American Cas. Co. of Reading v. SKILSTAF, INC.

695 F. Supp.2d 1256

AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA; National Fire Insurance Company of Hartford; and Transportation Insurance Company, Plaintiffs, v. SKILSTAF, INC., and Paca, Inc., Defendants.

Civil Action No. 3:08cv333-MHT.

United States District Court, M.D. Alabama, Eastern Division.

March 18, 2010.

Charles Davis Stewart, Jarrod Braxton Bazemore, Thomas S. Hiley, Spain & Gillon, L.L.C., Elizabeth Wood McElroy, Baxley, Dillard, Dauphin McKnight & Barclift, Birmingham, AL, for Plaintiffs.

Brannon Jeffrey Buck, Brett A. Ialacci, Walker Percy Badham, III, Badham & Buck LLC, Birmingham, AL, Randall Stark Haynes, Morris, Haynes & Hornsby, Alexander City, AL, for Defendants.

OPINION AND ORDER

MYRON H. THOMPSON, District Judge.

Plaintiffs American Casualty Insurance Company of Reading, Pennsylvania, National Fire Insurance Company of Hartford, and Transportation Insurance Company bring this lawsuit against defendants Skilstaf, Inc., and PACA, Inc., asserting claims related to workers' compensation insurance programs. Jurisdiction is proper under 28 U.S.C. § 1332 (diversity).

This case is now before the court on the defendants' motion to dismiss. For the following reasons, the motion will be denied.

I. BACKGROUND

Skilstaf sued Continental Casualty Company in state court in 2003. The dispute revolved around workers' compensation insurance programs in effect from 1996 through 2000. In 2004, Continental filed a counterclaim concerning those programs and, in addition, asserting claims for programs from 2001 and 2002. In 2008, Continental unsuccessfully attempted to remove this long-running state litigation to federal court. Shortly after that, the instant federal lawsuit was filed by the plaintiffs—three wholly owned subsidiaries of Continental—asserting claims related to the workers' compensation programs from 2001 and 2002.

II. DISCUSSION

The defendants make several arguments in support of their dismissal motion. The common thread in these arguments is that this case is duplicative of the pending state-court litigation and thus should be dismissed.

A.

The defendants first argue that this case should be dismissed pursuant to Alabama's "abatement statute," which provides as follows: "No plaintiff is entitled to prosecute two actions in the courts of this state at the same time for the same cause and against the same party. In such a case, the defendant may require the plaintiff to elect which he will prosecute, if commenced simultaneously, and the pendency of the former is a good defense to the latter if commenced at different times." 1975 Ala.Code § 6-5-440.

This statute, therefore, "state stands for the proposition that a person cannot prosecute two suits at the same time, for the same cause against the same party." Johnson v. Brown-Service Insurance, 293 Ala. 549, 307 So.2d 518, 520 (1974). "The purpose of the rule is to avoid multiplicity of suits and vexatious litigation." Id. The statute treats a defendant asserting a counterclaim as a plaintiff and thus may bar that defendant from asserting the same claim in another, simultaneous or later lawsuit. Ex parte Parsons & Whittemore Alabama Pine Construction, 658 So.2d 414, 419 (Ala.1995) (" § 6-5-440 also acts to bar a subsequent action by a party who first appeared as the defendant in a prior action"); Penick v. Cado Systems of Central Alabama, 628 So.2d 598, 599 (Ala.1993) (holding that "a compulsory counterclaim is an `action' for purposes of Alabama Code 1975, § 6-5-440").

Alabama courts have held that § 6-5-440's phrase "courts of this state" includes federal courts. See Ex Parte David H. Myer, 595 So.2d 890, 892 (Ala.1992). As a result, "a state court action can be abated if there is pending a federal court action involving the same cause against the same party." Johnson, 307 So.2d at 520. However, the defendants here confront this federal court with the opposite question: whether a federal action can be abated in favor of a state action based on § 6-5-440. In support of this contention, the defendants rely on two federal district court opinions: Simmons v. Pulmosan Safety Equipment, 471 F.Supp. 999 (S.D.Ala.1979) (Thomas, J.), and Central Reserve Life Insurance v. Kiefer, 211 F.R.D. 445 (S.D.Ala.2002) (Butler, J.).

The Simmons court stated that: "While no one challenges the applicability of this state procedural statute in a diversity suit in a federal district court, this Court agrees with the decision in Seaboard Finance Co. v. Davis, 276 F.Supp. 507 (N.D.Ill.1967), wherein that Court, after a lengthy discussion of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) and its progeny (citations omitted), concluded that an Illinois statute, substantially identical to the one in question here, would prevail over the conflicting federal practice in the absence of any overriding federal considerations. Concluding that the Alabama statute is applicable, this Court must now decide if Section 6-5-440 requires the abatement of this present action." Simmons, 471 F.Supp. at 1001. Expressly relying on Simmons, the Kiefer court later found "Alabama Code § 6-5-440 to apply to diversity suits." Kiefer, 211 F.R.D. at 451. Therefore, at the heart of both the Simmons and Kiefer holdings was the reasoning of the United States District Court for the Northern District of Illinois in Seaboard that it should apply an Illinois statute, a statute similar to Alabama's § 6-5-440.

The Seventh Circuit Court of Appeals has now expressly held that a federal court sitting in diversity should not apply 735 ILL. COMP. STATT. 5/2-619(a), the Illinois statute at issue in Seaboard. AXA Corporate Solutions v. Underwriters Reinsurance Corp., 347 F.3d 272 (7th Cir.2003). Relying on Erie and Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the appellate court reasoned:

"The overriding issue is whether this statute ... is the kind of law that a federal court sitting in diversity must apply, or if it is sufficiently procedural in nature that the federal court must turn instead to the analogous federal rules. This is often referred to as the distinction between `substantive' issues and `procedural' issues in cases applying the doctrine first announced in Erie, although both those terms should be understood as shorthand for a more complex inquiry. That inquiry requires courts to refer to the twin aims of the Erie doctrine, which are to discourage forum-shopping and to avoid the inequitable administration of laws....

"There can be no doubt that both § 2-619(a)(3) and the Colorado River doctrine address the general problem of duplicative litigation. Under Colorado River, a federal court may stay or dismiss a suit when there is a concurrent state court proceeding and the stay or dismissal would promote `wise judicial administration.' 424 U.S. at 818, 96 S.Ct. 1236. Substantially the same parties must be litigating the same issues contemporaneously in the two (or more) fora. (It may be worth noting that the federal courts do not face the same problems if the parallel litigation is in another federal court, because devices such as 28 U.S.C. § 1404(a) and 28 U.S.C. § 1407 exist for the total or partial consolidation of related cases from different districts.) Colorado River then goes on to outline numerous factors that the court should consider as it weighs what step is appropriate for the particular situation.

"Section 2-619(a)(3) addresses precisely the same problem. The choice Illinois has made, however, is different from the choice the federal courts have made. For example, the dismissal provisions of the state statute are construed liberally, while the Supreme Court has made it clear that Colorado River abstention must be reserved for exceptional circumstances. 424 U.S. at 813, 96 S.Ct. 1236. This difference would give rise to substantial variation in outcomes between federal and state litigation, which might suggest that § 2-619(a)(3) should be applied by a federal court in a case governed by state law, in order to avoid forum shopping....

* * *

"In our view, the problem addressed by § 2-619(a)(3) is closely akin to topics such as forum non conveniens, lis pendens, and venue statutes. Each of those areas addresses an organizational matter that is governed by the law of the sovereign that established the forum. In the case of a federal court, that sovereign is obviously the United States. We see no way for a federal court simultaneously to follow the Supreme Court's Colorado River doctrine and to apply the rule of § 2-619(a)(3). Given that conflict, and given the procedural nature of this problem, we conclude that the state statute should not have played any role in the decision whether to retain or dispose of this litigation."

AXA Corporate, 347 F.3d at 276.

The Seventh Circuit's reasoning applies with full force against application of Alabama's § 6-5-440 by this court, sitting in diversity, to the plaintiffs' case. This court therefore rejects that holdings in Simmons and Kiefer and holds instead that, for a district court sitting in diversity, § 6-5-440 should "not ... play any role in the decision whether to retain or dispose of ... litigation."¹ Id. The defendants' § 6-5-440 argument is without merit.

B.

The defendants also contend that the plaintiffs should be prevented from bringing their claims because of judicial estoppel. Judicial estoppel is an equitable doctrine designed to prevent a party from asserting a position in later proceedings that is inconsistent with a position upon which that party prevailed in an earlier proceeding. See, e.g., New Hampshire v. Maine, 532 U.S. 742, 749-50, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001); Middleton v. Caterpillar Industrial, 979 So.2d 53, 60-61 (Ala.2007).

The defendants argue that the plaintiffs cannot assert claims for the 2001 and 2002 periods because their parent company, Continental, has already asserted the same...