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OLD REPUBLIC INSURANCE COMPANY v. MOTLEY

January 4, 2005.

OLD REPUBLIC INSURANCE COMPANY, Plaintiff,
v.
NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE, P.A.; RICHARDSON, PATRICK, WESTBROOK & BRICKMAN, LLC; H. BLAIR HAHN; MICHAEL J. BRICKMAN; TERRY E. RICHARDSON, JR.; INTERCLAIM HOLDINGS, LTD; INTERCLAIM RECOVERY, LTD; and TWIN CITY FIRE INSURANCE COMPANY, Defendants.



The opinion of the court was delivered by: BLANCHE MANNING, District Judge

MEMORANDUM AND ORDER

Plaintiff Old Republic Insurance Company ("Old Republic") brings this declaratory judgment action based on diversity jurisdiction. Before the court is Old Republic's motion to strike certain of Ness, Motley, Loadholt, Richardson & Poole, P.A., Motley Rice, L.L.C. and M.R.R.M., P.A.'s (collectively, Ness Motley) affirmative defenses.*fn1 For the reasons that follow, the court grants in part and denies in part the motion to strike certain of the affirmative defenses.

I. BACKGROUND

  For purposes of this order, the court will presume familiarity with its prior decisions regarding this case. The present action stems from a judgment entered against the now defunct law firm of Ness Motley. See Interclaim Holdings, Ltd. v. Ness, Motley, Loadholt, Richardson & Poole, 2001 WL 1313799 (N.D. Ill. Oct. 29, 2001) (hereinafter "Underlying Action"). Defendants Interclaim Holdings, Ltd. and Interclaim Recovery, Ltd. (collectively "Interclaim") filed the Underlying Action against Ness Motley alleging that Ness Motley engaged in wrongdoing in connection with its representation in the prosecution of certain class action claims that took place in the Circuit Court of Madison County, Illinois. The jury in the Underlying Action found Ness Motley breached its fiduciary duty and the parties' retainer agreement and awarded Interclaim $8.3 million in compensatory damages and $27.7 million in punitive damages. Ness Motley filed a motion for a new trial, judgment as a matter of law, and remittitur, which the district court denied. See Interclaim Holdings, Ltd. v. Ness, Motley, Loadholt, Richardson & Poole, 298 F.Supp.2d 746 (N.D. Ill. 2004).*fn2 Presently, the defendants' appeal of the Underlying Action is pending in the Seventh Circuit. See Interclaim Holdings, Ltd. v. Ness, Motley, Loadholt, Richardson & Poole, No. 04-1234 (7th Cir. filed Jan. 28, 2004 and argued September 29, 2004).

  The individual defendants in the present action are now members of and are practicing law with defendant Richardson Patrick, a South Carolina law firm. At issue are the excess professional liability policies Old Republic issued to Ness Motley and its individual attorneys. Old Republic seeks a determination that it has no duty to defend, indemnify, or reimburse defense costs or make indemnity payments to the defendants because the defendants failed to disclose the Underlying Action when applying for their excess professional liability insurance coverage. Defendant Twin City Fire Insurance Company ("Twin City") issued the primary professional liability insurance policy to Ness Motley. The primary insurance policy has a liability limit of $20 million. II. MOTION TO STRIKE AFFIRMATIVE DEFENSES

  Before addressing the claims in Old Republic's Motion to Strike Certain Affirmative Defenses, the court notes that Ness Motley was given leave on November 9, 2004 to file a surreply. The court has reviewed the surreply and finds that most of the arguments could and should have been included in Ness Motley's response or are irrelevant to the motion at hand. The court, however, will address below Ness Motley's argument responding to Old Republic's assertion that defendants Brickman and Hahn had the incentive to fully litigate the choice-of-law issue.

  Ness Motley has asserted seven affirmative defenses: (1) Count I fails to state a claim because Old Republic does not allege prejudice, as required under South Carolina law; (2) Count VIII fails to state a claim because, under South Carolina law, punitive damages are insurable; (3) Count IX fails to state a claim because Ness Motley breached no duty owed to Old Republic; (4) estoppel; (5) waiver; (6) laches; and (7) unclean hands. Old Republic moves to strike the first two affirmative defenses and the fourth, fifth, sixth, and seventh affirmative defenses.*fn3

  Although Federal Rule of Civil Procedure 12(f) permits this Court to strike any insufficient affirmative defense from any pleading, motions to strike are generally disfavored and may only be granted if "the defense [asserted] is patently defective and could not succeed under any set of circumstances." Carpenter v. Ford Motor Co., 761 F. Supp. 62, 65 (N.D. Ill 1991). This court will not strike an affirmative defense if: (1) it is properly raised as an affirmative defense; (2) it meets the pleading requirements of Federal Rules of Civil Procedure 8 and 9; and (3) it could withstand a Rule 12(b)(6) challenge. Ivanhoe Financial, Inc. v. Highland Banc Corp., No. 03 C 7336, 2004 WL 2091997, *3 (N.D. Ill. Sept. 15, 2004).

  First and Second Affirmative Defenses

  As noted above, the first two affirmative defenses allege that Counts I and VIII (both request declaratory relief against all defendants except Interclaim and Twin City) of the complaint fail to state a claim. Old Republic argues that these defenses should be stricken under the law of the case doctrine because they are based expressly on South Carolina law and this court has already determined in its June 22, 2004, ruling that Illinois law applies to this litigation. Ness Motley responds that, for a variety of reasons, the law of the case doctrine does not apply to the instant situation and thus this court's previous ruling as to the applicable law does not prevent it from putting forth an affirmative defense based on South Carolina law.*fn4

  Under the law of the case doctrine, "a ruling made in an earlier phase of the litigation controls the later phases unless a good reason is shown to depart from it." Tice v. American Airlines, Inc., 373 F.3d 851, 853 (7th Cir. 2004); Winters v. Gray, No. 96 C 7117, 1999 WL 281083, *4 (N.D. Ill. March 31, 1999) ("The law of the case doctrine `merely expresse[s] the practice of courts generally to refuse to reopen what has been decided.'") (internal citation omitted). However, the rule is not "hard and fast, and so a party is free to argue that an intervening change in law or other changed or special circumstance warrants a departure." Tice, 373 F.3d at 854. The Seventh Circuit has specifically identified the following exceptions that may require a court to revisit an earlier ruling: "(1) substantial new evidence introduced after the first review, (2) a decision of the Supreme Court after the first review, [or] (3) a conviction on the part of the second reviewing court that the decision of the first was clearly erroneous." Key v. Sullivan, 925 F.2d 1056, 1060 (7th Cir. 1991).

  Ness Motley makes five separate arguments why the law of the case doctrine should not apply to it. First, it argues that because it was not involved in the litigation at the time of the motion to determine the applicable law, it should not be held to the court's ruling on the motion. The second reason, closely related to the first, is that it did not participate in the briefing of the motion to determine the applicable law and so should not be held to the court's ruling. Third, it asserts that additional discovery is needed before an accurate ruling can be made on the choice-of-law issue. Fourth, it states that Judge Pallmeyer's ruling in the Underlying Action precludes a finding that Illinois law applies. Finally, it argues that a finding that Illinois law applies would be unjust. The court addresses each argument in turn.

  Ness Motley first argues that the law of the case doctrine has "no application to parties who were not actively involved in the original dispute." In support, it cites Minton v. MCA, Inc., 438 F.3d 1228, 1995 WL 80145 (9th Cir. 1995), and United States v. Maybusher, 735 F.2d 366 (9th Cir. 1984). These cases, however, are inapposite.

  In Minton, the sons of the plaintiff filed their own action against defendant, which the district court dismissed on the grounds that it was filed "in bad faith" because the son's interests were "aligned" with those of their father. On appeal, the defendant argued that the law of the case justified the dismissal of the sons' complaint because the district court had granted summary judgment against the father-plaintiff in the original action. Minton, 1995 WL 80145, at *3. The court, however, while not expressly rejecting the defendant's law of the case argument, held that dismissal of the action was not proper because even if the sons' interests were aligned with those of their father, they still had the right to file their own action. The instant case is distinguishable. In ...


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