Velsicol Chemical LLC et al v. Magnetek, Inc.
MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 5/26/17.Mailed notice(ca, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
VELSICOL CHEMICAL LLC and
17 C 2092
Judge John Z. Lee
MEMORANDUM OPINION AND ORDER
Plaintiffs Velsicol Chemical LLC (“Velsicol”) and Transportation Insurance
Company, Inc. (“TIC”) filed a declaratory judgment action against Defendant
Magnetek, Inc. (“Magnetek”) in Illinois state court, seeking a declaration that
Magnetek is not entitled to coverage under TIC’s insurance policies. Soon after
Plaintiffs filed suit, Magnetek removed the case to federal court on the basis of
diversity jurisdiction. Plaintiffs have now moved to remand the case to state court
on the ground that diversity jurisdiction is lacking. For the reasons stated herein,
Plaintiffs’ motion to remand is granted.
This case is several decades in the making. The relevant facts begin in the
early 1970s and involve the business operations of Universal Manufacturing
Corporation (“UMC”). UMC manufactured fluorescent light fixtures and ballasts.
Compl. ¶ 6, ECF No. 1-2.
Among the ingredients in UMC’s products were
Id. ¶ 7.
Throughout the 1970s, UMC purchased
polychlorinated biphenyls from Monsanto Company (“Monsanto”).
UMC and Monsanto entered into an agreement in which UMC promised to
indemnify Monsanto for liabilities and expenses arising from UMC’s use of the
polychlorinated biphenyls it purchased. Id. ¶¶ 8–9.
UMC was originally a subsidiary of Northwest Industries, Inc. (“Northwest”).
Id. ¶ 6. In January 1986, however, Northwest sold UMC to Magnetek. Id. ¶ 14. As
part of the sale agreement, Northwest promised to indemnify Magnetek for any
environmental pollution and toxic tort claims arising from UMC’s pre-sale
activities. Id. ¶ 15. In exchange, Northwest purportedly retained all insurance
rights with respect to such claims under a set of four insurance policies that
Northwest had purchased between 1978 and 1986. Id. ¶¶ 15–17. The insurance
policies had been issued by TIC. Id. ¶ 13.
Over the next several years, Northwest tendered numerous insurance claims
to TIC arising from UMC’s pre-sale activities. Id. ¶ 18. Many of the claims were
disputed and resulted in lengthy insurance coverage litigation.
Id. ¶ 19.
November 1999, to resolve some of these disputed claims, TIC entered into a
settlement agreement with Velsicol.
Under this settlement agreement,
Velsicol agreed to indemnify TIC for certain claims against it. Id. ¶ 1.
Meanwhile, various individuals filed lawsuits against Monsanto’s successors
polychlorinated biphenyls that Monsanto had manufactured. Id. ¶ 11. On August
The parties do not elaborate exactly what Velsicol’s relationship is with the other
commercial entities or how it became involved with the insurance claims against TIC.
31, 2016, Monsanto’s successors and affiliates tendered an indemnity demand (“the
2016 Demand”) on Magnetek, seeking indemnification for these individuals’
personal-injury claims. Id. ¶ 12. According to Monsanto’s successors and affiliates,
the 1972 indemnification agreement between Monsanto and UMC obligated
Magnetek, as the purchaser of UMC, to indemnify them for the 2016 Demand. Id.
On September 7, 2016, Magnetek tendered notice of the 2016 Demand to TIC.
Id. ¶ 13. According to Magnetek, TIC is obligated to provide insurance coverage for
the 2016 Demand pursuant to the four insurance policies that TIC issued to
Northwest between 1978 and 1986.
In turn, TIC then tendered the 2016
Demand to Velsicol pursuant to the 1999 settlement agreement in which Velsicol
agreed to indemnify TIC. Id. ¶ 1.
On February 14, 2017, Velsicol and TIC filed suit against Magnetek in the
Circuit Court of Cook County, Illinois. Velsicol and TIC seek a declaration that
Magnetek is not entitled to insurance coverage for the 2016 Demand under the
insurance policies that TIC issued to Northwest. Id. On March 16, 2017, Magnetek
removed the case to federal court on the basis of diversity jurisdiction. Velsicol and
TIC have moved to remand the case to state court on the ground that diversity
jurisdiction is lacking. Velsicol is a citizen of Delaware, and TIC is a citizen of
Illinois. Notice of Removal ¶¶ 9, 11, ECF No. 1. Magnetek is a citizen of Delaware
and Wisconsin. Id. ¶ 8.
“‘Federal courts are courts of limited jurisdiction. They possess only that
power authorized by Constitution and statute, which is not to be expanded by
judicial decree.’” United States v. Wahi, 850 F.3d 296, 299 (7th Cir. 2017) (quoting
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). One basis of
federal jurisdiction is diversity jurisdiction, which gives federal courts authority to
adjudicate civil actions “where the matter in controversy exceeds the sum or value
of $75,000 . . . and is between citizens of different States.” 28 U.S.C. § 1332(a)(1).
For a civil action to fall within federal courts’ diversity jurisdiction, there must be
complete diversity, meaning that no plaintiff in the action is a citizen of the same
state as any defendant. Krueger v. Cartwright, 996 F.2d 928, 931 (7th Cir. 1993)
(citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806)).
When a plaintiff files a civil action in state court, the defendant may remove
the action to federal court as long as the federal court would have had jurisdiction to
hear the case at the time the plaintiff originally filed it. 28 U.S.C. § 1441(a); Schur
v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 758 (7th Cir. 2009). A defendant
seeking to remove a case to federal court bears the burden of establishing federal
jurisdiction. Tri-State Water Treatment, Inc. v. Bauer, 845 F.3d 350, 352 (7th Cir.
2017); Schur, 577 F.3d at 758 (citing Doe v. Allied-Signal, Inc., 985 F.2d 908, 911
(7th Cir. 1993)). If a federal court lacks jurisdiction over a case removed from state
court, the case must be remanded. 28 U.S.C. § 1447(c); Walton v. Bayer Corp., 643
F.3d 994, 998 (7th Cir. 2011). Courts “interpret the removal statute narrowly and
presume that the plaintiff may choose his or her forum.” Doe, 985 F.2d at 911.
Accordingly, “any doubts about the propriety of removing a particular action should
be resolved against allowing removal.” Wirtz Corp. v. United Distillers & Vintners
N. Am., Inc., 224 F.3d 708, 715 (7th Cir. 2000); accord Schur, 577 F.3d at 758.
In seeking to maintain this action in federal court, Magnetek does not
dispute that diversity jurisdiction is lacking, given that Velsicol (a plaintiff) and
Magnetek (the defendant) are both citizens of Delaware. It argues, however, that
the Court should disregard Velsicol’s citizenship for purposes of ascertaining
diversity jurisdiction because Velsicol was fraudulently joined to this action and is
merely a nominal party. In the alternative, Magnetek argues that the Court should
realign Velsicol as a defendant, even though Velsicol filed this action as a plaintiff.
For the reasons that follow, the Court rejects these arguments.
“‘Diversity jurisdiction cannot be destroyed by joinder of nondiverse parties if
such joinder is fraudulent.’” Hoosier Energy Rural Elec. Coop., Inc. v. Amoco Tax
Leasing IV Corp., 34 F.3d 1310, 1315 (7th Cir. 1994) (quoting Gottlieb v. Westin
Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993)). To establish fraudulent joinder, “proof
of fraud, though sufficient, is not necessary.” Walton, 643 F.3d at 999. Rather, a
removing defendant can establish fraudulent joinder by showing that, after
resolving all issues of fact and law in the plaintiff’s favor, there is no possibility that
the plaintiff could state a cause of action against the defendant in state court. Id.;
Morris v. Nuzzo, 718 F.3d 660, 666 (7th Cir. 2013) (citing Poulos v. Naas Foods, Inc.,
959 F.2d 69, 73 (7th Cir. 1992)). To determine whether the plaintiff would have any
such possibility of success in state court, the district court must look to state law.
Schur, 577 F.3d at 764; Schwartz v. State Farm Mut. Auto. Ins. Co., 174 F.3d 875,
878 (7th Cir. 1999).
A removing defendant bears a “heavy burden” to establish fraudulent joinder.
Schur, 577 F.3d at 764; Poulos, 959 F.2d at 73. The Seventh Circuit has suggested
that this burden is “even more favorable to the plaintiff than the standard that
applies to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).”
Schur, 577 F.3d at 764. “If the removing defendant can meet this heavy burden, the
federal district court considering removal may disregard, for jurisdictional purposes,
the citizenship of certain nondiverse [parties], assume jurisdiction over a case,
dismiss the nondiverse [parties], and thereby retain jurisdiction.” Morris, 718 F.3d
at 666 (internal quotation marks and citations omitted); see also Hoosier Energy, 34
F.3d at 1316.
To determine whether Velsicol has been fraudulently joined as a nondiverse
plaintiff, 2 the Court must decide whether Velsicol would have any reasonable
possibility of pursuing a declaratory judgment action against Magnetek in state
court under Illinois law. See Schur, 577 F.3d at 764; Schwartz, 174 F.3d at 878.
Although the doctrine of fraudulent joinder is most often applied where a removing
defendant seeks dismissal of nondiverse co-defendants, district courts within this circuit
have also applied the doctrine in cases involving nondiverse plaintiffs. See, e.g., Zotec
Partners, LLC v. Herald, No. 1:13-CV-00792-JMS, 2013 WL 3989424, at *3 (S.D. Ind. Aug.
1, 2013); Ampere Auto. Corp. v. Fullen, No. 01 C 6818, 2001 WL 1268554, at *2 (N.D. Ill.
Oct. 17, 2001). Here, the parties do not dispute that the doctrine applies to cases involving
nondiverse, fraudulently joined plaintiffs. The Court therefore assumes for the purpose of
deciding Plaintiffs’ motion that the doctrine indeed applies to such cases.
According to Magnetek, Velsicol has no reasonable possibility of such success
because it “lacks standing to pursue [this] declaratory judgment cause of action.”
Def.’s Mem. Opp. at 5, ECF No. 14. In particular, Magnetek contends that Velsicol
lacks standing because “Velsicol is not in privity of contract with Magnetek,
[Velsicol] owes no duties to Magnetek, and there is no justiciable controversy
between Velsicol and Magnetek.” Id. Magnetek, however, has not met its burden of
showing that these arguments are supported by Illinois law.
In Illinois, a party has standing to bring a declaratory judgment action where
there is an actual controversy and the party is “interested” in the controversy.
Morr-Fitz, Inc. v. Blagojevich, 901 N.E.2d 373, 384 (Ill. 2008) (citing Underground
Contractors Ass’n v. City of Chi., 362 N.E.2d 298, 300–01 (Ill. 1977)).
“interested” in a controversy, “a party must possess a personal claim, status, or
right which is capable of being affected” by the controversy’s adjudication. Int’l
Union of Operating Eng’rs Local 841 Health & Welfare Fund v. Hickman, 546
N.E.2d 1056, 1058 (Ill. App. Ct. 1989) (citing Underground Contractors, 362 N.E.2d
at 301). Unlike Article III standing under federal law, standing under Illinois law
is an affirmative defense that may be forfeited or waived. See Lebron v. Gottlieb
Mem’l Hosp., 930 N.E.2d 895, 916 (Ill. 2010); Skolnick v. Altheimer & Gray, 730
N.E.2d 4, 19 (Ill. 2000); In re Tate Oliver B., 52 N.E.3d 351, 363 n.4 (Ill. App.
Illinois case law does not expressly state when an indemnitor (like Velsicol) is
sufficiently “interested” in a controversy between an indemnitee and a claimant
(like TIC and Magnetek) to have standing to seek a declaratory judgment against
the claimant. That said, Illinois courts have stated that “[a] prospective indemnitor
has a direct interest in defeating the principal action for which indemnity may be
sought.” N.E. Finch Co. v. R.C. Mahon Co., 370 N.E.2d 160, 163 (Ill. 1977); accord
Preferred Am. Ins. v. Dulceak, 706 N.E.2d 529, 534 (Ill. App. Ct. 1999) (“[T]he
indemnifying party [ ] has a direct interest in defending any suit whereby there may
be a recovery against the party indemnified as to the subject matter of the
The reason for this rule is that, once an indemnitee tenders an
indemnity demand to a prospective indemnitor, the doctrine of collateral estoppel
precludes the indemnitor from later relitigating the issue of the indemnitee’s
liability to the claimant. N.E. Finch, 370 N.E.2d at 163; Preferred Am. Ins., 706
N.E.2d at 534.
In other words, because the indemnitor is bound by liability
determinations made in the principal action between the indemnitee and the
claimant, Illinois courts have recognized that the indemnitor has an interest in
participating in that action. See N.E. Finch, 370 N.E.2d at 163 (“The proper time
for an indemnitor to assert the non-liability of the indemnitee to the [claimant] in
the original action[ ] is in the original action.”).
Because an indemnitor has a “direct interest in defeating the principal action
for which indemnity may be sought,” id., it follows that this “direct interest” is
sufficient to give the indemnitor standing under Illinois law to seek a declaratory
judgment against the claimant in the principal action. To conclude otherwise would
be to leave the indemnitor without an opportunity to defend itself in a lawsuit that
will result in a judgment to which it will be bound. See id. This result would be
irreconcilable with Illinois case law, which implicitly assumes that the indemnitor
will have an opportunity to defend itself in such a suit.
See id. (precluding
indemnitor from relitigating issues decided in an action between the indemnitee
and claimant because the indemnitor had “an opportunity to defend” itself in that
action); Am. Serv. Ins. Co. v. City of Chi., 935 N.E.2d 715, 725 (Ill. App. Ct. 2010)
(“[I]t must [ ] be the case that the insurance company [ ] has standing to litigate
issues with an injured third party who has sued its insured.”).
For these reasons, although the parties have not cited—and the Court has
not found—Illinois case law that comprehensively delineates the circumstances in
which an indemnitor has standing to bring a declaratory judgment action against
an underlying claimant, the Court concludes that Velsicol has, at the very least, a
reasonable possibility of pursuing a declaratory judgment action against
Magnetek in Illinois court. Under the 1999 settlement agreement, Velsicol is a
prospective indemnitor of TIC. Compl. ¶¶ 1, 19. In addition, TIC tendered an
indemnity demand on Velsicol after receiving the 2016 Demand from Magnetek.
Id. ¶ 1. Velsicol therefore has a “direct interest” in defeating Magnetek’s claim in
the principal action between Magnetek and TIC. N.E. Finch, 370 N.E.2d at 163;
Preferred Am. Ins., 706 N.E.2d at 534. Under Illinois law, this interest appears
sufficient to confer standing on Velsicol to join as a plaintiff in TIC’s declaratory
judgment action against Magnetek in state court, given that Velsicol will be
bound by the liability determinations in that action. See N.E. Finch, 370 N.E.2d
Put another way, because Illinois law bars Velsicol from relitigating
issues adjudicated in the action between TIC and Magnetek, Velsicol has a “right
which is capable of being affected” by the action and thus has an interest in the
action sufficient to give it standing. Int’l Union of Operating Eng’rs, 546 N.E.2d
Magnetek cites numerous authorities in an attempt to carry its burden to
demonstrate that Velsicol has no reasonable possibility of pursuing a declaratory
judgment action against it in state court. Mem. Opp. at 5–8. But the authorities
that Magnetek cites miss the mark. First, many of them apply federal standing
doctrine, rather than Illinois standing doctrine.
Whether Velsicol would have
standing under federal law to participate in a declaratory judgment action against
Magnetek in federal court is immaterial to the issue of whether Velsicol has
standing under Illinois law to participate in this action in state court. Lebron, 930
N.E.2d at 917 n.4 (noting that Illinois courts “[are] not required to follow federal
law on issues of standing, and [have] expressly rejected federal principles of
standing”); see Schur, 577 F.3d at 764 (directing federal courts to look to state law
in considering fraudulent joinder in a case removed from state court); Agrella v.
Great Am. Ins. Co., No. 99 C 5309, 1999 WL 1101319, at *2–3 (N.D. Ill. Nov. 29,
1999). Moreover, none of the cited cases that address Illinois standing doctrine
involved an indemnitor who, like Velsicol, sought to participate in an action
between an indemnitee and an underlying claimant. 3 These cases are therefore
distinguishable from the present case, and Magnetek’s reliance on them is
In sum, Magnetek has not carried its “heavy burden” of showing that, “after
resolving all issues of fact and law in favor of [Velsicol],” Poulos, 959 F.2d at 73
(emphasis omitted), Velsicol has no reasonable possibility of pursuing a declaratory
judgment action against Magnetek in state court. The Court therefore concludes
that Velsicol is not a fraudulently joined plaintiff.
Whether Velsicol Is a Nominal Party
Next, Magnetek submits that the Court should disregard Velsicol’s
citizenship for purposes of determining diversity jurisdiction because Velsicol is
merely a nominal party, rather than a real party in interest. Under Federal Rule of
Civil Procedure 17, “[a]n action must be prosecuted in the name of the real party in
interest.” Fed. R. Civ. P. 17(a)(1). In deciding whether it has diversity jurisdiction
over a civil action, a federal court considers the citizenship of only the real parties in
The one exception is St. John’s Hospital of the Hospital Sisters of the Third Order of
St. Francis v. National Guardian Risk Retention Group, Inc., 2015 WL 2190923 (Ill. App.
Ct. 2015), which Magnetek discusses in its response brief. Mem. Opp. at 7. In St. John’s,
the court discussed Illinois standing and ripeness doctrines in a declaratory judgment
action filed by an underlying claimant against the alleged tortfeasor’s insurance company.
Id. at *2, *4–8. For two reasons, Magnetek’s reliance on St. John’s is unavailing. First, St.
John’s is an unpublished decision of the Illinois Appellate Court, and it therefore has no
precedential value. See Ill. S. Ct. R. 23(e)(1) (providing that unpublished orders are
nonprecedential and generally may not be cited by any party); Whitmore v. Kraft Foods
Glob., Inc., 798 F. Supp. 2d 917, 924 (N.D. Ill. 2011) (rejecting defendant’s reliance on
unpublished order issued by the Illinois Appellate Court). Furthermore, the court in St.
John’s affirmed the trial court’s dismissal order solely based on lack of ripeness, which is
not at issue here. St. John’s, 2015 WL 2190923, at *4, *8. As such, even if St. John’s had
precedential weight, it would be of little relevance to this case.
interest and ignores the citizenship of nominal parties. Spartech Corp. v. Opper,
890 F.2d 949, 952–53 (7th Cir. 1989); Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460–
“The real party in interest is the one who[,] by the substantive law, possesses
the right sought to be enforced, and not necessarily the person who will ultimately
benefit from the recovery.” People of State of Ill. v. Life of Mid-Am. Ins. Co., 805
F.2d 763, 764 (7th Cir. 1986) (internal quotation marks omitted). “In contrast, a
‘nominal party’ does not have an interest in the subject matter litigated but holds
the property at issue in the litigation in a ‘subordinate or possessory capacity’ (e.g.,
as a trustee, agent[,] or depository).” Sec. Ctr., Inc. v. Am. Tel. & Tel. Co., No. 94 C
6707, 1995 WL 307267, at *3 (N.D. Ill. May 16, 1995) (quoting S.E.C. v. Cherif, 933
F.2d 403, 414 (7th Cir. 1991)). “A nominal party is not concerned about which side
of the controversy succeeds; rather, its role is limited to turning over the property in
its possession to the prevailing party pursuant to a final judgment order.”
(internal citations omitted).
Put differently, a nominal party’s role is “merely
incidental,” and “it is of no moment to him whether the one or the other side in the
controversy succeeds.” Am. Country Ins. Co. v. Turner Constr. Co., No. 01 C 9561,
2002 WL 507128, at *2 (N.D. Ill. Apr. 3, 2002) (quoting Cherif, 933 F.2d at 414)
(internal quotation marks and brackets omitted).
Whether a party is a real party in interest or a nominal party is determined
by the substantive law of the forum that created the right being sued upon. See Life
of Mid-Am. Ins., 805 F.2d at 764. The party seeking to invoke federal diversity
jurisdiction bears the burden of demonstrating that a nondiverse litigant is a
nominal party whose citizenship may be disregarded. Jennings v. Hill, No. 05 C
0974, 2005 WL 1041327, at *2 (N.D. Ill. May 3, 2005).
Magnetek has not met its burden of showing that Velsicol is a nominal party.
As discussed above, Illinois courts have held that an indemnitor such as Velsicol
has a direct interest in participating in the principal action for which indemnity
may be sought. N.E. Finch, 370 N.E.2d at 163; Preferred Am. Ins., 706 N.E.2d at
It is hardly “of no moment” to Velsicol whether Magnetek wins or loses,
because Velsicol will be obligated to indemnify TIC only if Magnetek prevails.
Cherif, 933 F.2d at 414. Furthermore, Velsicol’s role bears no semblance to that of a
neutral third party who must simply turn over property in its possession to
whichever litigant happens to win; Velsicol is potentially liable as an indemnitor
with respect to TIC—and, again, only if Magnetek prevails. Velsicol therefore is not
merely an incidental, disinterested party in this action. See id.
Magnetek asks the Court to conclude otherwise, arguing that Velsicol must
be deemed a nominal party because it is not a party to TIC’s insurance policies.
Mem. Opp. at 10. Magnetek cites several cases in support of this argument, but
they speak only to the general principle that an individual who is not a party to a
contract is not typically a necessary party in a breach of contract action. None of
them addresses the specific question of when an indemnitor is a nominal party in a
case between an indemnitee and a claimant under Illinois law.
See id. (citing
Providence Gravure, Inc. v. R.S. Feldman & Co., No. 85 C 2171, 1985 WL 2485, at
*1 (N.D. Ill. Sept. 6, 1985); Francis Oil & Gas, Inc. v. Exxon Corp., 661 F.2d 873,
878 (10th Cir. 1981); Helzberg’s Diamond Shops, Inc. v. Valley W. Des Moines
Shopping Ctr., Inc., 564 F.2d 816, 820 (8th Cir. 1977)). Magnetek’s reliance on
these cases is therefore misplaced.
Finally, Magnetek argues that Velsicol should be deemed a nominal party
because Plaintiffs’ complaint does not allege any “operative facts” with respect to
This argument, too, is unpersuasive; it asks the Court to ignore
allegations about Velsicol that are included in Plaintiffs’ complaint. See Compl.
¶ 19 (discussing the settlement agreement that TIC and Velsicol entered into in
1999); id. ¶ 1 (“TIC [ ] tendered Magnetek’s claim to Velsicol for defense and
indemnification pursuant to [the] 1999 settlement and indemnity agreement.”).
For these reasons, Magnetek has not met its burden of showing that Velsicol
is a nominal party whose citizenship may be disregarded for purposes of
determining whether the Court has diversity jurisdiction over this case. As such,
the Court lacks subject-matter jurisdiction, and the case must be remanded to state
Realignment of Parties
In the alternative to its arguments that Velsicol is fraudulently joined and is
merely a nominal party, Magnetek argues that Velsicol should be realigned as a
defendant in this action.
The basis for this argument is that, according to
Magnetek, Velsicol and TIC are adverse to one another, even though they are coplaintiffs, because they dispute the scope of Velsicol’s indemnification obligations to
TIC under the 1999 settlement agreement. 4 Mem. Opp. at 12–13. If Velsicol were
realigned as a defendant, then there would be complete diversity among the parties,
and the Court would have jurisdiction over this case.
In advancing this argument, Magnetek relies primarily upon American
Motorists Insurance Co. v. Trane Co., 657 F.2d 146 (7th Cir. 1981). In American
Motorists, the original plaintiff sued two defendants, an insurer and its insured. Id.
at 148. The district court realigned the defendant-insurer as a plaintiff, reasoning
that the insurer and the original plaintiff shared an interest in avoiding liability to
the insured. Id. On appeal, the Seventh Circuit reversed. Id. at 151. The Seventh
Circuit acknowledged that “[r]ealignment is proper where there is no actual,
substantial conflict between the parties that would justify placing them on opposite
sides of the lawsuit.” Id. But it explained that “a mere mutuality of interest in
escaping liability is not of itself sufficient to justify realignment.” Id. Applying
these principles, the court concluded that the defendant-insurer should not have
been realigned as a plaintiff, even though it shared an interest with the original
plaintiff in avoiding liability to the insured, because the defendant-insurer and the
original plaintiff otherwise had conflicting interests. Id.
The complaint does not indicate whether Velsicol and TIC do, in fact, dispute the
scope of their indemnification agreement. But Plaintiffs’ motion to remand indicates that
such a dispute indeed exists. Mot. Remand at 5, ECF No. 7 (“Velsicol and TIC may, in later
proceedings, be adverse on the question of the exact nature of the indemnity obligations
that Velsicol has to TIC.”). The Court may consider the existence of this dispute even
though it is not discussed in the complaint, because “court[s] may look beyond the
pleadings” in determining whether parties should be realigned according to their true
interests in cases implicating diversity jurisdiction. Am. Motorists Ins. Co. v. Trane Co.,
657 F.2d 146, 149 (7th Cir. 1981).
Although American Motorists holds that realignment of parties may
sometimes be proper, the case ultimately undermines, rather than supports,
Magnetek’s position. Like the defendant-insurer in American Motorists, Velsicol
certainly has an interest in avoiding liability to its co-party, TIC. But Velsicol’s
interests are also in “actual, substantial conflict” with Magnetek’s. Id. If Magnetek
is successful in defending this suit, then Velsicol may face liability to TIC as TIC’s
indemnitor; conversely, if Magnetek is unsuccessful in defending this suit, then
Velsicol’s liability to TIC will be eliminated.
Thus, Magnetek’s and Velsicol’s
respective interests are in conflict with one another. See id. (explaining that the
original plaintiff and the defendant-insurer had conflicting interests where a
finding of liability as to one party would reduce the liability of the other).
Because Velsicol’s interests are in conflict with Magnetek’s, realigning
Velsicol to be Magnetek’s co-defendant would be improper. See id. at 149, 151. This
is all the more so given that the effect of realignment would be to create diversity
jurisdiction when none currently exists. See Wolf v. Kennelly, 574 F.3d 406, 412
(7th Cir. 2009) (quoting Krueger v. Cartwright, 996 F.2d 928, 932 n.5 (7th Cir.
1993)) (“[I]t is ‘undoubtedly improper’ to realign parties for the purpose of
preserving jurisdiction if ‘an actual, substantial controversy exists between a party
on one side of the dispute and its named opponent.’”); Sabo v. Dennis Techs., LLC,
No. 07-CV-283-DRH, 2007 WL 1958591, at *6 (S.D. Ill. July 2, 2007) (“While a court
can, in some instances, realign the parties to a case according to their true interests,
use of realignment to manufacture federal subject matter jurisdiction is
disfavored.”). The Court accordingly declines to realign Velsicol as a defendant in
For the reasons stated herein, Plaintiffs’ motion to remand  is granted.
This action is hereby remanded to the Circuit Court of Cook County, Illinois, and
terminated on this Court’s docket.
IT IS SO ORDERED.
John Z. Lee
United States District Judge
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