Johnson Controls v. American Motorists Ins., 89-C-405.
| Decision Date | 22 August 1989 |
| Docket Number | No. 89-C-405.,89-C-405. |
| Citation | 719 F. Supp. 1459 |
| Parties | JOHNSON CONTROLS, INCORPORATED, Plaintiff, v. AMERICAN MOTORISTS INSURANCE COMPANY, an insurance corporation, Stonewall Surplus Lines Insurance Company, an insurance corporation, Republic Insurance Company, and Constitution State Insurance Company, an insurance corporation, Defendants. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Frank W. Doster, Hodan & Doster, Milwaukee, Wis., and Louis A. Lehr, Jr., Arnstein & Lehr, Chicago, Ill., for plaintiff.
Jeffrey A. Schmeckpeper, Kasdorf, Lewis & Swietlik, Frank L. Steeves and Deborah F. Hamilton, Riordan, Crivello, Carlson & Mentkowski, Milwaukee, Wis., for defendants.
DECISION AND ORDER
This diversity case is before the Court on the defendants' motion to stay the Wisconsin federal declaratory judgment action.
In June of 1986, a San Diego California resident named Gary Jones lost an eye and suffered other injuries when a Sears "Die-Hard" battery exploded. In January of 1989, a San Diego County jury returned a verdict in favor of Mr. Jones for $3.275 million in compensatory damages and for $6.5 million in punitive damages against Johnson Controls ("Johnson"), which had manufactured the battery. On January 21, 1989, judgment was entered for a total verdict of $9.775 million.
On March 17, 1989, Johnson's excess insurance carriers—Stonewall Surplus Lines Insurance Company, Republic Insurance Company, and Constitution State Insurance Company (the "moving defendants" or "excess insurers")—filed a complaint for declaratory relief in the Superior Court of California, County of San Diego, asking for a declaration under California's insurance code that they as excess insurers were not liable for any part of the $6.5 million punitive damages assessed against Johnson. The excess insurers named as defendants Johnson Controls, Gary and Mona Jones, and "Does 1-50."
On April 10, 1989, Johnson Controls filed a diversity action in this Court for declaratory relief under 28 U.S.C. § 2201, seeking a declaration of coverage under insurance policies issued by the moving defendants and American Motorists Insurance Company ("American Motorists") with respect to the $6.5 million punitive damage verdict rendered against Johnson in the Jones case. American Motorists provides first layer coverage to Johnson and insures a portion of the punitive award. The other defendants provide excess coverage beyond the American Motorists policy. Johnson was not served in the California action until April 19, 1989, after all the defendants were served with the summons and complaint in this Wisconsin declaratory action.
American Motorists, which because it provides first-layer coverage to Johnson could be liable for a portion of the punitive damages award, and which was not a named defendant in the original complaint for declaratory relief in California, filed an answer in the California declaratory judgment action on June 2, 1989, as one of the "Does."
To complicate matters further, American Motorists has alerted the Court by "Supplemental Affidavit" that Gary and Mona Jones have filed a cross-complaint for compensatory and punitive damages against Johnson and American Motorists in the California declaratory action. Johnson has moved to strike the Supplemental Affidavit, and in the alternative, opposes the Supplemental Affidavit with a memorandum of its own and a copy of a memorandum filed by Gary and Mona Jones in response to Johnson's motion in the California declaratory action to dismiss, or in the alternative, to stay said action. Johnson's memorandum sets forth its reasons why the cross complaint is unrelated to the coverage dispute, and how, under the California Code of Civil Procedure, the cross-complaint is improperly appended to the California declaratory action. The Jones memorandum sets out the differences between the cross-complaint and the California declaratory action, and why, if the California court grants the excess insurers motion to dismiss or stay, the state court should order a separate trial on the cross-complaint.
In a complex action such as this, any supplemental information helps this Court reach a decision. Especially helpful is any information that keeps this Court aware of the posture of the California declaratory action. Thus, this Court GRANTS plaintiff's motion to file a sur-reply brief, and, to keep matters fair, DENIES plaintiff's motion to strike the supplemental affidavit of American Motorists.
The excess insurers argue first that a stay of this Wisconsin declaratory action: (1) is necessary to avoid a violation of the Full Faith and Credit Clause of the U.S. Constitution; (2) is mandated by the doctrine of judicial comity; and (3) is warranted to protect them from "vexatious and harassing litigation." Johnson responds that the full faith and credit, comity, and harassment arguments are inapplicable, steering the debate to the propriety of this Court deferring to the California state court declaratory action under Colorado River Conservation District v. U.S., 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976),1 especially as the deference doctrine was applied in Coatings, Inc. v. National Cold Drawn, Inc., 611 F.Supp. 958 (E.D. Wis.1985), in which a motion to stay was denied because the relevant Colorado River factors had not been met. The excess insurers reply that Ohio Casualty Co. v. Jackson County Bank, 562 F.Supp. 1165 (W.D.Wis.1983), actually controls. In Ohio Casualty, the court justified its decision to decline to exercise jurisdiction on the basis of the discretionary nature of relief for declaratory judgment actions and considerations of wise judicial administration. American Motorists joins with the excess insurers seeking a stay, analogizing this case to Microsoftware Computer Systems v. Ontel Corp., 686 F.2d 531 (7th Cir.1982), overruled on other grounds, Gulf Stream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988), in which the Seventh Circuit ordered the federal proceeding stayed because there was no peculiarly "federal" interest in the action, because the state court suit was filed first and there was no indication that the state court could not fully and fairly resolve the dispute, and because it would be "a grand waste of efforts" by the courts and the parties to litigate the same issues in two forums at the same time. Id. at 538.
Prior to its decision in Colorado River, the United States Supreme Court recognized the power of a federal court to dismiss or stay proceedings in deference to a pending state court action in several limited situations. When federal jurisdiction is predicated on the Declaratory Judgments Act, stays in deference to state court proceedings have been approved on the ground that the federal court's assumption of jurisdiction to entertain such cases is discretionary.
Under this analysis, it is appropriate for a district court to exercise its discretion and stay an action when faced with a contemporaneous state court action if the federal court action is one for declaratory judgment, federal court jurisdiction is based on diversity rather than a federal question, and all matters in controversy could be fully adjudicated in the state court proceeding. Ohio Casualty, 562 F.Supp. at 1167-70 (citing Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494-95, 62 S.Ct. 1173, 1175, 86 L.Ed. 1620 (1942)).
The excess insurers have asserted that Ohio Casualty controls this case. This Court concludes that Ohio Casualty, as well as National Fire Ins. Co. v. Milwaukee Metropolitan Sewerage Dist., 680 F.Supp. 1291 (E.D.Wis.1988) (), are legally indistinguishable from this case. This Court will examine, however, the current applicability of the Brillhart decision after the Colorado River opinion to determine whether a Colorado River analysis need be undertaken, or whether the fact that this case appears to meet the Brillhart criteria is dispositive.
Judge Reynolds concluded in National Fire v. MMSD that 680 F.Supp. at 1292. Judge Shabaz in Ohio Casualty concluded that Brillhart controlled, and proceeded through a four-step analysis as to the considerations of the Declaratory Judgments Act. He then analyzed the case under the Colorado River factors as an alternative justification for dismissal of the action.
The first issue before this Court as to the appropriate evaluation is determining the extent that Brillhart is good law after Colorado River. The opinions of the United States Supreme Court in Will v. Calvert Fire Ins. Co., 437 U.S. 655, 98 S.Ct. 2552, 57 L.Ed.2d 504 (1978), suggest that in suits for declaratory relief under diversity jurisdiction, the decision whether to stay "is largely committed to the discretion of the district court." Will, 437 U.S. at 664, 98 S.Ct. at 2558 (plurality opinion). The reasons for this are elaborated upon by Justice Brennan in dissent:
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