Davis Wright & Jones v. National Union Fire Ins.

• Citation: 709 F. Supp. 196
• Decision Date: 07 March 1989
• Docket Number: No. C88-780DR.,C88-780DR.
• Court: U.S. District Court — Western District of Washington
• Parties: DAVIS WRIGHT & JONES, Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant.

709 F. Supp. 196

DAVIS WRIGHT & JONES, Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant.

No. C88-780DR.

United States District Court, W.D. Washington, at Seattle.

March 7, 1989.

Bruce Edward Johnson, Arthur W. Harrigan, Jr., Danielson, Harrigan, Smith & Tollefson, Seattle, Wash., for plaintiff.

Bradley David Stam, Seattle, Wash., for defendant.

ORDER GRANTING DAVIS WRIGHT'S MOTION FOR SUMMARY JUDGMENT

ROTHSTEIN, Chief Judge.

THIS MATTER comes before the court on a motion for summary judgment by plaintiff Davis Wright & Jones ("Davis Wright"). Having reviewed the motion together with all documents filed in support and in opposition,¹ and being fully advised, the court finds and rules as follows:

I. BACKGROUND

In March of 1985, defendant National Union Fire Insurance Co. of Pittsburgh, PA ("National Union") filed suit against Seafirst Corporation and its subsidiary, Seattle-First National Bank (collectively "Seafirst") as well as certain officers and directors of Seafirst. National Union alleged that Seafirst had wrongfully induced it to issue a $55 million policy of excess directors and officers liability insurance through fraud and misrepresentations in Seafirst's insurance application concerning the status of its energy loan portfolio. This court thereafter presided over all pre-trial and trial proceedings in the case. National Union Fire Insurance Co. of Pittsburgh, PA v. Seafirst Corp., 662 F.Supp. 36 (W.D.Wash.1986).

On March 25, 1988, this court entered judgment for Seafirst and against National Union pursuant to a jury verdict. Pursuant to a subsequent settlement between National Union and Seafirst, this court signed an order on June 3, 1988 dismissing with prejudice National Union's claims against Seafirst.

Meanwhile, in September of 1985, National Union filed a Summons with Notice in the Supreme Court for New York County against Davis Wright, the law firm that represented Seafirst during the events precipitating National Union's lawsuit against Seafirst. However, National Union has to date not filed a complaint against Davis Wright in the New York courts.

In June of 1988, Davis Wright filed the instant declaratory judgment action requesting this court to declare that, pursuant to the doctrines of res judicata and collateral estoppel, all cognizable claims which National Union alleges against Davis Wright are barred by the orders and judgments entered in National Union v. Seafirst. Davis Wright now moves for summary judgment on its request for declaratory relief.

II. LEGAL ARGUMENT

As a preliminary matter, National Union attacks Davis Wright's motion on grounds of prematurity because National Union has not yet filed a complaint in the New York action. The court rejects this argument. In its Order Denying National Union's Motion to Dismiss and Requesting Further Submission entered on December 1, 1988, the court gave National Union an opportunity to submit a complaint setting forth its claims against Davis Wright. National Union declined to do so.² Although a complaint would certainly be helpful, the court is confident that its extensive knowledge of the circumstances underlying both National Union v. Seafirst and National Union's projected claims against Davis Wright will enable it to determine whether res judicata or collateral estoppel bar the latter claims.³

A. Res Judicata

1. Applicable Law and Elements

Turning to the merits of Davis Wright's motion on the subject of res judicata, there is no question that the res judicata effect of the final judgment in National Union v. Seafirst must be determined by applying federal standards. In Gramm v. Lincoln, 257 F.2d 250, 255 n. 6 (9th Cir.1958), and St. Paul Fire & Marine Ins. Co. v. Weiner, 606 F.2d 864, 868 (9th Cir. 1979), the Ninth Circuit concluded that a federal court sitting in diversity should apply the res judicata and collateral estoppel rules of the forum state. See also Costantini v. Trans World Airlines, 681 F.2d 1199, 1201 (9th Cir.1982). Even following the Ninth Circuit's prescription, however, federal standards still apply because Washington state law holds that the preclusive effect of a decision rendered by a federal court sitting in diversity is governed by federal law. Alcantara v. Boeing Co., 41 Wash.App. 675, 678, 705 P.2d 1222, rev. denied, 104 Wash.2d 1022 (1985).⁴

Res judicata, also sometimes called claim preclusion, bars relitigation in a subsequent action of any claims that were raised or could have been raised in the prior action. Federated Department Stores v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2427-2428, 69 L.Ed.2d 103 (1981). The elements of res judicata are (1) an identity of claims; (2) a final judgment on the merits; and (3) identity or privity between the parties. Blonder-Tongue Laboratories v. University of Illinois Foundation, 402 U.S. 313, 323-24, 91 S.Ct. 1434, 1439-30, 28 L.Ed.2d 788 (1971).

a. Identity of Claims

Regarding the first element, identity of claims, the Ninth Circuit has set forth several criteria for determining if such an identity exists:

(1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts.

Costantini, supra at 1201-02; Derish v. San Mateo-Burlingame Board of Realtors, 724 F.2d 1347, 1349 (9th Cir.1983), overruled on other grounds in Eichman v. Fotomat Corp., 759 F.2d 1434 (9th Cir. 1985). Of the four criteria, the last one is undoubtedly the most important. Id.; Brown v. Federated Department Stores, 653 F.2d 1266, 1267 (9th Cir.1981); Harris v. Jacobs, 621 F.2d 341, 343 (9th Cir.1980); Morgan Consultants v. American Telephone and Telegraph Co., 546 F.Supp. 844, 847-48 (S.D.N.Y.1982).

Insofar as National Union seeks to hold Davis Wright liable for harm it suffered resulting from alleged misrepresentations in Seafirst's application for excess insurance, the court finds that those claims arise out of precisely the same transactional nucleus of facts as National Union's claims against Seafirst in National Union v. Seafirst based on the same alleged misrepresentations. It is no coincidence that in the trial of National Union v. Seafirst, National Union called two Davis Wright partners as witnesses and questioned them at length about Davis Wright's participation in preparing Seafirst's application for excess insurance, including detailed testimony about Davis Wright's role in drafting the addendum containing the alleged misrepresentations. By trying to establish Davis Wright's liability for the alleged misrepresentations in a second case, National Union would be rehashing the same evidence which it already offered in its prior suit against Seafirst.

But National Union argues that whether or not its claims against Seafirst and Davis Wright arise out of the same transactional nucleus of facts, it cannot be precluded from pressing its claims against Davis Wright because they could not have been litigated in National Union v. Seafirst. National Union contends that its common law fraud and negligent misrepresentation claims not only were not, but could not have been adjudicated because of this court's ruling in National Union v. Seafirst that a Washington statute governing insurance disputes, specifically RCW 48.18.090(1), barred National Union from pursuing them against Seafirst. National Union Fire Insurance v. Seafirst Corp., 662 F.Supp. 36, 39-40 (W.D.Wash.1986). National Union now insists that it can and should be permitted to pursue common law fraud and negligent misrepresentation claims against Davis Wright under New York law.

Two responses to National Union's argument are in order. First, it is true that the issues of common law fraud and negligent misrepresentation never went to the jury in National Union v. Seafirst. They were, however, adjudicated; the court ruled that, under RCW 48.18.090(1), National Union was barred from pursuing those issues.

Second, the law is clear that a party to a case cannot escape the res judicata effect of a negative decision under the law of one state by filing a second suit based on the same facts in another state.

The assertion of statutory or nonstatutory rights arising under the laws of different sovereigns might seem to thwart claim preclusion. How, after all, can two separate legal systems combine to create a single claim? Fortunately, courts have been far too practical to dither about such abstract conceptualizing. Even as between two states with reasonable grounds for applying their own law to the underlying transaction, judgment under the law of one state precludes an action in the other.

(emphasis supplied) 18 Wright, Miller & Cooper, Federal Practice and Procedure § 4411, p. 91 (1981). Cf. Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 64 S.Ct. 208, 88 L.Ed. 149 (1943), in which the United States Supreme Court held that a plaintiff who received an award under Texas worker compensation law was precluded by the full faith and credit clause from relitigating the issue of his entitlement to worker compensation under Louisiana law. The Court reasoned that the injury did not give rise to two distinct causes of action merely because two different state statutes were applied. See also Wright, Miller, supra at § 4467 concerning res judicata between state courts.

The principle set forth in Wright, Miller and Magnolia Petroleum is fully applicable here. National Union chose to file suit in Washington and invoked Washington law to resolve its claims. National Union never argued that New York law should govern. Now that a judgment displeasing to National Union has been entered under Washington law, it cannot escape the result of the doctrine of res judicata simply by filing suit in another state where...