Opinion
Case No. 96-C-673
June 28, 2002
George P Kersten, Kersten McKinnon Milwaukee, WI.; Nicholas J Loniello Loniello Johnson Simonini Law Office Madison, WI.; Jeffrey A Schmeckpeper, Mark D Gundrum, Kasdorf Lewis Swietlik, Milwaukee, WI; Rick E Hills Hills Legal Group Waukesha, WI; Terry E Johnson Peterson Johnson Murray Milwaukee, WI; Susan R Tyndall CMT Legal Group Waukesha, WI; Laura Gramling Perez Reinhart Boerner Van Deuren Milwaukee, WI.; attorneys for plaintiff.
Clay R Williams, Mark S Diestelmeier, David A Westrup, Daniel G Nienhuis, von Briesen Roper, Milwaukee, WI; Robert L Gegios, Gary P Lantzy, Kohner Mann Kailas Milwaukee, WI; Douglas J Klingberg Ruder Ware Michler Wausau, WI; Karen D McDaniel Merchant Gould Minneapolis, MN; Andrew J Nilles, Timothy E Newholm, Nilles Nilles Milwaukee, WI; John P Fredrickson Boyle Fredrickson Newholm Stein Gratz Milwaukee, WI; David A Gauntlett Gauntlett Associates Irving, CA; Michael L Childress, Christopher N Mammel, Childress Zdeb Ltd, Chicago, IL; Nathan A Fishbach, Kenneth R Nowakowski, Elizabeth M Estes, Whyte Hirschboeck Dudek Milwaukee, WI; Patrick J Knight Gimbel Reilly Guerin Brown Milwaukee, WI; Donald E Elder Merlo Kanofsky Brinkmeier Chicago, IL; attorneys for defendant.
DECISION AND ORDER
This matter, now in its seventh year, comes before the Court on a motion by the defendant, Volm Bag Company, Inc. ("Volm"), to "vacate judgment and order, and for judgment conforming to the mandate." In December of last year, the Seventh Circuit reversed this Court's partial judgment in favor of Volm's insurers, plaintiffs-intervenors North River Insurance Company ("North River") and Fidelity Guaranty Insurance Company ("FGIC"). See Lockwood International, B.V. v. North River Ins. Co., 273 F.3d 741 (7th Cir. 2001). Meanwhile, in August of 2001, the plaintiffs (collectively "Lockwood") and Volm had settled the underlying dispute in this lawsuit. According to Volm, the Seventh Circuit has spoken authoritatively with respect to the insurers' duty to defend and the only remaining task for this Court is to give effect to the appellate court's mandate. The insurers wish to continue litigating in this forum, and ask this Court to enjoin a lawsuit that Volm has brought against them in state court. The state-court action alleges that the insurers wrongfully refused to defend Volm and improperly attempted to negotiate a settlement with the plaintiffs (discussed below) that would relieve them of their coverage obligations.
The Court agrees with Volm that "the only proceedings authorized in this Court at present focus on giving effect to the [Seventh Circuit's] mandate." The Court further agrees that the appellate court's mandate is clear and unequivocal with respect to the insurers' duty to defend Volm. Lastly, the Court agrees with Volm that once the mandate is given effect, "all other issues the insurers seek to interject will be mooted in this forum." Accordingly, the Court grants the relief sought by Volm and dismisses as moot the insurers' motions to enjoin the state-court proceedings.
BACKGROUND
Lockwood, a foreign manufacturer of machines for weighing and bagging produce, sued Volm, its exclusive North American distributor, alleging breach of fiduciary duty, tortious interference with contract, unfair competition, and conspiracy. These claims arose from the manufacture and sale of "knock off" weighing machines by a third company, Manter B.V. ("Manter"). Specifically:
Lockwood's complaint charged that Volm had secretly formed and funded a new company, Manter, staffed by former employees of Lockwood that Volm had lured to work for Manter. Having done so, the complaint continued, Volm stole Lockwood's intellectual property and manufactured machines that copied Lockwood's. To complete its infamy, Volm then — by disparaging Lockwood and its products (even spreading false rumors about Lockwood's financial solidity), by soliciting purchases of Lockwood products and then substituting knock-offs of them manufactured by Manter, and by warning customers that Lockwood machines infringed a Volm patent (acquired by fraud, the complaint alleged) — had induced customers for weighing and bagging machines to switch their orders from Lockwood's machines to Manter's.273 F.3d at 743.
Manter was eventually dismissed from the lawsuit.
On September 12, 2000, this Court permitted Volm's liability carriers to intervene in the suit between Lockwood and Volm. North River had been providing a defense subject to a reservation of rights, while FGIC had denied any obligation to defend Volm. The Court consolidated the coverage issues and the underlying litigation in order to promote judicial economy. Fire Ins. Exchange v. Basten, 549 N.W.2d 690, 712 (Wis. 1996). The Court also issued a stay of the underlying litigation so that it could first resolve coverage issues that did not depend on the merits of Lockwood's claims. Elliot v. Donahue, 485 N.W.2d 403 (Wis. 1992).
On September 6, 2000, unbeknownst to the Court, Lockwood and the insurers reached a partial settlement agreement whereby Lockwood agreed to dismiss covered claims against Volm in exchange for $1,500,000 from the insurers. The agreement contemplated the filing by Lockwood of a third amended complaint that omitted half a dozen previously asserted claims. The agreement also provided that, in the event Volm was found liable to Lockwood on any of the non-covered, non-settled claims, the $1,500,000 paid by the insurers to Lockwood would act as a credit or offset against any amounts recovered by Lockwood from Volm. Pursuant to Loy v. Bunderson, 320 N.W.2d 175 (Wis. 1982), Lockwood and the insurers jointly requested this Court's approval of the settlement agreement.
Relying upon appellate authority from Florida, Minnesota, and New York, and upon a leading insurance coverage treatise, the Court on November 8, 2000 approved the "narrowing" of the case to what it deemed non-covered claims. The Court also found that the settlement agreement between Lockwood and the insurers adequately protected Volm's interests. Accordingly, the Court accepted the third amended complaint for filing and ruled that, in light of the dismissal of the covered and arguably covered claims, the insurers had "fulfilled all of their respective obligations to Volm and Lockwood set forth in, arising out of, or in any way related to the Insurance Policies." The Court later certified its November 8, 2000 ruling as a partial final judgment pursuant to Rule 54 (b), paving the way for an immediate appeal by Volm.
The Court of Appeals reversed this Court's partial judgment and condemned the insurers for reaching a secret agreement "to eliminate any remaining contractual obligation of the insur[ers] to defend [Volm]." 273 F.3d at 744. Judge Posner's opinion for the panel stated, "We have difficulty imagining a more conspicuous betrayal of the insurer's fiduciary duty to its insured than for its lawyers to plot with the insured's adversary a re-pleading that will enable the adversary to maximize his recovery of uninsured damages from the insured while stripping the insured of its right to a defense by the insurance company." Id. The insurers, according to the Seventh Circuit, had not dealt in good faith with Volm. Id. at 745.
The appellate decision clearly refers to "insured claims" and "covered claims" that the insurers "contrived" to eliminate from Lockwood's complaint. The strategy was not successful, according to the Court of Appeals, because both the second amended complaint and the third amended complaint contained factual allegations that triggered a duty to defend on the part of the insurers. Id. at 746. "The duty to defend turns on the facts alleged rather than on the theories pleaded; and even after its deal with [the insurers], Lockwood was alleging facts that could well, depending on the course of trial, describe a covered claim. Thus, [the insurers] did not leave behind only clearly uncovered claims when [they] tried to shuck off [their] contractual responsibility to pay for [their] insured's defense." Id. (emphasis added).
This Court's November 8, 2000 analysis of the settlement agreement also assumed that at least some of the claims in the second amended complaint were covered (or arguably covered). Indeed, the insurers attempt to remove these claims from the lawsuit could be deemed an admission that the claims triggered a duty to defend.
The Court of Appeals ruled on December 6, 2001. At that time, the underlying dispute between Lockwood and Volm had in fact been settled. However, the Court of Appeals was unaware of this development and assumed that the underlying dispute was "still pending." Therefore, the Court of Appeals remanded the case "for further proceedings consistent with [its] opinion." Id.
On December 20, 2001, the insurers petitioned for a rehearing. However, their petition was denied on January 11, 2002.
Pursuant to a settlement agreement, Lockwood's claims against Volm (and Volm's counterclaims) were dismissed by this Court on August 21, 2001.
DISCUSSION
Happily, given the amount of ink already spilled in this lawsuit, the issue before the Court today is straightforward and does not require extensive analysis. Quite simply, the Court is bound to "comply with the express or implied rulings of the appellate court." Moore v. Anderson, 222 F.3d 280, 283 (7th Cir. 2000); see also Williams v. Chater, 915 F. Supp. 954, 959 (N.D. Ind. 1996) (mandate of an appellate court on remand constitutes the law of the case on all legal issues that "were actually considered and decided by the appellate court, or necessarily to be inferred from the appellate court's disposition of the case on appeal."). Here, the Court of Appeals has spoken in clear and unmistakable terms. It has ruled that (1) the insurers' settlement agreement with Lockwood was improper, and (2) the insurers were obligated to defend Volm — even against the allegations of the third amended complaint. 273 F.3d at 746. Despite the protestations of North River and FGIC, there is simply no other reasonable way to interpret the appellate court's decision. Furthermore, as far as this Court can determine, the Seventh Circuit only remanded the case because it was ruling on a partial judgment and because it believed (mistakenly) that "further proceedings" were necessary to resolve the underlying dispute between the plaintiffs and Volm. With the underlying dispute resolved, however, there is nothing left to litigate (in this forum). Indeed, there is nothing further for this Court to do except give effect to the Seventh Circuit's mandate. Accordingly, the Court grants Volm's motion to "vacate judgment and order, and for judgment conforming to the mandate."Specifically, the Court's Decision and Order of November 8, 2000 is vacated insofar as it:
(1) Granted the joint motion of the insurers for approval of their settlement agreement with Lockwood;
(2) Permitted Lockwood to file a third amended complaint;
(3) Found that the insurers had "fulfilled all of their respective obligations to Volm and Lockwood as set forth in, arising out of, or in any way related to the Insurance Policies"; or
(4) found that "[u]pon tendering the Payment, North River and FGIC have no obligation to Volm and/or to Lockwood in connection with any claim in or related to the Litigation."
The Court also vacates its Decision and Order of January 2, 2001 and its partial judgment of January 3, 2001.
The effect of the foregoing is to reinstate North River and FGIC as plaintiffs-intervenors. Consistent with the Seventh Circuit's mandate, the Court also directs the entry of a new judgment in Volm's favor, declaring that the insurers owed a duty of defense to Volm under both the second and third amended complaints and dismissing the case.
Unwilling to accept defeat, the insurers have — remarkably — filed new pleadings seeking (among other things) declaratory relief with respect to coverage. These pleadings, in turn, provide the basis for the insurers' motions to enjoin Volm's state-court proceedings. As correctly noted by Volm, however, the insurers' supplemental pleadings are (1) unauthorized, (2) inconsistent with the Seventh Circuit's mandate, (3) barred by the doctrines of law of the case, res judicata and collateral estoppel, and (4) procedurally deficient under the Federal Rules. Accordingly, the Court grants Volm's motions to strike these pleadings. The insurers' motions to enjoin the state court proceedings are dismissed as moot.
In any event, these motions cannot be squared with the Anti-Injunction Act. See 28 U.S.C. § 2283.
NOW, THEREFORE, CONSISTENT WITH THE FOREGOING, IT IS HEREBY ORDERED THAT:
1. Volm's motion to vacate judgment and order [327-1], and for judgment conforming to mandate [327-2] is GRANTED; the Clerk shall enter a judgment in Volm's favor, dismissing this action and declaring that the claims against Volm in the second and third amended complaints were potentially covered under the policies of insurance issued by North River and FGIC to Volm, and that Volm was therefore entitled to a defense under the policies of insurance until Lockwood's claims were dismissed by this Court on August 21, 2001; and
2. Volm's motion to strike [340-1] or dismiss [340-2] claim and amended claim of plaintiff/intervenor North River is GRANTED; and
3. Volm's motion to strike [344-1] or dismiss [344-2] complaint of plaintiff/intervenor FGIC is GRANTED; and
4. North River's motion to enjoin Volm's state-court proceedings [352-1] is DISMISSED as moot; and
5. FGIC's motion to enjoin Volm's state-court proceedings [366-1] is DISMISSED as moot; and
6. The Court awards costs to Volm.
SO ORDERED,