William Powell Co. v. Nat'l Indemnity Co. ( 2021 )

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 21a0267p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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WILLIAM POWELL COMPANY,
│
Plaintiff-Appellee, │
> No. 20-3737
│
v. │
│
NATIONAL INDEMNITY COMPANY, et al., │
Defendants, │
│
│
ONEBEACON INSURANCE COMPANY, │
Defendant-Appellant. │
┘
Appeal from the United States District Court
for the Southern District of Ohio at Cincinnati.
No. 1:14-cv-00807—Susan J. Dlott, District Judge.
Argued: March 3, 2021
Decided and Filed: November 18, 2021
Before: WHITE, LARSEN, and NALBANDIAN, Circuit Judges.
_________________
COUNSEL
ARGUED: Richard M. Garner, COLLINS, ROCHE, UTLEY, & GARNER, LLC, Dublin,
Ohio, for Appellant. David F. Hine, VORYS, SATER, SEYMOUR AND PEASE LLP,
Cincinnati, Ohio, for Appellee. ON BRIEF: Richard M. Garner, Sunny Lane Horacek,
COLLINS, ROCHE, UTLEY, & GARNER, LLC, Dublin, Ohio, for Appellant. David F. Hine,
Nathaniel Lampley, Jr., Joseph M. Brunner, VORYS, SATER, SEYMOUR AND PEASE LLP,
Cincinnati, Ohio, for Appellee.
NALBANDIAN, J., delivered the opinion of the court in which LARSEN, J., joined, and
WHITE, J., joined in part. WHITE, J. (pp. 25–31), delivered a separate opinion concurring in
part and dissenting in part.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 2
_________________
OPINION
_________________
NALBANDIAN, Circuit Judge. If at first you don’t succeed, try, try again. OneBeacon
Insurance takes this advice to heart. It has tried repeatedly, both before us and before the district
court, to get rid of William Powell Company’s (WPC) federal lawsuit against it. And up until
now, those efforts have failed. But this time, OneBeacon comes armed with a new weapon:
a final, state-court judgment. It says that this judgment precludes WPC’s federal lawsuit.
The district court disagreed. Though the court believed that the state judgment likely
satisfied the elements of claim preclusion, the court also felt it would be unjust to bar WPC’s suit
because it had allowed the federal case to proceed in tandem with the state case for several years.
At the same time, the court recognized that this case was appropriate for interlocutory appeal.
See 28 U.S.C. § 1292(b). And so it certified its order denying OneBeacon’s motion to dismiss
for us to review. We granted permission for the appeal, and we now REVERSE the district
court’s judgment and REMAND the case for proceedings consistent with this opinion.
I.
The roots of this litigation go back to the 1950s. From 1955 until 1976, WPC, a
manufacturer of industrial valves, bought thirteen primary and excess level liability insurance
policies from OneBeacon’s predecessor. And good thing, too. In 2001, lawsuits started coming
against WPC. The plaintiffs in those suits claimed they were exposed to asbestos in WPC’s
valves.
Facing these lawsuits, WPC tendered claims for indemnity and defense to OneBeacon, its
insurer. The two agreed on the terms and limits of WPC’s coverage, and OneBeacon began its
defense. But early cooperation quickly broke down. The parties reached an impasse over
several issues, kicking off this labyrinthian litigation. WPC first sued OneBeacon in Ohio state
court for declaratory relief. It asked the court to answer several questions: whether aggregate
limits in WPC’s policies were annual, what those aggregate limits were, whether WPC had the
right to allocate settlement sums expended on its behalf, and whether OneBeacon had to pay
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 3
100% of defense and indemnity costs from claims triggering coverage under WPC’s excess
policies.
After some procedural jockeying, the state trial court granted WPC summary judgment
on all issues except those relating to allocation and the excess policies. Those were not yet ripe
for review.
While all this was happening, WPC also sued OneBeacon (and others) in federal court.
This time, it alleged OneBeacon breached the general insurance agreements by denying WPC
coverage and failing to defend it against asbestos litigation. WPC also alleged OneBeacon
breached its duty of good faith and fair dealing in its handling, processing, payment, and
satisfaction of WPC’s asbestos-related insurance claims. According to WPC, OneBeacon
conducted limited investigation into the lawsuits against WPC, delayed communication of
coverage decisions, made unilateral litigation decisions, and refused to fund settlements or pay
local defense counsel. So by “forcing [WPC] to bear indemnity and defense costs that were not
[WPC’s] responsibility,” OneBeacon acted in bad faith. (R. 1, Compl., PageID # 21.)
All the defendants in the federal case successfully moved to dismiss WPC’s complaint
except OneBeacon. But that was not for lack of trying. After WPC filed the complaint,
OneBeacon moved to dismiss or stay the case. It argued that abstention principles disfavored
federal adjudication.
This effort failed. The district court rejected OneBeacon’s argument that the federal and
state proceedings were parallel, so it denied OneBeacon’s motion to dismiss. Undeterred,
OneBeacon tried to appeal and moved the district court to reconsider. Those efforts also failed.
Remember, this federal litigation was going on while the state suit remained pending.
And in 2017, after filing its federal complaint, WPC amended its state complaint to reallege the
issues the trial court previously said were not yet ripe. But this time, WPC did not seek a
declaratory judgment. Instead, it brought two claims for breach of contract. In the first, WPC
said OneBeacon breached its general accident policies by unilaterally allocating claim payments
among policies against WPC’s wishes. And in the second, WPC claimed OneBeacon breached
the excess policies by refusing to pay all of WPC’s indemnity and defense costs.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 4
The state court resolved these claims. It held that WPC had the right to direct allocation
of claims among policies. But it also held that OneBeacon had not committed either of the
breaches that WPC alleged. That was because OneBeacon’s excess policies were not yet
triggered, so there were no policies to which WPC could direct the allocation of funds. And for
this same reason, OneBeacon did not have to pay WPC’s indemnity and defense costs from its
excess policies. Instead, WPC owed OneBeacon more than $11 million for OneBeacon’s
overpayments.
With this victory in hand, OneBeacon again moved to dismiss WPC’s federal lawsuit.
Having won a final judgment, OneBeacon argued that the trial court’s ruling precluded WPC’s
federal claims. And it also argued that Colorado River abstention was appropriate. See Colo.
River Water Conservation Dist. v. United States, 424 U.S. 800 (1976).
This time, the district court agreed with OneBeacon, but only partially. The court
acknowledged that the state court judgment likely satisfied the elements of claim preclusion, but
it declined to dismiss the case. Instead, the court allowed it to survive, citing the Restatement
(Second) of Judgments § 26(1)(f). Still, the court stayed the case, noting that WPC’s second
amended complaint in the state court action made the state and federal proceedings parallel. See
Colo. River, 424 U.S. at 817.
Unsatisfied with this ruling, OneBeacon successfully moved the court to certify for
appeal its interlocutory order denying the motion to dismiss. See 28 U.S.C. § 1292(b). And we
agreed to hear the appeal. In re OneBeacon Ins. Co., No. 19-0309, 2020 U.S. App. LEXIS
21780, at *1–3 (6th Cir. July 13, 2020) (order); see 28 U.S.C. § 1292(b).
One last thing. After OneBeacon filed its notice of appeal here, the Ohio Court of
Appeals reviewed the state court’s order—the one OneBeacon hopes has preclusive effect. See
William Powell Co. v. OneBeacon Ins. Co., 162 N.E.3d 927 (Ohio Ct. App. 2020). And it
affirmed in part and reversed in part. Id. at 947. Affirming, the Court of Appeals agreed that
WPC had the right to allocate claim proceeds. Id. at 946–47. But partially reversing, the Court
of Appeals said that some of WPC’s excess policies had been triggered and that OneBeacon
breached these policies by not paying all of WPC’s defense costs. Id. at 943–44. In other words,
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 5
OneBeacon breached some, but not all, of the excess policies. Id. The court also reversed the
trial court’s holding that OneBeacon was entitled to contribution from WPC. Id. at 945. When
all was said and done, the court remanded the case to the trial court to calculate damages for
WPC. Id. at 947.
OneBeacon appealed the Court of Appeals’ decision to the Ohio Supreme Court, which
declined to review the case. See William Powell Co. v. OneBeacon Ins. Co., 164 N.E.3d 840(Ohio 2021) (table).
II.
If all that procedural history were not complicated enough, things get trickier still. After
the parties briefed and argued this case, Pennsylvania liquidated OneBeacon. As part of its
liquidation order, the state liquidator stayed all litigation against OneBeacon—whether in
Pennsylvania or elsewhere. And the language of that order, in theory, included this case. So we
were left with the difficult question of whether the stay binds us.
We asked the parties to submit supplemental briefing on the questions the stay order
raised. Thus, we asked whether the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), “reverse
preempts” the federal diversity jurisdiction statute, 28 U.S.C. § 1332. We also asked the parties
to brief whether abstention under Burford v. Sun Oil Co., 319 U.S. 315 (1943), was appropriate.
And finally, we asked whether an Ohio state court would respect Pennsylvania’s stay on
litigation, and whether a federal court deciding Ohio state-law claims must do the same. The
parties submitted helpful briefs. In the end, we resolve this appeal despite the state stay order.
We address the relevant questions in turn.
A.
We start with the easiest question: Does the McCarran-Ferguson Act “reverse preempt”
the federal diversity jurisdiction statute, 28 U.S.C. § 1332? The answer is no. Neither does the
Act preclude our appellate jurisdiction under 28 U.S.C. § 1292(b). As a general rule, of course,
“state courts are completely without power to restrain federal-court proceedings in in personam
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 6
actions.” Donovan v. City of Dallas, 377 U.S. 408, 413 (1964). The only question is if the
McCarran-Ferguson Act alters this rule here. It does not.
The McCarran-Ferguson Act provides: “No Act of Congress shall be construed to
invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the
business of insurance.” 15 U.S.C. § 1012(b). Congress enacted it “for the specific purpose of
consigning to the States broad and primary responsibility for regulating the insurance industry.”
Munich Am. Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir. 1998); see SEC v. Nat’l
Sec., Inc., 393 U.S. 453, 458 (1969). The Act is potentially relevant here because, the argument
might go, the federal jurisdictional statutes could “impair” Pennsylvania’s insurance liquidation
scheme by allowing federal courts to adjudicate insurance-related lawsuits involving an insolvent
insurer. See, e.g., Grimes v. Crown Life Ins. Co., 857 F.2d 699, 702 (10th Cir. 1988). And
Congress, by passing the Act, expressed its interest in “leaving insurance regulation to the
states.” Id.This issue need not detain us long. Several of our sister circuits have addressed this issue
and held that the McCarran-Ferguson Act does not reverse-preempt § 1332. See id.; Hawthorne
Sav. F.S.B. v. Reliance Ins. Co. of Ill., 421 F.3d 835, 843–44 (9th Cir. 2005); Gross v.
Weingarten, 217 F.3d 208, 223 (4th Cir. 2000); Munich Am. Reinsurance Co., 141 F.3d at 595;
see also Murff v. Pro. Med. Ins. Co., 97 F.3d 289, 293 (8th Cir. 1996) (same for other
jurisdictional statutes).
Likewise, our own precedent suggests a similar result. See Dykhouse v. Corp. Risk
Mgmt. Corp., 961 F.2d 1576, 1992 WL 97952, at *2 n.9 (6th Cir. 1992) (per curiam) (“Although
the McCarran–Ferguson Act indicated Congress’s intent to leave regulation of the insurance
business largely to the states, there is no indication that Congress thereby intended to divest the
federal courts of jurisdiction over state insurance claims. Courts repeatedly have held that
federal courts do have jurisdiction over these claims.”); Atkins v. CGI Techs. & Sols., Inc., 724 F.
App’x 383, 388 (6th Cir. 2018) (“Moreover, the district court’s jurisdictional ruling, rejecting the
Liquidator’s argument that Kentucky’s [insurance liquidation statute] reverse-preempted the
federal diversity jurisdiction statute, is consonant with Sixth Circuit law and the majority view
among the circuits.”).
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 7
To our knowledge, every circuit to address the question has held that the McCarran-
Ferguson Act does not reverse-preempt the federal diversity jurisdiction statute. We join that
chorus and hold that the McCarran-Ferguson Act does not reverse-preempt the jurisdictional
statutes at issue. Applying those provisions will “not frustrate any declared state policy or
interfere with [Pennsylvania]’s administrative regime,” Humana Inc. v. Forsyth, 525 U.S. 299,
310 (1999), as “[t]he state forum here, that of Pennsylvania, retains exclusive jurisdiction over
the liquidation of [OneBeacon] and the disposition of its assets,” Hawthorne, 421 F.3d at 843;
see Gross, 217 F.3d at 222. Indeed, as we explain below, resolving this particular1 interlocutory
appeal has no chance of diminishing or otherwise affecting “the assets of the insurance
compan[y] [that] are up for grabs” in the liquidation proceeding. AmSouth Bank v. Dale,
386 F.3d 763, 783 (6th Cir. 2004). Even if we ruled in WPC’s favor on the claim preclusion
issue, this case would continue in the district court.
Likewise, even if WPC could secure a favorable judgment for damages down the road, it
“would still have to present claims to the [liquidator] in order to recover on [that] judgment.”
Gross, 217 F.3d at 222. “The claims based on that judgment would be satisfied subject to the
terms of the [liquidation] plan and the priorities established by [Pennsylvania] law,” just as if
they had been made in the liquidation proceeding itself. Id.; see Hawthorne, 421 F.3d at 842–43;
cf. 40 Pa. Cons. Stat. §§ 221.37, 221.38(c), 221.44.
In short, exercising our appellate jurisdiction here will in no way “hinder [the] operation”
of Pennsylvania’s claims process and priority scheme. Humana, 525 U.S. at 311. So because
the jurisdictional laws at issue “could not possibly impair the Pennsylvania liquidation
proceedings,” the McCarran-Ferguson Act does not reverse-preempt our jurisdiction.
Hawthorne, 421 F.3d at 843.
1
We do not foreclose the possibility that there could be “some limited circumstances” when deciding an
appeal “might in fact impair state laws establishing exclusive claims proceedings for insurance insolvencies.”
Gross, 217 F.3d at 222. But if that possibility exists, we can handle it, when appropriate, through abstention. See
AmSouth, 386 F.3d at 783; see also Gross, 217 F.3d at 222; Murff, 97 F.3d at 293; Martin Ins. Agency, Inc. v.
Prudential Reinsurance Co., 910 F.2d 249, 254 (5th Cir. 1990).
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 8
B.
The next question we address is whether abstention is appropriate under Burford v. Sun
Oil Co., 319 U.S. at 315, which “has become the doctrine of choice in analyzing whether to
abstain in favor of state insurance liquidation and rehabilitation proceedings.” Prop. & Cas. Ins.
v. Cent. Nat’l Ins. Co. of Omaha, 936 F.2d 319, 321 (7th Cir. 1991).2
We start with a fundamental principle: “Jurisdiction, if properly conferred, is meant to be
exercised.” Id. at 320–21. Indeed, our obligation to exercise jurisdiction over the cases properly
before us is “virtually unflagging.” Colo. River, 424 U.S. at 813. “When a Federal court is
properly appealed to in a case over which it has by law jurisdiction, it is its duty to take such
jurisdiction.” Willcox v. Consol. Gas Co., 212 U.S. 19, 40 (1909).
Despite these principles, the Supreme Court has identified a narrow exception to this
general rule. When the exercise of federal jurisdiction is so disruptive of state efforts to establish
a coherent, unified regulatory policy over a subject of weighty enough importance to the state,
the federal court should decline to decide the case. See Burford, 319 U.S. at 334. This is known
as Burford abstention. Burford established a discretionary rule of federal abstention that reflects
“principles of federalism and comity.” Cleveland Hous. Renewal Project v. Deutsche Bank Tr.
Co., 621 F.3d 554, 562 (6th Cir. 2010). The case itself involved a challenge to the
reasonableness of the Texas Railroad Commission’s decision to grant an oil drilling permit.
Burford, 319 U.S. at 317. The only question was whether the Commission properly applied the
state’s oil and gas regulations. See NOPSI v. Council of New Orleans, 491 U.S. 350, 360 (1989)
(describing the facts of Burford). But because this was a question of only “minimal federal
importance,” id., the Supreme Court held that “a sound respect for the independence of state
action” and the need to avoid disrupting Texas’s “unified method for the formation of policy”
required the district court to “stay its hand.” Burford, 319 U.S. at 333–34.
2
At the outset we clarify that abstention can encapsulate a few different actions, ranging from dismissing
the case, remanding it, or staying its resolution. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 721 (1996).
But because this is a common-law case for damages and not a case for equitable relief, dismissal and remand are
unavailable to us. See id. (“[W]hile we have held that federal courts may stay actions for damages based on
abstention principles, we have not held that those principles support the outright dismissal or remand of damages
actions.”). So all that remains is a stay.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 9
The Court has revisited Burford in depth only a few times since first deciding it. And in
general, the Court has scaled back the doctrine’s reach. NOPSI is one example. There, the Court
cabined Burford to two situations. One, “when there are ‘difficult questions of state law bearing
on policy problems of substantial public import whose importance transcends the result’” in the
case. 491 U.S. at 361 (quoting Colo. River, 424 U.S. at 814). And two, “where the ‘exercise of
federal review of the question in a case and in similar cases would be disruptive of state efforts to
establish a coherent policy with respect to a matter of substantial public concern.’” Id. (quoting
Colo. River, 424 U.S. at 814). In the end, federal adjudication of the claim in NOPSI “would not
disrupt the State’s attempt to ensure uniformity in the treatment of an ‘essentially local
problem,’” so the district court had a duty to exercise its jurisdiction. Id. at 362 (quoting Ala.
Pub. Serv. Comm’n v. S. Ry. Co., 341 U.S. 341, 347 (1951)).
The Court put more gloss on Burford in Quackenbush v. Allstate Ins. Co., 517 U.S. 706,
723 (1996). There it instructed federal courts resolving Burford questions to balance the state
and federal interests at stake. See id. at 728. But it cautioned that “[t]his balance only rarely
favors abstention.” Id.This case is no exception. To start, we have a “strong federal interest” in exercising our
jurisdiction. Id. And Pennsylvania has only an attenuated interest at stake here. Remember, we
are applying Ohio’s substantive law, not Pennsylvania’s. See Tucker v. First Md. Sav. & Loan,
Inc., 942 F.2d 1401, 1407 (9th Cir. 1991) (“Burford abstention is designed to limit federal
interference with the development of state policy. It is justified where the issues sought to be
adjudicated in federal court are primarily questions regarding that state’s laws.” (emphasis
added)). Burford was not a case when resolving one state’s law was said to interfere with a
different state’s regulatory interests. See Hawthorne, 421 F.3d at 845. And if we stayed this
litigation and required WPC and OneBeacon to hash out their differences before the liquidator,
we would invite a Pennsylvania liquidator to decide questions of Ohio law. That makes little
sense. See Prop. & Cas. Ins, 936 F.2d at 322 n.5. So right from the get-go we are disinclined to
stay our hand here.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 10
We also note that this case does not satisfy either of the two main reasons NOPSI
articulated that justify abstention. We are not being asked to review a state’s action. See NOPSI,
491 U.S. at 361; see also Fragoso v. Lopez, 991 F.2d 878, 883 (1st Cir. 1993)
(“Burford abstention is implicated when the federal courts are asked to interfere with state
processes by reviewing the proceedings or orders of state administrative agencies.”). Query
whether Pennsylvania’s liquidation scheme even “creates a state administrative agency, as
opposed to a judicial structure, to which deference under Burford may be paid.” Fragoso,
991 F.2d at 883 (footnote omitted).
Either way, staying our hand here would do nothing to “protect[] complex state
administrative processes from undue federal interference” or disruption. NOPSI, 491 U.S. at
362. That’s because we are not being asked to intervene in OneBeacon’s liquidation or resolve
questions of Pennsylvania insurance law. See Hawthorne, 421 F.3d at 848. Instead, we are
being asked to resolve a narrow question of Ohio substantive claim preclusion law—a task we
are more than up to, especially given that we received the parties’ briefing and heard argument
before Pennsylvania liquidated OneBeacon. See Fragoso, 991 F.2d at 883 (declining to abstain
when “[t]he action merely entail[ed] the application of a Puerto Rico statute of limitations,
frequently interpreted in the past, to an idiocratic [sic] set of facts”). Indeed, it is important to
frame where things are here: this is an interlocutory appeal of a denial of a motion to dismiss.
Either we reverse, dismissing the claim against the liquidated entity and thus furthering the
liquidator’s interests, or we affirm, and the case returns to the district court, which may consider
anew whether to stay the lawsuit. So our resolution of this appeal has little prospect of
disrupting Pennsylvania’s liquidation scheme. See AmSouth Bank, 386 F.3d at 783 (“[I]t is
difficult to see how a federal court’s pronouncement on issues of common-law liability having
nothing to do with insurance could be disruptive of those proceedings.”).
We recognize that our sister circuits have come to different conclusions in similar cases.
Hawthorne, 421 F.3d at 835, presented facts like ours, but so did Lac D’Amiante du Quebec,
Ltee v. American Home Assurance Co., 864 F.2d 1033 (3d Cir. 1988), and the two came to
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 11
opposite conclusions: one thought abstention was appropriate, the other did not.3 But even Lac
D’Amiante recognized that “[t]he decision as to whether abstention is appropriate may require an
inquiry into the facts of the specific case before the court.” 864 F.2d at 1047. And unlike there,
the liquidation proceedings here commenced after briefing and oral argument. So OneBeacon
will not “ha[ve] to dissipate its funds” any further to litigate this appeal. Id. at 1045; see also
Fragoso, 991 F.2d at 882, 885. Moreover, given the subject-matter of this appeal—Ohio claim
preclusion—and the subject-matter of this lawsuit—Ohio breach of contract and bad faith—
resolving the issues before us will not significantly intrude into Pennsylvania’s liquidation
scheme. See Quackenbush, 517 U.S. at 729; see also Grode v. Mut. Fire, Marine & Inland Ins.,
8 F.3d 953, 959 (3d Cir. 1993). At its most disruptive, our resolution of this appeal sends the
case back to the district court, which itself can stay the suit. And even if the district court
declines to abstain—a non-issue given our holding on the merits—and WPC then wins this
lawsuit, it would simply have to go before the liquidator and present its claim. See Gross,
217 F.3d at 221–22. That hardly entails substantial disruption. See Fragoso, 991 F.2d at 884(“Deciding appeals like Fragoso’s, which will have at most an indirect effect on the liquidator’s
claims process by potentially giving rise to an additional claim against the insolvent insurance
company, will neither discombobulate local proceedings nor frustrate the Commonwealth’s
regulatory system.”).
Thus, that Pennsylvania has a local process for handling claims against liquidated
insurers does not mean we must abstain. See NOPSI, 491 U.S. at 362 (“While Burford is
concerned with protecting complex state administrative processes from undue federal
interference, it does not require abstention whenever there exists such a process.”). Abstention is
the exception—and an exceedingly narrow one at that—not the rule. Id. at 359. Burford and its
progeny do not compel us to stay our resolution of this appeal.
3
A similar trend bears out on broader review of the existing caselaw. For a small sample, compare Prop. &
Cas. Ins., 936 F.2d at 326 (not abstaining), Fragoso, 991 F.2d at 884–85 (same), and Gross, 217 F.3d at 223–25
(same), with Clark v. Fitzgibbons, 105 F.3d 1049, 1051–52 (5th Cir. 1997) (abstaining), Martin Ins. Agency, 910
F.2d at 255 (same), and Grimes, 857 F.2d at 704 (same and collecting cases).
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 12
C.
We have one last piece of business before we can look to the merits of OneBeacon’s
appeal. We must determine whether the Rules Decision Act, 28 U.S.C. § 1652, together with the
Erie doctrine, see Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), compels us to respect the
Pennsylvania stay because that is what an Ohio state court would do.4
This issue comes with two questions. The first is whether an Ohio state court would
recognize Pennsylvania’s stay. We think the answer is yes. The harder question is the second
one: because an Ohio state court would respect the stay, must we? We begin with the first
question.
Ohio is one of many states to have passed a uniform insurance liquidation act, known in
Ohio as the Insurers Supervision, Rehabilitation, and Liquidation Act. See Ohio Rev. Code.
§ 3903.02(A). Its purpose is “to protect the interests of insureds, claimants, creditors, and the
public generally.” Hudson v. Petrosurance, Inc., 936 N.E.2d 481, 485 (Ohio 2010). To that end,
the Act established a “comprehensive framework” for handling, among other things, the
liquidation of insurance companies. See id. As part of that framework, the Act tells Ohio courts
how to handle litigation against insurance companies liquidated by other states. See Ohio Rev.
Code § 3903.24(A). And it instructs Ohio courts to “give full faith and credit to injunctions
against . . . the continuation of existing actions against” liquidated insurers, so long as “such
injunctions are included in an order to liquidate an insurer issued pursuant to corresponding
provisions in other states.” Id.
Here it seems clear that Pennsylvania liquidated OneBeacon “pursuant to” a provision
“corresponding” to § 3903.24(A). Compare 40 Pa. Cons. Stat. § 221.20 with Ohio Rev. Code
§ 3903.18. And Ohio courts have applied § 3903.24(A) to respect the litigation stays imposed
by out-of-state liquidators. See, e.g., State v. Ramos, 534 N.E.2d 885, 887 (Ohio Ct. App. 1987);
4
As filed, the complaint presented a Federal RICO claim over which the district court exercised federal
question jurisdiction and state-law claims over which the district court exercised diversity jurisdiction. So although
the trial court dismissed the Federal RICO claim early in the case, it retained original jurisdiction over the state-law
claims.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 13
Ti-Bert Sys., Inc. v. Union Indem. Ins., No. 14207, 1990 WL 73647, at *2 (Ohio Ct. App. May
30, 1990).
The harder question, then, is whether we must also respect Pennsylvania’s stay just
because an Ohio court likely would. This implicates Erie and its offspring. Tracing this lineage
is no easy task—the Supreme Court has revisited Erie several times since it decided the case.
And more than once this led to a decision of “landmark importance” that “did more than simply
explicate” Erie but “redefined the scope and thrust of Erie in such a manner as to yield a new
conceptualization of it.” Wright & Miller, 19 Federal Practice and Procedure § 4504 (3d ed.
Apr. 2021 Update) (italics added).
Our starting point is recognizing that we do not have any federal “rule” on point. See
Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 398 (2010) (“We do not
wade into Erie’s murky waters unless the federal rule is inapplicable or invalid.”). To be sure,
we have a “virtually unflagging obligation” to exercise our statutory jurisdiction. Colo. River,
424 U.S. at 813. And state courts have no power to restrain us in the exercise of that jurisdiction.
Donovan, 377 U.S. at 413. But we are unaware of any federal statute or common-law rule that
tells us what to do when a state court liquidates a party before us and then attempts to stay the
litigation, all while the state whose substantive law we are applying counsels its own courts to
respect that stay. That leaves us with a “relatively unguided Erie choice.” Hanna v. Plumer,
380 U.S. 460, 471 (1965).
“When there is no Federal Rule or federal statute or federal common law directly on
point, a good starting place for analyzing an Erie problem is Byrd v. Blue Ridge Rural Electric
Cooperative, Incorporated.” Wright & Miller, supra § 4511 (italics added); see also Vaught v.
Showa Denko K.K., 107 F.3d 1137, 1146 (5th Cir. 1997). And Byrd directs our attention to a
few considerations. Thus, in evaluating whether to apply § 3903.24(A), we consider the federal
interests at stake and how much the state rule is “bound up” with the parties’ rights and
obligations. See Byrd v. Blue Ridge Rural Elec. Coop., Inc., 356 U.S. 525, 536–37 (1958). We
also consider “whether the litigation would come out one way in the federal court and another
way in the state court if the federal court failed to apply a particular local rule.” Id. This last
consideration is hardly dispositive, though, and “its application must be guided by ‘the twin aims
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 14
of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration
of the laws.’” Gasperini v. Ctr. for Humans., Inc., 518 U.S. 415, 428 (quoting Hanna, 380 U.S.
at 468); see also Fragoso, 991 F.2d at 881 (applying the same framework).
These concerns do not strongly support deferring to Pennsylvania’s stay here. For
starters, there is a strong federal interest in courts exercising their jurisdiction and resolving the
cases before them. See Byrd, 356 U.S. at 537; see also Quackenbush, 517 U.S. at 728. And the
issue we face is about whether to apply a stay. A stay does not resolve the litigation on its
merits. It just delays its resolution. So the application of § 3903.24(A) is not “outcome
determinative” in any substantive sense of the phrase. See Fragoso, 991 F.2d at 882. Moreover,
§ 3903.24(A) does not affect or suspend OneBeacon’s rights or liabilities; it simply states a
preference about when, where, and by whom claims against liquidated entities should be
resolved. In other words, it “appears to be merely a form and mode of” resolving claims against
liquidated entities, “not a rule intended to be bound up with the definition of the rights and
obligations of the parties.” Byrd, 356 U.S. at 536.
Likewise, we find it hard to believe that our moving forward with this appeal would
somehow encourage litigants to forum shop. Indeed, the remote possibility that a defendant will
be liquidated during litigation is unlikely to influence a plaintiff’s forum selection. See Fragoso,
991 F.2d at 881. And finally, our declining to apply § 3903.24(A) would not be inequitable.
True, state litigants against OneBeacon would likely have to wait to resolve their suit or go
before the liquidator. But that does not change the substantive rules governing OneBeacon’s
liability. If the case were resolved in Ohio state court, Ohio law would govern OneBeacon’s
liability. If it were resolved in Pennsylvania as part of the liquidation, Ohio law would govern
OneBeacon’s liability. And if it were resolved in federal court, Ohio law would govern
OneBeacon’s liability.
In the end, § 3903.24(A) functions as a forum provision, stating a preference about where
and how to resolve claims against liquidated insurers. But as we learned from Byrd, a local rule
dictating “who decides” does not, by itself, force a federal court’s hand. See 356 U.S. at 536; see
also Schriro v. Summerlin, 542 U.S. 348, 353 (2004). Because we have an interest in exercising
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 15
our jurisdiction, and the interests underlying Erie and its progeny do not counsel otherwise, we
do not apply § 3903.24(A) to stay resolution of this appeal.
III.
With all that out of the way, we can finally turn to the merits. On interlocutory appeal,
we review a district court’s denial of a motion to dismiss de novo. Hicks v. State Farm Fire
& Cas. Co., 751 F. App’x 703, 706 (6th Cir. 2018). “As the text of § 1292(b) indicates,
appellate jurisdiction applies to the order certified to the court of appeals, and is not tied to the
particular question formulated by the district court.” Yamaha Motor Corp., U.S.A. v. Calhoun,
516 U.S. 199, 205 (1996). So we “may address any issue fairly included within the certified
order.” Id.We deal with this appeal in two steps. We first address whether the state court judgment
satisfies the elements of claim preclusion. Then we ask whether any exceptions to claim
preclusion apply—including the equitable exception in § 26(1)(f) of the Restatement (Second) of
Judgments. Ohio law governs both questions. See Hapgood v. City of Warren, 127 F.3d 490,
493 (6th Cir. 1997) (“[W]hen asked to give preclusive effect to a prior state court judgment, a
federal court must look to the law of the rendering state to determine whether and to what extent
that prior judgment should receive preclusive effect in a federal action.”).
A.
Start with the first issue: claim preclusion. Ohio has “adopted an expansive view of
claim preclusion.” Holzemer v. Urbanski, 712 N.E.2d 713, 716 (Ohio 1999). Under Ohio law,
“a valid, final judgment rendered upon the merits bars all subsequent actions based upon any
claim arising out of the transaction or occurrence that was the subject matter of the previous
action.” Grava v. Parkman Twp., 653 N.E.2d 226, 229 (Ohio 1995); see also Restatement
(Second) of Judgments § 24. In other words, “an existing final judgment or decree between the
parties to litigation is conclusive as to all claims which were or might have been litigated in a
first lawsuit.” Grava, 653 N.E.2d at 229 (quoting Nat’l Amusements, Inc. v. City of Springdale,
558 N.E.2d 1178, 1180 (Ohio 1990)). So a plaintiff must present every ground for relief in his
first action, or res judicata will bar him from later asserting it. Id.; see also O’Nesti v. DeBartolo
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 16
Realty Corp., 862 N.E.2d 803, 806 (Ohio 2007) (“Where a claim could have been litigated in the
previous suit, claim preclusion also bars subsequent actions on that matter.”).
We have broken down Ohio claim preclusion into four pieces. First, there must be “a
prior final, valid decision on the merits by a court of competent jurisdiction.” Hapgood,
127 F.3d at 493. Second, there must be a second action involving the same parties (or their
privies) as the first. Id. Next, the second action must raise “claims that were or could have been
litigated in the first action.” Id. And finally, the second action must “aris[e] out of the
transaction or occurrence that was the subject matter of the previous action.” Id.Of these four elements, only the last is at issue.5 So we must decide whether WPC’s state
claims for breach of contract arise from the same transaction or occurrence as its federal claims
for breach of contract and bad faith.
1.
As it has for claim preclusion more broadly, Ohio has adopted the Restatement view of a
“transaction or occurrence.” See Grava, 653 N.E.3d at 229. The Restatement defines a
transaction as a “common nucleus of operative facts,” id., which “connotes a natural grouping,”
Restatement (Second) of Judgments § 24, cmt. b. To satisfy this test, two sets of claims need
only be “logically related” to each other. Lisboa v. City of Cleveland Heights, 576 F. App’x 474,
476 (6th Cir. 2014) (quoting Rettig Enters., Inc. v. Koehler, 626 N.E.2d 99, 103 (Ohio 1994)).
This is a practical standard—if the claims “are related in time, space, origin, or motivation,” if
“they form a convenient trial unit,” or if “their treatment as a unit conforms to the parties’
expectations,” they are part of the same transaction. Restatement (Second) of Judgments
§ 24(2).
That said, a litigant cannot avoid claim preclusion just by presenting different legal
theories or creatively shading the facts. Grava, 653 N.E.2d at 229. So “[i]t is irrelevant whether
‘the facts necessary to obtain relief’ in a second suit differ from those in the first, so long as the
5
Although the Court of Appeals partially reversed the trial court’s judgment on appeal, the affirmed part of
the judgment satisfies claim preclusion’s finality element. See Shimko v. Lobe, 790 N.E.2d 335, 347–48 (Ohio Ct.
App. 2003). And at any rate, WPC concedes finality.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 17
‘nucleus of facts’ at issue in the second suit ‘was the subject matter’ of the first.” Talismanic
Props., LLC v. City of Tipp City, 742 F. App’x 129, 132 (6th Cir. 2018) (quoting Grava,
653 N.E.2d at 228–29). Thus, claim preclusion is appropriate when the “factual basis” for the
legal challenge is “easily discernible in the earlier litigation, and no new significant facts have
been alleged that would entitle the [party] to avoid the effect of res judicata.” City of Canton v.
Maynard, 766 F.2d 236, 239 (6th Cir. 1985) (per curiam).
We turn to the two sets of claims here. Recall the gist of the state complaint.6 WPC’s
first claim was that OneBeacon “unilaterally imposed an improper pro rata allocation method to
allocate claim payments to the General Accident Policies.” (R. 168-2, Second Am. State Compl.
at 7, PageID # 4085.) “The effect was . . . a dramatic reduction in coverage and increase in costs
to Powell.” (Id.) WPC’s second claim was that OneBeacon breached WPC’s General Accident
policies in two ways. One, by “forc[ing] Powell to pay portions of the indemnity and defense
costs for claims made on the Excess Policies.” (R. 168-2, Second Am. State Compl. at 4, 7,
PageID # 4082, 4085.) And two, by “improperly appl[ying] claim payments to multiple annual
periods.” (Id. at 8, PageID # 4086.)
WPC’s federal complaint sounds familiar. It accuses OneBeacon of bad faith in
“handling, processing, pay[ing], and satisf[ying]” claims against WPC. (R. 1, Compl. at 21,
PageID # 21.) OneBeacon allegedly limited its investigations, delayed communication of
coverage decisions, made unilateral litigation decisions, and refused to fund settlements or pay
local counsel. This “wrongfully eroded Powell’s insurance coverage” and “forc[ed] Powell to
bear indemnity and defense costs that were not Powell’s responsibility.” (Id.) WPC’s breach of
contract claim echoes its bad faith claim: “By its denials of coverage and failures to defend,
OneBeacon breached the General Accident Policies, all to Powell’s damage in payments for
defense and indemnity.” (Id. at 22, PageID # 22.)
6
WPC thinks we ought to look at the very first complaint it filed to determine the res judicata effect of the
judgment at issue. We disagree. The operative complaint is the second amended state complaint—that’s the one
that produced the judgment that we are checking for preclusive effect. Besides, “[a]n amended complaint
supersedes and replaces the original complaint.” Hidey v. Ohio State Highway Patrol, 689 N.E.2d 89, 91 (Ohio Ct.
App. 1996).
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 18
These two sets of claims arise from the same transaction—that is, the same nucleus of
operative fact. Both flow from OneBeacon’s conduct during its indemnification and defense of
WPC against asbestos litigation. More to the point, WPC’s state suit alleged OneBeacon
breached its contractual obligations by “forc[ing] Powell to pay portions of the indemnity and
defense costs for claims made on the Excess Policies.” (R. 168-2, Second Am. State Compl. at
4, 7, PageID # 4082, 4086.) That’s nearly identical to the language WPC used in its federal bad
faith claim. (R. 1, Compl. at 21, PageID # 21 (faulting OneBeacon for “forcing Powell to bear
indemnity and defense costs that were not Powell’s responsibility”).) Same with the breach of
contract claim. (Id. at 22, PageID # 22 (“By its denials of coverage and failures to defend,
OneBeacon breached the General Accident Policies, all to Powell’s damage in payments for
defense and indemnity.”).) Likewise, WPC said in state court that OneBeacon “improperly
applied claim payments” and “prematurely reduc[ed]” WPC’s coverage. (R. 168-2, Second Am.
State Compl. at 8, PageID # 4086.) That sounds a lot like bad faith in “handling, processing,
pay[ing], and satisf[ying]” claims against WPC. (R. 1, Compl. at 21, PageID # 21.)
So in both suits, WPC points to the same harm—that it had to bear some of its own
indemnity and defense costs—from the same nucleus of fact—OneBeacon’s conduct in
indemnifying and defending WPC against asbestos litigation. And both actions arise from the
same set of insurance policies and the parties’ obligations under them. See Talismanic Props.,
742 F. App’x at 132 (holding that claims arose from the same transaction or occurrence when
they arose from the same agreement as claims in an earlier suit, even though the requested relief
changed); see also U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 991 (Ohio 2008)
(“However, all of the claims in all of the complaints filed by U.S. Bank against Gullotta arise
from the same note, the same mortgage, and the same default.”).
Thus, the claims were related in origin—WPC’s insurance policies with OneBeacon—
and motivation—WPC’s effort to get OneBeacon to defend and indemnify it in accordance with
those policies. See Restatement (Second) of Judgments § 24(2). Even more, the factual basis for
WPC’s federal claims was “easily discernible in the earlier litigation”—WPC filed its second
amended complaint in the state action after it filed its federal lawsuit. See Maynard, 766 F.2d at
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 19
239. And claim preclusion blocks claims that were or could have been litigated in the first
action. Grava, 653 N.E.2d at 229.
That claim preclusion now bars WPC’s federal suit makes sense considering Colorado
River, 424 U.S. at 800, and its progeny. Recall that the district court here agreed with
OneBeacon that WPC’s state court judgment likely satisfied the elements of claim preclusion.
But instead of dismissing the case, the court stayed it under Colorado River.
Why does that matter? The Supreme Court in Colorado River held that in exceptional
cases, interests in judicial efficiency and resource conservation favor staying a federal case when
a parallel state case is also pending. 424 U.S. at 817. But importantly, these stays “effectively
end the litigation in federal court.” RSM Richter, Inc. v. Behr Am., Inc., 729 F.3d 553, 556 (6th
Cir. 2013). That’s “because the district court would be bound, as a matter of res judicata, to
honor the state court’s judgment.” Quackenbush, 517 U.S. at 713 (emphasis added); see also
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 10 (1983) (“Hence, a stay of
the federal suit pending resolution of the state suit meant that there would be no further litigation
in the federal forum; the state court’s judgment on the issue would be res judicata.”).
Put differently, in parallel state and federal proceedings, the first to reach judgment will
usually bar the other. Quackenbush, 517 U.S. at 713. “Where the judgment sought is strictly in
personam, for the recovery of money . . . both a state court and a federal court having concurrent
jurisdiction may proceed with the litigation, at least until judgment is obtained in one court
which may be set up as res adjudicata in the other.” Penn Gen. Cas. Co. v. Commonwealth of
Penn. ex rel. Schnader, 294 U.S. 189, 195 (1935); see also Quality Assocs., Inc. v. Proctor
& Gamble Distrib., LLC, 949 F.3d 283, 289 (6th Cir. 2020). That’s what happened here. And so
claim preclusion applies.
2.
WPC resists claim preclusion with several unsuccessful arguments. WPC first contends
that its bad-faith claim in federal court is a cause of action independent of its breach-of-contract
claims in state court. WPC cannot get far on this theory. “That a number of different legal
theories casting liability on an actor may apply to a given episode does not create multiple
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 20
transactions and hence multiple claims.” Grava, 653 N.E.2d at 229 (quoting Restatement
(Second) of Judgments § 24 cmt. c); see also Restatement (Second) of Judgments § 25(2) (“The
rule of § 24 applies to extinguish a claim by the plaintiff against the defendant even though the
plaintiff is prepared in the second action . . . [t]o seek remedies or forms of relief not demanded
in the first action.”).
WPC also argues that different evidence supports each set of claims. This argument fails
for two reasons. First, “[i]t is irrelevant whether ‘the facts necessary to obtain relief’ in a second
suit differ from those in the first, so long as the ‘nucleus of facts’ at issue in the second suit ‘was
the subject matter’ of the first.” Talismanic Props., LLC, 742 F. App’x at 132 (quoting Grava,
653 N.E.2d at 228–29). Put differently, “even when there is not a substantial overlap [in
evidence], the second action may be precluded if it stems from the same transaction or series.”
Restatement (Second) of Judgments § 24 cmt. b; see also id. § 25(1) (“The rule of § 24 applies to
extinguish a claim by the plaintiff against the defendant even though the plaintiff is prepared in
the second action . . . [t]o present evidence . . . not presented in the first action.”). And second,
OneBeacon’s counsel pointed out at the hearing on its motion to dismiss that he would have
called many of the witnesses from the state trial to testify in the federal case. So there is some
factual overlap between the two sets of claims.
Finally, in its effort to distance its state from its federal claims, WPC cites an unpublished
opinion from the Ohio Court of Appeals, Geiger v. Westfield Nat’l Ins. Co., No. C–080355, 2008
WL 5412490 (Ohio Ct. App. Dec. 31, 2008). Geiger held that a previous suit to establish
insurance coverage did not preclude a later suit for the insurance company’s bad faith in
handling a claim. Id. at *2.
But for a few reasons WPC’s reliance on Geiger is misplaced. To start, even were it
published, Geiger would not be binding authority outside the appellate district that decided it.
See State v. Thompson, 950 N.E.2d 1022, 1025 (Ohio Ct. App. 2011); see also State v. Hoffman,
25 N.E.3d 993, 1006 (Ohio 2014). And it conflicts with other Ohio authority suggesting that bad
faith and breach of contract claims arise from the same transaction or occurrence as a previous
suit to establish insurance coverage. See, e.g., Canty v. Auto-Owners Mut. Ins. Co., No. 14AP-
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 21
46, 2014 WL 2583476, at *3 (Ohio Ct. App. June 10, 2014); Colleli & Assocs., Inc. v. Cincinnati
Ins. Co., No. 2004–AP–04–0029, 2004 WL 2937384, at *7 (Ohio Ct. App. Dec. 13, 2004).
Geiger also conflicts with the “modern” approach to claim preclusion that the Ohio
Supreme Court adopted in Grava. See Grava, 653 N.E.2d at 229 (noting that “we expressly
adhere to the modern application of the doctrine of res judicata, as stated in” the Restatement).
Geiger defined a “transaction” by relying on a partially overruled 1943 Ohio Supreme Court case
called Norwood v. McDonald, 52 N.E.2d 67 (Ohio 1943). Under Norwood, if “two actions rest
upon different states of facts, or if different proofs would be required to sustain the two actions, a
judgment in one is no bar to the maintenance of the other.” Norwood, 52 N.E.2d at 71; see also
Geiger, 2008 WL 5412490, at *2 (citing Norwood). But the Restatement, endorsed in Grava,
says otherwise. Under § 24, overlapping evidence means “the second action should ordinarily be
held precluded.” But the reverse is not true—“even when there is not a substantial overlap, the
second action may be precluded if it stems from the same transaction or series.” Restatement
(Second) of Judgments § 24, cmt. b (emphasis added). In other words, overlapping evidence is
not, as Geiger suggests, necessary to unite two lawsuits in a common transaction. See
Restatement (Second) of Judgments § 25(1) (“The rule of § 24 applies to extinguish a claim by
the plaintiff against the defendant even though the plaintiff is prepared in the second action . . .
[t]o present evidence . . . not presented in the first action.”).
Finally, even if none of that were true, this case is distinguishable from Geiger.
In Geiger, the first action sought “to prove [uninsured motorist] coverage,” and the second
concerned the insurer’s “actions in processing the Geigers’ UIM claim.” 2008 WL 5412490, at
*2. But here, both the first and second suits concerned OneBeacon’s actions in processing and
handling WPC’s claims. So WPC’s first suit was not one merely to establish coverage. It
instead accused OneBeacon of “refus[ing] to implement [WPC’s] allocation selections,”
“improperly appl[ying] claim payments,” and forcing WPC to bear some of its own indemnity
and defense costs. (R. 168-2, Second Am. State Compl. at 7, PageID # 4085.) Nearly identical
allegations appear in the second suit. So Geiger does not rescue WPC from res judicata.
In short, the state court judgment here satisfies the elements of claim preclusion.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 22
B.
The final thing that we consider is § 26 of the Restatement, which contains various
exceptions to claim preclusion. The district court relied on one of these exceptions in denying
OneBeacon’s motion to dismiss. But WPC argues that three apply. First, it says OneBeacon
“acquiesced” in its claim splitting. See Restatement (Second) of Judgments § 26(1)(a). Next, it
says that the state court “expressly reserved” its right to maintain its federal lawsuit. Id.
§ 26(1)(b). And finally, it says (and the district court agreed) that “an extraordinary reason”
disfavors applying claim preclusion. Id. § 26(1)(f). The “extraordinary reason” WPC cites is
that the district court refused to dismiss or stay the federal litigation and allowed the state and
federal actions to continue simultaneously for years.
1.
At the outset, we address a forfeiture issue. OneBeacon says that this is the first time it’s
hearing about the § 26(1)(a) and (b) exceptions, so WPC forfeited those arguments. And WPC
does not try hard to contest that. Because this is a § 1292(b) appeal, we can “address any issue
fairly included within the certified order because ‘it is the order that is appealable, and not the
controlling question identified by the district court.’” Yamaha Motor Corp., 516 U.S. at 205(citation omitted). An issue is “fairly included” in the certified order “when it was raised in the
district court and the parties presented it in their appellate briefs.” See United States ex rel.
Simoneaux v. E.I. duPont de Nemours & Co., 843 F.3d 1033, 1042 (5th Cir. 2016). But “an
issue was not fairly included when it was not raised in the district court.” Id. So the fact that this
is an interlocutory appeal under § 1292(b) does not suspend the normal rules of forfeiture. See
Kennedy v. City of Cleveland, 797 F.2d 297, 300 (6th Cir. 1986).
To be sure, there may be times, in an interlocutory setting (as elsewhere), when it is
appropriate for us to address arguments not raised below. See Wright & Miller, supra § 3929
(“[D]espite the usual reluctance to consider an argument not made below, the prospect of further
proceedings after disposition of the interlocutory appeal may make it desirable to entertain the
argument as part of the appeal.”). This is not one of those times. Neither the district court,
WPC, nor OneBeacon suggested below that the § 26(1)(a) or (b) exceptions should apply.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 23
And there is no prospect of further litigation on these exceptions following this appeal. So we
elect not to consider them.
2.
With that settled, we turn to § 26(1)(f). WPC says this exception should apply because it
would be unfair to dismiss the lawsuit. After all, the district court declined to stay the case early
on, allowing it to proceed alongside the state case for years.
We disagree. True, § 26(1)(f) is an exception to the normal rule against claim splitting.
But it applies only when “[i]t is clearly and convincingly shown that the policies favoring
preclusion of a second action are overcome for an extraordinary reason.” Restatement (Second)
of Judgments § 26(1)(f). And the Restatement cautions us that such reasons are “not lightly to be
found.” Id. § 26 cmt. i. To put a finer point on it: the examples the Restatement gives of
“extraordinary” situations involve penal custody, child custody, and civil commitment of the
mentally ill. Id.
Right off the bat, then, this does not look like a case when § 26(1)(f) should apply.
And the same is true on closer inspection. As we have already noted, “both a state court and a
federal court having concurrent jurisdiction may proceed with the litigation, at least until
judgment is obtained in one court which may be set up as res adjudicata in the other.” Penn
Gen. Cas. Co., 294 U.S. at 195. In other words, two proceedings touching the same subject
matter can proceed separately in state and federal court, and the one to reach judgment first may
bar the other. See Quality Assocs., Inc., 949 F.3d at 288–89; Lesher v. Lavrich, 784 F.2d 193,
195 (6th Cir. 1986). So it is not inequitable to let both proceedings go forward and then use the
first action that reaches judgment to bar the other. In fact, that is exactly what the general rule
says should happen. See Penn Gen. Cas. Co., 294 U.S. at 195; Quality Assocs., Inc., 949 F.3d at
289.
Likewise, the district court declining to stay this case early on—thus allowing the
simultaneous litigation—says little about the potential for one judgment to bar the other. That’s
because “[a]bstention from the exercise of federal jurisdiction is the exception, not the rule.”
Colo. River, 424 U.S. at 813. It “is an extraordinary and narrow exception” to federal courts’
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 24
duty to decide the cases before them, one a district court should apply only in “exceptional
circumstances.” Id. So “as between state and federal courts, the rule is that ‘the pendency of an
action in the state court is no bar to proceedings concerning the same matter in the Federal court
having jurisdiction.’” Id. at 817 (quoting McClellan v. Carland, 217 U.S. 268, 282 (1910)).
This all flows from federal courts’ “virtually unflagging obligation . . . to exercise the
jurisdiction given them.” Id. And it means that “the mere pendency of a state-court case
concerning the same subject matter as a federal case is not reason enough to abstain.” RSM
Richter, Inc., 729 F.3d at 557.
In other words, the district court followed the general rule here by allowing the case to
proceed after OneBeacon’s first motion to dismiss. And the district court obeying its “virtually
unflagging obligation” to exercise its jurisdiction, Colo. River, 424 U.S. at 817, coupled with the
general rule that courts should allow cases touching the same subject matter in different courts to
proceed and then apply res judicata, Quality Assocs., Inc., 949 F.3d at 288, is not inequitable. If
anything, that’s what the traditional rules of claim preclusion instruct courts to do.
Section 26(1)(f) of the Restatement does not salvage WPC’s federal lawsuit.
IV.
OneBeacon’s persistence has paid off. It successfully argues that claim preclusion is a
bar to this lawsuit. For the reasons we state above, we REVERSE the judgment of the district
court and REMAND the case for proceedings consistent with this opinion.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 25
______________________________________________________
CONCURRING IN PART AND DISSENTING IN PART
______________________________________________________
WHITE, Circuit Judge, concurring in part and dissenting in part. I join Part II of the
majority’s thoughtful opinion and in Part III.B’s discussion of the Restatement exceptions to
claim preclusion. I do not, however, agree with the majority’s conclusion that claim preclusion
applies. Although it is a close question, I am not convinced that the federal action is based on
the same “transaction and occurrence” as the state action. The latter focuses exclusively on
contract interpretation; the former involves allegations of bad-faith conduct having nothing to do
with contract interpretation.
I.
As the majority correctly notes, claim preclusion under Ohio law has four elements: (1) a
prior final, valid decision on the merits; (2) a second action involving the same parties (or their
privies) as the first; (3) a second action raising claims that were or could have been litigated in
the first action; and (4) a second action arising out of the “transaction or occurrence” that was the
subject matter of the previous action. Moore, Successor Tr. of Clarence M. Moore and Laura P.
Moore Tr. v. Hiram Twp., 988 F.3d 353, 357 (6th Cir. 2021) (citation omitted). Only the fourth
element is disputed. I do not think it has been established here. Before explaining why, I briefly
review some of the relevant factual background.
A.
In 2011, WPC sued OneBeacon in state court, requesting declaratory relief. It asked the
court to answer several questions: (1) whether the aggregate limits in the primary policies were
annual and what those limits were; (2) whether WPC had a right to “allocate” (i.e., deduct)
payments made to asbestos claimants from a single chosen policy that had been triggered (as
WPC wanted), or whether instead OneBeacon could deduct these payments pro rata from all
triggered policies at once; and (3) whether OneBeacon had to pay 100% of defense and
indemnity costs related to claims triggering coverage under WPC’s excess policies. R. 17-1 PID
92-96. These questions turned solely on matters of contract interpretation.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 26
WPC later amended its state-court declaratory-judgment complaint to allege breach-of-
contract claims regarding the latter two issues, arguing that OneBeacon breached the contract by
adhering to the wrong allocation method (and refusing WPC’s requests to use what WPC said
was the right allocation model) and, “[c]ontrary to the[] plain language” of the excess policies,
R. 168-2 PID 4083, only paying a portion (rather than 100%) of the costs for each claim
allocated to the excess policies. Although the relief sought changed from a declaratory judgment
to damages for breach, the central issues (turning on contract interpretation) remained the same.
B.
Unlike the state-court lawsuit—which focused on interpretation of the various insurance
policies issued to WPC—the federal suit focuses largely on the behavior of OneBeacon (and its
claims administrator) in processing, defending, and settling individual asbestos claims
(as opposed to the more abstract legal question of how the costs would be distributed, in general,
when a claim triggered a policy).
To be sure, some of the allegations in the federal lawsuit are similar to those in the state
lawsuit. For example, the federal suit alleges that OneBeacon’s claims administrator “disputed
the terms and limits of Powell’s coverage under the” primary coverage policies and “maintained
a secret payment allocation formula” it had not disclosed to WPC. R. 1 PID 10. That is similar
to WPC’s claims in state court that OneBeacon was using the wrong contractual allocation
methods. I agree that these claims are precluded.
But most of the allegations in the federal action accuse OneBeacon of bad-faith conduct
that has nothing to do with the contract-interpretation questions in the state lawsuit. For
example, the complaint alleges that OneBeacon (through its claims administrator):
• Refused to take on the defense of one litigant’s asbestos lawsuit on the basis that
the plaintiff’s first date of exposure was in the late 1970’s despite evidence from
local defense counsel that the plaintiff’s exposure could have begun as early as
1974.
• Caused local defense counsel in one asbestos case to change an alleged exposure
date of a plaintiff from 1976 (within a OneBeacon coverage period) to 1978
(outside OneBeacon’s coverage period), without telling WPC, and then denied
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 27
WPC’s claim for reimbursement after WPC settled with the litigant, citing the
changed date.
• Began requiring litigants, starting in 2013 (and despite longstanding practice to
contrary) to sign affidavits affirming they actually worked with WPC’s valves as
a condition of settlement—undermining standing agreements in principle with
repeat plaintiffs’ counsel.
• Instructed defense counsel in one case not to contact WPC and to withhold
relevant cost numbers and exposure dates, even though counsel was representing
WPC and WPC was paying a portion of the defense costs.
• Delayed funding settlements already agreed upon, damaging WPC’s credibility
with plaintiffs’ counsel and causing higher subsequent settlement demands.
WPC alleges that OneBeacon—in collusion with its claims administrator and a third party to
whom it sold its claims reserves—made unilateral investigation and defense decisions, cutting
WPC out of the picture, in order to “defraud[ WPC] out of its insurance coverage” and maximize
profit. R. 1 PID 21.1
C.
So, summed up, the central focus of the state lawsuit was determining what certain
provisions meant in several insurance contracts entered into from the mid-1950s to the mid-
1970s. The central focus of the federal lawsuit was whether OneBeacon—starting in the early
2000s, when asbestos-exposure claims started to pile up—directed its claims administrator to
interfere in bad faith with the individual litigation of those underlying asbestos claims. The state
action turned solely on what the parties meant when they entered the contracts in the 1950s to
1970s; the federal action did not turn at all on what those contracts meant.
1
The federal complaint also alleged a RICO conspiracy between OneBeacon, a Berkshire Hathaway
subsidiary to which OneBeacon sold its claims reserves, and OneBeacon’s claims administrator. The thrust of the
allegation was that these other entities all conspired to delay and prevent WPC’s asbestos claims from being paid out
in a timely manner in an effort to maximize profit from OneBeacon’s claim reserves. Several RICO-related claims
against the non-OneBeacon defendants were dismissed in 2014 and are not a part of this appeal. But the allegations
forming the basis of the bad-faith claim were made in the context of this wider-ranging RICO conspiracy theory.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 28
II.
Ohio follows the Restatement (Second) of Judgments in defining what constitutes a
“transaction and occurrence.” Grava v. Parkman Twp., 653 N.E.2d 226, 229 (Ohio 1995). The
relevant provision of the Second Restatement, § 24, provides that a final judgment on a claim
extinguishes “all rights of the plaintiff to remedies against the defendant with respect to all or
any part of the transaction, or series of connected transactions, out of which the action arose.”
Restatement (Second) of Judgments § 24(1). “What factual grouping constitutes a ‘transaction,’
and what groupings constitute a ‘series,’ are to be determined pragmatically, giving weight to
such considerations as whether the facts are related in time, space, origin, or motivation, whether
they form a convenient trial unit, and whether their treatment as a unit conforms to the parties’
expectations or business understanding or usage.” Id. § 24(2). This inquiry is “pragmatic” and
depends heavily on the facts of each given case. Id. § 24 cmt. b.2
The state contract action and federal bad-faith claim are not, for the most part,
related in time or origin. As noted, the state lawsuit focuses on how to interpret insurance
policies executed, in some instances, a half-century before any of the actions underlying the bad-
faith action began. Nor do the two actions “rest on the same or a substantially similar factual
basis” or “seek redress for essentially the same basic wrong.” Porn v. Nat’l Grange Mut. Ins.
Co., 93 F.3d 31, 34 (1st Cir. 1996).3 The bad-faith claim alleges that OneBeacon, among other
2
A comment to the Restatement provides further guidance:
In general, the expression connotes a natural grouping or common nucleus of operative facts.
Among the factors relevant to a determination whether the facts are so woven together as to
constitute a single claim are their relatedness in time, space, origin, or motivation, and whether,
taken together, they form a convenient unit for trial purposes. Though no single factor is
determinative, the relevance of trial convenience makes it appropriate to ask how far the witnesses
or proofs in the second action would tend to overlap the witnesses or proofs relevant to the first. If
there is a substantial overlap, the second action should ordinarily be held precluded. But the
opposite does not hold true; even when there is not a substantial overlap, the second action may be
precluded if it stems from the same transaction or series.
Id. § 24 cmt. b.
3
Though Porn is a First Circuit decision, not an Ohio state-court decision, it applied the Restatement
(Second) approach and is frequently cited by other decisions applying the Restatement. See, e.g., Villareal v. United
Fire & Cas. Co., 873 N.W.2d 714, 723 (Iowa 2016) (“Perhaps the most cited authority in this area is the First
Circuit’s decision in Porn[.]” (citation omitted)).
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 29
things, directed defense counsel not to tell WPC about litigation decisions in specific asbestos
cases, caused counsel to misrepresent that certain asbestos litigants were exposed in years that
OneBeacon’s policies did not cover, and in bad faith began making it more difficult to settle with
plaintiffs’ counsel—for instance, by requiring asbestos litigants to sign affidavits that they
personally worked with WPC’s pipes as a condition of settlement. These are the actions that
form the “wrong” for which the bad-faith claim seeks redress. They are completely distinct from
the “wrong” for which the state-court action seeks redress—that OneBeacon misinterpreted and
misapplied the allocation terms of the underlying contract policies. The actions underlying the
bad-faith claim make no difference to the state-court action’s questions of contract interpretation.
And the resolution of those contract-interpretation questions makes no difference in assessing the
bad-faith claim.
For similar reasons, the two claims would not make a “convenient unit for trial
purposes.” Restatement (Second) of Judgments § 24 cmt. b. As WPC notes, the “primary
witnesses” in support of the bad-faith claim would be “the asbestos defense attorneys retained by
OneBeacon on [WPC’s] behalf,” and the “relevant documents . . . will be those created in the
course of OneBeacon’s present-day handling of the claims—not the insurance policies that
OneBeacon’s predecessor issued more than a half-century ago.” WPC Br. at 11. The majority
responds to this point by citing OneBeacon’s statement in the district court that it planned to call
many of the same witnesses from the state-court action if the bad-faith claim went to trial.
Majority Op. at 20. But counsel for WPC pointed out later in the same hearing:
[WPC Counsel]: In the state court case, we had witnesses talking about insurance
policies that were agreed to in the ‘50s, in the ‘60s, in the ‘70s that were
essentially 50 or 60 or 70 years old. Those were the issues in that case. What
does “drop down” mean? What does “attachment” mean? What is a “date of first
exposure” or DOFE? What is “underlying”? What do those concepts mean?
That’s what the case was about, and those terms were drafted and agreed to as
early as 1950. In the bad faith case, we’re talking about claims handling that took
place in 2014 or afterwards. There was no common nucleus of operative fact.
The facts were unrelated in terms of time, space, origin, or motivation.
. . . To illustrate, Your Honor, one of the bad faith allegations, an example of it,
with these asbestos cases, the plaintiff’s counsel often sue 30, 40, 50, a hundred
[defendants] in one action. . . . The plaintiff’s counsel may submit a settlement
demand of $5,000, you get out of the case, each of them. And let’s assume, for
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 30
example, 99 out of the 100 [defendants] settles up very early on, get out of the
case. OneBeacon would oftentimes, and this is the proof that we’ll put on in
connection with the bad faith case that was not tried in state court, forces . . .
[WPC] to stay involved in these cases, incur expenses, erode coverage, and then
three years later we’re forced to settle the case for $250,000 as opposed to $5,000.
That is one example of the bad faith. There was not one witness who testified
about that in state court. The claims are totally separate and distinct.
R. 192 PID 4700-01, 4704.
To be sure, in some, perhaps many, cases involving bad-faith and breach-of-contract
insurance claims, it may be that the two claims do form a convenient trial unit. For example, a
company might sue its insurance provider for coverage arising from a single incident, and the
coverage dispute may turn on whether there was any coverage at all. The answer to that question
would likely shed light on whether the insurer acted in bad faith in refusing to tender coverage.
See, e.g., Porn, 93 F.3d at 35 (“[T]he facts of the car accident are also probative of National
Grange’s reasonableness in refusing to pay Porn’s claim.”). Similarly, the coverage question
whether two policies can be stacked under the terms of the policies would be woven together
with the question whether the insurance company acted in bad faith in refusing to tender the full
amount of both policies. But here, all agree there was coverage and an obligation to defend; the
state-court dispute was about how to allocate coverage and costs, not a disagreement about
whether the obligation exists in the first place. In this case, the answers to the coverage
questions—i.e., which “primary” and “excess” policies are triggered, whether WPC can direct
the allocation to specific policies, and whether OneBeacon has to pay 100% reimbursement for
excess-policy claims or some lower proportional amount—make no difference to and have no
relation to the bad-faith questions.
I acknowledge that this is a difficult issue. And some of the Restatement factors may cut
in the other direction. For example, one of the Restatement factors is whether the two actions are
related in “motivation,” and arguably the actions here are. WPC wants to recoup as much money
as it can from OneBeacon in connection with the liability it has been exposed to as a result of
mounting asbestos claims. And the actions of OneBeacon for which WPC seeks redress are
allegedly motivated by a desire to pay as little as possible under the policies.
No. 20-3737 William Powell Co. v. Nat’l Indemnity Co., et al. Page 31
But still, one of the overriding inquiries—indeed, the overriding inquiry—is whether the
two actions share a common nucleus of operative facts. For the reasons discussed above, in my
view they do not. Accordingly, I respectfully disagree with the majority that the two actions are
based on the same “transaction and occurrence,” and would affirm.