Opinion
Case No. 5-98-CV-70
January 9, 2002
JUDGMENT
In accordance with the Opinion of this Court;
IT IS HEREBY ORDERED that Plaintiff Performance Abatement Services, Inc. and International Fidelity Insurance Company's Motion to Enforce Settlement Agreement (Dkt. No. 410) is GRANTED IN PART AND DENIED IN PART as follows:
(1) All remaining claims of Performance Abatement Services, Inc. against Defendants Lansing Board of Water and Light and International Fidelity Insurance Company are DISMISSED WITH PREJUDICE;
(2) All remaining claims of Performance Abatement Services, Inc. against Defendant SCS Group, L.C. are DISMISSED WITHOUT PREJUDICE;
(3) All remaining claims of Defendant SCS Group, L.C. against Performance Abatement Services, Inc. and against St. Paul Fire and Marine Insurance Company are DISMISSED WITHOUT PREJUDICE;
(4) All cross-claims and third-party claims of International Fidelity Insurance Company against Defendants SCS Group, L.C., Jerome Williams, Elizabeth Williams, William Wysocki, and Robert Greenlees are DISMISSED WITHOUT PREJUDICE.
IT IS FURTHER ORDERED that Defendant SCS Group, L.C. and Defendants Jerome Williams, Elizabeth Williams, William Wysocki, and Robert Greenlees' Motion for Continuance (Dkt. No. 414) is DENIED as moot.
This matter is before the Court on two separate motions: (1) the Motion for Continuance brought by SCS Group, L.C., Elizabeth Williams, William Wysocki and Robert Greenlees (hereafter the Motion will be referred to as "SCS's Motion" for convenience); and (2) the Motion to Enforce Settlement Agreement brought by Performance Abatements Services, Inc. ("PAS") and International Fidelity Insurance Company ("IFIC"). The motions will be addressed in that order.
SCS's Motion is premised on three arguments. The background for the arguments is that IFIC and PAS reached a settlement of claims on December 12, 2001 without the consent of SCS. SCS argues that the such settlement was in violation of a joint defense agreement between the parties reached on January 7, 2001 and that, because of the violation of the agreement on December 12, 2001, SCS ought to be allowed to assert the violation of the agreement as a defense to its liability. If this is allowed, then trial will need to be delayed for several months to permit additional discovery and amendment of pleadings. The second and related argument is that IFIC's original Cross-Complaint and Third Party Complaint (Dkt. No. 127) did not seek indemnification of the large settlement amount (of $2.4 million dollars), but instead was limited to recoupment of $10,000 of attorney fees expended at the date of filing plus injunctive relief — an injunction to require the posting of collateral in the future when a loss reserve was established. SCS notes in connection with this argument that the $2.4 million dollar figure was surprising to it because, among other things, when the parties established their joint defense agreement they set a loss reserve of only $1.3 million dollars. SCS's third argument is that IFIC has not responded to inquiries about whether it intends to assert claims against SCS as a subrogee of PAS and the task of meeting possible subrogation claims makes preparation for trial "physically impossible."
Before determining these arguments, one must also understand both the procedural background of this case and the Motion for Enforcement. This case was filed on May 21, 1998 and has seen multiple amendments of the pleadings. The Case Management Order has been amended more than a half a dozen times, with most of these amendments resulting in delays in the trial of this matter. ("See Dkt. Nos. 18, 88, 161, 164, 195, 213, 241, 250, 372 and 401.) These lengthy delays have been caused in no small part by the shifting alliances between the parties during settlement negotiations and by the strategic choice of the parties to include indemnification claims together with standard breach of contract claims. The problem with the latter strategy is that, as evidenced by the events in this suit, the facts pertinent to indemnification claims often do not arise until the underlying claims (the breach of contract claims) have been settled — which in this case has just occurred. A related problem is that the parties with knowledge concerning the indemnification claims (i.e., potential witnesses) include the attorneys who were actively involved in settlement negotiations and formation of the joint defense agreement. Those attorneys are, of course, prohibited by Michigan Rule of Professional Conduct 3.7, the Lawyer as a Witness Rule, from continuing to serve as lawyers where they are likely to be necessary witnesses to contested issues at trial.
One indication of this is the Affidavit of attorney Barbara Werther, which was filed in connection with these motions and which gives testimony concerning the settlement negotiations and the supposed breach of the joint defense agreement.
Relating to the Motion to Enforce Settlement, the Motion asks for dismissal of all remaining claims in this suit with prejudice, pursuant to the settlement announced by the parties, with two exceptions. The first exception relates to the cross-claims of IFIC against SCS and the individual indemnitors, which the Motion anticipates will be allowed to proceed to trial. The second exception relates to the claims of PAS against SCS, which are to be dismissed without prejudice. In partial opposition to this Motion, SCS has responded and urged that the Court not dismiss with prejudice
any claims brought by SCS. The substance of the opposition is that SCS disagrees with IFIC and PAS's contention that it has breached its duties to indemnify IFIC such that its rights to settle have been assigned, pursuant to contract terms, to IFIC. IFIC and PAS's arguments concerning SCS's supposed breach, like SCS's arguments concerning breach of the joint defense agreement, concern at least in part the parties and attorneys' conduct during this litigation including settlement negotiations.
What is a court to say to counsel at this juncture other than, "what have you wrought?" The constant non-compliance with the Court's scheduling orders, the complex interplay between the narrow indemnity claims originally filed against SCS and the broad indemnity claims which PAS and IFIC wish to assert (and which in justice they should be allowed to assert), the complication of SCS's new defense of breach of the joint defense agreement (which it in justice should be allowed to assert), and the potential that assertion of new claims and defenses will lead to essentially a new and protracted suit which must be prosecuted by new counsel, together compel the following conclusion. The conclusion is that to accomplish justice, avoid protraction of this suit and allow parties the ability to fairly address their claims, the Motion to Enforce Settlement will be granted in part and denied in part. The resolution of the Motion is that PAS's claims against SCS will be dismissed without prejudice; PAS's claims against Defendant Lansing Board of Water and Light and IFIC will be dismissed with prejudice; the counterclaims of SCS against PAS and the third-party claims of SCS against St. Paul Fire and Marine Insurance are dismissed without prejudice; and the cross-complaint and third-party complaint of IFIC against SCS and the individual indemnitors will be dismissed without prejudice (to allow its prosecution in a separate action). Given this resolution, the Motion for Continuance will be denied as moot.
This is appropriate under 28 U.S.C. § 1367 (c)(3) because the Court has dismissed all of the other claims over which the Court had original jurisdiction, under 28 U.S.C. § 1367 (c)(4) because of "exceptional circumstances," and under § 1367(a), (b) and (c) because the amount in controversy as to the pleaded indemnity claims is less than the amount of controversy requirement of 28 U.S.C. § 1332. See Shanaghan v. Cahill 58 F.3d 106 (4th Cir. 1995) (holding that the district court had discretion to retain or not retain diversity claims under 28 U.S.C. § 1367 when the amount in controversy was reduced below the statutory limit and where exceptions to jurisdiction under section 1367(c), such as dismissal of original claims, applied); Stevenson v. Severs, 158 F.3d 1332 (D.C. Cir. 1998) (same). In making this assessment, the Court gives special attention to the facts that the claims involved are now complicated indemnity claims governed by state law, that the parties may in the future choose to file these claims in state court to both take advantage of the state court's fluency in matters of state law and to put necessary distance between the settlement events in this lawsuit and trial of the indemnity issues, and that separate counsel may be necessary to bring these matters to trial.
A final judgment so ordering and resolving these claims shall be entered, consistent with this Opinion.