Shemika Mitchell v. Durham Enterprises, Inc.

In the

United States Court of Appeals

for the Seventh Circuit

____________________

No. 22-1983

SHEMIKA D. MITCHELL, Executor

of the Estate of Tommy Harris,

Plaintiff-Appellant,

v.

DURHAM ENTERPRISES, INC., and DON DURHAM,

Defendants-Appellants,

and

OHIO SECURITY INSURANCE COMPANY, et al.,

Defendants-Appellees.

____________________

Appeal from the United States District Court

for the Southern District of Illinois.

Nos. 20-cv-72 & 21-cv-1389 — J. Phil Gilbert, Judge.

____________________

ARGUED NOVEMBER 8, 2022 — DECIDED APRIL 24, 2024

____________________

Before SYKES, Chief Judge, and WOOD and SCUDDER, Circuit

Judges.

2 No. 22-1983

SYKES, Chief Judge. Tommy Harris was diagnosed with

bacterial sepsis after suffering repeated infections resulting

from his dialysis treatment at a clinic in Belleville, Illinois.

He filed a state-court malpractice action against the opera-

tors of the clinic and later added a claim against Durham

Enterprises, Inc., the janitorial company responsible for

cleaning the facility. This appeal concerns Durham’s insur-

ance coverage.

Durham tendered the suit to Ohio Security Insurance

Company, its insurer. Ohio Security denied coverage based

on the insurance policy’s exclusion for injuries caused by

fungi or bacteria. Harris and Durham then negotiated an

agreement in which Durham promised not to mount a

defense and Harris promised to seek recovery only from the

insurer.

Harris moved to sever his claim against Durham and set

it for a bench trial. The state trial judge granted the motion.

On the trial date, the parties disclosed their agreement to the

court. The judge then held a short, uncontested bench trial;

adopted Harris’s uncontested findings; and entered judg-

ment against Durham for more than $2 million. Though

Ohio Security was not a party and the insurance policy was

not in the record, the consent judgment includes findings on

insurance issues—notably, that the insurer breached its duty

to defend and is estopped from asserting any policy defens-

es.

After the judgment became final, Harris filed an amend-

ed complaint purporting to add Ohio Security as a defend-

No. 22-1983 3

ant. 1 Ohio Security removed the action to federal court and

sought a declaration of its coverage obligations. The district

court held that the bacteria exclusion precludes coverage.

Aligned in interest, Harris and Durham jointly appealed,

challenging the no-coverage ruling but also raising a belated

challenge to subject-matter jurisdiction under the Rooker–

Feldman doctrine. The jurisdictional argument is meritless.

The Rooker–Feldman doctrine does not block federal jurisdic-

tion over claims by nonparties to state-court judgments. Lance

v. Dennis, 546 U.S. 459, 465 (2006); Johnson v. De Grandy,

512 U.S. 997, 1006 (1994). And the judge’s merits ruling was

sound; the policy’s bacteria exclusion precludes coverage for

this loss. We affirm the judgment.

I. Background

In December 2015 Harris had a dialysis catheter surgical-

ly implanted and began dialysis treatment at the Metro East

Dialysis in Belleville. From February to August 2016, he

contracted multiple infections at the catheter site, necessitat-

ing several surgeries to remove and replace the catheter. The

infections, in turn, led to sepsis. During this period, Harris

1 Harris also added “Liberty Mutual Insurance” as a defendant. That was

a mistake. “Liberty Mutual Insurance” is not a legal entity; it’s a group of

affiliated underwriting companies that includes Liberty Mutual Insur-

ance Company and Ohio Security Insurance Company. The latter issued

Durham’s insurance policy. Though the policy document bears the

logomark “Liberty Mutual Insurance,” the declarations page indicates

that Ohio Security is the insurer. The district judge noted these anomalies

and permitted Harris to substitute Liberty Mutual Insurance Company

for “Liberty Mutual Insurance.” It’s not clear why Liberty Mutual

Insurance Company is in the case. Ohio Security issued the relevant

policy, so we can ignore Liberty Mutual.

4 No. 22-1983

was diagnosed with both gram positive and gram negative

sepsis; both are types of bacterial sepsis.

Several public health agencies investigated an increase in

patient infections originating from the dialysis clinic during

this six-month period in 2016. Among other discoveries, the

investigation found that Durham Enterprises, the janitorial

company responsible for cleaning the facility, was doing so

improperly.2 There is no dispute that Harris’s infections

were caused in part by Durham’s negligent cleaning of the

facility.

In January 2017 Harris commenced a malpractice action

in St. Clair County Circuit Court against the dialysis clinic

alleging (among other things) that it failed to properly

sanitize the facility and its equipment. But he did not name

the proper defendant. In April he filed an amended com-

plaint with the correct names of the clinic operators: Renal

Life Link, Inc., and Davita, Inc. As a prerequisite for his

malpractice claims, Harris attached a certificate of merit

prepared by a medical expert pursuant to Illinois law. See

735 ILL. COMP. STAT. 5/2-622. The certificate stated that the

clinic operators deviated from acceptable standards of care

by failing to properly sanitize the facility, causing Harris’s

injuries.

Harris’s amended complaint also added a negligence

claim against Durham Enterprises and its owner, Don

Durham. (We refer to them collectively as “Durham.”) More

2 The investigators determined that Durham improperly used vinegar as

its primary cleaning agent, used dirty mop heads to clean the floors,

failed to clean all touchable surfaces, and failed to disinfect the cleaning

cart upon entry and exit from the facility.

No. 22-1983 5

specifically, Count Three of the amended complaint alleged

that the janitorial company “negligently and carelessly failed

to properly clean and sanitize said dialysis center.”

Durham was insured during the relevant period under a

commercial general liability policy issued by Ohio Security.3

Durham sought a defense and indemnification from the

insurer, submitting the amended complaint, the certificate of

merit, and an affidavit from Harris’s counsel.

Ohio Security promptly reviewed the materials Durham

submitted and the language of the operative insurance

policy. Relevant here is the policy’s “Fungi or Bacteria

Exclusion,” which excludes coverage for

“Bodily Injury” … which would not have oc-

curred, in whole or in part, but for the actual,

alleged or threatened inhalation of, ingestion

of, contact with, exposure to, existence of, or

presence of, any “fungi” or bacteria on or with-

in a building or structure, including its con-

tents, regardless of whether any other cause,

event, material or product contributed concur-

rently or in any sequence to such injury or

damage.

3 Durham also carried excess insurance under an umbrella policy issued

by Ohio Casualty Insurance Company, Ohio Security’s parent. Ohio

Casualty intervened in the district court to protect its potential exposure

under the umbrella policy. The two policies are materially identical, so

for simplicity we treat the policies as one and refer to the two insurers as

“Ohio Security.”

6 No. 22-1983

But there is an exception: “This exclusion does not apply to

any ‘fungi’ or bacteria that are, are on, or are contained in, a

good or product intended for bodily consumption.”

By letter dated May 15, 2017, Ohio Security denied cov-

erage based on the bacteria exclusion. Emily Anderson, the

claims adjuster who processed the claim, made the determi-

nation based on the materials Durham had provided; she

did not seek any additional information. She did, however,

invite Don Durham to submit further information if he

wished. She also asked him to forward any amended plead-

ings in the Harris litigation. Durham did not respond to the

invitation to submit further information. The May 15 letter

denying coverage was the last communication between

Durham and its insurer for quite some time.

Harris’s case in state court moved forward very slowly.

At some point along the way, Harris and Durham reached

an agreement whereby Durham promised not to mount a

defense and Harris promised to seek recovery only from

Durham’s insurer. Durham did not notify Ohio Security of

this agreement.

On March 18, 2019—nearly two years after initiating the

state-court litigation—Harris filed an uncontested motion to

sever his claim against Durham into a separate action. The

state trial judge granted the motion and assigned a new case

number, and Harris filed a new complaint under the second

case number naming only Don Durham and Durham Enter-

prises as defendants. On May 15 Harris moved for a trial to

the bench. That motion was granted, and the case against

Durham was set for a bench trial on July 30.

No. 22-1983 7

On July 18, 2019—12 days before the scheduled bench

trial—Harris and Durham formalized their agreement in a

written “Covenant Not to Execute and Limit Recovery.”

Under Missouri law, which governs this insurance dispute,

Durham had a statutory duty to notify Ohio Security of the

agreement within 30 days. MO. REV. STAT. § 537.065(2)

(2021). 4 It did not do so.

At the start of trial on July 30, the parties told the judge

about their agreement—specifically, that Durham had

agreed not to mount a defense in exchange for Harris’s

agreement to seek recovery of any judgment only from the

insurer. The judge then held a brief, uncontested bench trial,

and on October 9 adopted Harris’s uncontested findings of

fact and conclusions of law verbatim and entered judgment

against Durham for a little over $2 million. The judgment

included findings adverse to Durham’s insurer even though

Ohio Security was not a party to the lawsuit and the insur-

ance policy was not in the record. Specifically, the judge

4 Missouri law permits agreements of this type but requires the insured

to notify the insurer within 30 days:

If any action seeking a judgment on the claim against the

tort-feasor is pending at the time of the execution of any

contract entered into under this section, then, within

thirty days after such execution, the tort-feasor shall

provide his or her insurer or insurers with a copy of the

executed contract and a copy of any such action.

MO. REV. STAT. § 537.065(2) (2021). The insurer is entitled to intervene in

the underlying suit within 30 days of receiving notice. See id. § 537.065(4)

(“Any insurer or insurers who receive notice pursuant to this section

shall have the unconditional right to intervene in any pending civil

action involving the claim for damages within thirty days after receipt of

such notice.”).

8 No. 22-1983

found that (1) Durham’s insurer had a duty to defend the

lawsuit; (2) it was too late for the insurer to seek a declara-

tion to the contrary; (3) the insurer had breached its duty to

defend; and (4) the insurer was estopped from raising policy

defenses to coverage.

On December 7—after the judgment became final and the

30-day time to appeal had expired, see ILL. SUP. CT. R. 303—

Harris filed an amended complaint adding Ohio Security as

a defendant and seeking satisfaction of the judgment from it

as Durham’s insurer. Before this development, the insurer

had not heard from Durham since the May 2017 letter

denying coverage. Ohio Security removed the case to federal

court based on diversity of citizenship and sought a declara-

tion concerning its coverage obligations. Harris and

Durham, aligned in interest, both moved to remand, but the

district judge denied the motion.

The case proceeded to cross-motions for summary judg-

ment on Ohio Security’s duty to defend. The judge held that

the bacteria exclusion bars coverage, the “bodily consump-

tion” exception is inapplicable, and Ohio Security therefore

owed no duty to defend Durham in the Harris lawsuit. That

ruling appeared to resolve all other insurance issues in Ohio

Security’s favor—i.e., questions of indemnification, breach of

contract, and bad-faith denial of coverage—so the judge

issued an order to show cause why final judgment should

not be entered for the insurer.

In response Harris argued for the first time that the court

lacked subject-matter jurisdiction under the Rooker–Feldman

doctrine. Durham’s response simply reargued the judge’s

duty-to-defend ruling. Ohio Security argued that final

No. 22-1983 9

judgment in its favor followed necessarily from the judge’s

conclusion that it had no duty to defend.

The judge agreed with Ohio Security. He explained that

because the duty to defend is broader than the duty to

indemnify, his ruling on the duty to defend necessarily

resolved all remaining insurance issues in the insurer’s

favor. Without addressing Harris’s Rooker–Feldman argu-

ment, the judge entered final judgment for Ohio Security.

Harris died shortly after judgment was entered. His at-

torney joined with Durham’s counsel to file a timely notice

of appeal. But the notice erroneously listed Harris as the

plaintiff-appellant. In compliance with Rule 43(a) of the

Federal Rules of Appellate Procedure, Harris’s counsel later

moved to substitute Shemika D. Mitchell, the executor of

Harris’s estate, as the plaintiff-appellant. We granted the

motion.

I. Discussion

As we’ve just noted, Harris’s estate and Durham filed a

joint appeal. But Harris’s estate alone has shouldered the

burden of developing an appellate challenge to the district

court’s judgment. That’s not surprising. With its immunity

from collection secure, Durham was content to let the estate

fight the battle over insurance coverage, so it summarily

adopted the estate’s appellate arguments and called it a day.

We focus then on the issues the estate raises on appeal.

There are two. The estate argues that the Rooker–Feldman

doctrine bars subject-matter jurisdiction and that the judge

wrongly concluded that Ohio Security had no duty to de-

fend Durham in the state-court lawsuit. Ohio Security

responds that the Rooker–Feldman argument is frivolous; on

10 No. 22-1983

this issue it filed a separate motion for sanctions under

Rule 38 of the Federal Rules of Appellate Procedure. The

insurer also defends the judge’s no-coverage ruling on the

merits.

We begin, as we must, with the jurisdictional argument.

But we can be brief. Rooker–Feldman does not apply here. The

doctrine “is confined to cases of the kind from which the

doctrine acquired its name: cases brought by state-court

losers complaining of injuries caused by state-court judg-

ments rendered before the district court proceedings com-

menced and inviting district court review and rejection of

those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus.

Corp., 544 U.S. 280, 284 (2005) (explaining the limits of the

jurisdictional rule established in Rooker v. Fidelity Trust Co.,

263 U.S. 413 (1923), and District of Columbia Court of Appeals

v. Feldman, 460 U.S. 462 (1983)). The Rooker–Feldman rule

enforces the line between original and appellate jurisdiction

in the federal judicial system. The Supreme Court has appel-

late jurisdiction to review and modify or reverse a state-

court judgment; the lower federal courts do not. Id. at 291–

92.

In keeping with the doctrine’s rationale and narrow ap-

plication, the Supreme Court has held that Rooker–Feldman

does not apply “where the party against whom the doctrine

is invoked was not a party to the underlying state-court

proceeding.” Lance, 546 U.S. at 464. A federal litigant who

was absent from the underlying litigation and judgment in

state court is “in no position to ask [the Supreme Court] to

review the state court’s judgment” but instead is “merely

seek[ing] to litigate its … case for the first time” in federal

court. De Grandy, 512 U.S. at 1006.

No. 22-1983 11

Because Ohio Security was not a party to the Harris liti-

gation in state court and is not a party to the state-court

judgment against Durham, Rooker–Feldman cannot be in-

voked against it. The estate rests its jurisdictional argument

on a footnote in Lance in which the Court declined to address

“whether there are any circumstances, however limited, in

which Rooker–Feldman may be applied against a party not

named in an earlier state proceeding.” Lance, 546 U.S. at 466

n.2. The Court gave an example of a limited circumstance

that might qualify: “e.g., where an estate takes a de facto

appeal in a district court of an earlier state decision involv-

ing the decedent.” Id.

The Court’s example makes sense considering the logic of

the doctrine: a decedent’s estate simply steps into the dece-

dent’s shoes and like the decedent cannot seek de facto

appellate review of a state-court judgment in district court.

But this example doesn’t remotely fit the procedural facts of

this case. Ohio Security is not stepping into the shoes of a

state-court litigant. The estate’s Rooker–Feldman argument is

clearly foreclosed by Lance and De Grandy. Subject-matter

jurisdiction is secure.

Turning to the merits, the estate challenges the judge’s

determination that Ohio Security had no duty to defend

Durham in the state litigation. That ruling turned on the

insurance policy’s bacteria exclusion and the exclusion’s

“bodily consumption” exception. We review de novo the

judge’s interpretation and application of the Ohio Security

insurance policy. Panfil v. Nautilus Ins. Co., 799 F.3d 716, 718–

19 (7th Cir. 2015). Everyone agrees that Missouri law governs

this insurance-coverage dispute.

12 No. 22-1983

When sitting in diversity, we are bound by controlling

decisions of the state’s highest court, and when the state’s

highest court has not yet addressed an issue, we must pre-

dict how it would rule. Smith v. RecordQuest, LLC, 989 F.3d

513, 517–18 (7th Cir. 2021). We also “consult and follow the

decisions of intermediate appellate courts unless there is a

convincing reason to predict the state’s highest court would

disagree.” Id. at 517 (quotation marks omitted). “So while a

state supreme court’s rule would control, a state appellate

court’s decision can provide controlling guidance as well.”

Id. at 517–18.

In Missouri (as elsewhere), an insurer’s duty to defend

arises “when there is a possibility or potential for coverage at

the outset of the case.” Allen v. Bryers, 512 S.W.3d 17, 31 (Mo.

2016). “The obligation … to defend a suit … is to be deter-

mined from the cause of action pleaded, at the time the

action is commenced, not from what an investigation or a

trial of the case may show the true facts to be.” Trainwreck W.

Inc. v. Burlington Ins. Co., 235 S.W.3d 33, 39 (Mo. Ct. App.

2007) (emphasis removed) (quotation marks omitted).

The insurer’s duty to defend is determined by comparing

the facts alleged against the insured in the complaint with

the text of the insurance policy. If the complaint alleges facts

that potentially give rise to a claim within the policy’s cover-

age, the insurer has a duty to defend the insured. Allen,

512 S.W.3d at 31. An insurer’s assessment of its duty to

defend should also consider facts that it either knows or “are

reasonably apparent [to it] at the outset of the case.” Id.

(quotation marks omitted).

The insurer may also have a duty to defend based on

facts that are reasonably ascertainable at the outset of a case,

No. 22-1983 13

even if they were not actually ascertained. “[I]f, at the time

the claim is made, facts … could reasonably be ascertained

by the insurer that would potentially put the claim within

the scope of the policy, the insurer must defend the insured.”

Id. (quoting Fostill Lake Builders, LLC v. Tudor Ins. Co.,

338 S.W.3d 336, 347 (Mo. Ct. App. 2011)). When an insured

claims that facts establishing coverage were ascertainable by

the insurer through reasonable investigation, the insured

must point to evidence of what the insurer would have

found through reasonable investigation that would have

brought the claim within the policy’s coverage. Interstate

Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539, 544 (8th Cir.

2012) (applying Missouri law).

The standard for determining an insurer’s duty to defend

is undeniably generous to the insured—the duty arises when

there is a “possibility” or “potential” for coverage based on

the facts alleged in the complaint or reasonably apparent to

the insurer when the case begins. But duty to defend is not

“boundless.” Id. The scope of the duty is limited by the

language of policy, which expresses the intent of the con-

tracting parties. Id. The insurer has the burden to establish

that it owes no duty to defend. Id. at 543; see also Allen,

512 S.W.3d at 31.

This case turns on the bacteria exclusion in the Ohio

Security policy, which excludes from coverage any injury

“which would not have occurred … but for … exposure

to … any … bacteria on or within a building or structure,

including its contents.” The amended complaint in the state-

court suit alleged that Harris “suffered numerous infections”

in part because Durham “negligently and carelessly failed to

properly clean and sanitize [the] dialysis center.” The com-

14 No. 22-1983

plaint itself contains no specifics about what type of infec-

tions Harris suffered, but the certificate of merit accompany-

ing the complaint added the relevant details. The certificate

states that Harris was placed “at significantly increased risk

of bacterial sepsis and, in fact, [Harris] was diagnosed with

both gram positive and gram negative sepsis”; both are

types of bacterial infection. Accordingly, based on the allega-

tions in the amended complaint and the details in the at-

tached certificate of merit, the bacteria exclusion plainly

applies.

The estate resists this conclusion, arguing that it’s inap-

propriate to consider the certificate of merit to determine the

duty to defend. Citing Garrison v. Choh, 719 N.E.2d 237, 240,

243 (Ill. App. Ct. 1999), the estate emphasizes that a certifi-

cate of merit, though required for a malpractice claim in

Illinois, is not considered a formal part of the complaint.

That’s irrelevant in this context. The certificate of merit was

attached to the amended complaint and provided facts

known to the insurer at the outset of the case; it’s not off-

limits in the duty-to-defend calculus. See Allen, 512 S.W.3d at

31.

The estate next takes issue with the insurer’s lack of in-

vestigation, criticizing the claims adjuster for denying

coverage without first seeking medical records or other

information related to the claim. This line of argument

requires the estate to identify facts that would have given

rise to a duty to defend and to support its argument with

evidence that would have been found by the insurer through

reasonable investigation. See Interstate Bakeries, 686 F.3d at

546. The estate has not identified any such facts, let alone

provided evidence to back up this argument.

No. 22-1983 15

Finally, the estate contends that this case falls within the

bacteria exclusion’s “bodily consumption” exception. To

repeat, the exception provides that the exclusion “does not

apply to any … bacteria that are, are on, or are contained in,

a good or product intended for bodily consumption.” The

estate bears the burden of showing that the exception ap-

plies. See Trans World Airlines, Inc. v. Associated Aviation

Underwriters, 58 S.W.3d 609, 622 (Mo. Ct. App. 2001).

We note first that although Harris and Durham both

made passing references to the bodily-consumption excep-

tion in their responses to Ohio Security’s summary-judgment

motion, neither of them developed an argument about its

application. Ohio Security justifiably raises waiver. Ross v.

Fin. Asset Mgmt. Sys., Inc., 74 F.4th 429, 434 (7th Cir. 2023)

(“When a party fails to develop an argument in the district

court, the argument is waived, and we cannot consider it on

appeal.” (quoting Frey Corp. v. City of Peoria, 735 F.3d 505, 509

(7th Cir. 2013))).

Even if we were inclined to overlook the failure to ade-

quately preserve this issue, the estate made only minimal

effort in its appellate brief to explain the basis for its claim

that the bodily-consumption exception applies. The estate

never identified a “good or product intended for bodily

consumption” that might have caused Harris’s injuries.

Instead, it returned to its refrain that the claims adjuster did

not adequately investigate the applicability of the bacteria

exclusion but again did not explain why the bodily-

consumption exception might have applied or how a rea-

sonable investigation would have made that apparent.

At oral argument the estate suggested for the first time

that the dialysis machines caused Harris’s infections and

16 No. 22-1983

could be considered a good or product “intended for bodily

consumption” within the meaning of the exception. Argu-

ments first raised at oral argument are waived. Wonsey v.

City of Chicago, 940 F.3d 394, 398–99 (7th Cir. 2019). Waiver

aside, to the extent that this new and undeveloped theory

posits that Durham was responsible for cleaning the dialysis

machines, it conflicts with Harris’s allegations in the state-

court suit. The amended complaint alleged that the clinic

operators failed to (1) “timely change the diasafe filters”;

(2) “properly maintain the premises to minimize risk of

infection to patients”; and (3) “properly maintain dialysis

machines and equipment to minimize the risk of infection in

patients.” Durham, on the other hand, was accused of failing

to properly clean and sanitize the dialysis facility. Ohio

Security was not required to imagine a wholly different and

contradictory set of allegations when evaluating its duty to

defend. Interstate Bakeries, 686 F.3d at 545 (declining to find a

duty to defend when the insured’s argument required “an

unacceptable degree of imagination”).

In sum, the policy’s bacteria exclusion precluded cover-

age for this loss. We agree with the district judge that Ohio

Security had no duty to defend Durham in the Harris litiga-

tion.

There is one final matter. As we’ve noted, Ohio Security

moved for Rule 38 sanctions limited to its costs to defend the

Rooker–Feldman argument, which it characterizes as frivo-

lous. An appeal is frivolous (in whole or in part) “when the

result is obvious or when the appellant’s argument is wholly

without merit.” Harris N.A. v. Hershey, 711 F.3d 794, 802 (7th

Cir. 2013) (quotation marks omitted). The Rooker–Feldman

argument was clearly foreclosed by the Supreme Court’s

No. 22-1983 17

decisions in Lance and De Grandy. The estate’s argument to

the contrary was paper thin. And neither the estate nor

Durham bothered to file a response to the Rule 38 motion or

even a reply brief.

Still, we conclude that sanctions are unwarranted here.

“Frivolous” is not synonymous with merely “unsuccessful

or unlikely to succeed.” Dolin v. GlaxoSmithKline LLC,

951 F.3d 882, 887 (7th Cir. 2020) (internal quotation marks

omitted). And even if an appeal is frivolous, “Rule 38 sanc-

tions are not mandatory but are left to the sound discretion

of the court of appeals.” Harris N.A., 711 F.3d at 802. We

decline to award sanctions on this discrete issue. The Rule 38

motion is denied.

AFFIRMED; RULE 38 MOTION DENIED.