Zurich Insurance v. Baxter International, Inc. ( 1996 )

  NOTICE: Under Supreme Court Rule 367 a party has 21 days

  after the filing of the opinion to request a rehearing.

  Also, opinions are subject to modification, correction or

  withdrawal at anytime prior to issuance of the mandate by

  the Clerk of the Court. Therefore, because the following

  slip opinion is being made available prior to the Court's

  final action in this matter, it cannot be considered the

  final decision of the Court. The official copy of the

  following opinion will be published by the Supreme Court's

  Reporter of Decisions in the Official Reports advance

  sheets following final action by the Court.

       Docket No. 80025--Agenda 16--March 1996.

     ZURICH INSURANCE COMPANY, Appellee, v. BAXTER

INTERNATIONAL, INC., et al. (Baxter International, Inc.,

                 et al., Appellants).

             Opinion filed June 20, 1996.

       JUSTICE HARRISON delivered the opinion of the court:

       This appeal concerns a declaratory judgment action

  brought in the circuit court of Lake County by Zurich

  Insurance Company to determine its obligations under various

  insurance policies issued to Baxter International, Inc., and

  Baxter Healthcare Corporation (referred to collectively as

  Baxter). The question before us is whether the circuit court

  abused its discretion when it issued an order pursuant to

  section 2--619(a)(3) of the Code of Civil Procedure (735 ILCS

  5/2--619(a)(3) (West 1992)) staying Zurich's lawsuit pending

  the outcome of a second declaratory judgment action involving

  the same issues subsequently filed by Baxter against Zurich

  in the state of California. For the reasons that follow, we

  agree with the appellate court that the stay should not have

  been granted. 275 Ill. App. 3d 30. Subject to certain

  modifications pertaining to the joinder of parties, the

  appellate court's judgment is therefore affirmed.

       The relevant facts are undisputed. Zurich is a Swiss

  corporation whose main administrative offices in the United

  States are located in Illinois. Baxter International, Inc.,

  and Baxter Healthcare Corporation are Delaware corporations

  whose corporate headquarters, including their risk management

  department, are also located in Illinois. According to the

  record, Zurich issued a series of comprehensive general

  liability insurance policies to Baxter covering periods

  between 1978 and 1986. All of these policies were delivered,

  issued, and serviced in Illinois by Illinois brokers and

  underwriters.

       One of Baxter's businesses involves extracting blood

  factor concentrates from plasma for use in treating

  hemophilia. Baxter has been sued by hemophiliacs from

  Illinois and elsewhere who allege that these concentrates

  were contaminated with the human immunodeficiency virus

  (HIV), that the concentrates infected them with the virus,

  and that they suffer or expect to suffer from Acquired Immune

  Deficiency Syndrome (AIDS). Although the parties have not

  cited any evidence indicating the precise number of such

  lawsuits, the jurisdictions in which the suits have been

  filed or how many individual claimants there are, counsel

  represent that Baxter is involved in at least 100 cases

  involving more than 10,000 HIV-infected hemophiliacs. Among

  these are cases that are pending or have been tried in

  Illinois, including a class action on behalf of approximately

  7,500 claimants filed in the United States District Court for

  the Northern District of Illinois.

       In the wake of this litigation, Zurich filed the present

  action to obtain a declaratory judgment that it had no duty

  under the comprehensive general liability insurance policies

  it had issued to Baxter to defend the company against or

  indemnify it for claims pertaining to the HIV-contaminated

  blood factor concentrates. Baxter responded by filing its own

  action in California, where the blood factor concentrates

  were processed, asking for a declaratory judgment that Zurich

  did have a duty under the policies to defend and indemnify

  it. The California action also sought a declaratory judgment

  with respect to the rights and obligations of Baxter's

  numerous excess insurers, but all but one of those excess

  insurers have now been dismissed from the case.

       At the outset of these proceedings Baxter claimed that

  it initiated the separate action in California as a "counter

  punch" to Zurich's lawsuit. Before this court, its position

  is different. The company denies that its motive is to harass

  Zurich or secure some tactical advantage over it. According

  to Baxter, its true purpose is simply to sidestep the HIV-

  infected hemophiliacs who have sued it.

       Here, as in the appellate court, Baxter contends that

  under Illinois law, tort claimants are necessary parties in

  declaratory judgment actions regarding insurance coverage for

  their claims, and they must be joined in order for the

  declaratory judgment proceedings to go forward. Under

  California law, by contrast, they are not necessary parties

  and joinder is not required. Accordingly, Baxter contends

  that suing in California will enable it to resolve its

  insurance coverage dispute with Zurich free from

  participation by the legion tort claimants who are pursuing

  it.

       While Baxter now professes concern with simplifying its

  dispute against Zurich, we note that Zurich's original

  Illinois complaint was actually less complex than the

  complaint filed by Baxter itself in California. Unlike the

  California action, the Illinois litigation did not name any

  of Baxter's excess insurers. The only parties to the

  proceeding were Zurich and Baxter, and Baxter did not assert

  that the case could not proceed in that posture.

       When Baxter subsequently moved to stay or dismiss the

  Illinois action, it did not do so on the grounds that

  Zurich's original complaint was defective and should be

  dismissed for failure to join necessary parties. Instead, it

  invoked section 2--619(a)(3) of the Code of Civil Procedure

  (735 ILCS 5/2--619(a)(3) (West 1992)), which provides that

  a defendant may move for dismissal or other appropriate

  relief on the grounds that "there is another action pending

  between the same parties for the same cause." Baxter also

  argued that the case was premature.

       The idea that there might be a problem with failure to

  join necessary parties did not arise until it was raised by

  the circuit court, sua sponte. Although the court denied

  Baxter's motion to dismiss, the court was concerned that

  Illinois law might require joinder of the underlying tort

  claimants in cases such as this, as Baxter now asserts. The

  court gave the parties the opportunity to brief the issue and

  present arguments at a series of hearings, after which it

  concluded that the underlying tort claimants were necessary

  parties and must be joined before the case could proceed. The

  court further concluded that the joinder problem could not

  be avoided by using class action procedures or by relying on

  the doctrine of representation.

       Rather than dismiss Zurich's complaint outright, the

  circuit court continued the case, giving the company leave

  to file an amended complaint addressing the joinder problem.

  Zurich responded by filing a new complaint that named as

  parties Baxter's excess insurers and the particular

  underlying claimants over whom the Illinois courts could

  assert in personam jurisdiction. In this version of its

  complaint, Zurich dropped its request for a comprehensive

  declaration of its rights and obligations under the Baxter

  insurance policies. Instead, it limited its prayer for relief

  to the circumstances presented by the particular claimants

  it had actually joined as parties.

       Baxter did not deny that this approach resolved the

  circuit court's joinder concerns. Its attack on Zurich's

  action took a new turn. Baxter now filed a new motion to

  dismiss under section 2--619(a)(3) of the Code, arguing that

  the Illinois action should be stayed pending resolution of

  the case in California because, in its amended form, the

  Illinois action was now less "comprehensive" than its

  California counterpart. The circuit court agreed with

  Baxter's argument, and on October 25, 1994, it entered an

  order granting the stay requested by Baxter.

       Several days later, on a motion filed by Zurich, the

  circuit court also made a written finding under Supreme Court

  Rule 308 (155 Ill. 2d R. 308) that its previous orders with

  respect to the issue of joinder involved questions of law as

  to which there is substantial ground for difference of

  opinion and that an immediate appeal may materially advance

  the ultimate termination of the litigation. The particular

  questions of law identified by the circuit court were (1)

  whether the underlying claimants and excess insurers did in

  fact have to be joined as necessary parties for the case to

  proceed, and (2) whether the court correctly refused to allow

  Zurich to use a class action mechanism or to rely on the

  doctrine of representation in lieu of joining the individual

  claimants from the underlying tort actions against Baxter.

       Once the circuit court entered its findings, Zurich

  sought leave to appeal under Supreme Court Rule 308 (155 Ill.

  2d R. 308) from the circuit court's orders concerning the

  issue of joinder. Although the appellate court denied

  Zurich's application, we entered an order in the exercise of

  our supervisory authority requiring the appellate court to

  hear Zurich's Rule 308 appeal on the merits. We subsequently

  clarified that order to make clear that our instructions were

  not meant to bar Baxter from arguing that Zurich had waived

  its right to contest the joinder issues.

       At the same time it was pursuing this Rule 308 appeal,

  Zurich also filed an interlocutory appeal as of right from

  the circuit court's order staying the Illinois declaratory

  judgment action pending resolution of the action in

  California. 155 Ill. 2d R. 307(a)(1). The appellate court

  subsequently consolidated this appeal with Zurich's appeal

  under Rule 308, reversed the circuit court's stay, and

  remanded the cause for trial, holding, inter alia, that

  Zurich had not waived its right to contest the joinder issues

  and that joinder of all of the underlying claimants is not

  necessary in mass-tort litigation such as this. 275 Ill. App.

  3d 30. On Baxter's application, the appellate court granted

  a certificate of importance, and the matter is now before us

  for review under Rule 316 (155 Ill. 2d R. 316).

       Here, as in the appellate court, Baxter continues to

  assert that Zurich has waived its right to contest the

  circuit court's rulings on the issue of joinder. We agree.

  As previously mentioned, the circuit court held that the

  underlying tort claimants were necessary parties, that they

  all had to be joined in order for the case to proceed, and

  that this joinder requirement could not be satisfied by means

  of a class action or through the doctrine of representation.

  Faced with such a ruling, Zurich could have elected to stand

  on its pleadings, taken an involuntary dismissal of its

  action with prejudice pursuant to section 2--615 of the Code

  of Civil Procedure (735 ILCS 5/2--615 (West 1992)), and then

  appealed that judgment. It elected not to do so. Instead, it

  responded to the circuit court's rulings by filing an amended

  pleading.

       Zurich's new pleading was complete in itself, did not

  refer to or adopt allegations in the prior pleadings, and

  sought relief in the specific context of particular claimants

  over whom the Illinois courts could assert in personam

  jurisdiction. There were no class action allegations or

  allegations involving the doctrine of representation, and

  Zurich no longer asserted that it could proceed against

  Baxter alone without joinder of the underlying tort

  claimants. Under these circumstances, Zurich's previous

  pleadings were, in effect, abandoned and withdrawn (Pfaff v.

  Chrysler Corp., 155 Ill. 2d 35, 61 (1992)), and Zurich waived

  any objection to the circuit court's rulings with respect to

  those pleadings (Boatmen's National Bank v. Direct Lines,

  Inc., 167 Ill. 2d 88, 99 (1995)). Because the issues raised

  by Zurich's Rule 308 appeal pertained only to the earlier

  pleadings and were inapplicable to the final version of

  Zurich's complaint, the appellate court therefore erred in

  addressing them on the merits. Accordingly, the appellate

  court's discussion of necessary parties in mass-tort

  litigation cannot stand and is of no precedential value.

       Although we must disavow that portion of the appellate

  court's opinion, we nevertheless agree with its ultimate

  conclusion that the circuit court erred in staying the

  circuit court proceedings pursuant to section 2--619(a)(3)

  of the Code. That provision allows a defendant to move for

  a dismissal or stay whenever there is "another action pending

  between the same parties for the same cause." 735 ILCS 5/2--

  619(a)(3) (West 1992). Although the purpose of the law is to

  avoid duplicative litigation, a circuit court is not

  automatically required to dismiss or stay a proceeding under

  section 2--619(a)(3) even when the "same cause" and "same

  parties" requirements are met. Multiple actions in different

  jurisdictions arising out of the same operative facts may be

  maintained where the circuit court, in a sound exercise of

  its discretion, determines that both actions should proceed.

  Factors a court should consider in deciding whether a stay

  is warranted under section 2--619(a)(3) include comity; the

  prevention of multiplicity, vexation and harassment; the

  likelihood of obtaining complete relief in the foreign

  jurisdiction; and the res judicata effect of a foreign

  judgment in the local forum. Kellerman v. MCI

  Telecommunications Corp., 112 Ill. 2d 428, 447-48 (1986).

       In this case, both Zurich and Baxter have headquarters

  in Illinois. Baxter's risk management department is located

  in Illinois, the disputed insurance policies were negotiated

  and signed in Illinois, and there is no question that

  interpretation of the policies will be governed by Illinois

  law. This is, in every way, an Illinois dispute, and the

  California trial court before which Baxter's action is

  pending has recognized it as such. If the Illinois courts are

  willing to provide a forum, the California trial court will

  gladly yield.

        Although Baxter denies any improper motive, its

  original justification for filing in California, to "counter

  punch" Zurich, seems blatantly retaliatory. It subsequently

  attempted to legitimize its position by focusing on interests

  of the underlying tort claimants. As our previous discussion

  indicated, however, the question of whether those claimants

  should participate in the litigation was raised by the

  circuit court, sua sponte, not by Baxter. When Baxter

  initially responded to Zurich's Illinois action and filed its

  own complaint in California, the underlying claimants played

  no discernible role in its strategy. Baxter did not embrace

  the notion that they might be necessary parties until the

  circuit court's actions indicated that such a position might

  help the company rationalize its decision to file a parallel

  suit in California.

       Even after Baxter began expressing concern for the tort

  claimants, its sincerity was questionable. While the company

  appeared to champion the importance of protecting the tort

  claimants' interests, its attorney asserted at oral argument

  before this court that his client's true reason for suing in

  California was to prevent the claimants from playing any role

  in the litigation. Rather than guarding the claimants, Baxter

  is intent on avoiding them.

       Baxter's strategy is based on the notion that where an

  insurance company brings a declaratory judgment action

  against its insured to determine the company's obligations

  under a liability policy, claimants seeking recovery from the

  insured in the underlying tort actions are not necessary

  parties to the declaratory judgment action under California

  law. According to Baxter, the law in Illinois is different.

  Here, they are necessary parties who must be joined in order

  for the declaratory judgment action to proceed. See M.F.A.

  Mutual Insurance Co. v. Cheek, 66 Ill. 2d 492, 495 (1977);

  but see Zurich Insurance Co. v. Raymark Industries, Inc., 118

  Ill. 2d 23 (1987) (a declaratory judgment defining an

  insurer's duty to defend and indemnify its insured in

  thousands of underlying actions was reviewed on the merits

  by this court even though none of the underlying tort

  claimants had been joined as parties).

       The joinder question was one of the issues raised by

  Zurich's Rule 308 appeal. As we have held, Zurich waived the

  issue when it decided to amend its complaint to seek relief

  in the context of specific litigation involving particular

  litigants over whom the Illinois courts had in personam

  jurisdiction. Without suggesting how we would resolve the

  issue if it were properly before us, we note that even if we

  agreed with Baxter's interpretation of the law, the company's

  argument would be unavailing.

       If Baxter's interpretation is correct, Illinois law

  evinces a recognition that the underlying claimants have a

  substantial interest in how insurance coverage questions are

  resolved. It also reflects a belief that this interest is

  best protected by having the claimants participate directly

  in the litigation between the insurance carrier and the

  insured, rather than by allowing the claimants to sue the

  carrier independently, as is apparently the practice in

  California. Accordingly, if Baxter's construction of the law

  is correct, the fact that the claimants will be excluded from

  the coverage litigation in California is not a reason to

  defer to the California courts. It is a reason to insist that

  the Illinois action be allowed to proceed in the courts of

  Illinois. Litigants such as Baxter should not be permitted

  to invoke section 2--619(a)(3) of the Code as a means for

  evading this state's public policy.

       As noted earlier, Baxter ultimately succeeded in staying

  the Illinois litigation by persuading the circuit court that

  the California action would be more "comprehensive" than the

  action framed by the final amended version of Zurich's

  Illinois complaint. It is difficult to see, however, how the

  California action can be considered more "comprehensive" in

  any meaningful sense of the term. As a matter of due process,

  a judgment can only bind the actual parties to a case or

  those in privity with them. Parklane Hosiery Co. v. Shore,

  439 U.S. 322, 327 n.7, 58 L. Ed. 2d 552, 559 n.7, 99 S. Ct.

  645, 649 n.7 (1979). In its present form, the California

  action has only three parties: Zurich, Baxter, and another

  of Baxter's insurers. By contrast, the Illinois action

  includes not only those three parties, but also more than a

  hundred of Baxter's excess insurers and dozens of claimants

  from the underlying tort actions. In terms of the number of

  litigants affected, a judgment in the Illinois action will

  therefore have a far greater impact than any judgment in the

  California proceeding. To this extent, Baxter's California

  action is actually less comprehensive than Zurich's action

  in Illinois, not more so.

       When Baxter claims that the California action is more

  "comprehensive," it has no concern for any of the other

  litigants. It is interested only in the case's potential for

  resolving its dispute with Zurich. Because Zurich's Illinois

  action now seeks relief in the context of the claims asserted

  by the specific Illinois claimants who have been joined,

  Baxter suggests that its effect must necessarily be more

  restrictive than the California litigation, which refers to

  the AIDS litigation generally. According to Baxter, the

  California case will cover every issue presented by every

  underlying claim, while the Illinois case will necessarily

  be limited to the circumstances of the particular claimants

  who have been joined here. The flaw in this argument is that

  it presumes that the claims of the Illinois claimants are in

  someway distinguishable from the additional claims underlying

  the California case. There is nothing in the record before

  us to substantiate such a contention. As between Zurich and

  Baxter, the issues presented by the two cases are, for all

  practical purposes, identical. Under these circumstances, a

  judgment in the Illinois action would be no less conclusive,

  as between Zurich and Baxter, than a judgment in the

  California proceeding.

       For the foregoing reasons, we believe that there was no

  valid reason for the circuit court to have stayed Zurich's

  action under section 2--619(a)(3) pending outcome of Baxter's

  action in California. Entry of that stay constituted an abuse

  of discretion, and the appellate court was correct when it

  reversed the circuit court's order and remanded the cause to

  the circuit court for further proceedings. The judgment of

  the appellate court, as modified by this opinion, is

  therefore affirmed.

                                   Affirmed as modified.

       CHIEF JUSTICE BILANDIC took no part in the

  consideratioan or decision of this case.

       JUSTICE FREEMAN, specially concurring:

       I fully agree with and join the majority's decision to

  affirm the appellate court's judgment. The appellate court

  correctly determined that the trial court abused its

  discretion by granting a stay of the underlying declaratory

  judgment action in favor of proceedings filed by defendant

  in California. I write only to highlight the salient factors

  that undergird our decision.

       The record reveals that Baxter filed its declaratory

  judgment action in California against Zurich, its insurer,

  nine days after Zurich filed the instant suit in Illinois.

  The California action sought a declaration that Zurich and

  105 of Baxter's excess insurers had duties to defend and

  indemnify Baxter under certain insurance policies against

  claims of numerous HIV-infected persons. These HIV-infected

  persons were not parties to the California action and, under

  California law, they were not considered necessary parties.

  By the time of this appeal, all, save one, of Baxter's 105

  excess insurers were dismissed as parties from the case. The

  California action was also stayed, pending resolution of the

  instant Illinois action.

       Zurich's third-amended complaint in this action named

  Baxter, Baxter's excess insurers, and those HIV claimants,

  17 in number, over whom Illinois courts could assert personal

  jurisdiction. The third-amended complaint seeks a declaration

  that Zurich and Baxter's excess insurers owe no duties to

  defend and indemnify Baxter under the same policies against

  claims of these 17 persons.

       The trial court, exercising its discretion, stayed the

  instant action pursuant to section 2--619(a)(3), finding the

  California action more "comprehensive." 735 ILCS 5/2--

  619(a)(3) (West 1992). The appellate court vacated the stay,

  which ruling the majority now affirms.

       Section 2--619(a)(3) provides that a defendant may move

  for a dismissal or stay whenever there is "another action

  pending between the same parties for the same cause." 735

  ILCS 5/2--619(a)(3) (West 1992). The provision is designed

  to avoid duplicative litigation and is to be applied to carry

  out that purpose. Kellerman v. MCI Telecommunications Corp.,

  112 Ill. 2d 428, 447 (1986). The "same cause and same parties

  requirements" are apparently threshold considerations to

  granting section 2--619(a)(3) relief. See A.E. Staley

  Manufacturing Co. v. Swift & Co., 84 Ill. 2d 245, 252-54

  (1980); Kellerman, 112 Ill. 2d at 447; see also Perimeter

  Exhibits, Ltd. v. Glenbard Molded Binder, Inc., 122 Ill. App.

  3d 504, 509 (1984) (failure to meet section 619(a)(3) "same

  parties" requirement fatal to request for such relief).

       Nonetheless, even if the dual requirements are met,

  relief under section 2--619(a)(3) is not mandated. The

  court's decision to grant relief or allow multiple actions

  to proceed in different jurisdictions remains a matter of

  discretion. Kellerman, 112 Ill. 2d at 447. The factors a

  court should consider in making that decision include:

  comity; the prevention of multiplicity, vexation, and

  harassment; the likelihood of obtaining complete relief in

  the foreign jurisdiction; and the res judicata effect of a

  foreign judgment in the local forum. Kellerman, 112 Ill. 2d

  at 447-48.

       The present case presents a situation where at least one

  of the dual threshold requirements for section 2--619(a)(3)

  relief was not met. The Illinois and California actions do

  not involve the same parties. The California action is

  between only Baxter, Zurich and one of Zurich's excess

  insurers; the Illinois action names these parties and also

  includes 17 of the underlying claimants as well as an entire

  group of Baxter's excess insurers. Further, this is not a

  case where the same parties requirement should be relaxed.

  See Catalano v. Aetna Casualty & Surety Co., 105 Ill. App.

  3d 195, 197 (1982) (requirement relaxed where parties in

  close privity); Perimeter Exhibits, Ltd. v. Glenbard Molded

  Binder, Inc., 122 Ill. App. 3d at 508 (requirement relaxed

  where parties in one action are nominal parties or their

  claims are not in issue); People ex rel. Fahner v. Climatemp,

  Inc., 101 Ill. App. 3d 1077, 1084 (1981) (parties are same

  legal entity). This point is demonstrated by the fact that,

  under California law, the unnamed underlying claimants'

  third-party rights to a recovery under the policy could not

  be determined in the California action. Any declaratory

  judgment regarding Zurich's duty to indemnify Baxter for the

  underlying claims would not be res judicata as against those

  claimants. See Shapiro v. Republic Indemnity Co. of America,

  52 Cal. 2d 437, 341 P.2d 289 (1959). In the Illinois action,

  by contrast, Zurich's obligation to fund Baxter's defense and

  payment of these particular claims would be adjudicated.

       In addition to the failure of this requirement,

  discretionary factors which weigh against granting section

  2--619(a)(3) relief are readily apparent here. The California

  court repeatedly expressed frustration with the fact that our

  circuit court would not assert its jurisdiction over the

  matter. The California court stated, inter alia:

         "This is an Illinois contract, entered in by

            Illinois parties, signed in the state of Illinois

            *** [f]or some reason Illinois courts either don't

            want to, won't, can't, choose not to or whatever.

            For the last year and half they have been deciding

            through the courts whether or not they are [going]

            to go take jurisdiction of this case or not, and

            it really belongs in Illinois.

                                ***

              [I am b]aby sitting this thing until Illinois

            finally decides they have an interest in the

            case."

  The California action was also stayed, pending resolution of

  the case here in Illinois. Clearly, the California court, for

  the sake of comity, would have been willing to defer to the

  circuit's judgment here. That willingness and the absence of

  the same parties in each suit was indicative that a stay of

  the Illinois action was unnecessary to prevent a multiplicity

  of actions.

        Moreover, it cannot be said that the prior-in-time

  Illinois action was filed to vex or harass Baxter. In

  deciding whether to grant or deny the stay, the trial court

  should have considered whether this factor argued for a stay

  of the Illinois action due to the actions or animus of Zurich

  in bringing the suit. Baxter's motivation in bringing the

  California action is really not critical to the determination

  of whether this Illinois action was properly stayed. The

  majority need not belabor that point. Clearly, however,

  Baxter was attempting to speedily advantage itself by forum

  shopping when it filed in California nine days after Zurich

  filed here.

       Another discretionary factor that should have been

  considered was the likelihood that the Illinois parties would

  have realized some manner of complete relief via the

  California action. Again, clearly, they could not. The

  California action would have adjudicated Baxter's rights

  under its policy with Zurich and under one excess layer

  policy with another insurer. Such judgment would afford no

  relief to Baxter's remaining excess insurers and the 17

  claimants in the Illinois action. Furthermore, any judgment

  between Zurich and Baxter in California would clearly have

  no res judicata effect against the remaining excess insurers

  and 17 claimants named as parties here.

       In conclusion, the trial court abused its discretion in

  granting a stay of the instant action because a threshold

  requirement for section 2--619(a)(3) relief was not met, the

  two actions did not involve the same parties, and not one

  discretionary factor argued in any way for such relief.