Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-3_08-cv-00333/USCOURTS-almd-3_08-cv-00333-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

---

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, EASTERN DIVISION

AMERICAN CASUALTY COMPANY )

OF READING, PENNSYLVANIA; )

NATIONAL FIRE INSURANCE )

COMPANY OF HARTFORD; and )

TRANSPORTATION INSURANCE )

COMPANY, )

)

Plaintiffs, )

) CIVIL ACTION NO.

v. ) 3:08cv333-MHT

) (WO)

SKILSTAF, INC, and )

PACA, INC., )

)

Defendants. )

OPINION AND ORDER

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).

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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 longrunning 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.

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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

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the same time, for the same cause against the same

party.” Johnson v. Brown-Service Insurance, 307 So.2d

518, 520 (Ala. 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

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[p]ending 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

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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 similar to § 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

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Water Conservation District v. United States, 424 U.S.

800 (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

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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

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1. This court need not reach the difficult question

of whether the plaintiffs in this case are the same as

the defendant in the state case, as Alabama’s abatement

statute would require. 

9

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.

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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 (2001); Middletown 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 claims for those same policy periods in the state

litigation. These positions would be inconsistent, it is

argued, because in the state case Continental asserts the

right to the claims at issue and, in the this case, the

plaintiffs contend to have that right; this is

inconsistent, it is said, because the defendants are

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2. A number of related inconsistencies and

contradictions can be found in the submissions filed by

the plaintiffs. For example, they argue that, while

Continental issued the workers’ compensation coverage to

Skilstaf from 1996-2000, “American Casualty issued the

workers compensation and related policies” in 2001 and

both Continental and the plaintiffs issued the policies

for 2002. Pl.’s Brief (Doc. 10) at 4-5. Indeed, the

policies attached by the plaintiffs indicate American

Casualty as the sole beneficiary of the security

requirement for the 2001 policy and the sole CNA company

issuing the policy. However, the state-court

counterclaim indicates that Continental had sued for

precisely those claims, referring to them explicitly.

This is not surprising because it seems that, until this

suit was filed in 2008, all the parties were operating

under the assumption that there was no distinction

between Continental and the plaintiffs. Essentially the

same policies were issued in roughly the same format from

1996 through 2002.

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faced in one case with a parent company that alleges it

owns rights under certain policies while, in another

case, subsidiary companies maintain that they are legally

distinct from that parent company and may therefore

assert those same rights.2

 The danger (for the purposes

of judicial estoppel) is that, if both Continental and

the plaintiffs prevail in their respective suits, the

state and federal courts will have reached inconsistent

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3. The two cases involve the same overall insurance

programs--all issued under the corporate name “CNA”--and

the same underlying claims and conduct. The plaintiffs

first asserted that this suit involves different claims

because it refers to programs from 2001 and 2002, whereas

Skilstaf’s original state-court complaint covered only

1996 through 2000. However, the defendants correctly

point out in response that Continental’s 2004

counterclaim expressly implicated the 2001 and 2002

insurance programs. Moreover, Skilstaf argues that the

entity that it did business with always operated under

(continued...)

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positions with respect to who has rights under the 2001

and 2002 policies. 

Judicial estoppel is inappropriate in this case. The

doctrine requires a party to have been successful in the

prior proceedings. See New Hampshire, 532 U.S. at 750;

Middleton, 979 So.2d at 61. Here, Continental has not

previously succeeded in its claims to have enforceable

rights with respect to the policies from the 2001 and

2002 period. The defendants argue only that Continental

has asserted its right to those claims and that the

state-court case has subsequently continued without

resolution. Thus, even assuming that the sets of claims

in the two cases are identical3

 and that the plaintiffs

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3. (...continued)

the same name (“CNA”) from 1996 through 2002. Similarly,

the plaintiffs also argued, at least at first, that this

litigation concerns “exposure buyback policies” in

addition to the letter of credit and certificates of

deposit that constituted the security requirements for

the policies in prior years. However, the 2004

counterclaim filed by Continental, in addition to

specifically mentioning the 2001 and 2002 policies,

specifically mentions exposure buyback policies. It was

not until their second brief that the plaintiffs advanced

the new theory that both Continental and they were

providing separate workers’ compensation policies for the

same time periods. However, even this new argument,

inconsistent with what the plaintiffs previously argued,

does not explain other inconsistencies, such as why

Continental asserted claims for the 2001 period (the

period for which policies were apparently issued by

American Casualty Company) in the state-court litigation.

The information before the court suggests that the

current suit arose from the same transaction and

occurrence as the claims in state court, including

Continental’s 2004 counterclaim. Indeed, no party

suggests how any of the alleged breaches or damages

differ, and the claims clearly arise from the same

insurance policies executed under the CNA umbrella.

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are the same “party” as Continental for estoppel

purposes, without indication that Continental has

prevailed in its contention that it is entitled to these

claims, it is impossible to declare that the state court

has been “misled”; there is “no risk of inconsistent

court determinations. New Hampshire, 532 U.S. at 750.

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4. The court will not decide the issue of whether

the plaintiffs and their parent corporation, Continental,

should be considered the same party in these

circumstances. The conduct of the parties throughout

their relationship and throughout the litigation suggests

that the parties were treating them as the same company.

However, the some of the insurance policies attached to

the plaintiffs’ brief in opposition indicate that “CNA”

refers to a collection of related corporate entities.

Doc. No. 10.* Indeed, some of those policies explicitly

indicate that several different entities, including the

plaintiffs and Continental, were somehow involved in the

insurance programs. Wholly owned subsidiaries are

generally considered separate corporate entities, but

courts must be careful not to let corporations unfairly

take advantage of the corporate form by, for instance,

creating wholly owned subsidiaries that also do business

(continued...)

14

Judicial estoppel is thus the wrong mechanism to address

the defendants’ ultimate concern of duplicative recovery.

Moreover, to make their argument, the defendants must

argue that Continental and the plaintiffs are essentially

the same party--after all, judicial estoppel applies only

when the same party attempts to prevail on inconsistent

theories in separate litigation. If, however,

Continental and the plaintiffs should indeed be

considered the same party (as defendants argue), there is

actually no danger of double recovery.4

 If they are to be

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4. (...continued)

under the same corporate names and are, in important

respects, functionally equivalent to the parent

corporation, and then using those subsidiaries to file

simultaneous legal actions whenever it seems

advantageous.

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considered different parties, then judicial estoppel

cannot apply, and the defendants will have to employ

other judicial mechanisms in either the state litigation

or in this litigation to ensure against whatever harms

may come from the litigation strategy of Continental and

its subsidiaries.

C.

Finally, the defendants urge the court to abstain

from this case pursuant to the considerations discussed

in Colorado River. The Supreme Court has repeatedly held

that “the pendency of an action in the state court is no

bar to proceedings concerning the same matter in the

Federal court having jurisdiction.” Moses H. Cone Mem'l

Hosp. v. Mercury Construction, 460 U.S. 1, 15 (1983)

(quoting Colorado River, 424 U.S. at 818). Given this

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general rule, a federal court will abstain only in

“exceptional circumstances” because abstention is an

“extraordinary and narrow exception to the duty of a

District Court to adjudicate a controversy properly

before it.” Id. at 14, 16.

The Eleventh Circuit has held that, “the Colorado

River doctrine requires federal courts to consider six

factors in determining whether abstention in favor of a

concurrent state proceeding is appropriate: (1) the order

in which the courts assumed jurisdiction over property;

(2) the relative inconvenience of the fora; (3) the order

in which jurisdiction was obtained and the relative

progress of the two actions; (4) the desire to avoid

piecemeal litigation; (5) whether federal law provides

the rule of decision; and (6) whether the state court

will adequately protect the rights of all parties.”

TranSouth Financial v. Bell, 149 F.3d 1292 (11th Cir.

1998). While the application of these factors is not

rigid and no precise weighting is mandated, a court

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should employ a “heavy bias” in favor of exercising its

jurisdiction. Id. “Only the clearest of justifications

will warrant dismissal.” Moses H. Cone, 460 U.S. at 16

(emphasis in original).

The first two factors do not counsel in favor of

abstention. No court has assumed jurisdiction over any

property, and neither party has suggested that the

federal forum is any more inconvenient than state court.

As for the rest of the factors, while some of them could

point in favor of exercising jurisdiction (the statecourt suit was filed long before this nascent federal

litigation and state law governs the workers’

compensation dispute), the defendants have not provided

sufficient information or argument to enable this court

to justify abstention under the “exceptional

circumstances” required by Colorado River and its stingy

progeny. 

The defendants urge abstention in a very short

section at the end of their brief; they essentially just

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recite the relevant factors from Moses H. Cone without,

for example, acknowledging that this federal suit

involves ostensibly different parties (given that the

plaintiffs are technically not parties in the state suit

and, moreover, that PACA is not a plaintiff in that

suit). Thus, it is not obvious, as defendants assume,

that the rights of the parties will be adequately

protected by the state-court proceedings. At the very

least, this case now involves questions not squarely

before the state court--namely, the extent to which the

subsidiaries, given the context, should be treated as

distinct entities with respect to the disputed policies.

Equally important, unlike in Colorado River, there is no

strong federal policy against piecemeal litigation in a

specialized area (such as water rights). Here, the mere

fact that different litigation among several companies

may concern the same broad contractual insurance issues

does not raise the same specter of problematic piecemeal

resolution of a wide range of complicated claims; indeed,

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the danger of piecemeal litigation, if any, is no

different here than it would be in any case that involves

parallel suits.

In the end, the defendants have not shown enough to

remove this case from the standard category of cases in

which potentially duplicative proceedings are brought in

state and federal courts. Unless very good reasons exist

for placing a case outside this category, the Supreme

Court has directed district courts not to abdicate their

responsibilities.

***

Accordingly, it is ORDERED that defendants Skilstaf,

Inc., and PACA, Inc.’s motion to dismiss (doc. no. 5) is

denied.

DONE, this the 18th day of March, 2010.

 /s/ Myron H. Thompson 

UNITED STATES DISTRICT JUDGE

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