(Rovner, J.). In addition, these courts also found it persuasive that Illinois courts characterize §
2-619(a)(3) as procedural, not substantive. £.g., People ex rel. Lehman v. Lehman, 215 N.E. 2d
806, 809 (Ill. 1966) (“The purpose of the provision is to foster orderly procedure by preventing a
multiplicity of actions.”); Crowell v. Golz, 744 N.E. 2d 332, 338 (Ill. App. Ct. 2001) (“But, a
motion to dismiss pursuant to section 2-619(a)(3) is procedural in nature. . .”); Village of
Mapleton v. Cathy’s Tap, Inc., 729 N.E. 2d 854, 856 (Ill. App. Ct. 2000) (“Section 2-619(a)(3) is
an inherently procedural device aimed at avoiding duplicative litigation.”).

While recognizing that the arguments for treating the rule as procedural have considerable
force, this court adheres to its previously expressed view’ that 2-619(a)(3) is substantive and
should be applied in federal diversity cases for two reasons. First, in Locke, while the Seventh
Circuit did clarify that it had not decided whether § 2-619(a)(3) would apply in diversity cases,
965 F.2d at 537 n.2, the court did explicitly adopt Seaboard’s reasoning. Jd. at 538. Since the
Seventh Circuit’s opinion in Locke was so strongly based on its assumption that § 2-619(a)(3)
applied, the court feels obligated to give effect to that language. See Praxair, 61 F. Supp. 2d at
760-61. Secondly, § 2-619(a)(3) allows a court discretion to stay or dismiss a case where the
same cause and the same parties are present. Colorado River, by contrast, applies only in
“exceptional circumstances,” and only to stay, not dismiss, a case. If § 2-619(a)(3) were not
applied in diversity cases, the variance between Colorado River and § 2-619(a)(3) would give a

litigant an incentive to file state law claims in federal court, where abstention under Colorado

1This Judge previously addressed this issue while a Magistrate Judge, authoring a Report and
Recommendation in Fofi Hotel Co., Inc. v. Davfra Corp., No. 92 C 10879, 1992 U.S. Dist. Lexis 10879 (N.D. Ill.
August 4, 1993), finding that § 2-619(a)(3) was substantive because of the Seventh Circuit’s opinion in Locke and
the variances that exist when Colorado River and § 2-619(a)(3) are compared.

19



events); the relative ease of access to sources of proof in each forum (neither party suggests that
Texas or Illinois is a significant source of proof); and the comparative convenience of the
respective fora for the litigation. E.g., Brandon Apparel Group, Inc. v. Quitman Mfg. Co., 42 F.
Supp. 2d 821, 833 (N.D. Ill. 1999) (citations omitted); see also Recycling Sci. Int’l, Inc. v. Soil
Restoration and Recycling, L.L.C., 159 F. Supp. 2d 1095, 1099-1100 (N.D. Ill. 2001) (listed as
“the private interests of the litigants”). URC argues that the federal forum is inconvenient
because the Cash Flow Insurance Policy was issued to a Texas insured (Chase) and provides for
the application of Texas law and that Illinois is, at best, a randomly chosen forum. AXA
responds that from a geographical perspective the Texas state court provides no advantages over
this court, as both parties will have to travel by air from either California or France. AXA also
argues that Illinois is not a randomly chosen forum because Illinois or New York law should
apply to the contracts at issue.

Although neither party has significant physical connection with either Texas or Illinois, it
is clear that, because other reinsurers besides AXA are involved in the Texas Action who do not
or cannot oppose the Texas forum, all parties, including AXA, will be litigating in Texas even if
this court declines to abstain. Thus, there is little to be gained even to AXA by proceeding in
both Illinois and Texas in terms of geographical convenience. At the same time, AXA has
chosen the Northern District of Illinois, which under § 1404(a) considerations and by virtue of
the presumption under the Colorado River doctrine, indicates that, unless outweighed by other
factors, the case should proceed here.

The principal consideration here is the dispute between the parties as to whether Illinois,

New York, or Texas law governs the dispute and what consequences should flow from that

13



subsequently learned, however, that it could not issue the insurance in New York because it did
not hold the required licenses. (Compl. { 24.) URC then proposed issuing the policy in Texas,
with the inclusion of a provision providing for New York law and jurisdiction. (Compl. { 25.)
In October 1998, the Texas Department of Insurance (“Texas DOI”) informed URC that it would
not approve a policy that provided for New York law and jurisdiction. (Compl. { 26.) URC did
not at this time inform AXA or any other reinsurer involved with the proposed GLP transaction
that the Texas DOI would not accept New York law and jurisdiction. (/d.)

After a year passed and GLP did not come forward with any film, and, as a result, the
Master Facility policy was never executed, Chase agreed in April 1999 to provide GLP with
funding for two motion pictures, “The Crew” and “Standing Room Only.” Sharma asked AXA
to move forward with reinsuring a two-picture deal, which would later be rolled into the five-
picture Master Facility the parties had originally intended. (Compl. 32.) URC submitted to the
Texas DOI for approval a two-picture Cash Flow Insurance Policy and Loss Payee Endorsement
providing for New York law and jurisdiction. (Compl. { 50.) The Texas DOI would not approve
the filings with New York law and jurisdiction, so URC, without informing AXA, filed a revised
version with the Texas DOI that contained a forum selection clause providing for jurisdiction in
federal or state court in Texas and the application of Texas law. (Compl. { 49-50.) The forum
selection clause states, in pertinent part:

The Insurer and each Lead Re Insurer hereby irrevocably submits itself to the

jurisdiction of the state courts of the State of Texas in Harris County and to the

jurisdiction of the United States District Court for the Southern District of Texas,

for the purposes of any suit, action or other proceeding arising out of or based

upon this policy or the subject matter hereof brought by the insured or any of its

successors or assigns in either of the above-referenced forms at the sole option of
the insured.



River would be less likely and at worst would only result in a stay. Id. at 761; Int’l Ins. Co. v.
Certain Underwriters at Lloyd’s London, No. 88 C 9838, 1992 WL 675951, at *5 (N.D. Ill. April
29, 1992) (Weisberg, Mag. J.). Therefore, the court concludes that § 2-619(a)(3) is substantive
and thus applies to this diversity case.

As already determined, this case and the Texas Action include the same parties and arise
out of the same core of operative facts. Once this is established, the court must consider factors
similar to those applicable to the Colorado River analysis:

Although the purpose of the law is to avoid duplicative litigation, a circuit court is

not automatically required to dismiss or stay a proceeding under section 2-

619(a)(3) even when the “same cause” and “same parties” requirements are met.

Multiple actions in different jurisdictions arising out of the same operative facts

may be maintained where the circuit court, in a sound exercise of its discretion,

determines that both actions should proceed. Factors a court should consider in

deciding whether a stay is warranted under 2-619(a)(3) include comity; the

prevention of multiplicity, vexation and harassment; the likelihood of obtaining

complete relief in the foreign jurisdiction; and the res judicata effect of a foreign

judgment in the local forum.
Zurich Ins. Co., v. Baxter Int'l, Inc., 670 N.E. 2d 664, 668 (Ill. 1996). These factors are not “all-
inclusive, and a court may consider additional factors that bear on its discretion.” May v.
SmithKline Beecham Clinical Lab., Inc., 710 N.E. 2d 460, 465 (Ill. App. Ct. 1999).

“Comity means giving respect to the laws and judicial decisions of other jurisdictions out
of deference.” Jd. at 465. But “principles of comity do not justify staying a matter when the
competing case has only been pending for several months,” Hapag-Lloyd (Am.), Inc., v. Home
Ins, Co., 729 N.E. 2d 36, 43 (Ill. App. Ct. 2000), or when (as here) it is in its “infant pretrial
stages.” May, 710 N.E. 2d at 465. In addition, no evidence is brought forth that AXA’s claims

in this court are intended to vex or harass URC. Thus, these factors weigh against dismissal.

20



CONCLUSION

For the reasons stated above, the court grants defendant’s motion to dismiss [#7].

ENTER: peers

GOAN HUMPHREY CEFKOW
United States District Judge

Dated: October 9, 2002

22



factors, however, are either neutral or weigh in favor of AXA. Thus, where the court is not to
abstain absent exceptional circumstances, this court concludes that those circumstances are not
present.

B. Motion to Stay or Dismiss under 735 ILCS 5/2-619(a)(3)

In the alternative, URC argues that this case should be stayed or dismissed pursuant to
735 ILCS 5/2-619(a)(3). This being a diversity action, the court applies Illinois substantive law.
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); In re Air Crash Disaster Near Chicago, 803 F.2d
304, 313-14 (7th Cir. 1986). The court must still, however, apply federal procedural law, and to
that end, if 735 ILCS 5/2-619(a)(3) is procedural, the court need not apply it. In re Air Crash,
803 F.2d at 313-14. 735 ILCS 5/2-619(a)(3) provides in part:

Defendant may, within the time for pleading, file a motion for dismissal of

the action or other appropriate relief upon any of the following grounds: ***that

there is another action pending between the parties for the same cause.

URC maintains that this action should be stayed or dismissed because of the Texas Action, which
contains the same parties and the same cause of action.

Considerable debate exists among the courts in this district as to whether § 2-619(a)(3) is
substantive or procedural, with little guidance from the Seventh Circuit. Generally, courts that
have found § 2-619(a)(3) to be substantive have relied on Seaboard Fin. Co., v. Davis, 276 F.
Supp. 507 (N.D. Ill. 1967) (Will, J.), where the court found that the predecessor statute to § 2-
619(a)(3) should apply in federal diversity actions because variance between state and federal
law in this regard would encourage forum shopping, and because no countervailing federal
consideration existed to justify such a variance. Jd. at 515. See, e.g., Praxair v. Slifka, 61 F.

Supp. 2d 753, 761 (N.D. Ill. 1999) (Moran, J.); Kennihan & Co. v. Calphalon Corp., No. 98 C

17



alleges that URC breached these contractual obligations, and as a result, URC is obligated to pay
AXA an amount equal to AXA’s obligations to Chase under the Loss Payee Endorsement.
DISCUSSION

URC presents two arguments for stay or dismissal; (1) the Colorado River abstention
doctrine applies’ and counsels deference to the parallel Texas lawsuit, and (2) the case should be
stayed or dismissed pursuant to 735 ILCS 5/2-619(a)(3) because the Texas lawsuit is another
action pending between the same parties for the same cause.
A. Colorado River Abstention

Jn Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), the
Supreme Court formulated an “exceptional circumstances” test whereby a district court may
dismiss or stay an action when there is an ongoing parallel action in state court. Jd. at 817-21.
While recognizing the availability of judicial abstention in exceptional circumstances, the Court
cautioned that district courts have a “virtually unflagging obligation to exercise jurisdiction given
to them.” Jd, at 817-18. Moreover, the Seventh Circuit has recognized that a presumption exists
against abstention. Sverdrup Corp. v. Edwardsville Cmty. Unit School District No. 7,125 F.3d
546, 550-51 (7th Cir. 1997). Thus, simply because an action is pending in state court ordinarily
is not a bar to parallel federal proceedings. LaDuke v. Burlington N. R.R. Co., 879 F.2d 1556,
1558 (7th Cir. 1989), citing Colorado River, 424 U.S. at 817.

To determine whether the Colorado River abstention doctrine can be applied, the court

*The Seventh Circuit in LaDuke v. Burlington N. R.R. Co., 879 F.2d 1556, 1562 (7th Cir. 1989) made it
clear that the appropriate remedy in Colorado River abstention cases is a stay, not dismissal. Id. at (“Therefore, we
affirm the principle that a stay is the proper procedural mechanism for a district court to employ when deferring to a
parallel state court proceeding.”). Thus, the court will only analyze URC’s claims as to whether the case should be
stayed under Colorado River, not dismissed.


policy and endorsement will be amended to designate Illinois law and court
instead.

(Compl. { 60.) Based on these representations, AXA approved two forms of Loss Payee
Endorsement. (Compl. { 63.) The first form of Loss Payee Endorsement was approved
“amended as agreed.” (/d.) AXA also approved a form that had been prepared by Chase, which
contained the amended forum selection clause and other terms on which AXA had insisted.

On July 8, 1999, Lessman informed Sharma that URC would no longer agree to amend
the Loss Payee Endorsement as AXA requested, but rather URC would accept only a specified
form of Loss Payee Endorsement that did not contain the wording AXA had approved. Chase
and URC then entered into a separate “side-agreement” whereby URC’s obligation to insure a
two-picture $89 million loan was amended to an obligation to insure financing for only one film,
“The Crew,” which was budgeted at approximately $21 million. (Compl. { 69.) URC also
insisted that Chase waive claims for punitive damages against URC, and that Chase not sue URC
without naming the reinsurers as parties. (Id.) URC further advised Chase that the language of
the reinsurance agreements would need to be amended such that the reinsurers, including AXA,
would be obligated to indemnify URC for any damages in excess of policy limits and for punitive
damages that may be imposed on URC. (Compl. | 70.) Chase agreed to these changes. (Compl.
q71)

Due to this “side-agreement” URC failed to honor its July 7 agreement with AXA in
regard to the reinsurance transaction, in that URC demanded that AXA agree to the Chase-URC
alterations which also altered the AXA-URC reinsurance agreement. (Compl. { 76.) When

AXA refused to accept URC’s changes, URC elected not to make the required Illinois DOI



AXA did not learn of the change to Texas law and jurisdiction until late June or early July
1999. (Compl. 451.) On July 2, 1999, AXA informed Sharma that AXA would not accept a
contract that provided for Texas law and jurisdiction. (Compl. ] 52.) On July 6, 1999, AXA
reiterated its position in a telephone conference and threatened to pull out of the deal. (Compl. §
53.) URC responded that because the insurers did not come “on risk” under the Cash Flow
Insurance Policy until delivery of the first film, URC had about a year to move the state from
which the Cash Flow Insurance Policy and Loss Payee Endorsement were issued. (/d.)

URC then contacted the Illinois DOI to determine whether it would allow URC to issue
the Cash Flow Insurance Policy and the Loss Payee Endorsement in Illinois. (Compl. { 54.)
URC represented to AXA that the Illinois DOJ would approve a policy calling for New York law
and jurisdiction. 7d.) AXA informed URC on July 7, 1999 that it would go forward with the
GLP transaction only if URC agreed, among other things, to promptly file the Cash Flow
Insurance Policy and the Loss Payee Endorsement in Illinois and to use its best efforts to obtain
approval of New York law and jurisdiction, or, if the Illinois DOI would not accept New York
law, then Illinois law and jurisdiction. (Compl. | 58.)

URC accepted AXA’s offer, first orally and then in writing. A July 7, 1999, letter from
Kathryn Lessman (“Lessman”), then Branch Manager for the URC’s Western Region stated:

To confirm our telephone conversation today, please be advised that Underwriters

Reinsurance Company (URC) will file the Form of Cash Flow Insurance Policy,

the Master Policy of Cash Flow Insurance, and the Loss Payee (Cut Through)

Endorsement (with amendments requested by you today during our

teleconference) for review and approval with the Illinois Department of Insurance

as soon as practicable. The policy and endorsement wording that URC will file

with the Illinois Department of Insurance (DOD will designate New York as the

choice of law and jurisdiction governing the terms of the contract. If the Illinois
DOI will not approve New York as the choice of law and jurisdiction, then the



7175, 1999 WL 261830, at *2 (N.D. Ill. April 12, 1999) (Grady, J.); Suzik v. S. Pac. Transp. Co.,
No. 94 C 7793, 1997 WL 156545, at *1 (N.D. Ill. April 1, 1997) (Zagel, J.); Brach & Brock
Confections, Inc. v. Redmond, 988 F. Supp. 1106, 1107 (N.D. Ill. 1997) (Shadur, J.); Amoco Tax
Leasing IV Corp. v. Hoosier Energy Rural Elec. Coop., Inc., No. 89 C 5710, 1989 WL 152282,
at *1 (NLD. Ill. Nov. 6, 1989) (Conlon, J.); Granite Constr. Co. v. Metro. Sanitary Dist. of
Greater Chicago, No. 82 C 6536, 1986 WL 13719, at *3 (N.D. Ill. Nov. 28, 1986) (Williams, J.);
Byer Museum of the Arts v. The North River Ins. Co., 622 F. Supp. 1381, 1383 (N.D. Ill. 1985)
(Holderman, J.). Many of these cases have also focused on the Seventh Circuit’s endorsement of
Seaboard in Locke v. Bonello, 965 F.2d 534, 538 (7th Cir. 1992). See Praxair, 61 F. Supp. 2d at
761.

Cases holding that § 2-619(a)(3) is procedural and therefore not applicable for federal
courts sitting in diversity generally find that Seaboard was correct when decided, but the
Supreme Court’s later decision in Colorado River results in the conclusion that § 2-619(a)(3) is
procedural, not substantive, because Colorado River presents a strong federal consideration
justifying application of federal law. See, e.g., MG Capital LLC v. Sullivan, No. 01 C 5815,
2001 WL 1609382, at *5-*6 (N.D. Ill. Dec. 17, 2001) (Darrah, J.); ADS Publ’g Serv., Inc., v.
Summit Group, Inc., No. 95 C 6794, 1996 WL 332684, at *1-*2 (N.D. Ill. June 13, 1996)
(Norgle, J.); Beggerow v. Affiliated Ins. Consultants, Inc., No. 95 C 6677, 1996 WL 197680, at
*5 n.2 (N.D. Ill. Apr. 22, 1996) (Marovich, J.); Fofi Hotel Co., v. Davera Corp., 846 F. Supp.
1345, 1347-49 (N.D. Ill. 1994) (Nordberg, J.); Chicago Title & Trust Co. v. Sizes Unlimited, Inc.,
No. 91 C 1079, 1991 WL 119147, at *2 (N.D. Ill. June 28, 1991) (Duff, J.); WE. O’Neil Constr.

Co., v. Nat. Union Fire Ins. Co. of Pittsburgh, PA., 721 F. Supp. 984, 988-89 (N.D. Ill. 1989)

18



utmost good faith by virtue of their reinsurance relationship which obligated URC to disclose to
AXA all material facts pertaining to the original risk of loss under the Cash Flow Insurance
Policy and that URC breached this duty by concealing and misrepresenting material facts.25 AXA
asks this court to declare that the reinsurance agreement is invalid or should be rescinded and that
AXA has no obligation to URC thereunder. In Count II, AXA seeks a declaratory judgment that
URC is obligated for any damages AXA must pay to Chase under any Loss Payee Endorsement
Clause due to URC’s breach of the utmost duty of good faith.

Jn Count III, AXA seeks rescission of the reinsurance agreement based on URC’s
breaches of warranty. AXA alleges that URC breached warranties as to the number of films that
were to be covered by the insurance agreement, the amount and recipients of premium payments,
and the filing of agreements with state insurance departments. AXA asks this court to enter
judgment declaring that the reinsurance agreement is invalid or should be rescinded and that
AXA has no obligation to URC. In Count IV, AXA seeks a declaratory judgment that URC is
obligated for any damages AXA must pay to Chase under the Loss Payee Endorsement due to
URC’s breaches of warranty.

Finally, in Count V, AXA alleges breach of contract against URC. AXA contends that
URC agreed both orally and in writing to file an amended Loss Payee Endorsement with the
Illinois DOI to replace the prior Endorsement and file an amended Cash Flow Insurance Policy

and Loss Payee Endorsement to provide for New York or Illinois law and jurisdiction, AXA

“The Complaint {j 90 lists six omissions of fact: that there would be one film, not two; that Chase would not
seek punitive damages against URC; that URC did not intend to file with Texas DOI AXA’s agreed-to amended Loss
Payee Endorsement unless AXA agreed to new terms; that URC did not intend to file in Illinois unless AXA agreed
to the new terms; that URC intended to be both insurer and insured by virtue of purchasing a participation in the
Chase loan to GLP; and that Kemper Re had concems about the transaction.

8


»
er Minute Order Form (06(9

United States District Court, Northern District of Illinois

fme of Assigned Judge Joan H. Lefkow Sitting Judge if Other
or Magistrate Judge . than Assigned Judge
V CASE NUMBER 02 C 3016 DATE 10/9/2002
CASE AXA Corporate Solutions vs. Underwriters Reinsurance Company
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
MOTION: of the motion being presented.]
DOCKET ENTRY:
(1) a Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) oO Answer brief to motion due. . Reply to answer brief due.
(4) Qa Ruling/Hearing on set for at
(5) Oo Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Oo Pretrial conference[held/continued to] [set for/re-set for] on set for at :
(7) oO Trial{set for/re-set for] on at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) ia This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) (CLocal Rule 41.1 CFRCP41(a)\(1) CO FRCP41(a)(2).

(10) WM [Other docketentry] Enter Memorandum Opinion and Order. Defendant’s motion to dismiss [7-1]
is granted. Case dismissed. Status hearing of 10/10/02 is stricken.

(ii) lf [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.

~ | Notices mailed by judge's staff.

Notified counsel by telephone,

Docketing to mail notices.

Mail AO 450 form. pines es eg

Copy to judge/magistrate judge

date mailod notice
courtroom

MD deputy's
initials

MD

Date/time received in
central Clerk's Office imaling deputy initials



2. Colorado River Factors

In considering the list of factors, the court is to “balance the considerations that weigh in
favor of, and against, abstention, bearing in mind the exceptional nature of the measure.” Finova
Capital Corp., v. Ryan Helicopters U.S.A., Inc., 180 F.3d 896, 898 (7th Cir. 1999). Several of
the factors are not in dispute:

The parties agree that the state court has not assumed jurisdiction over property (factor 1),
a factor weighing in AXA’s favor. The parties agree that the instant case was filed on the same
day as the Texas Action (factor 4), although this factor has little independent relevance. See J &
A Sales and Mktg., Inc. v. J.R. Wood, Inc., No. 01 C 6749, 2002 WL 653897, at *4 (N.D. Ill.
April 19, 2002) (Kocoras, J.) (“This is especially true in cases like this one, in which the
respective complaints are filed within hours of each other, making priority of filing mostly
serendipitous.”). The parties agree that the source of governing law is state, not federal (factor
5), which intuitively suggests abstention but, because the court has jurisdiction, it is readily
outweighed by other factors. See Evans Transp. Co. v. Scullin Steel Co., 693 F.2d 715, 717 (7th
Cir. 1982) (“[W]e are not free to treat the diversity litigant as a second-class litigant, and we
would be doing just that if we allowed a weaker showing of judicial economy to justify
abstention in a diversity case than in a federal-question case.”). The parties agree that both courts
have jurisdiction over the subject matter (factor 8) and that removal of the Texas Action is not
available to AXA as a third-party defendant (factor 9). See BJB Co. v. Comp. Air Leroi, 148 F.
Supp. 2d 751, 752 (N.D. Tex. 2001) (‘third party defendants are not defendants within the
meaning of § 1441(a)”); Sturman v. Rush-Presbyterian St. Luke’s Med. Ctr., 128 F. Supp. 2d

1141, 1142 (N.D. Ill. 2001) (same). See BJB Co., 148 F. Supp. 2d at 754 (a third-party may

11



must first decide “whether the concurrent state and federal actions are actually parallel.” Jd. If
the actions are parallel, the district court must next consider a number of non-exclusive factors
that might justify abstention, including: (1) whether the state has assumed jurisdiction over the
property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal
litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) the
source of governing law, state or federal; (6) the adequacy of state-court action to protect the
federal plaintiff's rights; (7) the relative progress of state and federal proceedings; (8) the
presence or absence of concurrent jurisdiction; (9) the availability of removal; and (10) the
vexatious or contrived nature of the federal claim. Sverdrup, 125 F.3d at 550; LaDuke, 879 F.3d
at 1559, citing Lumen Constr., Inc., v. Brant Constr. Co., 780 F.2d 691, 694-95 (7th Cir. 1985).
1. Parallel Proceedings

AXA does not argue that the actions are not parallel. “A suit is parallel when
substantially the same parties are contemporaneously litigating substantially the same issues in
another forum.” Caminiti & Iatarola, Ltd. v. Behnke Warehousing, Inc., 962 F.2d 698, 700 (7th
Cir. 1992) (internal quotation marks and citation omitted), In determining whether two actions
are parallel, a court “look[s] not for formal symmetry between the two actions, but for a
substantial likelihood that the state litigation will dispose of all claims presented in the federal
case.” Lumen, 780 F.2d at 695. Because URC’s Third-Party Petition against AXA seeks a
determination of AXA’s obligations under the reinsurance agreements, the same issues that will
be resolved in this case, the court concludes that the Texas Action is parallel to the instant case.

The court must then apply the Colorado River factors.

10



filings. (Compl. | 78.) Thus, the Texas law and jurisdiction provisions in the Cash Flow
Insurance Policy and Loss Payee Endorsement were never amended to New York or Illinois law
as URC had agreed. Thereafter, Chase made a claim against URC and AXA under the insurance
agreements.

Currently, three lawsuits are pending relating to the Cash Flow Insurance Policy. In
October 1999, AXA sued Chase and SCB in the Supreme Court for New York County, seeking a
declaratory judgment that AXA was not liable for any claim by Chase against it for losses under
the Cash Flow Insurance Policy.” Chase went on to institute an action against AXA in New York
to recover based on the Loss Payee Endorsement. The two cases were consolidated (“the New
York Action”) so that all issues could be resolved in one trial. To AXA’s disappointment, after a
jury trial, Chase obtained a declaration on its claim that AXA is obligated to Chase pursuant to
the Loss Payee Endorsement, a part of the Cash Flow Insurance Policy. The amount of the
obligation has not yet been determined and Chase has asked the court for leave to amend its
complaint to seek monetary damages against AXA. AXA intends to appeal.

AXA filed the instant suit against URC on April 26, 2002. On the same date, Chase sued
URC and all of the other reinsurers except AXA in Texas state court (the “Texas Action”). On
June 10, 2002, URC filed a third-party claim against AXA in the Texas Action alleging breach of
the reinsurance contract and seeking declaratory relief against AXA.

In the instant suit, in Count I, AXA seeks rescission of the reinsurance agreement based

on URC’s breach of a duty of utmost good faith. According to AXA, URC owed AXA a duty of

"It appears that AXA asserted defenses that would have been available to URC had there been no cut
through agreement. See Exhibit B to URC’s Reply at 2.



Other factors, however, do weigh heavily in favor of dismissal. Dismissal will prevent
multiplicity due to the similar nature of the actions and the similar nature of the proof presented
in both cases. Moreover, the Texas suit is broader and more comprehensive than the instant case
because all of the parties are present, and, therefore, complete relief can be afforded only in the
Texas Action. See Skipper Marine Elec., Inc., v. Cybernet Marine Prod., 558 N.E. 2d 324, 327
(ill. App. Ct. 1990); Natural Gas Pipeline Co. of America v. Phillips Petroleum Co., 516 N.E. 2d
527, 533 (Ill. App. Ct. 1987).

In sum, the court concludes that the parties do not have a strong enough relationship to
the State of Illinois to outweigh the inefficiencies entailed in duplicative litigation. See 4.E.
Staley Mfg. Co., v. Swift & Co., 419 N.E. 2d 23, 27 (1981) (considering whether the case has
“legitimate and substantial relationship to Illinois”). Neither plaintiff nor defendant has its
principal place of business in Illinois, and while AXA argues the relationship to Illinois stems
from the fact that Illinois law should apply, the court has already indicated it considers this an
unlikely outcome. At least, it finds AXA’s argument that Illinois law would apply outweighed
by the fact that the entire action may be litigated and decided in its entirety in Texas. Finally, the
court can discern no great prejudice that would result from AXA having to litigate its claims in
Texas. Thus, overall, the entire controversy could be more efficiently resolved in the Texas
Action. Finally, this court finds no persuasive reason to stay rather than dismiss, and for these

reasons, under 735 ILCS 5/2-619(a)(3), the court exercises its discretion to dismiss the case.

21



(Compl. J 11.) While initially Chase structured its loans so that it alone accepted the credit risk!
of a film production, beginning in 1994 Chase created insurance-backed film financing programs
whereby Chase provided loans to borrowers whose collateral was based on the business risk of
the film’s success. (Compl. 11-12.) Chase would secure these loans through film insurance
revenue policies. (Compl. {| 12.) Under these policies, the insurer agreed to accept the risk that
the revenues generated by the insured film production would be insufficient to repay any or all of
the Chase loan. (/d.) Thus, Chase could turn to the insurer for any shortfall in the repayment of
its loan to the borrower. (Id.)

The particular film financing program that this case centers on involved a loan to GLP.
This loan was organized by Sawtantar Sharma (“Sharma”), an insurance broker employed by
Stirling Cooke Brown Reinsurance Brokers Ltd. (“SCB”) (Compl. { 13.) The initial proposal
was for a five picture, $100 million “Master Facility.” (Id.)

In early 1997, AXA indicated a willingness to participate as a reinsurer for the five-
picture Master Facility. (Compl. 16.) In August 1997, URC was presented with the
opportunity to act as the insurer for the transaction. (Compl. ] 18.) As part of the proposed GLP
transaction, Chase and URC insisted that the reinsurers each sign a Loss Payee Endorsement or
“cut-through” agreement in Chase’s favor. (Compl. { 22.)

During and prior to 1998, AXA informed URC that AXA wanted the insurance,
reinsurance and cut-through agreements to provide that New York law would govern and that

any dispute over the contracts would be settled in New York courts. (Compl. 4 23.) URC

"The credit risk was the risk that the debtor’s collateral would not have sufficient value to fully repay the
loan. (Compl. J 11.)



determination. URC relies on the Texas forum selection clauses of the insurance agreements in
support of convenience of the Texas forum and argues, further, that the issue of the forum
selection clause was decided in the New York action and cannot be relitigated here. AXA, in
support of convenience of the Illinois forum, relies on its view that Texas law does not control
the agreements. If Texas law is to apply to the controversy, Texas courts are undoubtedly best
suited to interpret Texas law. If Illinois law applies, perhaps the Illinois federal court is better
suited than the Texas state court to interpret Illinois law. If New York law applies, either court is
in unfamiliar territory.

The court does agree with AXA that nothing in the jury answers to special interrogatories
or the trial court record suggests that URC’s promise to file the policies in Illinois with
provisions for New York or Illinois law and jurisdiction was not binding.’ To the extent that
AXA claims simply that URC breached their reinsurance contract by not refiling the insurance
documents in Illinois, it does not touch the adjudicated issue that AXA is liable to Chase under
the Loss Payee Endorsement. URC was not a party to that action and AXA had no opportunity to
litigate the issue there, nor was AXA required to join URC in order to obtain a determination on
the claims between AXA and Chase.*

On the other hand, AXA’s argument poses a quandary. AXA argues that Illinois or New

7In its answers to the special interrogatories, the jury answered “yes” to the question “On July 9, 1999, was
there an agreement between AXA and URC with respect to the language of the cut through agreement?” (Def. Reply
Ex, A.) As AXA points out, however, the cut through agreement is not the reinsurance agreement between AXA and
URC. It merely allows Chase to collect directly from AXA. The decision of the Supreme Court (Def. Reply Ex. B)
demonstrates that AXA was asserting URC’s defenses against Chase, not its own defenses against URC.

SUnder New York law, issues decided are given collateral estoppel effect if “the issue in the second action
is identical to an issue which was raised, necessarily decided and material in the first action, and the plaintiff had a
full and fair opportunity to litigate the issue in the earlier action.” Parker v. Blauvelt Volunteer Fire Co., 712 N.E.
2d 647, 651 (N.Y. 1999).

14



Kinetic Instruments, Inc., No. 89 C 7289, 1990 WL 19973, at *7 (N.D. Ill. Feb. 23, 1990)
(Kocoras, J.) In Midwest Dental, under similar circumstances, the court explained:

The classic case where piecemeal litigation concerns arise are in those situations

where the state court suit is more comprehensive than the federal court suit. In

such a case, the federal court will be able to resolve only a portion of the dispute

whereas the state court will be able to decide the entire case, including that

portion duplicated in federal court. By staying its proceedings, the federal court

avoids litigating a mere piece of the dispute and allows for a more economical and

comprehensive administration of the law suit.
Id. This factor weighs in favor of staying the instant suit, as the Texas Action deals with similar
issues and is more comprehensive than the present suit because all parties in interest are joined,
not just AXA and URC. It should be noted, however, that piecemeal litigation cannot be
completely avoided in this case. Issues have already been decided in New York courts, and will
be decided in Texas and in this court. While this is problematic, piecemeal litigation, in and of
itself, can hardly be called “exceptional circumstances.” See Evans Transp. Co., 693 F.2d at 717
(“[I]t is not enough, to justify abstention, that a failure to stay the federal suit may result in
judicial diseconomy-in having two lawsuits instead of one. That will always be possible when
there is a parallel state suit pending.”).
3. Summary

Weighing the factors and keeping in mind that a stay should be granted only under
“exceptional circumstances,” the court concludes that a stay is inappropriate under Colorado
River. URC is persuasive on two factors: avoidance of piecemeal litigation and convenience of
the parties (although the convenience of the Texas forum rests solely on URC’s expectation that

Texas law will govern, rather than actual convenience); and piecemeal litigation, as previously

stated, is inevitable in this situation and not enough to justify abstention. The eight other

16



619(a)(3). For the reasons set forth below, the court grants the motion to dismiss.
MOTION TO DISMISS STANDARDS

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) challenges the
sufficiency of the complaint for failure to state a claim upon which relief may be granted.
General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997).
Dismissal is appropriate only if it appears beyond a doubt that the plaintiff can prove no facts in
support of its claim that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957);
Kennedy v. Nat'l Juvenile Det. Assoc., 187 F.3d 690, 695 (7th Cir. 1999). In ruling on the
motion, the court accepts as true all well pleaded facts alleged in the complaint, and it draws all
reasonable inferences from those facts in the plaintiffs favor. Dixon v. Page, 291 F.3d 485, 486
(7th Cir. 2002); Jackson v. E.J. Brach Corp., 176 F.3d 971, 977 (7th Cir. 1999).

ALLEGATIONS OF THE COMPLAINT

According to AXA’s Complaint, which is taken as true for the purpose of the motion, this
action arose out of a number of intertwined agreements, including (1) a Cash Flow Insurance
Policy issued by URC in favor of Chase under which URC agreed to insure Chase for shortfalls
in the repayment of a loan to George Litto Pictures, Inc. (“GLP”); (2) reinsurance “slips” binding
AXA to reinsure URC for a portion of its obligations arising out of the Cash Flow Insurance
Policy; (3) a Loss Payee Endorsement which provided Chase the right to deal directly with AXA
in matters related to the Cash Flow Insurance Policy as though AXA were a named insurer under
that policy; and (4) an agreement by which URC represented that it would file the policy
documents with the Illinois Department of Insurance (“Illinois DOI”). (Compl. ¥ 1.)

Since the early 1990s, Chase has been an industry leader in motion picture financing.



UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
AXA CORPORATE SOLUTIONS, formerly )
known as AXA REASSURANCES S.A., )
)
Plaintiff, )
)
vs. ) No. 02 C 3016
) Judge Joan H. Lefkow
UNDERWRITERS REINSURANCE )
COMPANY, )
)
Defendant. ) D OCKE TED
)

MEMORANDUM OPINION AND ORDER

Plaintiff, AXA Corporate Solutions, formerly known as AXA Reassurances S.A. (either
or both, “AXA”), brings this lawsuit against Underwriters Reinsurance Company (“URC”)
seeking rescission of a reinsurance agreement and a declaratory judgment that URC is obligated
for any resulting damages AXA must pay to URC’s insured, Chase Manhattan Bank (“Chase”),
as a result of URC’s breach of a duty of utmost good faith towards its insurer as well as breach of
certain warranties with respect to the agreement between AXA and URC. AXA also claims
damages for breach of a related agreement in which URC agreed to move the filing of the
insurance documents from one state to another. AXA is a French corporation with its principal
place of business in Paris, France. URC is a New Hampshire corporation with its principal place
of business in Calabasas, California. The amount in controversy exceeds $75,000. The court,
therefore, has jurisdiction over the subject matter pursuant to 28 U.S.C. § 1332(a)(2) (diversity).
Before the court is URC’s motion to stay or dismiss the case pursuant to Federal Rule of Civil

Procedure 12(b)(6) based on the Colorado River doctrine and/or Illinois statute, 735 ILCS 5/2-



remove a third party claim only if the basis for federal subject matter jurisdiction is the existence
ofa federal question.). It is clear that, because both AXA and URC have submitted Rule 26(a)
disclosures and that the discovery already made in the New York action substantially covers the
issues here (Pl. Resp. at 16), the instant case has progressed further than the Texas Action (factor
7), in which the insurers and reinsurers have filed only general denials and the third-party
complaint. Moreover, because of the multiple parties in the Texas Action it is likely that the
instant case could be resolved more quickly than the Texas Action, a factor favoring AXA. In
addition, because there is no federal claim, rather jurisdiction is based in diversity, the adequacy
of the Texas state court to protect AXA’s federal rights (factor 6) and the vexatious or contrived
nature of the federal claim (factor 10) are immaterial. In light of the presumption in favor of
exercising jurisdiction, it follows that at least seven factors point away from abstention.

We are left, then, with two disputed considerations: whether the federal forum is
inconvenient (factor 2) and the desirability of avoiding piecemeal litigation (factor 3).>

a. The inconvenience of the federal forum

The appropriate inquiry under this factor is the “relative inconvenience of the competing
fora to the parties.” AAR Int'l Inc., v. Nimelias Enter. S.A., 250 F.3d 510, 522-23 (7th Cir.
2001). This is similar to the question presented on a motion to transfer venue under 28 U.S.C. §
1404(a),° where the court considers the plaintiff’s choice of forum (Northern District of Illinois);

the situs of material events (neither party suggests that Illinois or Texas is a situs of material

5The court recognizes that the list of factors is non-exclusive, but the parties have adhered to the 10-factors
set out in LaDuke, and the court confines its discussion to those factors as well.

6 «For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any
civil action to any other district or division where it might have been brought.” 28 U.S.C. § 1404(a).

12



York law controls their reinsurance contract with URC because the agreement between AXA and
URC (to file the policy documents in Illinois and to change the forum selection clause from
Texas to Illinois or New York law and jurisdiction) became part of the reinsurance agreement
itself? This, however, does not indicate that Illinois law applies because, for Illinois law to
apply, there has to be an insurance filing in Illinois as no other connection with Illinois is
asserted. Clearly, there was no such filing because AXA alleges breach of an agreement to do
just that. Thus, even if the forum selection clause of the insurance documents is disregarded, the
law that necessarily would decide AXA’s claims would be based on a choice of law analysis and
certainly would not be Illinois law, where no parties appear to be based and no transactions took
place. For this reason, the court is not persuaded that Illinois law applies.

Both because the Texas Action is more comprehensive and because Illinois lacks
connection to this case, the court is persuaded that Illinois is not a more convenient forum than
Texas.

b. The desirability of avoiding piecemeal litigation

URC’s main argument for a stay based on Colorado River centers on the importance of
avoiding piecemeal litigation. Piecemeal litigation occurs “when different tribunals consider the
same issue, thereby duplicating efforts and possibly reaching different results.” Day v. Union
Mines, Inc., 862 F.3d 652, 659 (7th Cir. 1998). As URC points out, this case presents piecemeal
litigation concerns because two different courts are deciding some of the same issues, and the

state court suit is more comprehensive than the suit here. See Midwest Dental Prod. Corp. v.

SAXA argues that the reinsurance agreement consisted of a series of agreements, including (1) the
reinsurance slips, (2) the Cash Flow Insurance Policy, (3) a Loss Payee Endorsement (cut through agreement), and
(4) the oral promises and July 7 and 8, 1999 letters from URC to AXA. (Compl. § 127.)

15