Prof'l Service v. American Holding ( 2001 )


Menu:
  • In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 00-1018
    Professional Service Network, Inc.,
    Plaintiff-Appellee,
    v.
    American Alliance Holding Company,
    Defendant-Appellant.
    Appeal from the United States District Court
    for the Western District of Wisconsin.
    No. 99-C-381-S--John C. Shabaz, Chief Judge.
    Argued September 8, 2000--Decided January 29, 2001
    Before Flaum, Chief Judge, and Posner and Rovner,
    Circuit Judges.
    Posner, Circuit Judge. This diversity suit
    between two insurance companies comes to us from
    the grant of summary judgment for the plaintiff,
    Professional Service Network (PSN), by Chief
    Judge Shabaz in the district court. The suit is
    governed, so far as substantive matters are
    concerned, by Wisconsin law. The appeal, by the
    defendant, American Alliance Holding Company,
    presents issues concerning Wisconsin’s doctrine
    of contractual duress and the federal principles
    governing abstention in favor of a parallel
    litigation pending in another court; Chief Judge
    Shabaz had denied Alliance’s motion to stay the
    present suit in favor of a parallel suit filed by
    Alliance in North Carolina. We begin by trying to
    unravel the tangle, both substantive and
    procedural, that is the history of the parties’
    dispute.
    The story begins in February of 1998 when the
    parties executed an agreement by which PSN bought
    from Alliance, for $11.2 million subject to post-
    closing adjustment, all the stock in another
    insurance company, Century American Insurance
    Company. The agreement made PSN responsible for
    calculating the post-closing adjustment. In
    September of 1998 it notified Alliance that
    because of a decline in Century’s book value,
    Alliance owed it a refund of $2.7 million of the
    purchase price. While negotiating over the form
    in which Alliance would make the refund, the
    parties got into a squabble over another
    contract, a risk-management agreement that was
    Century’s principal asset. This squabble
    eventually went to arbitration, and the
    arbitrator decided that both parties were at
    fault and ordered no relief. Another dispute
    involving Century also brewed up between PSN and
    Alliance and resulted in a lawsuit between the
    parties in a North Carolina state court.
    Negotiations over the refund to PSN collapsed
    and Alliance refused to pay. So in January of
    1999 PSN sued Alliance for $2.7 million in the
    Western District of Wisconsin. The case was
    assigned to Chief Judge Shabaz.
    Another provision of the stock purchase
    agreement by which PSN had acquired Century from
    Alliance required PSN jointly with Alliance to
    file with the Internal Revenue Service, by
    February 16, 1999, an election under section
    338(h)(10) of the Internal Revenue Code to treat
    the stock sale as a sale of assets for tax
    purposes. The election would save Alliance $5
    million in taxes. But it would be effective only
    if the IRS received notice of the election by the
    sixteenth; and having been sued by PSN, Alliance
    worried that PSN might not cooperate in making
    the deadline. Alliance decided to apply some
    pressure. Early in February its lawyer phoned
    PSN’s lawyer and told her that PSN would be in
    breach of the stock purchase agreement if it did
    not cooperate in the filing of the tax notice.
    She replied that Alliance’s failure to pay the
    post-closing adjustment excused PSN from
    performing its remaining obligations under the
    stock purchase agreement, including the
    obligation to cooperate in filing the tax notice.
    On the tenth, Alliance’s lawyer delivered to his
    opposite number a letter warning her that unless
    PSN joined in the filing of the tax notice,
    Alliance would sue for the tax benefit that would
    be lost. Five days later Alliance filed its
    answer to PSN’s complaint in the Western District
    of Wisconsin together with a counterclaim.
    Alliance claimed in the counterclaim that its
    agreement to pay the post-closing adjustment had
    been orally modified. The suit was settled the
    next day, just in time to file the tax notice
    with the IRS. The parties agreed in the
    settlement to refer their dispute over the post-
    closing adjustment to an independent certified
    public accountant, and PSN agreed to file the tax
    notice jointly with Alliance; and this was done,
    so Alliance got its tax benefit. The suit was
    duly dismissed a few days later by agreement of
    the parties, and in April the CPA was appointed.
    The following month, shortly before the CPA was
    due to issue his determination of the amount of
    post-closing adjustment owed PSN by Alliance,
    Alliance filed a suit against PSN in a North
    Carolina state court, seeking, among other
    remedies, rescission of the settlement agreement
    on the ground that it had been procured by
    duress. Alliance has tried to get that lawsuit
    consolidated with the other North Carolina suit.
    PSN responded to Alliance’s new suit the next
    month by filing its own new suit in the Western
    District of Wisconsin against Alliance, seeking
    enforcement of the settlement agreement; and the
    case was again assigned to Chief Judge Shabaz.
    Alliance counterclaimed, seeking relief similar
    to what it had sought in its North Carolina suit
    of the previous month. On PSN’s motion for
    summary judgment in the new Western District of
    Wisconsin case (which is the case before us), the
    judge rejected the defense of duress, declared
    the settlement agreement valid, and dismissed
    Alliance’s counterclaims. He had already denied
    Alliance’s motion to stay the case in favor of
    the North Carolina action. Alliance appeals both
    the judgment and the denial of the stay.
    Alliance argues that it was financially
    distressed and so had no choice but to settle
    PSN’s first suit the Western District of
    Wisconsin in order to receive the $5 million tax
    benefit immediately. Therefore, it argues, PSN
    obtained the settlement by duress, and so the
    settlement should be voided. Duress is a basis
    under the common law of contracts in Wisconsin as
    elsewhere for rescinding a contract, and a
    settlement is for this purpose a contract. Wurtz
    v. Fleischman, 
    293 N.W.2d 155
    , 160 (Wis. 1980);
    Pope v. Ziegler, 
    377 N.W.2d 201
    , 203 (Wis. App.
    1985); JPM, Inc. v. John Deere Industrial
    Equipment Co., 
    94 F.3d 270
    , 272 (7th Cir. 1996)
    (Wisconsin law); Selmer Co. v. Blakeslee-Midwest
    Co., 
    704 F.2d 924
     (7th Cir. 1983) (same); see
    generally E. Allan Farnsworth, Contracts sec.sec.
    416-419 (3d ed. 1999). Duress, understood most
    concretely, is the situation in which one person
    obtains a temporary monopoly that it tries to use
    to obtain a benefit to which it is not entitled.
    In the famous case of Alaska Packers’ Ass’n v.
    Domenico, 
    117 Fed. 99
     (9th Cir. 1902), seamen on
    board a ship that was fishing for salmon in
    Alaskan waters during the short fishing season
    struck for higher wages. The captain agreed to
    modify the workers’ employment contract to pay
    them the higher wages that they were demanding,
    but when the ship returned to port the employers
    refused to honor the modification and the court
    refused to enforce it. The captain had acted
    under duress in agreeing to the modification
    because, had he not done so, the fishing season
    would have been ruined, since the strikers had an
    effective albeit temporary monopoly of the labor
    supply necessary to continue with the fishing;
    and it would not have been feasible to sue them
    as a means of recouping the loss. See also
    Contempo Design, Inc. v. Chicago & Northeast
    Illinois District Council of Carpenters, 
    226 F.3d 535
    , 550 n. 9 (7th Cir. 2000); Rissman v.
    Rissman, 
    213 F.3d 381
    , 387 (7th Cir. 2000);
    Oxxford Clothes XX, Inc. v. Expeditors Int’l of
    Washington, Inc. 
    127 F.3d 574
    , 579 (7th Cir.
    1997); Austin Instrument, Inc. v. Loral Corp.,
    
    272 N.E. 2d 533
     (N.Y. 1971).
    So we must ask whether PSN had a monopoly-like
    position vis-a-vis Alliance when it demanded that
    Alliance settle the case as a condition precedent
    to PSN’s jointly filing the tax notice that
    Alliance was (we may assume) desperate for. The
    answer is no. Part of the reason is that unlike
    the captain of the fishing vessel, Alliance had a
    legal remedy right at hand. Even if a liquidity
    crisis would have made its normal remedy, namely
    fighting the case to judgment, inadequate to
    stave off disaster, it had only to ask Chief
    Judge Shabaz for a temporary restraining order
    or, if time permitted--and it did permit, as
    we’re about to see--a preliminary injunction
    requiring that PSN join in the filing of the tax
    notice. The inadequacy of the legal remedy and
    resulting irreparable harm to Alliance unless it
    obtained judicial protection against PSN’s
    settlement demand would have established a
    prerequisite for equitable relief. Alliance would
    not even have had to file a new suit in order to
    obtain such relief. The suit that the parties
    were negotiating to settle was filed and pending.
    Alliance had only to file a motion with Chief
    Judge Shabaz.
    Alliance argues that the time was too short. It
    was not, and anyway the fault lay with it for not
    doing anything to stop the clock before time ran
    out on February 16. Alliance should have realized
    no later than when it read PSN’s complaint--filed
    on January 14, 1999, more than a month before the
    tax deadline--that PSN was likely to balk at the
    joint filing. PSN’s suit charged Alliance with
    having reneged on the post-closing-adjustment
    term of the stock purchase agreement, and it was
    only to be expected that PSN would take the
    position that its duty to perform under the
    agreement was suspended by Alliance’s breach. It
    is true that not every breach excuses the other
    party from continued performance; in particular,
    minor breaches do not. Ranes v. American Family
    Mutual Ins. Co., 
    580 N.W.2d 197
    , 200 (Wis. 1998);
    Management Computer Services, Inc. v. Hawkins,
    Ash, Baptie & Co., 
    557 N.W.2d 67
    , 77 (Wis. 1996);
    Myrold v. Northern Wisconsin Cooperative Tobacco
    Pool, 
    239 N.W. 422
     (Wis. 1931); Farnsworth, supra
    sec. 8.15, pp. 580-81. But Alliance’s alleged
    breach, the refusal to refund almost 25 percent
    of the contract price, was not minor. Any doubts
    that PSN would balk were dispelled by the phone
    conversation between the parties’ lawyers and at
    this point Alliance still had at least a week in
    which to apply for judicial relief. It piddled
    the week away. It says it did this because it
    expected the case to settle, as of course the
    case did. But it should have known that unless it
    took steps to obtain judicial relief, PSN would
    have no incentive to abandon its position that
    the refusal to refund excused it from having to
    join in the filing of the tax notice--unless
    Alliance yielded to PSN’s settlement demand.
    We said that Alliance’s failure to seek judicial
    help was part of the reason its defense of duress
    failed as a matter of law. It was not the whole
    reason because if PSN’s claim to be excused from
    cooperating in the filing of the tax notice by
    Alliance’s refusal to make the refund had been
    frivolous, an inference would have arisen that
    the purpose had been to force Alliance to incur
    expenses of litigation that alone might have been
    enough, given Alliance’s distressed financial
    position, to force it to accede to those terms;
    and then Alliance might have a valid case of
    duress. Sufrin v. Hosier, 
    128 F.3d 594
    , 599 (7th
    Cir. 1997); Farnsworth, supra, sec. 4.17, p. 267.
    The analogy to the tort of malicious prosecution
    would be close in such a case. Another way to
    state the principle is that exhaustion of
    remedies is not a prerequisite to suing for
    duress, since, if it were, a party in PSN’s
    position (or in the position of the Alaska
    seamen) might be able to use the costs of suit as
    a lever to obtain an undeserved benefit. Even a
    colorable suit brought or maintained for an
    improper purpose--not to win the suit but to
    obtain some collateral benefit (the classic
    example is suing your daughter’s fiancee in the
    hope that the strain of litigation will cause the
    engagement to be broken off)--is actionable in
    tort, as an abuse of process, though we needn’t
    try in this case to align that tort principle
    with the doctrine of duress in the law of
    contracts.
    Far from arguing that PSN’s litigating position
    was frivolous or an abuse of process, however,
    Alliance, in an effort to explain why it dribbled
    away the week before the tax deadline, emphasizes
    the difficulty it would have had in marshaling a
    convincing case for judicial relief against PSN’s
    refusal to play ball in the filing of the tax
    notice. That is tantamount to an acknowledgment
    that PSN had a colorable case for conditioning
    the performance of its obligation with respect to
    the tax notice on Alliance’s paying the post-
    closing adjustment as required by the stock
    purchase agreement. We add that the term that was
    "forced" on Alliance by PSN hardly seems
    extortionate, namely referring the calculation of
    the post-closing adjustment to an independent
    CPA. And that too is material to an assessment of
    a defense of duress. Wurtz v. Fleischman, supra,
    293 N.W.2d at 160. If the alleged victim of
    duress is complaining about a term that he could
    have been expected to agree to even if not under
    duress, the inference of duress is weakened,
    along with the further inference that duress
    caused whatever harm the victim is seeking to
    redress.
    We turn to the denial of the stay of the North
    Carolina litigation. There is no hard and fast
    rule on when parallel litigation should be stayed
    in the interest of judicial economy. See, e.g.,
    Moses H. Cone Memorial Hospital v. Mercury
    Construction Corp., 
    460 U.S. 1
    , 16 (1983);
    Colorado River Water Conservation District v.
    United States, 
    424 U.S. 800
    , 817-18 (1976);
    Interstate Material Corp. v. City of Chicago, 
    847 F.2d 1285
    , 1288-90 (7th Cir. 1988). But the
    history of the parties’ dispute makes this an
    easy case. The case originated in a settlement of
    the previous lawsuit between these parties that
    had been assigned to Chief Judge Shabaz. His was
    the logical court, and he the logical judge of
    that court, to resolve a dispute over the
    settlement of the earlier case. The fact that
    Alliance beat PSN to the filing by a month in an
    effort to obtain a friendlier forum (the North
    Carolina state court) was a very poor reason for
    staying the suit that had been filed in the most
    appropriate forum. Cf. Allendale Mutual Ins. Co.
    v. Bull Data Systems, Inc., 
    10 F.3d 425
    , 431 (7th
    Cir. 1993); Tempco Electric Heater Corp. v. Omega
    Engineering, Inc., 
    819 F.2d 746
    , 749-50 (7th Cir.
    1987). True, another case between the parties was
    pending in North Carolina, but the issues in it
    appear to be unrelated to the dispute stemming
    from the post-closing adjustment term of the
    stock purchase agreement.
    So the district court must be affirmed. But
    before closing we must remark a recurrent
    procedural matter--the frequent failure of
    litigants in this court, in this case both
    litigants, to comply with 7th Cir. R. 28(a) and
    (b), concerning the statement of subject-matter
    jurisdiction in the appellant’s and appellee’s
    brief in a diversity case. Rule 28(a)(1) requires
    the appellant in its brief in such a case to
    state the citizenship of each party, and if the
    party is a corporation to indicate both the state
    of incorporation and the state of the party’s
    principal place of business, and if an
    unincorporated association to indicate the
    citizenship of each of its members. Rule 28(b)
    requires the appellee to submit its own
    jurisdictional statement if the appellant’s is
    not complete and correct. Both rules were flouted
    here.
    So far as the citizenship of the parties is
    concerned, all the appellant’s brief stated is
    that this suit is "brought by a Wisconsin
    Plaintiff, Professional Service Network, Inc.
    (’PSN’) against a North Carolina Defendant,
    American Alliance Holding Company (’American
    Alliance’)." The plaintiff was thus identified as
    a corporation, triggering the requirement of
    stating its place of incorporation and the place
    of its principal place of business, but neither
    was stated. The character of the defendant,
    whether a corporation or an unincorporated
    association, was not indicated. Despite the
    palpable nonconformity of the appellant’s brief
    with the requirement of Rule 28(a)(1), the
    appellee’s brief recited that the statement of
    jurisdiction in the appellant’s brief was
    complete and correct. We directed the parties to
    show cause why the appeal should not be dismissed
    as a sanction for the flagrant violation of the
    court’s rules. The parties’ response demonstrated
    that there was indeed diversity, and so we have
    relented; but we take this occasion to remind the
    bar of the importance of complying with our rules
    and of the risk that violators run of being
    sanctioned.
    Affirmed.