326 F.3d 816 (7th Cir. 2002), 02-2754, Zurich American Ins. Co. v. Superior Court for State of California

Docket Nº:02-2754, 02-2835, 02-2548.
Citation:326 F.3d 816
Party Name:ZURICH AMERICAN INSURANCE COMPANY, Petitioner-Appellee, v. SUPERIOR COURT FOR THE STATE OF CALIFORNIA, County of Los Angeles, Respondent, v. Watts Industries, Incorporated, Real Party-Appellant. Zurich American Insurance Company, Petitioner-Appellant, v. Superior Court For The State Of California, County of Los Angeles, Respondent, v. Watts Industr
Case Date:September 30, 2002
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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326 F.3d 816 (7th Cir. 2002)





Watts Industries, Incorporated, Real Party-Appellant.

Zurich American Insurance Company, Petitioner-Appellant,


Superior Court For The State Of California, County of Los Angeles, Respondent,


Watts Industries, Incorporated and James Jones Company, Real Parties-Appellees.

Nos. 02-2754, 02-2835, 02-2548.

United States Court of Appeals, Seventh Circuit.

Sept. 30, 2002.[*]

         Argued Sept. 25, 2002.

         Opinion April 17, 2003.

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         Andrew G. McBride (argued), Wiley, Rein & Fielding, Washington, DC, Darrel F. Oman, Meckler, Bulger & Tilson, Chicago, IL, for Zurich American Ins. Co.

         Steven J. Roeder, Chicago, IL, David S. MacCuish (argued), Weston, Benshoof, Rochefort, Rubalcava & MacCuish, Los Angeles, CA, for Watts, Industries, Inc.

         Elizabeth Davis Keating, Faustin A. Pipal, Keating, Keating & Pipal, Chicago, IL, Jordan S. Stanzler (argued), Stanzler, Funderburk & Castellon, San Francisco, CA, for James Jones Co.

         Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.

         WILLIAMS, Circuit Judge.

         After seven months of litigation in a California court concerning Zurich American Insurance Company's duty under various insurance policies to defend Watts Industries, Inc. and James Jones Company, Zurich filed a petition in the Northern District of Illinois to compel arbitration. The state case continued forward, however, leading eventually to a clash between the district court and the California Superior Court over the scope of an order by the district court enjoining Watts and the California court from further proceedings pending the district court's resolution of Zurich's petition. That preliminary injunction is the subject of these cross appeals by Watts and Zurich. Watts asserts that the injunction violated the Anti-Injunction Act, 28 U.S.C. § 2283, while Zurich claims it should have been broader--that the district court was mistaken in holding that the Rooker-Feldman doctrine applied to some of the issues. We agree with Zurich that the Rooker-Feldman doctrine does not apply but hold that the preliminary injunction violates the Anti-Injunction Act and therefore reverse.

         I. BACKGROUND

         Zurich issued to Watts commercial general liability insurance policies, which provided for a duty to defend against lawsuits. James Jones Company, Watt's subsidiary, was an insured under the policies (until it was later sold by Watts). In connection with these policies, Watts entered into deductibility agreements with Zurich, under which Watts agreed to reimburse Zurich for various defense and indemnity expenditures made pursuant to the general liability policies. The deductible agreements contain provisions requiring the arbitration of disputes arising out of those agreements. 1 The insurance policies do not.

         Watts and Jones were sued for fraud in two actions in California, Dep't of Water and Power ex rel. Armenta v. James Jones and Rothschild v. James Jones Co.2 Zurich refused to pay defense costs, so Watts and Jones separately sued Zurich in California Superior Court for coverage under the policies and the two coverage actions were consolidated. Several months

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into that litigation, during settlement negotiations, Zurich asserted that, even if it were liable under the policies, Watts would be responsible under the deductible agreements to reimburse Zurich for the full defense costs. Watts responded that, by denying coverage, Zurich had repudiated the policies and the deductible agreements and, alternatively, that Zurich had waived any defense based on those agreements. Zurich responded with a demand for arbitration, which Watts rejected.

         Zurich then filed a petition to compel arbitration in the district court and asked the California Superior Court to stay the state proceedings pending the district court's consideration of Zurich's petition. Shortly thereafter, the California Superior Court granted Watts's pending motion for summary adjudication as to Zurich's duty to defend Watts in the underlying Armenta matter. The Superior Court held that Zurich had a duty to defend Watts in that case and directed Zurich to reimburse it for reasonable defense costs. It also denied Zurich's request for a stay, holding that the dispute under the deductible agreements was severable from the coverage dispute pending before it. Zurich appealed to the California Court of Appeal, which held that the order for summary adjudication and the denial of Zurich's motion to stay were not appealable orders, and therefore dismissed the appeal.

         Watts then sought enforcement of the Superior Court's earlier order directing Zurich to pay defense costs, and after the Superior Court again ordered it to pay, Zurich filed a motion with the district court for a temporary restraining order enjoining further proceedings in California. The district court granted the motion, see Zurich Am. Ins. Co. v. Sup.Ct. for the State of Cal., 200 F.Supp.2d 929 (N.D.Ill.2002), and later granted Zurich's request for a preliminary injunction.

         The district court held that under the Rooker-Feldman doctrine, it lacked jurisdiction over issues already decided by the California court. Although noting the possible ambiguity regarding which issues were actually decided in the California court's order denying Zurich's motion for a stay, the district court interpreted that order as limited to the arbitrability of the duty to defend issue with respect to the Armenta case. The court found that Zurich was likely to succeed on the merits of its petition to compel arbitration of the other issues pending in California as to Watts and that Zurich would be irreparably harmed without the injunction. It therefore enjoined further proceedings in California concerning matters related to Watts other than the duty to defend in Armenta. It denied the motion as to Jones.

         The Superior Court then issued a clarification, stating that its earlier order had held that there were presently no arbitrable issues in either of the underlying cases, Armenta or Rothschild. The district court refused to consider that clarification, considering it a violation of its injunction.

         After these appeals were filed, the California court held that, based on its clarification of the scope of its earlier order and the district court's holding that Rooker-Feldman barred federal jurisdiction over issues already decided, the injunction did not bar its continued proceedings and directed counsel for Watts and Jones to "proceed forthwith with any and all motions that would effectuate an adjudication of coverage issues." We granted Zurich's and Watts's request for judicial notice of that order, reminded those subject to the injunction that they were bound until it was modified or reversed, and after oral argument of these appeals, reversed the

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injunction for the reasons we now explain. 3

         II. ANALYSIS

         On appeal, Zurich argues that the district court erred in holding that it lacked jurisdiction, under the Rooker-Feldman doctrine, over those issues already determined by the California court. Watts argues that the district court construed the state court's order too narrowly and should have found that it lacked jurisdiction over any of the issues raised in Zurich's petition. Watts further argues that the court's preliminary injunction over the California action was barred by the Anti-Injunction Act. Because the Rooker-Feldman doctrine is jurisdictional, see Lewis v. Anderson, 308 F.3d 768, 771-72 (7th Cir.2002); Long v. Shorebank Dev. Corp., 182 F.3d 548, 554-55 (7th Cir.1999), we address that question first before determining whether the injunction was appropriate.

         A. Rooker-Feldman doctrine

          The Rooker-Feldman doctrine bars review by lower federal courts of state court judgments. See Rooker v. Fidelity Tr. Co., 263 U.S. 413, 415-16, 44 S.Ct. 149, 68 L.Ed. 362 (1923); District of Columbia Ct.App. v. Feldman, 460 U.S. 462, 482-86, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). It "rests on the principle that district courts have only original jurisdiction; the full appellate jurisdiction over judgments of state courts in civil cases lies in the Supreme Court of the United States." GASH Assocs. v. Vill. of Rosemont, 995 F.2d 726, 728 (7th Cir.1993). We review the district court's application of the Rooker-Feldman doctrine de novo. Remer v. Burlington Area Sch. Dist., 205 F.3d 990, 996 (7th Cir.2000).

          Because the doctrine comes into play when there is a prior state court judgment, 4 it is often confused with res judicata, "[b]ut the two are not coextensive." GASH Assocs., 995 F.2d at 728. As the district court recognized, in determining application of the doctrine the pivotal question is whether the plaintiff's federal claim is independent of the state court's action; if so, the relevant doctrine is res judicata, not Rooker-Feldman:

The Rooker- Feldman doctrine asks: is the federal plaintiff seeking to set aside a state judgment, or does he present some independent claim, albeit one that denies a legal conclusion that a state court has reached in a case to which he was a party? If the former, then the district court lacks jurisdiction; if the latter, then there is jurisdiction and state law determines whether the defendant prevails under principles of preclusion.

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GASH Assocs., 995 F.2d at 728; see also Brokaw v. Weaver, 305 F.3d 660, 664-65 (7th Cir.2002); Remer, 205 F.3d at 998; Long, 182 F.3d at 555. Stated differently, "the...

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