Calvert Fire Ins. Co. v. Will
| Decision Date | 15 August 1977 |
| Docket Number | No. 76-1495,76-1495 |
| Citation | 560 F.2d 792 |
| Parties | CALVERT FIRE INSURANCE COMPANY, Plaintiff-Petitioner, v. Honorable Hubert L. WILL, Judge of the United States District Court for the Northern District of Illinois, Respondent, and American Mutual Reinsurance Company, Defendant-Respondent. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Michael L. Weissman, Chicago, Ill., Louis Loss, Cambridge, Mass., for plaintiff-petitioner.
Thomas J. Weithers, Chicago, Ill., for respondent.
Before SWYGERT and WOOD, Circuit Judges, and GRANT, Senior District Judge. 1
The question before us is whether a federal court in a pending suit may await the outcome of a state court action between the same parties in which all but one of the issues are identical, that one issue being a claim for damages over which the federal court has exclusive jurisdiction. The question forms the basis for a petition for a writ of mandamus against United States District Judge Hubert L. Will of the Northern District of Illinois. We grant the writ.
Plaintiff-petitioner Calvert Fire Insurance Company writes property and casualty insurance. Calvert's antagonist, American Mutual Reinsurance Company, engages in the business of reinsurance. For many years American Mutual has operated a reinsurance pool known as the "Multiple Line Pool." Fire and casualty policies underwritten by primary insurance companies are reinsured by American Mutual which in turn lessens its reinsurance risks by enlisting other insurance companies to enter into a pool arrangement. These companies earn a pro rata share of the excess of American Mutual's premiums over the sum of losses paid primary insurers and a management fee. If losses exceed premiums the pool members are obligated to indemnify American Mutual.
Calvert is a member of the pool. Prior to its entrance in early 1974, there were discussions between Calvert and American Mutual officials during which Calvert asserts it sought financial data from American Mutual. Although apparently available, the data was not furnished. In March 1974 Calvert received from American Mutual its first statement which reflected extremely high reserves for incurred but not reported losses for the months of January and February 1974. In April American Mutual's 1973 annual report showed an inordinately high loss and expense ratio. Calvert, having found itself pro rata accountable for the pool's substantial losses, concluded that it had been fraudulently induced to participate in the pool because of American Mutual's withholding of material information during the negotiation of the agreement. Calvert notified American Mutual that it intended to rescind its agreement to participate in the pool. Simultaneous litigation soon followed in both state court and federal court. A summary of the state and federal actions is set forth in parallel columns.
American Mutual v. Calvert Calvert v. American Mutual
Circuit Court of Cook United States District Court
County, Illinois For the Northern District
of Illinois
------------------------------------------- ---------------------------------
July 3, 1974
American Mutual sued
Calvert, seeking a declaratory
judgment that the pool arrangement
was in full force and effect
January 10, 1975 January 10, 1975
Calvert filed an answer Calvert sued American
alleging that the agreement Mutual, seeking (1) rescission
was void because American Mutual of the pool agreement
violated the 1933 Securities on the same grounds as
Act, the 1934 Securities those listed in its state court
Exchange Act, the Illinois answer and (2) $2,000,000
Securities Law, the Maryland monetary damages on the
Securities Law, and was guilty of same grounds as those listed
common law fraud. in its state court counterclaim
as well as for alleged
With its answer, violations of Rule 10b-5 of
Calvert filed a counterclaim the Securities Exchange Act
seeking $2,000,000
monetary damages, asserting
as grounds for such relief all of the
defenses asserted in its answer except
the alleged violations of Rule 10b-5
of the Securities Exchange Act.
On February 5, 1975 American Mutual moved to abate or, in the alternative, to dismiss the federal court action. The abatement motion was based on the fact that six months previously American Mutual had initiated its declaratory judgment action in the Circuit Court of Cook County. The motion to dismiss was based on American Mutual's contention that the reinsurance contract executed by the parties did not constitute a sale by American Mutual of a security under either the Securities Act of 1933 or the Securities Exchange Act of 1934.
On May 6, 1975 Judge Will issued a memorandum opinion and order on American Mutual's motion to abate. The order stayed all claims alleged in Calvert's complaint, except its claim for money damages under Rule 10b-5 of the Securities Exchange Act of 1934. The district court's jurisdiction over the latter claim was specifically retained by the terms of the order. On May 9, 1975 Judge Will heard oral argument on the primary issue underlying the claim for damages: whether a participatory interest in the reinsurance pool is a security. The judge has not ruled on this issue.
On June 16, 1975 the judge in the state court declaratory judgment action ruled that participatory interests in the reinsurance pool are not securities and that application of the federal securities laws was barred by the McCarren-Ferguson Act, 15 U.S.C. §§ 1011-15. Calvert appealed from this ruling to the Illinois Appellate Court, which affirmed the trial court's decision.
On two occasions subsequent to the abatement order Calvert requested the district judge to reconsider his order. He refused the requests, and also refused to rule on the claim for damages under Rule 10b-5 over which he retained jurisdiction. He has declined to permit interlocutory review of his order.
Calvert recognizes that the district court's order staying proceedings on most of Calvert's federal complaint is not appealable because it is not a final order. See Cotler v. Inter-County Orthopaedic Ass'n, P.A., 526 F.2d 537, 540 (3d Cir. 1975). It therefore seeks review of the district court's action by petitioning for a writ of mandamus. In its petition it asks us to require Judge Will to adjudicate its entire claim both for equitable relief and for damages under the Securities Exchange Act of 1934. 2 Calvert is therefore partially seeking reversal of the district court's decision to stay Calvert's claim for equitable relief and partially seeking an order compelling Judge Will to immediately decide the claim for damages over which he has retained jurisdiction. 3
A writ of mandamus is an extraordinary remedy which we will not easily grant. In a fairly recent case, Will v. United States, 389 U.S. 90, 96, 88 S.Ct. 269, 274, 19 L.Ed.2d 305 (1967), the Supreme Court advised the lower federal courts: With these preliminary observations in mind, we turn to the merits of the petition.
The district court relied principally upon this court's decision in Aetna State Bank v. Altheimer, 430 F.2d 750 (7th Cir. 1970). In Aetna the district court stayed an action brought under Rule 10b-5 in deference to state court proceedings involving the same transaction in which the identical Rule 10b-5 claim was raised as an affirmative defense. We sustained the district court's action, holding that the stay was a proper exercise of "the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel and for litigants." 430 F.2d at 755.
The district court's reliance on Aetna was not misplaced. Although Calvert struggles to distinguish the case at bar from Aetna, the factual parallelism between the two cases is overwhelming. Thus, the district court's order was correct at the time it was entered.
Since that time, however, the Supreme Court has decided Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), in which it thoroughly analyzed the law with respect to contemporaneous exercise of concurrent jurisdiction by state and federal courts. If Colorado River controls the instant case, we must apply it even though it was decided after the district court had acted. United States v. Fitzgerald, 545 F.2d 578, 581-82 (7th Cir. 1976).
In Colorado River the Supreme Court stated that, in cases of contemporaneous exercise of concurrent jurisdiction by a state court and a federal court, the federal court generally has an obligation to exercise its jurisdiction. The Court reaffirmed the rule of McClellan v. Carland, 217 U.S. 268, 30 S.Ct. 501, 54 L.Ed. 762 (1910), that the pendency of a state court action is not a bar to an action in a federal court involving the same issues. It held that only in exceptional circumstances should a federal court dismiss an action because of the pendency of state proceedings involving the same issues. Circumstances which might lead to such a dismissal include: (1) the assumption of jurisdiction over a res by the state court; (2) the desirability of avoiding piecemeal litigation; (3) the inconvenience of the federal forum; and (4) the order in which concurrent jurisdiction was obtained by the two forums. None of these factors alone is...
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