GASH Assocs. v. Village of Rosemont, Ill., 995 F.2d 726, 728 (7th
Cir. 1993). This formulation is usually referred to as the “source
of injury” test (i.e., is the source of injury the judgment itself
or something distinct from it?). Garry v. Geils, 82 F.3d 1362, 1367
(7 Cir. 1996).

With regard to the order of the California Superior Court
granting summary adjudication for the defendants and against Zurich
on the duty to defend in the Armenta action, application of Rooker-
Feldman is in order. Zurich argues that Rooker-Feldman does not
apply because Zurich initiated its federal action before the state
court rendered any determination on the issues Zurich seeks to
arbitrate. It cites a Second Circuit Case finding that Rooker~
Feldman is inapplicable when the federal plaintiff “filed its
petitions to compel arbitration of the [federal defendants’] state
actions before the state courts had made any rulings on the merits
in those actions.” Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126,
138 (2d Cir. 1997). Even if the Seventh Circuit would apply this
rule, that would not give me jurisdiction over the duty to defend
issue in the Armenta action, where there was a ruling on the merits
reached in a matter filed in February 2001, well before Zurich
filed its petition to compel arbitration in October 2001. Doctor's
Associates would be distinguishable anyway because there the
plaintiffs obtained default judgment in state court that they

sought to have set aside in federal court, but here, with respect


the arbitration clauses are broad, at least one of which requires
“all matters in difference between the parties” to be arbitrated.!
The breadth of that language suggests that Zurich has some
likelihood of prevailing on the issue of the arbitrability of the
duty to defend in Rothschild. The Southern District of New York has
rejected the sort of argument urged by Watts in Petition of Home
Ins. Co., 908 F. Supp. 180, 183 (S.D.N.Y. 1995) (Koetl, J.).

The other elements for extraordinary relief are not in
dispute. I therefore Grant Zurich’s motion for a TRO enjoining the
California Superior Court from pursuing further proceedings in
Rothschild pending resolution of Zurich’s petition to compel
arbitration in that case, and enjoining the California Superior
Court from pursuing further proceedings in Armenta, apart from
enforcing its orders of October 30 and November 27, 2001, or other
matters concerning the duty to defend issue in that case which was
the subject of those orders. I Dismiss for want of subject matter
jurisdiction Zurich’s motion for a TRO enjoining the California
Superior Court from pursuing further proceedings in Armenta

relating to its orders of October 30 and November 27, 2001, finding

1 The language varies from agreement to agreement. Each year
there was a separate agreement.


court has granted an injunction prior to deciding whether
arbitration is proper. That is not true. The Fourth Circuit has
directed that this be done, holding that “absent exceptional
circumstances, a federal district court has ‘no right to stay the
federal proceedings" brought under the FAA even though a similar
action between the parties was pending in the state court.’”
Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991)
(citations omitted) (abstention context), and ordering the district
court to “decide the question under federal law whether the dispute
is arbitrable.” Id.

I now turn to whether it is appropriate to issue the TRO with
respect to proceedings in the California Superior Court relating to
the issues raised by Zurich’s petition in this court to compel
arbitration, setting aside the duty to defend issue in Armenta.
Injunctive relief is an extraordinary and drastic remedy that
should not be granted unless the movant, by a clear showing,
carries the burden of persuasion. Mazurek v. Armstrong, 520 U.S.
968, 972 (1997). Five factors figure into the determination of
whether a preliminary injunction should be granted. Roland Mach.
Co. v. Dresser Indus., Inc., 749 F.2d 380, 385-88 (7th Cir. 1984).
As a threshold matter, the plaintiff must show (1) a likelihood of
success on the merits, (2) irreparable harm if the preliminary
injunction is denied, and (3) the inadequacy of any remedy at law.

Cooper v. Salazar, 196 F.3d 809, 813 (7th Cir. 1999). Once this


to the Armenta action, the state court reached a reasoned judgment
on the merits of a claim that Zurich seeks to have arbitrated, the
existence under the contract of that duty.

However, that is the limit of Rooker-Feldman here, because the
order of October 30, 2001, memorialized in written opinions of
November 27, 2001, reached only the duty to defend in Armenta, and
not any other issue, including whether there is a duty to defend in
Rothschild or whether any dispute about Rothschild, including the
existence of a duty to defend, is arbitrable. In that case there is
no state court order or judgment for which the plaintiffs might
improperly seek “review” in federal court. It is not claimed that
the state court has decided any issue in Rothschild or indeed any
other issue in Armenta, and so Rooker-Feldman cannot apply to those
issues where there are no state court rulings.

Watts also invokes the Anti-Injunction Act, 28 U.S.C. § 2283
This states that a federal court may not “grant an injunction to
stay proceedings in a State court except as expressly authorized by
Act of Congress, or where necessary in aid of its jurisdiction, or
to protect or effectuate its judgments.” However, this case
involves the “necessary in aid of [my] jurisdiction” clause,
because I have diversity jurisdiction in this matter, but I would
lose it in view of the operation of the Rooker-Feldman doctrine if
the state court were to rule in Rothschild or on any other issue in

Armenta, Watts argues that there are no cases where any federal


litigation that it might avoid if that petition is granted, and if
the California courts decide in the remaining cases and issues as
they have in Armenta, then Rooker-Feldman may bar any possibility
that I could even hear the question. That is enough for irreparable
harm.

As for likelihood of success, Zurich must only show that “its
chances for success are better than negligible.” Roland Mach., 749
F.2d at 387. Watts’ letter of Sept 6, 2002, might well be construed
as anticipatory repudiation and breach of the deductible side
agreements containing the broad arbitration clause. Watts argues
that it was no such thing as an anticipatory repudiation, but only
a proposition offered as part of settlement negotiations. That may
be, but the case is not so clear cut that Zurich’s chances of
prevailing are less than negligible. As to whether the duty to
defend in Rothschild, the subject of the main policy, is within the
scope of the arbitration clause in the deductible agreement, that
is a matter of contract interpretation, Collins & Aikman Prods. Co.
v. Building Sys., Inc., 58 F.3d 16, 19 (2d Cir. 1995), but the
Supreme Court has said that “any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration .

” Moses’'H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25 (1983). “Federal policy requires us to construe arbitration
clauses as broadly as possible.” David L. Threlkeld & Co. v.

Metallgesellschaft Ltd., 923 F.2d 245, 250 (2d Cir. 1991). Here,


Minute Order Form (06/97)
+ Ms

United States District Court, Northern District of Iinois

Name of Assigned Judge Elaine E. Bucklo Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 01 C 7673 DATE 5/10/2002
CASE Zurich American Ins. Co. vs. Watts Industries, Inc., et al.
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.)

MOTION:

DOCKET ENTRY:

(i) o Filed motion of [ use listing in “Motion” box above.]

(2) a Brief in support of motion due

(3) Oo Answer brief to motion due___. Reply to answer briefdue___-

(4) Oo Ruling/Hearingon____ssetfor_ at

6) Oo Status hearing{held/continued to] [set for/re-set for]on___setfor___—at_—
(6) oO Pretrial conference[held/continued to] [set for/re-set for]on__setfor_—sat__—
(7) og Trial[set for/re-set for]on___—_aat

(8) Oo [Bench/Jury trial] [Hearing] held/continuedto__—___at

(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) CGeneral Rule 21 COFRCP41(a)(1) C1 FRCP41(a)(2).

(0) +x [Other docket entry] By 5:00 p.m. Monday, May 13, 2002, the parties shall submit a proposed
temporary restraining order that conforms to the attached opinion. The parties shall also attempt to agree
on a briefing schedule with respect to Zurich’s arbitration petition and inform the court as well whether
any discovery is necessary. Status hearing set for Wednesday, May 22 at 9:30 a.m. Enter Memorandum
Opinion and Order.

(il) @f {For further detail see order attached to the original minute order.]

No notices required, advised in open court. Document.

Number.

54

3

No notices required.
eat number of notices

oS | Notices mailed by judge’s staff.

oY | Notified counsel by telephone.

Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.

date mailed notice
courtroom

MPI deputy’s
initials

3 Olivyes

o . Date/time received jn
central Clerk’s Office railing deputy initials



that Zurich had a duty to defend in the Armenta action.

ENTER ORDER:

Lp
Li £ beh be
Elaine E. Bucklo
United States District Judge

Dated: May 10, 2002

10


threshold showing is made, I balance (4) the harm to the plaintiff
if the preliminary injunction were wrongfully denied against the
harm to the defendants if the injunction were wrongfully granted,
and (5) the impact on persons not directly concerned in the dispute
(the “public interest”). Id. The standards I must apply when
determining whether a TRO is appropriate are analogous to the
standards applicable when determining whether preliminary
injunctive relief is appropriate. Consumer Sales & Marketing, Inc.
v. Digital Equip. Corp., No. 95 C 5049, 1995 WL 548765, at *3 (N.D.
Ill. Sept. 13, 1995).

Watts opposes the TRO, arguing that there is no showing of
irreparable harm nor any likelihood of success. The risk of
irreparable harm is that Zurich may lose any possibility of
submitting the claims it may still submit to arbitration if the
state court enters a judgment on the merits with respect to
Rothschild and issues regarding the deductible agreements in
Armenta. In enacting the Federal Arbitration Act, 9 U.S.C. § 2,
under the authority of which Zurich would prefer to proceed,
“Congress declared a national policy favoring arbitration and
withdrew the power of the states to require a judicial forum for
the resolution of claims which the contracting parties agreed to
resolve by arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 10
(1984). If denied the right to have its petition to compel

arbitration heard, Zurich may be compelled to undergo costlier


Zurich now asks me to enter a temporary restraining order
(“TRO”) enjoining the California state court from enforcing the
orders of November 27, 2001. The first issue concerns my
jurisdiction. The defendants argue that I lack subject matter
jurisdiction to grant the requested relief because of the Rooker-
Feldman doctrine, This doctrine essentially precludes lower federal
court jurisdiction over claims seeking review of state court
judgments or over claims "inextricably intertwined" with state
court determinations. See Rooker v. Fidelity Trust Co., 263 U.S.
413 (1923); District of Columbia Court of Appeals v. Feldman, 460
U.S. 462 (1983). The doctrine “bars federal jurisdiction when the
federal plaintiff alleges that [its] injury was caused by a state
court judgment.” Remer v. Burlington Area Sch. Dist., 205 F.3d 990,
996 (7th Cir. 2000). The reason is that the only court with the
authority to review such judgments is the United States Supreme
Court, and therefore litigants must appeal state court rulings
“through their state courts and then to the Supreme Court.” Id.
Without the doctrine, lower federal courts essentially would be
engaging in appellate review of state court rulings. In deciding
whether to apply the Rooker-Feldman doctrine, I ask:

is the federal plaintiff seeking to set aside a state

judgment, or does he present some independent claim, albeit

one that denies a legal conclusion that a state court has
reached in a case to which he was a party? If the former, then
the district court lacks jurisdiction; if the latter, then

there is jurisdiction and state law determines whether the
defendant prevails under principles of preclusion.


municipal water systems. See Rothschild v. Tyco Int’l, No. 726930
(Cal. Super Ct. San Diego), filed May 7, 1999 (“Rothschild”), and
Armenta v. James Jones Co., No BC 173487 (Cal. Super. Ct., Los
Angeles), filed June 25, 1997 (“Armenta”). Watts sued Zurich for
coverage under the agreements in California state Superior Court on
February 14, 2001 (the “California action”); Jones filed a parallel
lawsuit that was later consolidated with the California Action.
Zurich states that Watts repudiated its obligations under the
deductibility agreements on September 6 2001, because Zurich
refused to defend these actions. On October 2, 2001, Watts filed a
motion for summary adjudication in Superior Court against Zurich.
Zurich demanded arbitration, but Watts denied there was anything to
arbitrate. On October 4, 2001, Zurich filed a motion to compel
arbitration in this court. On October 9, 2001, Zurich asked the
California state court for a stay of Watts’ and Jones’ action
pending a decision on arbitrability, but on October 30, 2001, that
court refused to stay the action, denying that there was any
arbitrable dispute, and granting Watts’ motion for summary
adjudication, a nonfinal order. This was memorialized in two orders
of November 27, 2001. Zurich appealed in the California state
courts (and later lost). In December 2001, Watts moved in this
district to dismiss Zurich’s petition to compel arbitration, which

motion was denied.


IN THE UNITED STATES DISTRICT COURT D
FOR THE NORTHERN DISTRICT OF ILLINOIS Pee
EASTERN DIVISION OCKETED
MAY 1 3 2002

ZURICH AMERICAN INSURANCE Co.,
Plaintiff,
No. 01 C 7673

v.

SUPERIOR COURT FOR THE STATE OF
CALIFORNIA, COUNTY OF LOS
ANGELES ,

Respondent,

WATTS INDUSTRIES, INC. and
JAMES JONES COMPANY

Real Parties.

MEMORANDUM OPINION AND ORDER

During 1991-96, Zurich American Insurance Co. (“Zurich”), of
Schaumburg, Illinois, entered into certain insurance arrangements
with Watts Industries (“Watts”), a Delaware Corporation whose
principal place of business is North Andover, Massachusetts, and
James Jones Co., a California corporation that was a wholly owned
subsidiary of Watts from 1987 through 1996, and was insured under
the agreements in question. The arrangements included policies
providing for a duty to defend against lawsuits, accompanied by
deductibility agreements on the side containing broad arbitration
provisions. Watts and Jones were sued by third parties in
California court state for fraud in connection with sales of water

distribution products containing excessive levels of lead to

a4