Valley Forge Insurance Company v. Hartford Iron & Metal Inc et al

Filing 415

OPINION AND ORDER denying 322 Motion for Entry of Judgment under Rule 54(b); denying 377 Motion for Hearing. Signed by Judge Robert L Miller, Jr on 3/30/16. (ksp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
VALLEY FORGE INSURANCE
COMPANY,
PLAINTIFF,
VS.

HARTFORD IRON & METAL, INC.
AND ALAN B. GOLDBERG (DBA
HARTFORD METAL & IRON),
DEFENDANTS.

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CAUSE NO. 1:14-CV-006-RLM-SLC

OPINION and ORDER
The court denied plaintiff and counterclaim defendant Valley Forge
Insurance Company’s motion for partial summary judgment, holding that a
conflict of interest prevented Valley Forge from exercising its contractual right to
control the defense of its insured, defendant Hartford Iron. Valley Forge wants
to appeal that denial without waiting until the end of this case, and to that end
has moved for entry of partial final judgment or, alternatively, for certification of
the issue for interlocutory appeal. For the reasons that follow, neither procedure
is appropriate so the court denies Valley Forge’s motion.

I. BACKGROUND
The factual background to this case is complex and known to the parties,
so it need only be briefly sketched out here. Valley Forge issued a liability
insurance policy covering Hartford Iron’s scrap metal yard. When the scrap yard

was targeted by state and federal regulators for environmental violations, Valley
Forge eventually agreed to cover the costs of both defending against the
enforcement actions and remediating the site. The parties entered into a
settlement agreement that gave Valley Forge had the right to control the
remediation and defense. The parties disagreed on how best to fix the violations,
leading to this protracted dispute in which each party brings breach of contract
claims and accuses the other of preventing full remediation and running up
unnecessary costs.
In addition to demanding damages for the runaway remediation costs and
penalties incurred so far, both parties also sought declaratory relief to clarify
their respective rights and obligations going forward. Hartford Iron argued that
Valley Forge’s suit for breach of contract created a conflict of interest because
defense counsel tasked with representing Hartford Iron before the environmental
regulators would be hired and controlled by Valley Forge – the same company
attempting to blame Hartford Iron for the ongoing violations. Valley Forge moved
for partial summary judgment, seeking a declaration that it – not Hartford Iron
– retains the right to control both the remediation and the defense to the
environmental enforcement actions. Hartford Iron opposed the motion, but didn’t
itself move for summary judgment on the issue of who has control rights. The
court issued an opinion holding that Valley Forge’s lawsuit for damages against
Hartford Iron created a conflict of interest that prevents Valley Forge from
controlling the defense and remediation under Indiana law; Valley Forge’s
adversarial posture towards Hartford Iron in this lawsuit means that any

attorney paid by and answering to Valley Forge would have his or her
representation of Hartford Iron materially limited, in violation of Indiana’s
attorney ethics rules. The court therefore denied Valley Forge’s summary
judgment motion.

II. DISCUSSION
Valley Forge disagrees with the court’s ruling, but can’t appeal yet. Under
the Federal Rules of Civil Procedure, an order that resolves fewer than all the
claims in an action is interlocutory, and may be revised at any time before final
judgment. Fed. R. Civ. P. 54. Accordingly, an order such as the court’s denial of
Valley Forge’s partial summary judgment motion – which resolved some issues
in this case, but not all – isn’t final and so isn’t ordinarily appealable. See
Ahrenholz v. Bd. of Trustees of Univ. of Illinois, 219 F.3d 674, 676 (7th Cir. 2000)
(“A denial of summary judgment is a paradigmatic example of an interlocutory
order that normally is not appealable.”). By the time this case is over, Valley
Forge argues, the site itself will likely have been fully remediated and any
question of who has the right to control that remediation will be moot.
Accordingly, Valley Forge asks that the court take the unusual step of permitting
an immediate appeal of the summary judgment denial by either entering partial
final judgment under Rule 54(b) or certifying the control issue for interlocutory
appeal under 28 U.S.C. § 1292(b).

A. Partial Final Judgment under Rule 54

Rule 54(b) provides that a district court “may direct entry of a final
judgment as to one or more, but fewer than all, claims or parties only if the court
expressly determines that there is no just reason for delay.” Entry of partial final
judgment under Rule 54 allows a party to appeal a distinct claim, while other
claims remain active and move forward. See Ty, Inc. v. Publications Int’l, 292
F.3d 512, 515 (7th Cir. 2002). The Rule permits entry of partial final judgment
only “when all of one party’s claims or rights have been fully adjudicated, or
when a distinct claim has been fully resolved with respect to all parties.” Factory
Mut. Ins. Co. v. Bobst Group USA, Inc., 392 F.3d 922, 924 (7th Cir. 2004). The
Rule “is not intended to provide an option to the district court to certify issues
for interlocutory appeal,” but rather “allows appeal without delay of claims that
are truly separate and distinct from those that remain pending.” Lottie v. W. Am.
Ins. Co., of Ohio Cas. Grp. of Ins. Companies, 408 F.3d 935, 939 (7th Cir. 2005).
“There are no bright-line rules for determining whether two claims are
separate for Rule 54(b) purposes,” and courts instead look to the practical
overlap between the claims on which final judgment is sought and the claims
still pending. Marseilles Hydro Power, LLC v. Marseilles Land & Water Co., 518
F.3d 459, 464 (7th Cir. 2008). A claim that involves largely the same facts as
others that remain pending isn’t a “separate” claim for which partial final
judgment is appropriate. Ty, Inc. v. Publications Int’l, 292 F.3d at 515; see also
Cont’l Cas. Co. v. Anderson Excavating & Wrecking Co., 189 F.3d 512, 516 (7th
Cir. 1999) (noting that Rule 54(b) properly applies only to “separate” claims, with
“‘separate’ meaning having minimal factual overlap.”); Horwitz v. Alloy Auto. Co.,

957 F.2d 1431, 1434 (7th Cir. 1992) (“If there is a great deal of factual or legal
overlap between counts, then they are considered the same claim for Rule 54(b)
purposes.”). This limitation is intended to conserve judicial resources; requiring
that claims be truly separate works “to spare the court of appeals from having to
keep relearning the facts of a case on successive appeals.” Indiana Harbor Belt
R. Co. v. Am. Cyanamid Co., 860 F.2d 1441, 1444 (7th Cir. 1988) (quoting Jack
Walters & Sons Corp. v. Morton Bldg., Inc., 737 F.2d 698, 702 (7th Cir. 1984)).
Entry of partial final judgment under these circumstances would be
improper, because the declaratory judgment issue the court resolved in the
summary judgment order isn’t “separate” for Rule 54 purposes; it overlaps
substantially with other claims in the case that remain active. The issue of who
has the right to control the defense is inextricably bound up with the question
of which party breached which obligations under the contract, a question that
remains pending in this litigation. In fact, the conflict of interest issue Valley
Forge wishes to appeal underlies nearly every facet of the parties’ increasingly
complex dispute, including all five of the counts in Valley Forge’s complaint.
Count I seeks a declaration that Hartford Iron’s conduct breached the
settlement agreement by cooperating insufficiently with the defense counsel and
environmental consultant Valley Forge selected, and by refusing to communicate
with Valley Forge’s attorneys. The extent to which Hartford Iron was obligated to
cooperate with the remediation and defense plan chosen by Valley Forge depends
in large part on whether Valley Forge had the right to control the remediation
and defense. Count II seeks a declaration that Hartford Iron breached the

contract by denying Valley Forge’s environmental contractors access to the scrap
yard. Again, whether Hartford Iron breached an obligation to cooperate in Valley
Forge’s remediation plan hinges on whether Valley Forge had the right to select
those contractors and guide the remediation efforts in the first place. The other
counts present the same problem: Valley Forge claims that specific acts and
omissions by Hartford Iron breached the agreement, but whether that is true
depends at least in part on how the rights created by the agreement changed due
to the subsequent conflict of interest.
Accordingly, allowing an interlocutory appeal on the issue of whether a
conflict of interest abrogated Valley Forge’s control rights would waste judicial
resources on appeal. The facts an appellate court must grapple with to
understand the control question include: the terms of the insurance policies and
the

2012

settlement

agreement;

the

tangled

history

of

the

parties’

communications with each other, the environmental consultants, and the
enforcement agencies; and the repeated hiring and replacement of defense
counsel. All of that background bears on the existence of the conflict of interest,
and all of it would have to be revisited were the case to come back to an appellate
court after resolution of the other claims.
Moreover, even if the issue resolved by the court’s summary judgment
order didn’t overlap with the other claims in Valley Forge’s complaint, it still
wouldn’t be eligible for partial final judgment under Rule 54(b) because it mirrors
unresolved claims in Hartford Iron’s countercomplaint. “[T]wo claims are not
separate for purposes of Rule 54(b) merely because one is in the complaint and

the other in the countercomplaint.” In re Berke, 837 F.2d 293 (7th Cir. 1988).
Where the mirror image of a claim from the complaint is still unresolved in a
counterclaim, “the condition for the entry of a final judgment under Rule 54(b)
is not satisfied and [the court of appeals has] no appellate jurisdiction over a
decision disposing of just the complaint.” Automatic Liquid Packaging, Inc. v.
Dominik, 852 F.2d 1036, 1037 (7th Cir. 1988). The court denied Valley Forge’s
motion for summary judgment, finding that Valley Forge doesn’t have the right
to control the remediation and defense of the scrapyard due to the conflict of
interest. Count 16 of Hartford Iron’s countercomplaint, however, seeks damages
allegedly arising from the conflict of interest as well as a declaration that Hartford
Iron has the right to designate defense counsel, control the defense, and retain
and supervise environmental contractors. Because Hartford Iron didn’t move for
summary judgment, this counterclaim is still pending and is the mirror image of
the relief sought by Valley Forge. As the claim and counterclaim are mirror
images, they are the same claim for Rule 54(b) purposes and partial final
judgment isn’t available unless both have been resolved.
Finally, Rule 54(b) only permits, and doesn’t mandate, entry of final
judgment. “The judge is required to make a discretionary judgment, balancing
the advantage of allowing an immediate appeal against the advantage of delaying
the appeal until the pending claims can be resolved so that all can be decided in
a single appeal at a later time.” Cont’l Cas. Co. v. Anderson Excavating &
Wrecking Co., 189 F.3d 512, 518-519 (7th Cir. 1999). So even if the right-tocontrol issues qualified as separate claims eligible for Rule 54(b) partial final

judgment, the court wouldn’t grant Valley Forge’s motion. Piecemeal appeals are
heavily disfavored in the federal courts. See Curtiss-Wright Corp. v. Gen. Elec.
Co., 446 U.S. 1, 8 (1980) (noting “the historic federal policy against piecemeal
appeals”). In addition, Valley Forge’s proposed interlocutory appeal would
require grinding this long-running litigation to a halt. As already discussed,
resolving the remaining claims – deciding who breached what duties under the
settlement agreement, and who is to blame for the remediation woes – depends
on whether a conflict of interest caused Valley Forge to lose its bargained-for
right to control. Therefore, if the court’s findings as to the conflict of interest are
on appeal, no other part of this case can be resolved for fear of inconsistent
verdicts.
The interdependence of the many disputes in this litigation mean that
claims can’t be neatly segregated in the way Rule 54(b) contemplates, so partial
final judgment to permit an immediate appeal isn’t appropriate.

B. Certification for Interlocutory Appeal

In the alternative to entry of partial final judgment under Rule 54, Valley
Forge asks for certification of the control issue for interlocutory appeal under 28
U.S.C.A. § 1292(b), which provides:
When a district judge, in making in a civil action an order not otherwise
appealable under this section, shall be of the opinion that such order
involves a controlling question of law as to which there is substantial
ground for difference of opinion and that an immediate appeal from the
order may materially advance the ultimate termination of the litigation, he
shall so state in writing in such order. The Court of Appeals which would

have jurisdiction of an appeal of such action may thereupon, in its
discretion, permit an appeal to be taken from such order, if application is
made to it within ten days after the entry of the order: Provided, however,
That application for an appeal hereunder shall not stay proceedings in the
district court unless the district judge or the Court of Appeals or a judge
thereof shall so order.
To certify an order under the statute: there must be a question of law, that
question must be controlling, it must be contestable, and answering the question
must promise to speed up the litigation. See Ahrenholz v. Bd. of Trustees of Univ.
of Illinois, 219 F.3d 674, 675-676 (7th Cir. 2000). “Unless all these criteria are
satisfied, the district court may not and should not certify its order … for an
immediate appeal under section 1292(b).” Id. (emphasis in original).
The partial summary judgment ruling isn’t eligible for certification under
§ 1292(b). As an initial matter, the term “question of law” in the statute has a
very narrow meaning: it refers only to “a question regarding the meaning of a
statutory or constitutional provision, regulation or common law doctrine.” Boim
v. Quranic Literacy Institute & Holy Land Foundation for Relief and
Development, 291 F.3d 1000, 1007 (7th Cir. 2002). Interlocutory review is
appropriate only for “a ‘pure’ question of law,” meaning something that “the court
of appeals could decide quickly and cleanly without having to study the record.”
Ahrenholz v. Bd. of Trustees, 219 F.3d at 677.
The question of law Valley Forge seeks to challenge is “whether a conflict
exists for defense counsel, and, if so, whether that conflict limits Valley Forge’s
bargained-for rights” under the parties’ contracts. That isn’t on its face a
question regarding the meaning of a statute, regulation or common law doctrine.
Valley Forge isn’t asking the appellate court to interpret of a bare statute or

contract term; it’s asking for a judgment as to how Indiana law governing
conflicts of interest applies to the convoluted factual and procedural history of
this particular case. Application of the conflict rules to these facts isn’t a pure
question of law for purposes of § 1292(b). See In re Text Messaging Antitrust
Litigation, 630 F.3d 622, 626 (7th Cir. 2010) (noting that “routine applications
of well-settled legal standards to facts alleged in a complaint” aren’t appropriate
for interlocutory appeal).
As the court’s summary judgment order made clear, whether a conflict of
interest exists depends on whether Valley Forge’s control of the regulatory
defense and the remediation has the potential to influence this litigation between
the parties. Answering that question requires an inquiry into the nature of both
the underlying environmental enforcement actions by IDEM and the course of
the insurance and contract disputes between the parties – and Valley Forge’s
conduct in the remediation and defense thus far is clearly relevant. Because the
legal ruling underlying the court’s denial of summary judgment was at least
partially bound up in the facts of the case, it isn’t appropriate for interlocutory
appeal. See Dahlstrom v. Sun-Times Media, LLC, 777 F.3d 937, 941 n.3 (7th Cir.
2015) (declining to reach an issue in part “because it poses a mixed question of
law and fact unsuitable for interlocutory review”).
Even if the conflict of interest and control issues that formed the basis of
the court’s summary judgment order qualify as pure questions of law, Valley
Forge hasn’t shown that interlocutory appeal would materially advance the
ultimate termination of this case. The only argument Valley Forge provides is

that “[i]f granted on appeal, the declaratory relief that Valley Forge seeks would
speed up the litigation by providing a final determination of a critical issue,
removing it from dispute well in advance of final judgment.” Even if the court of
appeals were to reverse the denial of Valley Forge’s summary judgment motion,
the lions’ share of the case – three of Valley Forge’s four declaratory judgment
counts, Valley Forge’s breach of contract count, and all but one of Hartford Iron’s
25 counterclaims and third-party claims – would remain for trial. The question
of who has the right to control the remediation and defense is certainly relevant
to many of those claims (as already discussed), but it isn’t dispositive as to any
of them. And because the control issues are so inextricably intertwined with
essentially all the claims and counterclaims that remain pending, an
interlocutory appeal would mean that this litigation would grind to a halt while
the court and parties waited an indeterminate amount of time for a ruling from
the court of appeals. Accordingly, certification would delay rather than expedite
the resolution of this case, regardless of the outcome of the interlocutory appeal.

C. Motion for Hearing

Valley Forge also moved for a hearing on the issues raised in its motion for
entry of judgment. Because the parties’ briefs were thorough and helpful, the
court was able to decide the issue without the benefit of oral argument and a
hearing is unnecessary.

III. CONCLUSION
For these reasons, the court DENIES Valley Forge’s motion for entry of
judgment (Doc. No. 322) and DENIES Valley Forge’s motion for a hearing (Doc.
No. 377).
SO ORDERED.
ENTERED: March 30, 2016

/s/ Robert L. Miller, Jr.
Judge
United States District Court