks subject-matter jurisdiction. CastlePoint
argues that because National Union asked me to apply Wilton/Brillhart, and in
doing so referenced Rule 12(b)(1) of the Federal Rules of Civil Procedure, National
Union has conceded that this court lacks subject-matter jurisdiction. [49] at 5.
CastlePoint’s argument is misplaced: parties “may neither confer subject matter
jurisdiction on the district court nor strip it of such jurisdiction by agreement or
waiver.” Adkins v. Ill. Cent. R.R. Co., 326 F.3d 828, 845 (7th Cir. 2003) (quoting
Buchner v. FDIC, 981 F.2d 816, 818 (5th Cir. 1996)).4
In its reply brief, CastlePoint cites cases purportedly standing for the
proposition that where a state-court case is removed to federal court, and the
federal court then abstains from hearing the case, the federal court has the power to
remand the case to state court—in other words, dismissal is not the federal court’s

Further, invoking Wilton/Brillhart is not a concession that this court lacks jurisdiction.
Under Wilton/Brillhart, “district courts possess significant discretion to dismiss or stay
claims seeking declaratory relief, even though they have subject matter jurisdiction over
such claims.” Envision Healthcare, 604 F.3d at 986 (emphasis added) (quoting Vulcan
Materials, 569 F.3d at 714).
4

9

only option). See [55] at 2. Because, as discussed above, I will not abstain from
hearing this case, CastlePoint’s cited authorities are inapplicable.
This court has subject-matter jurisdiction because the parties are diverse and
the amount-in-controversy requirement is met. As discussed above, I do not abstain
under Wilton/Brillhart. There is no basis for me to decline to exercise jurisdiction.
Carnegie-Mellon University v. Cohill, 484 U.S. 343, 355–56 (1988) (“In Thermtron,
the District Court had no authority to decline to hear the removed case. The court
had diversity jurisdiction over the case, which is not discretionary.”) (discussing
Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336 (1976)).
IV.

Conclusion
For the foregoing reasons, National Union’s motion to dismiss or stay [39],

and CastlePoint’s motion to remand and for attorneys’ fees [50], are denied.

ENTER:
___________________________
Manish S. Shah
United States District Judge

Date: 12/3/14

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