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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1992
- **Citation:** 506 U.S. 828

## Text

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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

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TABLE OF CONTENTS

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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.)

_———————— 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.

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0832%3A1. Public record. Not legal advice.