Pace Commc'ns Servs. Corp. v. Express Prods., Inc.

18 N.E.3d 202

PACE COMMUNICATIONS SERVICES CORPORATION and Tunica Pharmacy, Inc., Individually and as the Representatives of a Class of Similarly Situated Persons, Plaintiffs and Citation Petitioners–Appellants

v.EXPRESS PRODUCTS, INC., Defendant (Cumberland Mutual Fire Insurance Company, Citation Respondent–Appellee).

No. 2–13–1058.

Appellate Court of Illinois, Second District.

Sept. 10, 2014.

Brian J. Wanca and David M. Oppenheim, both of Anderson & Wanca, of Rolling Meadows, and Phillip A. Bock, of Bock & Hatch, LLC, of Chicago, for appellants.

James P. Moran and Stephen A. Rehfeldt, both of Mulherin, Rehfeldt & Varchetto, P.C., of Wheaton, and Michael A. Hamilton, Louis H. Kozloff, and Mark H. Rosenberg, all of Nelson Levine de Luca & Hamilton LLC, of Blue Bell, Pennsylvania, for appellee.

OPINION

Justice SPENCE delivered the judgment of the court, with opinion.

¶ 1 Pace Communications Services Corporation and Tunica Pharmacy, Inc., represented a class of similarly situated persons (collectively, plaintiffs) in a class action (the class action) against Express Products, Inc. (Express), for, among other allegations, violations of the Telephone Consumer Protection Act of 1991 (TCPA) (47 U.S.C. § 227 (2000) ). Cumberland Mutual Fire Insurance Company (Cumberland) was one of Express's insurers. While plaintiffs were litigating the class action in the circuit court of Lake County, Cumberland sought in the United States District Court for the Eastern District of Pennsylvania a declaration that it had no duty to defend or indemnify Express (the federal action). Plaintiffs and Express settled the class action in 2009 for about $8 million, with plaintiffs agreeing to pursue the judgment not from Express but only from Express's insurers. Accordingly, plaintiffs filed under section 2–1402 of the Code of Civil Procedure (Code) (735 ILCS 5/2–1402 (West 2010) ) a citation to discover Cumberland's assets (the citation proceeding) in an effort to recover the judgment.

¶ 2 In September 2011, while the citation proceeding was still pending, the district court found that Cumberland did not have a duty to defend or indemnify Express. Plaintiffs moved for summary judgment in the citation proceeding, and Cumberland moved to dismiss based on the declaratory judgment. The circuit court denied plaintiffs' motion for summary judgment and granted Cumberland's motion to dismiss, finding that the declaratory judgment precluded relitigating whether Cumberland had a duty to indemnify Express. Plaintiffs appeal from the dismissal of the citation proceeding, and for the reasons set forth herein, we affirm.

¶ 3 I. BACKGROUND

¶ 4 Plaintiffs filed the class action in December 2004, alleging that Express violated provisions of the TCPA by faxing unsolicited advertisements to persons and companies in Illinois and other states, without the recipients' consent. Cumberland had issued Express sequential annual liability policies covering the period during which the alleged violations occurred.

¶ 5 Express notified Cumberland of the class action via a February 22, 2006, letter. On April 11, 2006, Cumberland responded that it was declining coverage, asserting that the faxes that plaintiffs allegedly received were not sent during the policy periods. On April 20, 2007, Cumberland revisited its decision to decline coverage and agreed to participate in Express's defense, under a reservation of rights.

¶ 6 On June 20, 2008, Cumberland filed the federal action. On June 24, 2009, Express moved for judgment on the pleadings, because Cumberland had not joined plaintiffs as necessary parties to the federal action, and the district court denied the motion.

¶ 7 Meanwhile, in May 2009, Express agreed with plaintiffs to settle the class action for just under $8 million.¹ After Express filed a “Motion for Preliminary Approval of the Class Action Settlement Agreement and Notice to the Class” on June 15, 2009, Cumberland sent Express a letter stating that under the insurance policies, Express could not, except at its own cost, assume any obligation or incur any expense (other than for first aid) without Cumberland's consent. On October 13, 2009, following a fairness hearing, the circuit court entered its “Final Approval of Settlement Agreement and Judgment” against Express. The settlement agreement stipulated that plaintiffs would seek recovery against only Express's two insurers, Cumberland and Maryland Casualty Company. It further stipulated that plaintiffs' counsel would undertake, at no cost to Express, the defense of Express in its coverage lawsuits, which included the federal action. Consequently, plaintiffs' counsel joined Express's defense in the federal action and argued its eventual appeal.

¶ 8 In October 2009, following the entry of the judgment against Express, plaintiffs filed the citation proceeding. Cumberland filed a motion to dismiss the citation proceeding for lack of personal jurisdiction in Illinois and, in the alternative, to dismiss or stay the action due to the pending federal action. The circuit court denied Cumberland's motion, and Cumberland appealed to this court, challenging only the determination of personal jurisdiction. We affirmed the circuit court's finding of personal jurisdiction. Pace Communications Services Corp. v. Express Products, Inc., 408 Ill.App.3d 970, 980, 349 Ill.Dec. 65, 945 N.E.2d 1217 (2011).

¶ 9 Meanwhile, in the federal action, on January 8, 2010, Express filed a second motion for judgment on the pleadings, arguing, among other things, that it had no further interest in the federal action and no incentive to litigate, because it had settled the class action with plaintiffs. The district court ordered that the motion be treated as one for summary judgment and it directed Cumberland to file its own motion for summary judgment with respect to the coverage dispute. In September 2011, the district court denied Express's summary judgment motion and granted Cumberland's, holding that, under Pennsylvania law, Cumberland did not have a duty to defend or indemnify Express under the relevant insurance policies. Maryland Casualty Co. v. Express Products, Inc., Nos. 09–857, 08–2909, 2011 WL 4402275 (E.D.Pa. Sept. 22, 2011). The United States Court of Appeals for the Third Circuit dismissed Express's appeal as untimely. Cumberland Mutual Fire Insurance Co. v. Express Products, Inc., 529 Fed.Appx. 245, 252–53 (3d Cir. 2013).

¶ 10 On remand in the citation proceeding, plaintiffs moved for summary judgment, arguing that Cumberland had a duty to indemnify Express in the class action and therefore was required to pay the judgment. The circuit court denied plaintiffs' motion because it found that plaintiffs were bound by the declaratory judgment in the federal action. For the same reason, on September 24, 2013, the circuit court granted Cumberland's motion to dismiss the citation proceeding.

¶ 11 Plaintiffs timely appealed.

¶ 12 II. ANALYSIS

¶ 13 Although plaintiffs argue multiple issues on appeal, if relitigation of Cumberland's duty to indemnify Express is barred by collateral estoppel, we need not reach plaintiffs' arguments as to whether Cumberland had a duty to indemnify Express or whether the settlement agreement between plaintiffs and Express was reasonable. Accordingly, we begin by addressing whether the declaratory judgment in the federal action bars relitigation of Cumberland's duty to indemnify Express and thus defeats the citation proceeding.

¶ 14 A. Standard of Review

¶ 15 We first note that it was not the claim to discover Cumberland's assets that the circuit court found barred but, rather, the issue of Cumberland's duty to indemnify Express. Regardless, the application of both “true res judicata ” (claim preclusion) and collateral estoppel (issue preclusion) are legal questions, which we review de novo. Lieberman v. Liberty Healthcare Corp., 408 Ill.App.3d 1102, 1108, 350 Ill.Dec. 593, 948 N.E.2d 1100 (2011) ; see Hayes v. State Teacher Certification Board, 359 Ill.App.3d 1153, 1161, 296 Ill.Dec. 291, 835 N.E.2d 146 (2005) (res judicata separated into two distinct doctrines). The issue of Cumberland's duty to indemnify Express was dispositive in the circuit court's grant of Cumberland's motion to dismiss and denial of plaintiffs' motion for summary judgment. We review de novo a ruling on a motion to dismiss generally or a motion for summary judgment. Simmons v. Homatas, 236 Ill.2d 459, 477, 338 Ill.Dec. 883, 925 N.E.2d 1089 (2010) (“A grant or denial of a motion to dismiss is a question of law that we review de novo .”); American States Insurance Co. v. CFM Construction Co. , 398 Ill.App.3d 994, 998, 337 Ill.Dec. 740, 923 N.E.2d 299 (2010) (“The appellate court applies a de novo standard of review to the trial court's grant or denial of a summary judgment motion.”); see Eclipse Manufacturing Co. v. United States Compliance Co., 381 Ill.App.3d 127, 134, 319 Ill.Dec. 586, 886 N.E.2d 349 (2007) (turnover order arising from section 2–1402 proceeding was subject to de novo review). Moreover, we review a choice-of-law issue de novo.

G.M. Sign, Inc. v. Pennswood Partners, Inc., 2014 IL App (2d) 121276, ¶ 25, 380 Ill.Dec. 799, 9 N.E.3d 49.

¶ 16 B. Collateral Estoppel

¶ 17 Plaintiffs submit three reasons why the federal declaratory judgment does not have preclusive effect in the citation proceeding: (1) the declaratory judgment is void under Pennsylvania law; (2) the law-of-the-case doctrine establishes that the declaratory judgment does not bind plaintiffs; and (3) the declaratory judgment does not meet the requirements for collateral estoppel to apply. We address each argument in turn.

¶ 18 1. Whether the Declaratory Judgment is Void

¶ 19 Plaintiffs argue that the declaratory judgment is void because, under Pennsylvania law, underlying tort plaintiffs have a substantial independent interest in insurance coverage and are therefore necessary parties to coverage actions, such as the federal action. See Vale Chemical Co. v. Hartford Accident &...