Petition for Writ of Certiorari — Illinois Employers Insurance of Wausau v. Public Utility District No. 2

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JUN 16 1992

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In the Supreme Court: oF THE CLERK |

OF THE

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United States

OCTOBER TERM, 1991

1 RE WASHINGTON PUBLIC POWER SUPPLY

SYSTEM SECURITIES LITIGATION

MDL-S5S51

ILLINOIS EMPLOYERS INSURANCE OF WAUSAU,

Petitioner,

VS.

PuBLic UtiLity District No. 2 oF GRANT COUNTY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DALE E. FREDERICKS

(Counsel of Record)

SHEPPARD, MULLIN, RICHTER & HAMPTON

Four Embarcadero Center, 17th Floor

San Francisco, California 94111

(415) 434-9100

Attorneys for Petitioner

Of Counsel:

MATTHEW R. Ross ;

SHEPPARD, MULLIN, RICHTER & HAMPTON

Four Embarcadero Center, |7th Floor

San Francisco, California 94111

(415) 434-9100

Daed: June 15, 1992

BOWNE OF SAN FRANCISCO. INC + ISO NINTH ST *« SF CA 94103 + (415) 864-2300

QUESTION PRESENTED

The question presented, which is one of first impression, is

whether, pending review of an appealable remand order in a

diversity action pursuant to 29 U.S.C. § 1332(a), the district

courts should be required to stay implementation of remand in

order that federal jurisdiction not be divested.

Specifically, petitioner presents the following narrow question:

Should the Ninth Circuit’s May 29, 1992 order (App. A)

dissolving the District Court’s April 15, 1992 order (App. D)

staying implementation of the District Court’s earlier remand

order (App. C) be reversed pending the appeal of the remand

order on the merits because, in the absence of stayed implementa-

tion of the remand order, the federal courts otherwise will be

divested of jurisdiction if the remand order is later reversed.

PARTIES TO THE PROCEEDINGS

Petitioner Illinois Employers Insurance of Wausau, an Illinois

corporation, is the appellant below and the defendant in the

remanded action currently on appeal. Respondent Public Utility

District No. 2 of Grant County, a Washington corporation, is the

appellee below and the plaintiff in the remanded action currently

on appeal.

Petitioner is a wholly-owned subsidiary oi Wausau Service

Corporation, a Wisconsin corporation. Wausau Service Corpora-

tion is a wholly-owned subsidiary of Employers Insurance of

Wausau A Mutual Company, a Wisconsin corporation.

a

i

TABLE OF CONTENTS

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APPENDIX

App. A: Ninth Circuit Order, May 29, 1992.

App. B: Ninth Circuit Order, June 5, 1992.

App. C: District Court Order and Opinion Remanding Action to

Grant County, Washington Superior Court, March 12,

1992.

App. D: District Court Order Granting Stay of Remand Pending

Appeal, April 15, 1992.

ill

TABLE OF AUTHORITIES

Federal Cases

Page

Carnival Cruise Lines, Inc. v. Shute, U.S. ccccey LEE S.

Ce B5ae. FES L.. Be BE GS CIFPL) wn cece cece sc ences 6

Ferrari, Alvarez, Olsen & Ottoboni v. Home Ins. Co., 940

ee. Ty, Ve Renner 3, 4,5

M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) 6

Pelleport Investors, Inc. v. Budco Quality Theatres, Inc. 741

F.2d 273 (Sth Cir. 1984) ...... cc ccc c cee s cece neenes 3, 4,5

Regis Associates v. Rank Hotels (Management) Ltd., 894

F.2d 193 (Gth Cie. 1990)... cnc neces ccc ce seen neces 3,4

Seedman v. U.S. Dist. Court, 837 F.2d 413 (9th Cir. 1988) 3,5

Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336

DN Ga Geese ckS Ca RhOSNG CERES RES OKA KR DOORS ROE 3, 4, 6

Statutes

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No.

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1991

IN RE WASHINGTON PUBLIC POWER SUPPLY

SYSTEM SECURITIES LITIGATION

MDL-S551

ILLINOIS EMPLOYERS INSURANCE OF WAUSAU,

Petitioner,

VS.

PuBLic UTILity District No. 2 oF GRANT COUNTY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioner, Illinois Employers Insurance of Wausau, respect-

fully prays that a writ of certiorari issue to review a certain order

entered by the Court of Appeals for the Ninth Circuit on May 29,

1992."

OPINIONS BELOW

The unreported orders of the Court of Appeals appear as App.

A and App. B in the Appendix. The District Court’s remand order

and opinion appears as App. C. The unreported opinion of the

(App. A.) The Ninth Circuit denied reconsideration on June 5,

1992. (App. B.)

_———————— <x —————

3

2

District Court granting a motion for stay of the remand order

appears as App. D.

JURISDICTION

The order of the Court of Appeals was entered on May 29,

1992. (App. A.) A motion for reconsideration was denied on

June. 5, 1992. (App. B.) Jurisdiction of this a 2 invoked

under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

28 U.S.C. § 1332(a) provides in pertinent part:

The district courts shall have original jurisdiction of all civil

actions where the matter in controversy exceeds the sum or

value of $50,000.00, exclusive of interest and costs, and is

between—

(1) citizens of different states;

28 U.S.C. § 1441(a) provides:

Except as otherwise expressly provided by Act of Congress,

any civil action brought in a State court of which the district

courts of the United States have original jurisdiction, may be

removed by the defendant or the defendants, to the district

court of the United States for the district and division

embracing the place where such action is pending. For

purposes of removal under this chapter, the citizenship of

defendants sued under fictitious names shall be disregarded.

STATEMENT OF THE CASE

The Jurisdictional Conundrum

This case of first impression presents a significant question

regarding an existing jurisdictional anomaly relating to diversity

jurisdiction over a civil action during the pendency of an appeal of

e eo oand order.

Tis Court has held that remand orders not made pursuant to

28 U.S.C. § 1447(c) are appealable despite the provisions of

3

28 US.C. § 1447(d). Thermiron Products, Inc. v. Herman-

sdorfer, 423 US. 336 (1976). The Ninth Circuit, along with a

number of other circuits, in reliance upon the Court's reasoning in

Thermtron, has held that a party has the right to appeal from a

remand order based on the interpretation of a forum selection

clause. Ferrari, Alvarez, Olsen & Ottoboni v. Home Ins. Co., 940

F.2d 550 (9th Cir. 1991); Pellepori Investors, Inc. v. Budco

Quality Theatres, Inc, 741 F.2d 273 (9th Cir. 1984); Regis

Associates v. Rank Hotels (Management) Lid., 894 F.2a 193

(6th Cir. 1990).

The Ninth Circuit has also held that the federal courts are

divested of jurisdiction to retrieve’ # remanded action from the

state court once a remand order has been implemented. Seedman

y. US. Dist. Court, 837 F.2d 413 (9th Cir. 1988). Thus, in the

absence of a stay of the implementation of a remand order during

appeal, federal jurisdiction may be effectively eliminated the

moment the remand order is implemented.

Should that occur, a litigant such as petitioner is therefore

denied: (i) its right to federal diversity jurisdiction (based on

proper removal grounds) and (ii) its right to appeal from a

remand order if federal courts are divested of power to intervene

in state court proceedings once the remand order is reversed.

Factual Background

Petitioner issued a directors and officers liability insurance

policy (the “Policy”) to respondent. The Policy contained a

forum selection clause. Disputes subsequently arose among the

parties regarding petitioner's obligations, if any, under the Policy

in light of alleged fraud in the inducement by respondent. More-

over, in consideration of the payment by petitioner of its policy

limits of $5 million, the parties jointly negotiated a modification,

by letter agreement, to the forum selection clause contained in the

Policy.

In reliance upon the modified forum selection clause, petitioner

filed a declaratory relief action against respondent in the United

States District Court for the Northern District of California,

Action No. C 90 2805 FMS. Respondent then filed a separate

4

action against petitioner in Grant County, Washington Superior

Court, Action No. 90-2-00821-1. Relying on the modified forum

selection clause, petitioner removed the state court action to the

United States District Court for the Eastern District of Washing-

ton, Action No. CS-91-010-JLQ. The Judicial Panel on Multi-

district Litigation then transferred both the Northern District of

California action and the removed Eastern District of Washington

action to the Western District of Washington as part of

MDL-551, as Action Nos. C-90-1639 and C-91-816, respectively.

On motion of respondent, the District Court’ issued a remand

order (the “Remand Order”) on March 12, 1992 directing the

return of the removed action to Grant County, Washington

Superior Court. (App. C.) The Remand Order was grounded

upon District Judge Browning’s review and interpretation of the

forum selection clause at issue. Thus, the Remand Order is

appealable as a collaterally final order under 28 U.S.C. § 1291.

See, Thermtron Products, Inc. v. Hermansdorfer, supra, 423 U.S.

336, 345 (1976); Ferrari, Alvarez, Olsen & Ottoboni v. Home Ins.

Co., supra, 940 F.2d 550, 553 (9th Cir. 1991); Pelleport Investors,

Inc. v. Budco Quality Theatres, Inc., supra, 741 F.2d 273, 276

(9th Cir. 1984); Regis Associates v. Rank Hotels (Management)

Lid., supra, 894 F.2d 193 (6th Cir. 1990). In reliance on these

cases, petitioner filed a timely notice of appeal on March 14,

1992.

The District Court granted petitioner a stay of the implementa-

tion of the Remand Order (the “Stay Order”) on April 15, 1992,

pending the appeal. (App. D.) On May 29, 1992, the Ninth

Circuit entered an order dissolving the Stay Order. (App. A.)

The Ninth Circuit denied petitioner's motion for reconsideration

on June 5, 1992. (App. B.)

If the Ninth Circuit’s order dissolving the Stay Order is not

reversed and the Stay Order is not reinstated, the clerk of the

District Court will send the action back to the state court

pursuant to the Remand Order. Then, if the Ninth Circuit

>The Honorable William D. Browning of the District of Arizona,

sitting by designation in Jn re Washington Public Power System Securi-

ties Litigation, MDL-S5S51.

5

reverses the Remand Order, it will have no ability to retrieve the

action from state court if the remand is first effectuated. No

federal court will then have jurisdiction to intercede in the state

court action. Seedman v. U.S. Dist. Court, supra, 837 F.20 413

(9th Cir. 1988). Hence, if the Ninth Circuit’s dissolution order is

not reversed, petitioner will suffer irreparable harm in that it will

be effectively denied its nght to proceed in a federal forum.

‘\ REASONS FOR GRANTING THE WRIT

There is no dispute that federal diversity jurisdiction pursuant

to 28 U.S.C. §1332(a) exists in the pertinent action. This

statutory grant of federal jurisdiction is jeopardized by the Ninth

Circuit’s order dissolving the District Court’s stay of remand

pending appeal of the Remand Order.

The right to appeal from the Remand Order based upon the

interpretation of a forum selection clause, expressly allowed by

the Ninth Circuit, may be effectively mooted by the dissolution of

the Stay Order. Allowing implementation of the Remand Order

pending appeal of that order may effectively divest the federal

court of jurisdiction to reobtain the remanded action once it has

been returned to the state court. This is true even if the Ninth

Circuit determines that the Remand Order was erroneous. Seed-

man v. U.S. Dist. Court, supra, 837 F.2d 413 (9th Cir. 1988).

This Ninth Circuit conundrum must be resolved in order to

preserve the exercise of federal diversity jurisdiction. Petitioner

contends that this can only be done by reversing the Ninth

Circuit’s order dissolving the Stay Order.

Petitioner's writ should be granted, moreover, because peti-

tioner’s likelihood of success in its Ninth Circuit appeal of the

Remand Order (based upon the modified forum selection clause)

is substantial. First, this Court is likely to accept the Nintn

Circuit’s decisions holding that remand orders based upon the

interpretation of a forum selection clause are reviewable on

appeal. Ferrari, Alvarez, Clsen & Ottoboni v. Home Ins. Co.,

supra, 940 F.2d 550 (9th Cir. 1991); Pelleport Investors, Inc. v.

Budco Quality Theatres, Inc., supra, 741 F.2d 273 (9th Cir.

1984). In those decisions, the Ninth Circuit applied the Court's

6

rationale in Thermtron Products, Inc. v. Hermansdorfer, supra,

which created an exception to the general rule prohibiting appeals

of remand orders.’ Second, the Court is also likely to view

petitioner's pending appeal favorably based upon the Court’s

decisions validating the enforceability of forum selection clauses.

See, Carnival Cruise Lines, Inc. v. Shute, __. U.S. ___., 111

S. Ct. 1522, 113 L. Ed.2d 62 (1991); M/S Bremen v. Zapata Of-

Shore Co., 407 U.S. 1 (1972). Petitioner intends to demonstrate

on appeal that the modified forum selection agreement negotiated

between the parties precludes the District Court’s remand.

In summary, if this Court does not reverse the Ninth Circuit’s

order (App. A) pending resolution of the appeal of the Remand

Order, petitioner is effectively denied its right of appeal and the

federal courts are deprived of jurisdiction to effectuate a reversal

of the erroneous order of remand.

* There, the Court held that review of a remand order is available by

mandamus when remand is explicitly based on grounds other than those

specified in 28 U.S.C. § 1447(c).

7

CONCLUSION

For the foregoing reasons, a writ of certiorari should be issued

to review the order of the Court of Appeals for the Ninth Circuit

dissolving the stay of the District Court’s Remand Order pending

appeal.

Respectfully submitted,

DALE E. FREDERICKS

(Counsel of Recorc)

SHEPPARD, MULLIN, RICHTER & HAMPTON

Four Embarcadero Center, 17th Floor

San Francisco, California 94111

(415) 434-9100

Attorneys for Petitioner

Of Counsel:

MATTHEW R. Ross

SHEPPARD, MULLIN, RICHTER & HAMPTON

Four Embarcadero Center, 17th Floor

San Francisco, California 94111

(415) 434-9100

Dated: June 15, 1992

Appendix A

United States Court of Appeals

For the Ninth Circuit

[Filed May 29, 1992]

No. 92-35272

DC# CV-91-816-WDB

Western Washington (Seattle)

Public Utility District No. 2 of Grant County,

Plaintiff-Appellee,

Vv.

Illinois Employers Insurance of Wausau,

Defendant-Appellant.

ORDER

Before: Farris, Thompson and Fe:nandez, Circuit Judges

Appellee’s motion to dissolve the district court’s order granting

a stay pending appeal is granted. The district court applied an

incorrect legal standard to appellant’s application for stay. Pelle-

port Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273

(9th Cir. 1984), does not require that all appealable remand

orders be automatically stayed pending appeal without reference

to the standards reiterated by the Supreme Court in Hilton v.

Braunskill, 481 U.S. 770 (1987). We were simply balancing the

policy concerns addressed by 28 U.S.C. § 1447(d) against the

concerns raised by a remand order that is based on the merits of

the parties’ claims rather than jurisdiction.

Applying the stay factors in Hilton, 481 U.S. at 776, we find

that no stay ig warranted. See Foster v. Chesapeake Ins. Co., Ltd.,

993 F.2d 1207 (3d Cir), cert denied, 112 S.Ct. 302 (1991); Perini

Corp. v. Orion Ins. Co., 331 F.Supp 453 (E.D. Cal. 1971).

The briefing schedule established March 19, 1991 shall con-

tinue in effect.

0 pln are lie! ah tse

FAL te ite lhl 5,

Appendix B

United States Court of Appeals

For the Ninth Circuit

[Filed June 5, 1992]

No. 92-35272

DC# CV-91-816-WDB

Western Washington (Seattle)

Public Utility District No. 2 of Grant County,

Plaintiff-Appellee,

Vv.

Illinois Employers Insurance of Wausau,

Defendant-Appellant.

ORDER

Before: Farris, Thompson and Fernandez, Circuit Judges

Appellant’s emergency motion for reconsideration of this

court’s May 29, 1992 order dissolving the stay pending appeal is

denied. Appellant’s reliance on Seedman v. U.S. District Court,

837 F.2d 413 (9th Cir. 1988), is misplaced. That case held that

28 U.S.C. § 1447(d) bars reconsideration, as well as appellate

review, of a remand order based on lack of federal jurisdiction.

The order challenged in this appeal is not based on jurisdiction

and, consequently, is not subject to the restriction imposed by

section 1447(d).

— Ce a ee

Appendix C

In the United States District Court

For The Western District of Washington

Case No. MDL-551

No. C-90-1639

(Browning)

[Filed March 14, 1992]

In Re Washington Public Power

Supply System Securities Litigation,

Illinois Employers Insurance of Wausau,

Plaintiff,

v.

Public Utility District No. 2 of Grant County,

Defendant.

Public Utility District No.2 of Grant County,

Plaintiff,

v.

Illinois Employers Insurance of Wausau,

Defendant.

. No. C-91-816

(Browning)

ORDER

Pending before the Court are: (1) Illinois Employers Insurance

of Wausau’s (“Wausau”) Motion to Dismiss or Stay Grant

County’s action; (2) Public Utility District No. 2 of Grant

County’s (“Grant County”) Motion to Dismiss or Stay Wausau’s

action; and (3) Grant County’s Motion for Remand. For the

C-2

following reasons, Wausau’s Motion will be denied and Grant

County’s Motions will be granted.

OPINION AND ORDER

I. FACTUAL AND PROCEDURAL BACKGROUND

This is a declaratory judgment action where an insurer

(Wausau) seeks to avoid liability for a Public Utility District’s

(“PUD”) (Grant County) participation in the WPPSS debacle.

The problem is that two virtually identical lawsuits have been

filed.

Grant County was sued by bondholders and Wausau funded a

settlement with full policy limits, reserving its rights to litigate

coverage. On September 28, 1990, Wausau filed Case No. C-90-

1639 in United States District Court for the Northern District of

California (“Wausau’s action”). ' Wausau’s action was desig-

nated a “tag-along action” to MDL-551 and transferred without

objection to Arizona. Grant County, however, was served after

the case was transferred and, thus, had no opportunity to object.

In December 1990, before it was served, Grant County filed its

action, now styled Case No. C-91-816, in Superior Court of

Washington for Grant County seeking a declaration of rights

under the same policy (“Grant County’s action”). Wausau re-

moved that action to the United States District Court for the

Eastern District of Washington. Grant County’s action was then

“conditionally transferred” to this Court by the Judicial Panel on

Multidistrict litigation (“MDL Panel”). Grant County filed an

objection to the transfer. The MDL Panel was not persuaded by

Grant County’s arguments in opposition and transferred the

action to this Court for all pretrial proceedings. The MDL Panel

stated:

‘In the Wausau action, ¥zusau seeks to recover the amounts it paid

on behalf of Grant County because: (1) Grant County had knowledge of

facts underlying the action; (2) the policy otherwise excluded coverage;

and (3) Grant County breached the implied covenant of good faith and

fair dealing.

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C-3

On the basis of the papers filed and the hearing held, the

Panel finds that Grant County involves common questions of

fact with actions previously transferred to the Western Dis-

trict of Washington, and that transfer of Grant County to

that district for inclusion in the coordinated or consolidated

pretrial proceedings occurring in this docket will serve the

convenience of the parties and witnesses and promote the

just and efficient conduct of the litigation. We emphasize

that transfer is particularly appropriate because Grant

County and an action already included in the centralized

proceedings (Wausau v. Grant County) both concern dis-

puted coverage under the same insurance policy between the

same two parties.

June 6, 1991 MDL-551 Transfer Order.

The parties have both moved to dismiss the other’s action or, in

the alternative, stay it. In addition, Grant County moves for

remand of its action to state court. The parties’ dispute arises

from the application of forum selection clauses contained in:

(1) the insurance contract, and (2) a subsequent letter agree-

ment addressing forum selection as part of Wausau’s funding of

Grant County’s settlement.

Il. THE LAW

A. Forum Selection Clauses

Applying Erie Railroad v. Tompkins, 304 U.S. 64 (1938), the

United States Court of Appeals for the Ninth Circuit has held

that forum selection clauses are procedural in nature and, *there-

fore, federal law applies. Manetti-Farrow, Inc. v. Gucci Am., Inc.,

858 F.2d 509, 513 (9th Cir. 1988). The law is straightforward as

set out by the Manetti-Farrow court:

Forum selection clauses are prima facie valid and are en-

forceable absent a strong showing by the party opposing the

clause “that enforcement would be unreasonable or unjust,

or that the clause [is] invalid for such reason as fraud or

overreaching.” The opposing party has the burden “to show

that trial in the contractual forum would be so gravely

C-4

difficult and inconvenient that he will for all practical pur-

poses be deprived of his day in court.”

Manetti-Farrow, 858 F.2d at 514-15 (quoting The Bremen v.

Zapata Off-Shore Co., 407 U.S. 1 (1972)) (citations omitted).

B. Staying an Action

It is well within the Court’s discretion to stay proceedings. See,

e.g., Leyva v. Certified Grocers of Cal., Ltd., 593 F.2d 857 (9th

Cir.), cert. denied, 444 U.S. 827 (1979). The Leyva court

addressed whether a stay was proper in the face of parallel

arbitration proceedings. It observed:

A trial court may, with propriety, find it is efficient for its

own docket and the fairest course for the parties to enter a

stay of an action before it, pending resolution of independent

proceedings which bear upon the case. This rule applies

whether the separate proceedings are judicial, administrative,

or arbitral in character and does not require that the issues in

such proceedings are necessarily controlling of the action

before the court.

Leyva, 593 F.2d at 863-64.

III. WAUSAU’S MOTION

A. Duplicative Federal Proceedings

Wausau argues, on efficiency grounds, that Grant County’s

action should be dismissed or stayed because the Wausau action,

filed first, involves the same parties, policy, and coverage issues.

Wausau treats the actions as duplicative federal actions without

acknowledging the state court origin of the Grant County action.

To support its contention, Wausau quotes the United States

Supreme Court’s statement that “[a]s between federal district

courts, .. . though no precise rule has evolved, the general princi-

pal is to avoid duplicative litigation.” Colorado River Water

Conservation Dist. v. United States, 424 U.S. 800, 817 (1976).

Because Grant County’s action was filed last, Wausau argues that

it should be dismissed. See Pumpelly v. Cook, 106 F.R.D. 238

(D.D.C. 1985); Donaldson, Lufkin & Jenrette v. Los Angeles

County, 542 F.Supp. 1317 (S.D.N.Y 1982).

1 anccinenibileianiieeenna iii a

C-5

Another argument based on judicial economy is that Grant

County’s action should be dismissed because the issue in

Wausau’s action, whether the policy is void ab inito, must be

decided before the Grant County’s coverage issues. Wausau

argues that parallel actions entail the risk of inconsistent rulings.

B. Compulsory Counterclaims

Wausau also argues that Grant County’s claims are compulsory

counterclaims under Fed.R.Civ.P. 13(a), and thus should be

asserted in Wausau’s action rather than in a separate lawsuit.

According to Wausau, as a subsequent action based on compul-

sory counterclaims, Grant County’s suit should be dismissed.

C. First to File Rule

Furthermore, Wausau claims that the “first to file” rule sup-

ports the dismissal or stay of Grant County’s action. Under this

doctrine of federal comity, a district court may decline jurisdic-

tion over an action when a similar suit involving the same parties

and issues has been filed in another district. Pacesetter Systems,

Inc. v. Medtronic, Inc., 678 F.2d 93, 94 (9th Cir. 1982).

D. Colorado River Deference

Finally acknowledging the origin of Grant County’s suit,

Wausau argues that its dismissal does not violate the Colorado

River deference doctrine. See Colorado River; Federal Deposit

Ins. Corp. v. Nichols, 885 F.2d 633 (9th Cir. 1989). Colorado

River requires deference only in “exceptional circumstances.”

Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460

USS. 1, 19 (1983).2 Because the doctrine is not based on weighty

2 Factors supporting deference are: (1) whether either court has

assumed jurisdiction over a res, (2) the relative convenience of the

forums; (3) the desireability of avoiding piecemeal litigation; (4) the

order in which the forums obtained jurisdiction; (5) whether state or

federal law controls; (6) whether the state proceeding is adequate to

protect the parties’ rights; (7) the substantial similarity and parallel or

“spinoff” nature of the state proceeding, and (8) whether a party is

attempting to forum shop. Nakash v. Marciano, 882 F.2d 1411, 1415-17

(9th Cir. 1989). Wausau, of course, argues that the application of these

factors to the instant matter does not favor deference.

—_—

C-6

considerations of federalism and comity but on the efficient use of

judicial resources, Wausau argues that the doctrine does not

require the Court tc defer Wausau’s suit to that of Grant County.

See American Int'l Underwriters, Inc. v. Continental Ins. Corp.,

843 F.2d 1253, 1257 (9th Cir. 1988); Nakash v. Marciano, 882

F.2d 1411, 1415 (9th Cir. 1989).

E. April 14, 1988 Letter Agreement

At last, Wausau addresses the competing forum selection

agreements. While Wausau acknowledges that the forum selec-

tion clause in the policy may have applicability to the Wausau

action in other circumstances, it argues that the clause has been

replaced by the subsequently negotiated clause made as part of

the funding settlement agreement. That provision was memorial-

ized in an April 14, 1988 letter drafted by Grant County’s

attorney,’ which states:

This confirms that at 9:30 a.m. this morning Wausau agreed

to fund Grant’s share of the Mid-Columbia settlement to the

full extent of the remaining limits of the above referenced

policy, in the settlement of the claims brought by the Class

Plaintiffs and Chemical Bank, as Bond Fund Trustee, in

MDL No. 551. Wausau and Grant have agreed that

Wausau’s funding of this settlement is made with a full

reservation of rights by both Wausau and Grant. Should

Wausau decide to pursue any claims against Grant relating

to this settlement, those claims may be filed either in state or

federal court in San Francisco, or in state or federal court in

Spokane, Washington.

See Exhibit “A” (letter from Michael F. Perlis) (attached to

Grant County’s Consolidated Memorandum).

The April 14, 1988 letter, argues Wausau, constitutes a binding

and enforceable forum selection agreement. Wausau states that

the policy’s forum selection clause does not waive Wausau’s right

to removal. According to Wausau, this clause only mandates

forums for suits by the insured against the insurer for failure to

> Michael Perlis was the attorney who had been retained to negotiate

the terms on behalf of all the PUDs.

C-7

pay claims. Thus, it argues that its declaratory judgment action

for noncoverage is outside the scope of the policy forum selection

clause.

F. Policy Forum Selection Clause Unenforceable

Finally, Wausau asserts that the policy clause, even if it does

waive Wausau’s right of removal, cannot be enforced under these

circumstances. It contends that judicial economy and Wausau 's

right to an impartial forum mitigates against the enforcement of

the clause. Furthermore, Wausau argues that Grant County 1s

estopped from asserting the clause because of their assent to the

April 14, 1988 letter agreement.

IV. GRANT’S MOTIONS

A. Policy Forum Selection Clause Enforceable

Grant County argues that the Wausau action should be dis-

missed because Grant County has a right to choose the forum

under the forum selection clause found in the insurance contract.

That forum selection clause states:

[I]t is agreed that in the event of the failure of the

[Wausau] to pay any amount claimed to be due hereunder,

[Wausau], at the request of the [Grant County], will submit

to the jurisdiction of any court of competent jurisdiction

within the United States and comply with all requirements

necessary to give such court jurisdiction. ...\t is further

agreed ... that in any suit instituted against [Wausau], upon

this contract, [Wausau] will abide by the final decision of

such court or of any appellate court in the event of an appeal.

See Grant County’s Consolidated Memorafidum, at 7 (quoting

Wausau Policy, at para. VII() (emphasis added).

The forum selection clause, argues Grant County, gives it the

right to select its forum and, absent a strong showing that its

enforcement is unjust, mandates this Court’s dismissal or stay of

Wausau’s case. Grant County states that similar language “has

consistently been held to constitute a waiver, by the insurer, of its

’ right to remove an action from state court to federal court.”

<== —

C-8

Cessna Aircraft Co. v. Fidelity and Casualty Co., 616 F.Supp.

671, 673-74 & n.l (D.N.J. 1985).

In Cessna, a case very similar to the instant matter, the insurer

funded a settlement and then filed a lawsuit against its insured

seeking a declaration of rights under the policy. Cessna, 616

F.Supp at 673. The insured filed a second, identical lawsuit in

state court and moved to dismiss or to stay the federal court

action based on a forum selection clause.

The Cessna court rejected the insurer’s argument that the

forum selection clause did not effect the insurer’s right to bring an

action where it chose. Jd. at 674. Similarly, the court rejected the

insurer’s argument that the forum selection clause did not encom-

pass a declaratory judgment action.‘ Jd. Accordingly, the court

stayed the action. Jd. at 675-76. Applying Cessna, Grant County

argues that its action should be remanded and this Court should

dismiss the Wausau action.

Grant County attacks Wausau’s motion on two fronts. First, it

argues that the April 14 letter specifically preserves all of Grant

County’s policy rights, including its right to choose its forum.

Second, Grant County notes that the April 14 letter addresses

only Wausau’s choice of forum and does not restrict Grant

County’s choice of forum.

In addition to the plain language of the April i4 letter agree-

ment, Grant County cites the deposition of Michael F. Perlis as

support for Grant County’s construction of the agreement. In that

deposition, Mr. Perlis stated that Grant County did not intend to

waive any of its policy rights regarding venue. See Transcript cf

March 5, 1991 Michael F. Perlis Deposition, at 55.

Moreover, Grant County characterizes Wausau’s waiver argu-

ment as prompted by Wausau’s desire to take advantage of this

Court’s November 21, 1990 Order in Jilinois Employers Ins. of

Wausau v. Public Util. Dist. No. 1 of Cowlitz County, Case No.

“The insurer argued that the clause was inapplicable because it gave

the insured the right to choose the forum when disputes arose over the

insurer’s refusal to pay. Here, the insurer did pay through the funding of

the settlement agreement.

C-9

900053. Because of Wausau’s success with a forum selection

agreement nego. a.°1 during settlement with Cowlitz County

PUD, argues Grant’ sunty, Wausau is attempting to turn the less

specific April 14 let.er into the explicit forum selection agreement

negotiated in the Cowlitz funding settlement. Grant County notes

that Wausau made no mention of the April 14 letter when Grant

County filed its action or when Wausau removed it. Wausau

unveiled the waiver argument for the first time in opposition to

Grant County’s motion to remand.

Substantively, Grant County argues that the policy clause and

the April 14 letter are not mutually inconsistent. According to

Grant County, the April 14 letter governs suits by Wausau for

declaratory relief while the policy clause governs suits filed by

Grant County against Wausau for failure to pay claims.

B. Judicial Economy

Alternatively, Grant County argues that “judicial economy”

requires stay of the Wausau action. This Court should look at:

(1) which action is more comprehensive (to avoid piecemeal

litigation); (2) which action is more convenient; (3) the substan-

tive law to be applied; and (4) prejudice. General Reins. v. CIBA-

Geigy Corp., 853 F.2d 78, 81-81 (2d Cir. 1988). Here, argues

Grant County, its action is the better case to litigate these issues.

First, Grant County argues that its action encompasses all

issues raised in both lawsuits while the Wausau action does not.°

Second, it argues that its action has been more diligently pursued.

Third, it argues that the its action is more convenient. Fourth, it

notes that Washington state law claims are being raised in both

lawsuits. Finally, Grant County argues that Wausau will not

sacrifice any rights because state law is applied in either forum.

5 According to Grant County, Wausau’s suit only covers whether

Wausau’s policy covers Grants claims arising out of MDL-551. The

Grant County action adds the question of whether the policy covers the

Haberman action and whether Wausau’s conduct violated Washington

law.

ae

C-10

C. Washington Superior Court as an impartial Forum

Remand to a Washington state forum, according to Grant

County, would not result in Wausau being denied a meaningful

day in court. Grant County maintains that this is a different case,

time, and juror pool from the MDL-551 proceedings in which this

Court found Washington state forums to be biased. It argues that,

under Manetti, Wausau cannot rely on an unsupported allegation

of the unfairness of a forum to render a valid forum selection

clause unenforceable. Manetti, 858 F.2d at 514-15.

D. Colorado River Deference

In opposition to Wausau’s Colorado River argument, Grant

County argues that the exceptional circumstances, required for a

federal court to retain jurisdiction, do not exist in declaratory

judgment cases. See Terra Nova ins. Co., Lid. v. 900 Bar, 887

F.2d 1213, 1222 (3d Cir. 1989). The Ninth Circuit has adopted

this approach. See Transamerica Occidental Life Ins. Co. v.

DiGregorio, 811 F.2d 1249, 1253-55 & n.4 (9th Cir. 1987). The

United States Supreme Court has stated that:

[I]t would be uneconomical as well as vexatious for a federal

court to proceed in a declaratory judgment suit while another

Suit is pending in a state court presenting the same issues, not

governed by federal law, between the same parties. Gratui-

tous interference with the orderly and comprehensive dispo-

sition of a state court litigation should be avoided.

Brillhart v. Excess Ins., 316 U.S. 491, 49S (1942).

In DiGregorio, the Ninth Circuit rejected the insurer’s Colo-

rado River argument that the doctrine limited the district court’s

discretion to dismiss the insurer’s first-filed federal suit.

DiGregorio, 811 F.2d at 1255° Grant County argues that the

* The Ninth Circuit based its holding on the following factors: (1) all

the issues raised in the insurer’s prior federal suit could be litigated in

state court; (2) many of the issues raised in the state court actions—e.g.

those relating to the insured’s state law bad faith claim—were appropri-

ate for state court resolution; (3) no compelling federal interest was at

stake; (4) the insurer’s federal suit was not too far advanced; and

C-11

factors cited in DiGregorio support the dismissal of Wausau’s

action.

VI. DISCUSSION

The outcome of these motions depends on the construction of

the different forum selection provisions in the policy and the

April 14 letter agreement. If Wausau is correct that the April 14

letter waived Grant County’s right to require Wausau’s submis-

sion to jurisdiction in a forum of Grant County’s choosing, then

there would be two parallel federal proceedings. Then, Wausau’s

“frst to file” and compulsory counterclaim case law would sup-

port the dismissal or stay of Grant County’s action. If, however,

Grant County is correct that the April 14 letter did not revive

Wausau’s right to remove, then there would be parallel federal

and state proceedings. Then, removal of Grant County’s action

would be improper, and remand would be appropriate.

The forum selection clause in the policy clearly waives

Wausau’s right to remove actions filed by Grant County against

Wausau for failure to pay claims. See Cessna, 616 Supp. at 674,

and cases cited therein. The plain language of the Aprii 14 letter

grants Wausau the right to file a declaratory judgment action

against Grant County in either San Francisco or Spokane. It also,

however, unambiguously reserves all of Grant County’s nights

under the policy. The right to require Wausau to submit to the

jurisdiction of any court of competent jurisdiction, and thus

Wausau’s waiver of the right to remove, is one of the nights

reserved to Grant County under the April 14 letter. Thus, there

are two forum selection clauses that are valid and enforceable.

They are not, however, mutually inconsistent. That the April 14

letter does not extract much from Grant County in exchange for

Wausau’s funding of the settlement of the MDL-551 claims is

insufficient to create a waiver of Grant County’s rights under the

policy’s forum selection clause.

Because the Court concludes that the April 14 letter does not

render the policy’s forum selection clause null and void, Wausau’s

(5) the insurer did not face potentially conflicting obligations.

DiGregorio. 881 F.2d at 1255.

C-12

removal of Grant County’s state court action was improper.

Under The Bremen, these forum selection clauses are unenforce-

able. The Bremen, 407 U.S. at 10. The Ninth Circuit held that

these clauses are enforceable “[a]bsent some evidence submitted

by the party opposing enforcement of the clause to establish

fraud, undue influence, overweening bargaining power, or such

serious inconvenience in litigating in the selected forum so as to

deprive that party of a meaningful day in court....” Pelleport

Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273, 280

(9th Cir. 1984).

Wausau drafted this clause. Thus, no fraud, undue influence, or

overweening bargaining power can be shown. Also, it will not be

more inconvenient for Wausau, a national insurance company, to

litigate in Washington rather than in Arizona. However, if it could

be shown that state court judges and juries cannot be trusted to

try this case impartially, then under Manetti and Pelleport, then

the forum selection clause might be unenforceable.

Although it seems logical that Washington citizens will still

retain some vestigial animus towards the insurers, and preference

for their own financial interests, the Court cannot conclude that

Wausau would be denied a fair trial in the state courts of Eastern

Washington. The Court’s conclusion hinges on the lack of ¢vi-

dence of bias introduced by Wausau. The party opposing the

enforcement of a valid forum selection clause has the burden of

submitting evidence establishing the lack of impartiality. Manetti-

Furrow, 858 F.2d at 515; Pelleport, 741 F.2d at 280. Wausau has

had almost a year in which to do so. Wausau has relied on the fact

that the patential jurors in this case are ratepayers, and on this

Court’s findings based on the underwriters’ survey reports that

MDL-S5S51 could not be fairly tried in Seattle. At oral argument,

counsel admitted that Wausau had no empirical evidence of bias

in the juror pool of Eastern Washington. Wausau, therefore, has

failed to carry its burden of demonstrating that it would be denied

“a meaningful day in court.” Pelleport, 741 F.2d at 280.

This result leaves the Court with parallel federal and state

actions. The Ninth Circuit has recently set forth some principles

to guide a district court when faced with the question of whether

it should exercise its discretion to grant declaratory relief during

C-13

the pendency of a parallel state court action. Continental Casualty

Co. v. Robsac Indus., 947 F.2d 1367, 1370-74 (9th Cir. 1991).

Abstention in the context of declaratory relief falls under the

Rrillhart doctrine. Id. at 1369. Based on the Brillhart factors,’ the

Ninth Circuit held that the district court erred by exercising its

jurisdiction to grant declaratory relief in light of a parallel state

court proceeding. Robsac, 947 F.2d at 1368.

The court of appeals stated that “when a state court action is

pending presenting the same issue of state law as is presented in a

federal declaratory suit, ‘there exists a presumption that the entire

suit should be heard in state court.’” Id. at 1370-71 (quoting

Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1366 (9th Cir. ,

1991)). In analyzing the first Brillhart factor, the Ninth Circuit

found that when the sole basis of jurisdiction is diversity of

citizenship, and when the “case involves insurance law, an area

that Congress expressly left to the states through the McCarran-

Ferguson Act,” 15 U.S.C. § 101 1-12 (1988), “the Brillhart policy

of avoiding unnecessary declarations of state law is especially

strong” because “the federal interest is at its nadir.” Robsac. 947

F.2d at 1371.

Next, the court of appeals stated that “(whether the federal

declaratory judgment action regarding insurance coverage is filed

first or second, it is reactive, and permitting it to go forward when

there is a pending state court case presenting the identical issue

would encourage forum shopping in violation of the second

Brillhart Principal.” Id. at 1372-73. Finally, the Ninth Circuit

concluded that because all of the issues presented by the declara-

tory judgment action could be resolved by the state court, permit-

ting it to go forward would be a waste of judicial resources in

violation of the third Brillhart factor. Id. at 1373.

The Court finds that an analysis of the Brillhart principles, in

this case, also favors abstention. The Court, however, will stay

’ Brillhart's holding was based on three principal rationales: (1) the

avoidance of needless determinations of state law; (2) the discourage-

ment of the use of the Declaratory Judgments Act as a means of forum

shopping; and (3) the avoidance of duplicative litigation. Chamberlain

y. Allstate Ins. Co. 931 F.2d 1361, 1367 (9th Cir. 1991).

C-14

Wausau’s action rather than dismiss it. A stay of the case is the

better approach because the Court retains jurisdiction to hear the

case if the state court proceeding is shown to be biased. Attwood

v. Mendocino Coast Dist. Hosp. 886 F.2d 241, 243 (9th Cir.

1989) (In reversing a district court’s dismissal of a federal suit

pursuant to the Colorado River doctrine, the court of appeals held

that the district court should have stayed the matter rather than

dismissing it to ensure “that the federal forum will remain open if

‘for some unexpected reason the state forum does turn out to be

inadequate.’ ”’).

The Court will not address the arguments concerning Colorado

River deference, the “first to file” rule, or cases relying on

Fed.R.Civ.P. 13(a). The forum selection clause aspect of the case

takes it out of the realm of Colorado River deference. More

importantly, perhaps, the Ninth Circuit has recently made it clear

that the Colorado River deference doctrine does not apply where

the Declaratory Judgments Act is involved. Robsac, 947 F.2d at

1369; Chamberlain, 931 F.2d at 1366. The “first to file” and

compulsory counterclaim case law support the dismissal or stay of

Grant County’s action only if the Court finds that Grant County’s

action was properly removed. In this case, it was not.

CONCLUSION

At bottom, the Court cannot conclude that Grant County

waived its right to enforce the policy forum selection clause given

its express reservation of rights under the policy in the April 14

letter. Moreover, the letter agreement did not revive Wausau’s

right to remove that it had waived in the policy’s forum selection

clause. Wausau failed to establish that litigating Grant County’s

action in state court would deny it a fair trial. Thus, Grant

County’s action was improperly removed. The Court, therefore,

will remand the case to the Superior Court of Washington for

Grant County. This Court, however, will stay rather than dismiss

Wausau’s action because a stay will ensure that a federal forum is

available if the state courts of Eastern Washington “turn out to be

inadequate.” Attwood, 886 F.2d at 243.

C-15

Accordingly, IT IS ORDERED that the action filed by Public

Utility District No. 2 of Grant County, No. C-91-816, is RE-

MANDED to the Superior Court of Washington for Grant

County.

IT IS FURTHER ORDERED that the action filed by Illinois

Employers Insurance of Wausau, No. C-90-1639, is STAYED

pending the outcome of the state court action.

IT IS FURTHER ORDERED that, beginning on August 17,

1992, and every six months thereafter, counsel for Grant County

shall submit to this Court, and to opposing counsel, a brief report

concerning the status of the Grant County action. Additionally, at

such time as that case is resolved, counsel for Grant County shall

notify this Court in writing.

Dated this 12th day of March, 1992.

William D. Browning

U.S. District Court

Bruce D Celebrezze, Esq.

SHEPPARD, MULLIN, RICHTER & HAMPTON

4 Embarcadero Center

Suite 1700

San Francisco, CA 94111

Dale E. Fredericks, Esq.

SHEPPARD, MULLIN, RICHTER & HAMPTON

4 Embarcadero Center

Suite 1700

San Francisco, CA 94111

Appendix D

In the United States District Court

For The Western District of Washington

Case No. MDL-551

No. C-90-1639

(Browning)

[Filed April 17, 1992]

In Re Washington Public Power

Supply System Securities Litigation,

Illinois Employers Insurance of Wausau,

: Plaintiff,

V.

Public Utility District No. 2 of Grant County,

Defendant.

Public Utility District No. 2 of Grant County,

Plaintiff,

iy.

Illinois Employers Insurance of Wausau,

Defendant.

No. C-91-816

(Browning)

ORDER

Pending before the Court is Illinois Employers Insurance of

Wausau’s (“Wausau”) Application for Stay of Remand Order

Pending Appeal. For the following reasons, the Court will grant

the Application.

D-2

OPINION AND ORDER

_ The Court recently ordered the remand of one or two virtually

identical declaratory judgment actions, Public Utility District No.

2 of Grant County v. Illinois Employers Ins. of Wausau, No. C-

91-816, to state court. Now, Wausau has applied for a stay of the

Court’s remand order pending its appeal to the United States

Court of Appeals for the Ninth Circuit. Public Utility District

No. 2 of Grant County (“Grant County”) opposes Wausau’s

Application.

I. Law

The decision regarding a stay pending appeal is governed by the

analysis set forth in Hilton v. Braunskill, 481 U.S. 770 (1987).

There, the United States Supreme Court enumerated the deter-

minative factors, as follows:

(1) whether the stay applicant has made a strong showing

that he is likely to succeed on the merits; (2) whether the

applicant will be irreparably injured absent a stay;

. (3) whether issuance of the stay will substantially injure the

other parties interested in the proceeding; and (4) where the

public interest lies.

Braunskill, 481 U.S. at 776. The Supreme Court, however,

cautioned that because the “factors contemplate individualized

judgments in each case, the formula cannot be reduced to a set of

rigid rules.” Jd. at 777. Furthermore, the factors need not be given

equal weight. Standard Havens Prod., Inc. v. Gencor Indus., Inc.,

897 F.2d 511, 512 (Fed. Cir. 1990). Thus, “[i]n considering

whether to grant a stay pending appeal, this court assesses

movant’s chances for success on appeal and weighs the equities as

they affect the parties and the public.” E.J. DuPont de Nemours &

Co. v. Phillips Petroleum, 835 F.2d 277, 278 (Fed. Cir. 1987).

The likelihood of success on appeal, therefore, is somewhat of

an elastic concept. “When there ‘is substantial equity, and need

for judicial protection, whether or not movant has shown a

mathematical probability of success[,]’ then ‘[a]n order main-

taining the status quo is appropriate.” Standard Havens, 897 F.2d

at 512-13 (quoting Washington Metro. Area Transit Comm'n v.

D-3

Holiday Tours, 559 F.2d 841, 844 (D.C. Cir. 1977)). A stay is

appropriate where the movant ““establishes that it has a strong

likelihood of success on appeal, or where, failing that, it can

nonetheless demonstrate a substantial case on the merits,’ pro-

vided the other factors militate in movant’s favor.” Standard

Havens, 897 F.2d at 513 (quoting Braunskill, 481 U.S. at 778)

(emphasis in original). Thus, if the harm resulting from a refusal

to stay the order is “sufficiently serious, it is only necessary that

there be a fair chance of success on the merits.” William Inglis &

Sons Baking Co. v. ITT Continental Baking Co., 526 F.2d 86, 88

(9th Cir. 1975) (applying the factors in preliminary injunction

case) (quoting C. Tennant & Sons v. New York Terminal

Conference, 299 F.Supp. 796, 799 (S.D.N.Y. 1969)) (emphasis

added).

LI. Discussion

The Braunskill analysis puts the Court in an awkward position

of gauging the likelihood of success at the Ninth Circuit of the

same arguments that failed to impress the Court here. The Court

has been over this ground recently. Therefore, no detailed discus-

sion is necessary.

Although it is not clear that Wausau’s appeal has a substantial

likelihood of success, it does raise arguable issues. However, the

Court finds the equities balanced. Wausau put on no proof that it

would be prejudiced by allowing Grant County to proceed in state

court. Both sides will experience added delay and expense if the

Court stays its remand order. Finally, Wausau’s right to appeal is

not foreclosed by a refusal to grant a stay.

Nonetheless, the Court will grant Wausau’s Application. Re-

mand orders based exclusively on jurisdictional grounds may not

be appealed here because “Congress decided that in cases begun

in state court, lengthy delays occasioned by federal appeals over

jurisdictional issues are unacceptable.” Pelleport Investors, Inc. v.

Budco Quality Theatres, Inc., 741 F.2d 273, 277 (9th Cir. 1984).

The Ninth Court, however, further stated:

But where a district court bypasses the jurisdictional argu-

ments and reaches the merits of a contract dispute, the policy

I iil

D-4

is inapplicable. Any delay caused by an appeal of the

contract issue is a delay that must be countenanced.

Id. (emphasis added). This is such a case. Therefore, the Court

conciudes that the remand order should be stayed pending

Wausau’s appeal.

CONCLUSION

Accordingly, IT IS ORDERED Wausau’s Application for Stay

of Remand Order Pending Appeal is GRANTED.

Dated this 15th day of April, 1992.

William D. Browning

US. District Judge

Bruce D Celebrezze, Esq.

SHEPPARD, MULLIN, RICHTER & HAMPTON

4 Embarcadero Center

Suite 1700

San Francisco, CA 9411!

Dale E. Fredericks, Esq.

SHEPPARD, MULLIN, RICHTER & HAMPTON

4 Embarcadero Center

Suite 1700

San Francisco, CA 94111