Twin City Fire Ins. Co. v. Law Office of John S. Xydakis, P.C.

• Decision Date: 16 September 2019
• Docket Number: Case No. 18-cv-6387
• Parties: TWIN CITY FIRE INSURANCE COMPANY, Plaintiffs, v. LAW OFFICE OF JOHN S. XYDAKIS, P.C., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

407 F.Supp.3d 771

TWIN CITY FIRE INSURANCE COMPANY, Plaintiffs,

v.LAW OFFICE OF JOHN S. XYDAKIS, P.C., et al., Defendants.

Case No. 18-cv-6387

United States District Court, N.D. Illinois, Eastern Division.

Signed September 16, 2019

Joseph J. Stafford, Michael John Duffy, Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Chicago, IL, for Plaintiffs.

John Stephen Xydakis, Law Office of John S. Xydakis, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

Robert M. Dow, Jr., United States District Judge

Plaintiff Twin City Fire Insurance Company sold a professional liability insurance policy to John S. Xydakis, an attorney and one of the Defendants.¹ Xydakis made two claims under the policy, based on lawsuits and motions filed against him in Illinois state court. Plaintiff brought this action, seeking a declaration, pursuant to 28 U.S.C. § 2201, that Twin City owes no insurance coverage to Defendants for those claims, or in the alternative, seeking rescission of the insurance policy. Before the Court is Defendants' motion [18] to dismiss pursuant to Rule 12(b)(1), on the grounds that the Court lacks subject matter jurisdiction because the amount in controversy does not exceed $75,000. Also before the Court is Plaintiff's motion for leave to file a sur-reply [28]. In the Court's discretion, Plaintiff's motion for leave to file a sur-reply [28] is granted. For the reasons stated below Defendants' motion to dismiss [18] is granted in part and denied in part. Specifically, Counts I through IV are dismissed without prejudice to the extent that they make claims regarding Plaintiff's duty to indemnify Defendants; Defendants' motion is denied as to Counts I through IV to the extent that they make claims regarding Plaintiff's duty to defend Defendants, and the motion is denied in its entirety as to Counts V through XI. Defendants are ordered to file their answer by September 30, 2019. This case is set for further status hearing on October 3, 2019 at 9:00 a.m.

I. Background²

Plaintiff Twin City is an insurance company formed under the laws of the State of Indiana with its principal place of business in Connecticut. Plaintiff conducts business in Illinois and within the geographical boundaries of this district.

Defendant Law Office of John S. Xydakis, P.C., is a dissolved professional corporation that was organized under the laws of Illinois and had its principal place of business in Chicago, Illinois. The Law Office of John S. Xydakis, P.C. was involuntarily dissolved by the Illinois Secretary of State on or about October 11, 2013. The sole member of the Law Office of John S. Xydakis, P.C. was John S. Xydakis, a citizen of Illinois. Defendant Law Office of John S. Xydakis is a sole proprietorship engaged in the practice of law in Illinois, with its principal place of business in Illinois. The sole proprietor of the Law Office of John S. Xydakis, is John S. Xydakis, who is a citizen of Illinois and an attorney licensed to practice law in the State of Illinois and who does business as the Law Office of John S. Xydakis.

Venue is proper in this district pursuant to 28 U.S.C. § 1391, as the case addresses coverage under an insurance policy issued in this district, related to claims pending against putative insureds within the geographical boundaries of this district. The Court's subject matter jurisdiction is in dispute and is the subject of the motion before the Court. While the parties are citizens of different states, Defendants deny that the amount in controversy exceeds $75,000.00. The Court discusses its findings on this issue below.

Plaintiff sold Defendants a professional liability insurance policy. Defendants made two claims under that policy, one related to Fiona Chen Consulting v. Edward Schrock, et al. ,³ which Plaintiff calls "The Chen Lawsuit," and one related to a series of lawsuits regarding a condominium association, which Plaintiff calls "The Spiegel Lawsuits."⁴

Briefly, Fiona Chen Consulting v. Edward Schrock involves a claim for unpaid invoices. Fiona Chen alleges that Xydakis retained her to perform expert work in another lawsuit, that they entered into an oral contract, and that Xydakis did not pay her. She seeks $390,180.18 in damages. See [1-1] at 25. The Spiegel Lawsuits are a separate set of cases brought by Marshall Spiegel, represented by Xydakis, against neighboring condominium owners, the condo association, and attorneys and law firms involved in the litigation. As a result of their litigation tactics, Spiegel and Xydakis faced three motions for sanctions pursuant to Illinois Supreme Court Rule 137. One motion requested $492,432.08 in attorneys' fees incurred through July 2018, plus $27,878 in increased insurance costs. [28-1] at 9. Another sought fees and costs of $194,595.65. [28-1] at 14. The third requested fees and costs of $279,015.90 (later increased to $378,310). [28-1] at 19.

Xydakis sought coverage from Plaintiff for liability in the Chen Lawsuit and for liability for the three motions for sanctions in the Spiegel Lawsuits. Plaintiff denies that it owes a duty to defend or a duty to indemnify to Defendants for either claim. On September 19, 2018, Plaintiff brought this action seeking a declaratory judgment that Plaintiff owes Defendants no duty to defend or indemnify Defendants for the claims in the Chen Lawsuit, nor a duty to defend or indemnify Defendants for the claims in the three motions for sanctions. See [1] at 10-18. In the alternative, Plaintiff seeks rescission of the professional liability insurance policy it issued to Defendants. [1] at 18-20. Regarding subject matter jurisdiction, the Complaint alleges, "This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332 as the parties are citizens of different states and the amount in controversy exceeds $75,000.00 exclusive of costs and interest based [on] potential coverage obligation for the defense of, as well as sums sought in[,] the Chen Lawsuit and the Spiegel Motions for Sanctions, which Xydakis claims Twin City owes under the Policy." [1] at 3.

On January 14, 2019, Defendants filed their Motion to Dismiss Pursuant to Federal Rule of Civil Procedure Rule 12(b)(1), which argues that Plaintiff has failed to demonstrate that the amount in controversy exceeds $75,000. See [18] at 1. In the alternative to dismissal, Defendants seek a stay of the federal case until the underlying state cases are resolved. [18] at 7. After the initial briefing was complete, Plaintiff filed a motion for leave to file a sur-reply [28], seeking to update the Court on developments in the Spiegel Lawsuits and attaching state court orders granting the three motions for sanctions. See [28] and [28-1].

II. Legal Standard

When ruling on a motion to dismiss for lack of subject matter jurisdiction, a district court must accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiff. Long v. Shorebank Dev. Corp. , 182 F.3d 548, 554 (7th Cir. 1999) ; Killingsworth v. HSBC Bank Nev., N.A. , 507 F.3d 614, 618 (7th Cir. 2007). "The district court may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Shorebank Dev. Corp. , 182 F.3d at 554 (quoting Capitol Leasing Co. v. FDIC , 999 F.2d 188, 191 (7th Cir. 1993) ). On a Rule 12(b)(1) motion, as with a Rule 12(b)(6) motion, the court must also consider "documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice," along with additional facts set forth in the non-movant's brief opposing dismissal, so long as those facts "are consistent with the pleadings." W.C. Motor Co. v. Talley , 63 F. Supp. 3d 843, 846 (N.D. Ill. 2014) (quoting Geinosky v. City of Chicago , 675 F.3d 743, 745 n. 1 (7th Cir. 2012) ). To the extent an exhibit contradicts the complaint's allegations, the exhibit takes precedence. See Forrest v. Universal Savings Bank, F.A. , 507 F.3d 540, 542 (7th Cir. 2007). Where relevant, the Court also takes judicial notice of documents filed in the state court cases that form the basis of Defendant's insurance claims against Plaintiff, as described in detail below. See Collins v. Village of Palatine , 875 F.3d 839, 842 (7th Cir. 2017) ("judicial notice of public court documents is appropriate when ruling on a Rule 12(b)(6) motion to dismiss" (citing White v. Keely , 814 F.3d 883, 885 n.2 (7th Cir. 2016) )); Clark & Leland Condominium, L.L.C. v. Northside Community Bank , 110 F. Supp. 3d 866, 868 (N.D. Ill. 2015) (court may take judicial notice of matters of public record without converting 12(b)(6) motion into motion for summary judgment).

The burden is on the party asserting that jurisdiction exists—here, Plaintiffs. Cty. of Cook v. HSBC N. Am. Holdings Inc. , 136 F. Supp. 3d 952, 958 (N.D. Ill. 2015).; see also Gonzalez v. Bank of Am., N.A. , 2014 WL 26283, at *2 (N.D. Ill. Jan. 2, 2014) ("the plaintiff bears the burden of establishing the basis for the court's jurisdiction"). Where, as here, the defendant challenges the plaintiff's allegation of the amount in controversy, the plaintiff must support its assertion with competent proof. McMillian v. Sheraton Chicago Hotel & Towers , 567 F.3d 839, 844 (7th Cir. 2009) (quotation omitted). The plaintiff must prove the "jurisdictional facts by a preponderance of the evidence." Id. , quoting Meridian Sec. Ins. Co. v. Sadowski , 441 F.3d 536, 543 (7th Cir. 2006). Dismissal is warranted only if it is a "legal certainty" that the amount in controversy is actually less than $75,000. See St. Paul Mercury Indemnity Co. v. Red Cab Co. , 303 U.S. 283, 288–89, 58 S.Ct. 586, 82 L.Ed. 845, (1938) ("The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the...