Travelers Prop. Cas. Co. of Am. v. Dunphy

• Decision Date: 28 January 2014
• Docket Number: 13–C–931.,Case Nos. 13–C–877
• Citation: 997 F.Supp.2d 937
• Court: U.S. District Court — Eastern District of Wisconsin
• Parties: TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Plaintiff, v. CANNON & DUNPHY, S.C., Defendant. Cannon & Dunphy, S.C., Plaintiff, v. Travelers Property Casualty Company Of America, Defendant.

997 F.Supp.2d 937

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Plaintiff,

v.CANNON & DUNPHY, S.C., Defendant.

Cannon & Dunphy, S.C., Plaintiff,

v.Travelers Property Casualty Company Of America, Defendant.

Case Nos. 13–C–877, 13–C–931.

United States District Court, E.D. Wisconsin.

Jan. 28, 2014.

Mark W. Rattan, Brendan D. Corcoran, Litchfield Cavo LLP, Brookfield, WI, for Plaintiff/Defendant.

Brett A. Eckstein, Sarah Frink Kaas, William M. Cannon, Cannon & Dunphy SC, Brookfield, WI, for Defendant/Plaintiff.

DECISION AND ORDER

RUDOLPH T. RANDA, District Judge.

These cases relate to a state court lawsuit between rival personal injury firms. In that case, the principals of Habush, Habush & Rottier, S.C. alleged that Cannon & Dunphy, S.C. (and its principals) violated their statutory right to privacy by bidding on the electronic keywords “habush” and “rottier” on internet search engines, thus assuring that links to Cannon & Dunphy's website would appear as a “sponsored link” when users perform searches using the words Habush and/or Rottier. Cannon & Dunphy tendered the defense of this lawsuit to Travelers Property Casualty Company, but Travelers refused to provide a defense. After prevailing, see Habush v. Cannon, 346 Wis.2d 709, 828 N.W.2d 876 (Wis.Ct.App.2013), Cannon & Dunphy sent a demand letter to Travelers, threatening to sue if Travelers didn't pay $454,675.39 in attorney's fees and costs, plus interest.

Instead of paying, Travelers filed the above-captioned declaratory judgment action. Case No. 13–C–877. The next day, Cannon & Dunphy filed suit in Milwaukee County Circuit Court, alleging claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and also for declaratory judgment. Travelers timely removed. Case No. 13–C–931. Now before the Court are the following motions: (1) Cannon & Dunphy's motion to dismiss or stay the 877 case; (2) Cannon & Dunphy's motion to remand the 931 case; and (3) Travelers' motion to consolidate these two cases.

In the first motion, Cannon & Dunphy argues that the Court should decline jurisdiction over Travelers'? declaratory judgment action pursuant to the Wilton/Brillhart abstention doctrine, under which the Court has discretion to dismiss or stay a declaratory judgment action when parallel proceedings are pending in state court. Travelers Prop. Cas. v. Good, 689 F.3d 714, 717 (7th Cir.2012) (citing Wilton v. Seven Falls Co., 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995) and Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942)). At the risk of stating the obvious, right now there are no parallel proceedings in state court because the state court action was removed to federal court. The Court's discretion under Wilton/Brillhart “does not turn on the existence of parallel proceedings,” but “parallel proceedings do figure in the holding of Wilton.” Med. Assur. Co., Inc. v. Hellman, 610 F.3d 371, 378–79 (7th Cir.2010). Accordingly, the Court will consider the motion to remand the '931 action first. If the '931 action should be remanded, there would be a parallel action to defer to with respect to the '877 action, making abstention a more appropriate course of action.

Cannon & Dunphy's motion to remand also invokes Wilton/Brillhart. Again, there are no parallel proceedings, but the Court will ignore that issue for present purposes. Instead, there is a threshold issue for the Court to consider because the removed action is not a pure declaratory judgment action. When “both declaratory and non-declaratory relief is sought, does the Wilton/Brillhart standard even apply, and if so, under what circumstances?” R.R. Street & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711, 715 (7th Cir.2009). In R.R. Street, the Seventh Circuit adopted the Ninth Circuit's approach to this issue, asking whether the “claims seeking non-declaratory relief are independent of the declaratory claim. If they are not, the court can exercise its discretion under Wilton/Brillhart and abstain from hearing the entire action. But if they are, the Wilton/Brillhart doctrine does not apply ...” Id. at 716–17. A claim for non-declaratory relief is independent of the declaratory claim if it “has its own federal subject-matter-jurisdictional basis” and “its viability is not wholly dependent upon the success of the declaratory claim.” Id. at 716 n. 6. In other words, the Court must adjudicate non-declaratory claims that “ ‘exist independent of any request for purely declaratory relief, that is, claims that would continue to exist if the request for a declaration simply dropped from the case.’ ” Id. (quoting United Nat'l Ins. Co. v. R & D Latex Corp., 242 F.3d 1102, 1112 (9th Cir.2001) (emphasis in original)).

In its complaint, Cannon & Dunphy seeks a declaration that “pursuant to the terms of the policy Travelers issued ... and applicable law, coverage for the allegations in the Habush complaint was, at a minimum, fairly debatable, and that Travelerswas obligated to exercise one of its options for resolving coverage obligations, or face liability for its failure to defend and indemnify ...” Complaint, ¶ 41. Cannon & Dunphy also alleges that Travelers “breached its contractual duties” by “unilaterally denying coverage for the Habush litigation, ... refusing to defend such litigation, ... not intervening to obtain a declaratory judgment ruling on its duty to defend and indemnify, [and] refusing to defend or reimburse” Cannon & Dunphy's defense costs as a result of the litigation. Id., 34. As a result, Cannon & Dunphy “incurred substantial attorney's fees and defense costs, and other compensable injuries and damages, all to its damage in an amount to be determined at a trial of this matter.” Id., ¶ 36.

Cannon & Dunphy argues that the success of its breach of contract claim depends upon the outcome of its declaratory judgment claim, but as the Seventh Circuit observed, “[e]ven if the legal issues involved in deciding the declaratory claim would be dispositive of all of the non-declaratory claims, that would not necessarily mean that the latter are not independent of the former.” R.R. Street at 717 n. 9. To illustrate, Cannon & Dunphy cites a case where the policyholder requested fees under a fee-shifting statute alongside its request for declaratory relief. Keown v. Tudor Ins. Co., 621 F.Supp.2d 1025, 1030 (D.Hawai'i 2008) (“Where an insurer has contested its liability under a policy and is ordered by the courts to pay benefits under the policy, the policyholder ... shall be awarded reasonable attorney's fees and the costs of suit, in addition to the benefits under the policy”) (quoting Haw. Rev. Stat. § 431:10–242). This claim was obviously dependent upon the declaratory claim because the only way to be reimbursed for the cost of obtaining a declaration of coverage was to actually obtain a declaration of coverage. Id. (statute “does not create a separate cause of action for attorneys' fees, but instead conditions the payment of attorneys' fees and costs on the insured prevailing on its liability claim”). By contrast, Cannon & Dunphy doesn't need a separate declaration regarding Travelers' coverage obligations in order to succeed on its breach of contract claim. The essential inquiry is the same under both claims—does the policy provide coverage?—but the Court does not need to issue an order declaring that Travelers should have provided a defense before finding that Cannon & Dunphy was damaged by Travelers' failure to provide a defense. Quite frankly, the Court doesn't even understand why Cannon & Dunphy needs or wants a declaration in the first instance. The Habush litigation is over, so there are no continuing obligations for Travelers to fulfill in that regard. Whatever the reason or justification for pleading a declaratory claim—the likely answer is that it was pled in an effort to avoid a federal forum—Cannon which has an independent jurisdictional basis, would be a viable claim if the declaratory claim was eliminated. See, e.g., R & D Latex Corp., 242 F.3d at 1113 (“We can see no reason ... why a reimbursement claim must be joined with a claim for declaratory relief”) (emphasis in original).

Cannon & Dunphy tries to distinguish the holding in R.R. Street, arguing that the plaintiffs in that case brought claims for common law indemnity and promissory estoppel as alternative theories in the event they could not prove that the policy required coverage. R.R. Street did not distinguish between particular types of claims. Instead, the court held that all of the non-declaratory claims were “independent of the declaratory claim because they could stand alone in federal court—both jurisdictionally and substantively—irrespective of the declaratory claim.” R.R. Street at 717. “Were the declaratory claim dropped from the case, the district court would still have diversity jurisdiction over the plaintiffs' breach of contract, common law indemnity, and promissory estoppel claims that seek relief in the form of money damages, and the requested declaratory relief is not a prerequisite to resolution of those claims.” Id. So it is here. R.R. Street controls.

In the alternative, Cannon & Dunphy argues that the Court should remand the '931 action under the Colorado River abstention doctrine. R.R. Street at 717 (“subject to the presence of exceptional circumstances under the Colorado River doctrine, the court must hear the independent non-declaratory claims”). However, the Seventh Circuit has “understood” that the “existence of a parallel proceeding—i.e. an overlapping case in state court—is a requirement for exercising ‘ Colorado River abstention.’ ” Med. Assur. Co. at 378 (citing Beck v. Dobrowski, 559 F.3d 680, 686 (7th Cir.2009)); see also Adkins v. VIM Recycling, Inc., 644 F.3d 483, 508 (7th Cir.2011) (“The test articulated for the invocation of the Colorado River doctrine requires parallel litigation and extraordinary circumstances”)....