Ullico Casualty Company et al v. Matthiesen Wickert and Lehrer SC

Filing 44

ORDER Denying signed by Judge Lynn Adelman on 6/24/2013 16 MOTION to Stay (Motion for Abstention). (cc: all counsel)(nts)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

ULLICO CASUALTY COMPANY and
PATRIOT NATIONAL INSURANCE GROUP,
INC.,
Plaintiffs,
v.

Case No. 12-C-1031

MATTHIESEN, WICKERT and LEHRER, S.C.,
Defendant.

DECISION AND ORDER
In an order dated March 27, 2013, I entered a stay of this case so that litigation of
the claims at issue could proceed exclusively in the United States District Court for the
Southern District of Texas. In that order, I noted that a motion to remand the Texas case
to state court had been filed. I wrote that if the Southern District of Texas granted the
motion to remand, I would consider lifting the stay. The Southern District has since granted
the motion to remand, and the plaintiffs here have requested that I lift the stay. The
defendant has asked me to first decide the motion for abstention that it filed in this court
before the Texas case had been removed to federal court. In this opinion, I will address
the motion for abstention.
I described the background to this case in my previous order, but it is worth
describing that background again here. In January 2010, an explosion occurred at the
premises of Thermal Polymer Systems, LLC (“TPS”) in Angleton, Texas. The explosion
killed one TPS employee and injured several others.

The estate of the deceased

employee filed tort claims against TPS in state court in Brazoria County, Texas. Ullico

Casualty Company, one of the plaintiffs in the present case, was TPS’s workerscompensation carrier, and eventually it paid benefits to the deceased employee’s estate
and to the other injured workers. After paying these benefits, Ullico hired the Wisconsin
law firm of Matthiesen, Wickert & Lehrer, S.C., the defendant in the present case, to
pursue subrogation claims based on products-liability principles against various third
parties. Ullico also hired the Texas law firm of Kelly Smith & Murrah, P.C., to serve as local
counsel. Ullico, having secured the services of these two firms, proceeded to intervene in
the Brazoria County lawsuit to assert its subrogation claims against the relevant parties.
By June of 2012, the parties in the Brazoria County case had reached a settlement.
This settlement resulted in a sizable payment to Ullico, which the Matthiesen firm deposited
in its client trust account in Wisconsin. When Ullico asked the Matthiesen firm to forward
this payment to it, the Matthiesen firm informed Ullico that it would retain one-third of the
payment, or approximately $650,000, as a contingency fee. However, Ullico insisted that
it had never agreed to pay a contingency fee, and it demanded that the Matthiesen firm
forward the entire amount to Ullico, with the understanding that Ullico would then pay the
Matthiesen firm and the Kelly firm for their services on an hourly basis.
In early July 2012, the Matthiesen firm intervened in the Brazoria County litigation
for the purpose of having its fee dispute with Ullico resolved. Shortly thereafter, the Kelly
firm joined the Matthiesen firm in asking the Brazoria County court to resolve the fee
dispute. The Kelly firm also filed claims against various affiliates of Ullico, alleging that
they had tortiously interfered with the firms’ contract with Ullico. The Kelly firm also moved
to have the funds on deposit in the Matthiesen firm’s trust account transferred into the
custody of the Brazoria County court.
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When Ullico received notice of the Kelly firm’s motion to have the disputed funds
transferred to Texas, it and its third-party administrator, Patriot National Insurance Group,
Inc., filed the present lawsuit against the Matthiesen firm under the diversity jurisdiction and
moved for a temporary restraining order that would have prevented the firm from
completing the transfer. Eventually, the Matthiesen firm agreed that it would leave the
funds in its trust account pending resolution of the fee dispute. In the meantime, Patriot,
which was also a party to the Brazoria County case, filed a notice of removal of that case
to the United States District Court for the Southern District of Texas. The Matthiesen and
Kelly firms moved to remand the case back to Brazoria County, and, as noted, that motion
was granted.
Once the Matthiesen firm agreed that it would leave the disputed funds in its trust
account pending resolution of the parties’ fee dispute, one of Ullico and Patriot’s principal
goals in this suit—preventing transfer of the funds to Texas—was accomplished.
However, in addition to seeking an order preventing transfer of the funds to Texas, Ullico
and Patriot seek an order requiring the Matthiesen firm to pay the funds to them. In the
Texas case, the Matthiesen and Kelly firms seek an order establishing that they are entitled
to keep the funds as their contingency fee. Thus, this case and the Texas are parallel
proceedings.
The Matthiesen firm contends that I should abstain from exercising jurisdiction in this
case under either the Wilton/Brillhart abstention doctrine or the Colorado River abstention
doctrine. 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.” R.R. Street & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711, 713 (7th
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Cir. 2009). In the present case, the plaintiffs seek declaratory relief, and the Matthiesen
firm contends that this means that abstention under Wilton/Brillhart is an option. The
plaintiffs contend that Wilton/Brillhart does not apply because they are seeking other forms
of relief in addition to a declaratory judgment—namely, an order requiring the Matthiesen
firm to relinquish the funds.
The Matthiesen firm contends that the presence of claims in addition to the
declaratory-judgment claim does not preclude application of Wilton/Brillhart because those
claims are frivolous. However, the plaintiffs’ claim for an order requiring the Matthiesen
firm to relinquish the funds is clearly not frivolous. There is a genuine dispute over whether
the parties entered into a contingency-fee agreement, and if this dispute is resolved in the
plaintiffs’ favor, the Matthiesen firm will be ordered to pay the funds in its trust account to
the plaintiffs. The parties in their briefs argue over whether the legal theories mentioned
in the plaintiffs’ complaint are the right legal theories for obtaining this relief (those legal
theories are labeled “constructive trust,” statutory theft”, and “accounting”), but that is
irrelevant. Plaintiffs plead claims—that is, grievances—rather than legal theories, see
Simpson v. Nickel, 450 F.3d 303, 305 (7th Cir. 2006), and here the plaintiffs have pleaded
a claim for payment of the disputed funds. Certainly there is a non-frivolous legal theory
that supports this claim (conversion comes to mind), and the claim is independent of any
request for declaratory relief—the claim would survive even if the request for declaratory
relief were dropped from the case. See R.R. Street, 569 F.3d at 716–17 (stating that test
for whether Wilton/Brillhart applies is whether claims for non-declaratory relief would
survive if claim for declaratory relief were dropped from the case). Accordingly, the
Wilton/Brillhart abstention doctrine cannot be invoked in this case, and whether abstention
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is appropriate turns on whether I should abstain under the Colorado River abstention
doctrine.
The Colorado River abstention doctrine stems from Colorado River Water
Conservation District v. United States, 424 U.S. 800 (1976). It permits a federal court to
stay or dismiss a suit when there is a concurrent state proceeding and the stay or dismissal
would promote wise judicial administration.

AXA Corp. Solutions v. Underwriters

Reinsurance Corp., 347 F.3d 272, 278 (7th Cir. 2003). For the doctrine to apply, the two
suits must be parallel, meaning that substantially the same parties are contemporaneously
litigating substantially the same issues. Id. If the two suits are parallel, the court should
then take ten separate factors into consideration in deciding whether or not to abstain:
(1) whether the state has assumed jurisdiction over property; (2) the
inconvenience of the federal forum; (3) the desirability of avoiding piecemeal
litigation; (4) the order in which jurisdiction was obtained in the concurrent
forums; (5) the source of governing law, state or federal; (6) the adequacy
of state-court action to protect the federal plaintiff's rights; (7) the relative
progress of state and federal proceedings; (8) the presence or absence of
concurrent jurisdiction; (9) the availability of removal; and (10) the vexatious
or contrived nature of the federal claim.
Id. Ultimately, however, “the decision whether to dismiss a federal action because of
parallel state-court litigation does not rest on a mechanical checklist, but on a careful
balancing of the important factors as they apply in a given case, with the balance heavily
weighted in favor of the exercise of jurisdiction.” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 16 (1983). Moreover, abstention under Colorado River is
appropriate only in “exceptional circumstances,” and there is a general presumption
against abstention. Id. For this reason, “absent or neutral factors weigh in favor of
exercising jurisdiction.” Huon v. Johnson & Bell, Ltd., 657 F.3d 641, 648 (7th Cir. 2011).
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In the present case, most of the relevant factors are either absent, neutral, or weigh
against abstention. The first factor—whether the state court has assumed jurisdiction over
property—is neutral, since the state court has not assumed jurisdiction over any property.
The second factor—the inconvenience of the federal forum—is neutral, since Wisconsin
is not an inconvenient forum for the Matthiesen firm and the plaintiffs prefer to be here.
The fourth factor—the order in which jurisdiction was obtained—and the seventh
factor—the relative progress of the state and federal proceedings—are neutral. Although
the fee dispute was brought into the Texas case before the plaintiffs filed the present suit,
the fee dispute had been pending in Texas for only a short time before this action was
commenced, and because of the delay caused by the removal that case has hardly
progressed at all. Thus, neither forum can claim priority due to the order in which
jurisdiction was obtained or the relative progress of the respective cases. See Moses H.
Cone, 460 U.S. at 21–22 (“priority should not be measured exclusively by which complaint
was filed first, but rather in terms of how much progress has been made in the two
actions”). The fifth factor—the source of governing law—is neutral. Although state law will
control all substantive issues in both cases, the laws of both Wisconsin and Texas will be
relevant. While it may seem that the lack of a federal question favors abstention, that is
not so—the Seventh Circuit has held that a diversity plaintiff may not be treated differently
than a federal-question plaintiff. See Evans Transp. Co. v. Scullin Steel Co., 693 F.2d 715,
717 (7th Cir. 1982). The sixth factor—the adequacy of the state court to protect the federal
plaintiff’s rights—is neutral. I don’t know anything about the Texas court or whether it
would adequately protect Ullico’s rights, but even if it would that would at most mean that
the adequacy of the Texas court is not an obstacle to abstention; it would not be an
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affirmative reason for relinquishing federal jurisdiction. The eighth factor—the presence
or absence of concurrent jurisdiction—is neutral. There is concurrent jurisdiction, and so
lack of jurisdiction is not an obstacle to abstention, but again that is not an affirmative
reason for relinquishing federal jurisdiction.

The ninth factor—the availability of

removal—weighs against abstention, since it has been established that removal is not
available. The tenth factor—the vexatious or contrived nature of the federal claim—is
absent, since there is no federal claim in the first place.
One factor does favor abstention, and that is the third—the desirability of avoiding
piecemeal litigation. The Kelly firm is a party to the Texas case but is not a party here and
could not be made a party. Yet, Ullico engaged both the Matthiesen firm and the Kelly firm
to litigate its subrogation claim, and both firms insist that Ullico agreed to pay them on a
contingency basis. Although the issue of whether Ullico agreed to pay the Matthiesen firm
on a contingency basis could be resolved in the present suit, the issue of whether Ullico
agreed to pay the Kelly firm on a contingency basis could not be. Moreover, it is likely that
the issue of whether Ullico agreed to pay the Kelly firm on a contingency basis will turn on
the same facts and legal questions as will the issue of whether Ullico agreed to pay the
Matthiesen firm on a contingency basis—the Kelly firm does not claim to have had any
discussions with Ullico about its fee separate from the Matthiesen firm’s discussions.
Thus, there is a danger that both this case and the Texas case will result in inconsistent
adjudications based on the same facts: it is possible that in this case there will be a
determination that the Matthiesen firm is not entitled to a contingency fee and that in the
Texas case there will be a determination that the Kelly firm is entitled to a contingency fee.
Normally, the doctrines of claim and issue preclusion would prevent the possibility of
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inconsistent adjudications—the first court to reach a judgment will control the outcome in
both courts—but since the Kelly firm is not a party to this case, a judgment in this case will
likely not have claim or issue preclusive effect on its claims, even if those claims overlap
entirely with the Matthiesen firm’s claims. See, e.g., Hansberry v. Lee, 311 U.S. 32, 40
(1940); Pasko v. City of Milwaukee, 252 Wis. 2d 1, 18–19 (2002).1 In contrast, the Texas
case could resolve the claims of all interested parties, and the Texas court’s judgment
would then have preclusive effect here. Thus, if I stayed this case pending resolution of
the Texas case, the threat of inconsistent adjudications would be eliminated. Cf. Caminiti
& Iatorola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 701–02 (7th Cir. 1992); Lumen
Construction, Inc. v. Brant Construction Co., Inc., 780 F.2d 691, 694 & n.2 (7th Cir. 1986).
Still, the Supreme Court has stated that “the mere potential for conflict in the results
of adjudications, does not, without more, warrant staying exercise of federal jurisdiction.”
Colorado River, 424 U.S. at 816; see also Caminiti, 962 F.2d at 702 n.3. In the present
case, there is the potential for conflict in the results of adjudications, but nothing more that
weighs in favor of a stay. In short, there are no “exceptional circumstances.” Thus, I
conclude that abstention is not appropriate.
Accordingly, IT IS ORDERED that the defendant’s motion for abstention is DENIED.
Dated at Milwaukee, Wisconsin, this 24th day of June 2013.

s/ Lynn Adelman
LYNN ADELMAN
District Judge

1

There are exceptions under which litigants can be bound by judgments in cases to
which they were not parties, but none of the exceptions obviously apply to the Kelly firm.
See, e.g., Taylor v. Sturgell, 553 U.S. 880, 884–907 (2008). The “adequate
representation” exception could apply, but probably it does not because it is limited to more
formal instances of representation—such as class actions and suits by fiduciaries. See id.
at 894–95, 900–01.
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