CHICAGO - St. Clair County Circuit Judge Heinz Rudolf did not bind federal courts when he entered judgment for $2,080,585.95 against an insurer nobody sued, Seventh Circuit appellate judges ruled on April 24.
The appellate judges affirmed a ruling by District Judge Phil Gilbert of Benton, who found Rudolf didn’t bind him because the interests of Ohio Security Insurance were not adequately represented in Rudolf’s court.
Chief Justice Diane Sykes found that a doctrine preventing federal courts from overturning state courts doesn’t apply when a party in federal court wasn’t a party in state court.
She found that a federal litigant who was absent from the underlying litigation is merely seeking to litigate its case for the first time.
Justices Diane Wood and Michael Scudder concurred.
Ohio Security insured a maintenance business owned by Missouri resident Don Durham, who was contracted to clean Metro East Dialysis in Belleville.
Dialysis patients developed infections in 2016, and investigators found that Durham used vinegar as his primary cleaning agent.
Investigators found he mopped floors with dirty mops, failed to clean touchable surfaces, and failed to disinfect his cart upon entry and exit.
Patient Tommy Harris sued Metro East Dialysis, property owner DaVita, and Durham in 2017.
His counsel, Samantha Unsell, claimed Harris developed a series of infections that grew worse.
Durham asked Ohio Security to defend him. The insurer denied coverage, claiming Durham's policy excluded injuries from bacterial infections.
Ohio Security invited Durham to provide further information but heard no more from him.
In 2018, Tom Keefe, leader of Unsell’s firm, contributed $13,000 to Rudolf’s judicial campaign.
In January 2019, Unsell moved to sever Harris’s claims against Durham from claims against Metro East Dialysis and DaVita.
Rudolf granted Unsell's motion, assigned a separate case number and set trial to begin in two months.
As trial began, Durham’s counsel, Ted Frapolli of St. Louis County, disclosed that Harris and Durham entered into a covenant.
He told Rudolf that Durham wouldn’t mount a defense, Harris wouldn’t execute judgment, and Harris would pursue insurance from Ohio Security and its parent Liberty Mutual.
Harris submitted findings of fact and conclusions of law, which Rudolf adopted.
“The court finds that plaintiff’s complaint does not allege damages as a result of bacterial infection,” he wrote.
Rudolf entered judgment against Durham for $750,000 in disfigurement, $500,000 in loss of normal life, $500,000 for pain and suffering, and $330,585.95 in past medical bills.
Then he shifted the cost by finding Liberty Mutual had a duty to defend, and “therefore any future declaratory judgment filed by Liberty is untimely as a matter of law.”
Rudolf wrote that an insurer who breaches a duty to defend can’t raise policy defenses, “even those defenses that may have been successful had the insurer not breached its duty.”
Unsell then amended Harris’s complaint to seek declaratory judgment against Ohio Security and Liberty Mutual.
Ohio Security removed the complaint to district court in January 2020.
Unsell moved to remand it to Rudolf, claiming Harris didn’t consent to removal.
She also claimed the right of removal expires in a year, and the suit started in 2017.
Unsell claimed Ohio Security didn’t suggest that severance commenced an independent action.
She claimed more often than not a court provides separate trials, not separate actions.
She added that a severance order must unequivocally state that it started a separate action.
Gilbert denied remand, finding Ohio Security didn’t need Durham’s consent because he aligned with Harris.
He found that Durham took a dive to pave the way for Harris to collect insurance.
“This includes cooperating in an effort to obtain a judgment in state court purportedly binding entities that were not even parties to the litigation,” he wrote.
Frapolli filed a cross claim for Durham seeking to uphold Rudolf’s order and award punitive damages for bad faith.
Ohio Security moved to dismiss, alleging fraud and collusion.
Gilbert issued a split decision, ruling first that Rudolf’s findings simply had no binding effect.
He found Ohio Security wasn’t adequately represented at the time of the decision and the issue of its duty was not essential to a decision that Durham was liable.
Against Ohio Security, Gilbert found he couldn’t definitely say it didn’t breach a duty.
At a status conference in 2021, Gilbert asked Unsell why Harris didn’t file a new suit.
She said they attempted to enforce the judgment or have the court declare that Ohio Security was estopped from denying coverage.
Gilbert said, “Apparently the state court judge already made that finding.”
He asked Frapolli, “Why did you lay down?”
Frapolli said, “I go to the plaintiff and say I’m willing to enter into an agreement that you can try this case and I will not mount a defense as long as you limit yourself to the policy.”
“I was able to come in and reach a legal agreement,” he added.
Frapolli claimed it couldn’t be fraud and collusion because he made full disclosure to the trial judge.
“It’s all above board and all fair play as to how this agreement came about,” he said.
Gilbert asked about the original case and Unsell said a claim against DaVita was pending.
Gilbert said judgment on DaVita would mean there was no need for this case.
Unsell said if she got judgment against DaVita for $250,000, then Ohio Security would be entitled to a setoff in that amount.
Gilbert said, “Why would a judgment be for $250,000 when there was two million here?”
He asked what prevented him from staying the case until the DaVita claim was resolved.
Unsell responded, “Then we could choose to dismiss the DaVita case.”
Harris and DaVita settled a month later.
In July 2021, Unsell petitioned St. Louis City civil court to enforce Rudolf’s order by garnishing $2,080,595.95.
Ohio Security removed the petition to the nearby district court and moved for transfer to Gilbert, which District Judge Audrey Fleissig granted.
Gilbert consolidated the garnishment with the St. Clair County case and ruled in 2022 that the bacteria exclusion relieved Ohio Security of any duty to defend Durham.
He found Harris alleged that negligence led to infections and he would not force Ohio Security “to put blinders on and proceed as if it did not know the nature of the infections.”
He found the remote possibility that some viral infection might have lurked in the background was too speculative to survive the bacteria exclusion.
He found Durham didn’t point to any evidence Ohio Security could have discovered to bring the claim out of the exclusion.
He ordered Durham and Harris to show cause why the action should continue.
Unsell responded that Gilbert should have applied the Rooker-Feldman doctrine, which takes its name from cases that prevent federal courts from reviewing state court decisions.
She claimed neither the propriety of Rudolf’s judgment nor its consequences was actionable in district court even if it was erroneous or unconstitutional
Frapolli responded that Gilbert didn’t give proper weight and consideration to Rudolf’s findings.
Gilbert followed up on his denial of a duty to defend Durham by finding Ohio Security had no duty to indemnify him.
“The duty to defend is broader than the duty to indemnify, and where there is no duty to defend there can be no duty to indemnify,” he wrote.
He closed the case, and Harris and Durham appealed.
Tommy Harris died on May 28, 2022.
Thomas Keefe III is associated with Unsell and delivered oral argument before the appellate court.
Matthew Wolfe of Chicago argued for Ohio Security.
Seventh Circuit judges found the bacteria exclusion applied and Rooker-Feldman didn’t.
Chief Judge Sykes found Rooker-Feldman is confined to cases brought by state court litigants complaining of judgments rendered before district court proceedings began.
She found it doesn’t apply to a party who was not a party to the state court proceeding.
She spotted a flaw in the case from the start, finding Durham had a statutory duty to notify Ohio Security of his agreement with Harris but didn’t do so.