Guaranteed Trust Life Ins. Co. v. American Medical and Life Ins. Co., 2010 U.S.Dist. LEXIS 96382 (N.D. Ill., September 15, 2010)
In 2006, Guarantee Life Insurance Company ("Guarantee"), an Illinois mutual insurance company and American Medical and Life Insurance Company ("American"), a New York insurance company, entered into an agreement whereby American would sell insurance on Guarantee’s policy forms in states where American was not authorized to sell policies. The parties negotiated a reinsurance agreement under which Guarantee Life would reinsure policies sold by American in 30 states (the "2006 Agreement"). The 2006 Agreement was never executed. Guarantee filed an action in the Illinois state court seeking a declaration that the 2006 Agreement was null and void and in the alternative, seeking rescission of the 2006 Agreement.
The parties nonetheless continued to do business together. In 2008, the parties entered into a Reinsurance Agreement (the "2008 agreement") under which American sold policies on Guarantee’s policy forms, American agreed to reinsure 40% of the liability under the policies it sold on Guarantee’s forms, and Guarantee ceded premiums to American. The 2008 Agreement contained a provision that allowed each side to offset any amounts it owed to the other based on amounts the other owed it, including amounts owed under any other agreement. Things went awry between the parties. Guarantee asserts American failed to pay its share of claims and American claims it was justified in offsetting amounts owed to American from Guarantee under the 2006 Agreement. Guarantee filed suit in federal court for breach of the 2008 Agreement, alleging that the 2006 Agreement was neither valid nor enforceable.
American filed a motion to dismiss, asking the federal court to abstain from hearing the case based on the pending action filed in state court by Guarantee relating to the 2006 Agreement. The court denied the motion, relying upon the Supreme Court’s admonition in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976), that federal courts have a "virtually unflagging obligation" to exercise jurisdiction even where a state suit is already pending on the same matter. Only the "clearest justification" will warrant dismissal.
In considering whether to abstain, the court first determined whether the matters were parallel. Because the issue involved in the state court, whether the 2006 Agreement was unenforceable, was an element of the federal action, the two actions were "parallel", potentially subject to abstention. Next, the court considered ten criteria which must be balanced in determining whether abstention is justified:
(1) whether the state has assumed jurisdiction over property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained in the concurrent forums; (5) the source of governing law; (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 vexation or contrived nature of the federal claim.
The court also noted the general presumption against abstention. In considering and balancing the ten factors, the court determined abstention was inappropriate, explaining that there was no extraordinary reason or clear justification for abstaining in this case. "In this case, the federal case was filed second, but that will be true perhaps 50% of the time when a federal and a state court are exercising contemporaneous, concurrent jurisdiction. Something that happens 50% of the time is not extraordinary. It is just as convenient to litigate the case here as it is to litigate in the state court, which is located a few blocks away."
Finally, the court assumed that the parties would seek to take advantage of the preclusive effect of a judgment in the state action should it conclude first, and noted, "this is an expensive place to litigate, and the loser is subjecting itself to the winning party's costs pursuant to Rule 54(d) of the Federal Rules of Civil Procedure."
The court’s decision not to abstain from exercising jurisdiction over a matter which was subject to a parallel state action illustrates that a court will not abstain from exercising jurisdiction solely for matters of convenience or cost, but rather, there was be a truly "extraordinary" reason for abstaining.
For a copy of the decision here
Patrick Omilian and Anthony Golowski
https://www.goldbergsegalla.com/attorneys/Omilian.html
https://www.goldbergsegalla.com/attorneys/Golowski.html
case published courtesy of Lexis