DECISION AND ORDER
After a long, convoluted motion, discovery and judicialassignment process, this Court, having satisfied itself that thiscase's status so warrants, now stays this matter until resolutionof the related California and Connecticut cases. The stayincludes the cross motions for summary judgment that are stillawaiting decision. It is the conclusion of this Court that established case law coupled with concerns for judicialefficiency and comity clearly indicate that the existence andstatus of the related matters pending in both California andConnecticut provide sufficient cause for this Court to exerciseits discretion to stay all activity in this matter until thosecases are resolved.
This is an action by Jonathan H. Pardee and Carol Havican, asTrustee of the Jonathan H. Pardee Charitable Remainder Trust(collectively "Plaintiffs") to enforce against Consumer PortfolioServices, Inc. ("CPS") what they allege are their rights toindemnification under the terms of a certain Stock PurchaseAgreement dated May 20, 1997 ("SPA").
Plaintiffs seek reimbursement of the attorneys' fees and othercosts that each has incurred in defending related litigation inCalifornia and Connecticut arising out of the failure of StanwichFinancial Services, Inc. ("Stanwich")to make certain structuredsettlement payments beginning in late 2000. Plaintiffs wereshareholders in Settlement Services Treasury Assignments, Inc. or"SSTAI", a Connecticut corporation, prior to May 20, 1997, whenthey sold all of their stock in that company which later became Stanwich.1 Plaintiffs allege that CPShas refused to honor its indemnification obligations as set forthin the SPA.
This case was initially filed in the Rhode Island SuperiorCourt by Pardee against CPS in mid-December of 2001. It wasremoved to this Court by CPS shortly thereafter. Upon removal thecase was assigned to Chief Judge Ernest Torres. On January 31,2002, CPS filed a motion to stay proceedings, arguing that theinstant action, wherein Pardee seeks indemnification of legalcosts stemming from two pending civil matters, one in CaliforniaSuperior Court ("the California case") and one in the ConnecticutBankruptcy Court ("the Connecticut case") was not ripe foradjudication. In response, Judge Torres issued an Order to ShowCause "why this case should not be dismissed because the claimsasserted are not yet ripe for adjudication" on March 13, 2002. Ahearing on was held on the show cause order on June 25, 2002. Atthat hearing, CPS reasserted its allegation that the case shouldbe dismissed or stayed as not yet ripe for adjudication. Pardeecontended that dismissal was not appropriate.
On July 17, 2002, Judge Torres held further hearings regardingthe ripeness and abstention arguments and ruled that Pardee had shown that the case should not be dismissed and alsoruled that the case should not be stayed. On July 23, 2002, JudgeTorres issued an order denying a stay of the proceedings andconfirmed his earlier ruling that Pardee had shown cause why thecase should not be dismissed. Having thus dealt with thecontentions of both parties, Judge Torres allowed the case tomove forward. On August 8, 2002, CPS filed its answer to theinitial Complaint. Along with its answer, CPS also filed acounterclaim against Pardee. On August 28, 2002, Pardee filed hisAnswer to the Counterclaim. In addition to asserting claimsagainst Pardee, the Counterclaim made allegations against anadditional entity, known as The Dunbar/Wheeler Trust (the"Trust"). Preliminary motion practice continued in the case, andthe Trust was issued a Summons on November 24, 2002. On December4, 2002, Judge Torres issued an order transferring the entirematter to Judge William E. Smith.
A status conference before Judge Smith was scheduled forJanuary 15, 2003 pursuant to Fed.R. Civ. Pro. 16. Prior to theRule 16 conference, Pardee filed an Amended Complaint, whichadded Carol Havican as an additional plaintiff in her capacity asTrustee of the Jonathon Pardee Charitable Remainder Trust. OnJanuary 16, 2003, Judge Smith issued a scheduling order, settingthe discovery cutoff date as September 2, 2003, establishing a motion deadline date of December 12, 2003 and also a pretrialmemorandum filing date of December 12, 2003. The case continuedto move forward and on January 24, 2003 a number of papers werefiled by both parties. Among the filings were Defendant's Answerto Plaintiffs' Amended Complaint, a Motion and Memorandum inSupport thereof for Leave To File Exhibits exceeding ten pages byPlaintiffs; and a Motion for Summary Judgment, also by Plaintiffs(including a Statement of Undisputed Facts in support thereof).
On January 29, 2003, Judge Smith granted Plaintiffs' Motion forLeave to File Exhibits Exceeding Ten Pages and the flurry ofpaper continued: on February 7, 2003, the Trust filed its Answerto Defendant's Amended Counterclaims; on February 10, 2003,Plaintiffs filed their Answer to Defendant's AmendedCounterclaims; and, on February 14, 2003, Defendant filed aMotion for Leave to File Exhibits exceeding twenty pages. OnFebruary 18, 2003, Judge Smith granted Defendant's Motion forLeave to File Exhibits exceeding twenty pages and on that sameday, Plaintiffs' Motion for Summary Judgment was referred toJudge Smith by his calendar clerk along with Defendant'sObjection and Memorandum in support thereof to Plaintiffs' Motionfor Summary Judgment.
On February 19, 2003, CPS filed a Motion to Enlarge Time tofile its substantive objection to Plaintiffs' Motion for Summary Judgment until September 15, 2003. Subsequent to Plaintiffs'objection to Defendant's Motion to Enlarge Time (referred to byPlaintiffs as a Motion to Stay), Judge Smith held a hearingregarding both motions on April 11, 2003.
Judge Smith took the matter under advisement and upon review ofpost hearing memoranda submitted by both parties (including acopy of the Chapter 11 Reorganization Plan pending in theConnecticut case)issued an order granting Defendant's Motion toEnlarge Time to file its substantive objection to Plaintiffs'Motion for Summary Judgment on May 14, 2003, with the caveatthat: "In the event defendant attempts to use the BankruptcyProceeding pending in the District of Connecticut, or proceedingin any other court to attempt to diminish the Plaintiffs' rightto indemnification being sought in this case, the Plaintiffs maypetition the Court for a modification or vacation of this orderto permit them to immediately proceed with their Motion forSummary Judgment."
After continued discovery motions and practice, includingrevision of the Scheduling Order by Judge Smith, a motion by CPSfor Leave to File Third-Party Complaint against Hinckley Allen &Snyder, LLP ("HA&S"), the law firm that had been involved in thesale of Plaintiffs' company was filed.
On July 17, 2003, Judge Smith issued an Order of Recusal and the case was reassigned to Judge Torres. After reassignment and asubsequent motion to enlarge time filed jointly by Plaintiffs andDefendant, discovery began in earnest and notices were filed byDefendant to take the depositions of multiple non-parties.
On July 23, 2003, Magistrate Judge Lovegreen, who had beenoverseeing the discovery process, referred the Motion for Leaveto File Third-Party Complaint against HA&S back to Judge Torres.After receipt of additional discovery motions (primarily noticesof deposition filed by Defendant), and without ruling on theMotion for Leave to File Third-Party Complaint against HA&S,Judge Torres signed an order of recusal and the case was assignedto Judge Mary Lisi. Discovery continued subsequent to thatassignment but Judge Lisi made no dispositive rulings.
On September 18, 2003, Judge Lisi held an in-chambersconference and on September 22, 2003 issued an order recusingherself from the case and the matter was assigned to this writeron that same day. On September 24, 2003, this Court granted thepending unopposed motion to Enlarge Time for Plaintiffs toRespond to Defendant's Motion for Leave to File a Third PartyComplaint. Additionally, this Court granted a motion to extendall discovery deadlines by sixty days.
Discovery continued under the watchful eyes of MagistrateJudges Lovegreen and Martin and this Court heard arguments on the cross Motions for Summary Judgment (and Objections to same) onApril 22, 2004. At that hearing, the undersigned decided to holdthe pending motions in abeyance and instructed the parties tofile briefs regarding whether or not this case was ripe foradjudication. On July 12, 2004 this Court held a hearing toaddress the ripeness arguments, and took the matter underadvisement. On September 13, 2004, in response to continuedfilings regarding the addition and/or disqualification of HA&S,this Court heard arguments regarding the pending Motion for Leaveto File Third-Party Complaint against HA&S. The arguments weretaken under advisement and on September 22, 2004, this Courtissued an order denying the Motion for Leave to File Third-PartyComplaint against HA&S because that firm had previously been madea defendant in the Connecticut case and that could resolve theissue of their liability on all pending matters.
THE CALIFORNIA AND CONNECTICUT CASES
Currently, no judgment of liability has been entered againstPlaintiffs in either the California2 or theConnecticut3 case. Pardee has not settled any of theclaims asserted against him in either of those proceedings. In the California case, a global settlement of the Californiapayee plaintiffs' claims is now final. That settlement apparentlycalled for the settling defendants to pay more than $90,000,000to the California plaintiffs. On April 27, 2004, the Los AngelesSuperior Court entered an order confirming that each of theconditions of the settlement had been met and in early May of2004 that Court entered an order directing that the settlementproceeds be distributed to the California class-actionplaintiffs.
However, Pardee is not participating in the global settlementand therefore the California agreement does little to clarifymatters in this instant action. Indeed, because of Pardee'snon-participation in the California Settlement Agreement, all ofthe payee claims against him have been assigned to Bankers Trust,the California defendant that made the largest contribution tothe settlement. In addition to Pardee, the Bradleys4 [theparties who really purchased SSTAI from Pardee through SSTAcquisition Corporation ("SST")] and CPS are non-settling partiesin the California action. At the time of this writing, the claimsagainst Pardee, CPS, and the Bradleys remain unresolved.
In addition to the Bankers Trust claims against Pardee, the pending claims in the California case include a large number ofcross-claims that had been asserted in that case before theCalifornia court ordered such claims severed and stayed. Forexample, Bankers Trust asserted cross-claims against Pardee forfraud, misrepresentation, and contractual and equitableindemnification. Wells Fargo, Bank of America, and U.S. Trust Co.also filed various cross-claims against Pardee including claimsfor intentional and negligent interference with contractualrelations, negligent interference with prospective economicadvantage, breach of contract, tortious interference withsecurity, unjust enrichment, indemnity, contribution anddeclaratory relief. Pardee has also asserted at least oneindemnity cross-claim in the California case. As of the time ofthis writing, each of the above mentioned claims remainunresolved. A status conference was held in the California caseon September 9, 2004 at which a further continuance was grantedto the parties. A Trial Readiness Conference has been scheduledfor February 22, 2005 and the Jury Trial is scheduled for March8, 2005.
The Connecticut case is still at the pleadings stage. TheCreditors Committee moved for leave to amend the complaint lastfall. Pardee and his Connecticut co-defendants including HA&S,have opposed that motion. Extensive memoranda are on file with the Connecticut Bankruptcy Court concerning the question ofwhether the proposed amendment should be allowed. As of thiswriting, the Connecticut case remains mired in the pleadingsstage, the most recent legal wrangling has been over injunctionsand other preliminary orders of the Bankruptcy Judge. CPSrepresents to this Court that issues pertaining to the properscope and interpretation of the indemnity provision in the SPA atissue in this matter may also be litigated in connection with themain bankruptcy proceedings in Connecticut.
THE FACTUAL ALLEGATIONS
At this stage in the case, with much yet to be decided, thisCourt discusses the factual allegations upon which the claims andcounterclaims are predicated simply to describe the backdrop forthis ruling; they are not findings of fact.
In or about 1991, Pardee became an officer of SSTAI'spredecessor, and in 1992, upon gaining majority control of thecompany's shares, changed its name to SSTAI. Prior to Pardee'sacquisition of SSTAI's predecessor, the company's business hadbeen to facilitate structured settlements for individualplaintiffs who had agreed to receive periodic payments insettlement of their individual personal injury lawsuits inCalifornia.
In each of these structured settlements, the settlement recipients, SSTAI's predecessor, and a bank selected to serve astrustee, executed several interrelated written agreements,usually consisting of the initial settlement agreement, anassumption and assignment agreement, a trust agreement and anorder of payments, collectively referred to as the structuredsettlement documents. SSTAI's predecessor would then take thesettling defendants' lump sum payment and use it to purchase U.S.Treasury bonds which it would then place in an irrevocable,spendthrift trust for the sole purpose of funding future periodicpayments for the settlement recipients.
The structured settlements were designed to achieve certaingoals that were important to the settling parties. For example,the use of U.S. Treasury Bonds held in an irrevocable,spendthrift trust protected the long-term security of the futureperiodic payments. SSTAI's predecessor served as an intermediarybetween the settling parties freeing the settling defendant ofongoing liability for the periodic payments, while allowing bothparties to take advantage of favorable tax laws enacted toencourage just such settlements. Thus, SSTAI's predecessor wascontractually bound by the structured settlement documents tohold the settlement proceeds in an irrevocable trust that couldnot be sold, pledged or encumbered by the company or itsshareholders for financial gain. In 1991, SSTAI's predecessor sued to remove Wells Fargo Bank,N.A. as trustee for the various trusts that had been establishedunder the structured settlement agreements. In those proceedings,the Los Angeles Superior Court twice ruled that SSTAI'spredecessor did not have the power to replace the trustee underthe existing trust agreements without the consent of thesettlement payees. Whilst the case was pending on appeal, thecompany negotiated a settlement with Wells Fargo under whichWells Fargo agreed to resign as trustee. About the same time asthe Wells Fargo litigation, HA&S became legal counsel to SSTAI,its predecessor and Pardee. HA&S still serves as Pardee's legalcounsel.
After Wells Fargo was removed as trustee, SSTAI engaged U.S.Trust Co., N.A. (U.S. Trust) to serve as trustee for thesettlement packages and at the same time executed a new trustagreement. That agreement, entitled "Settlement Services TreasuryAgreements, Inc. Amended and Restated Master Trust Agreement" wasdated December 1, 1992. It referenced and purported to supercedeall previously existing trust agreements, including the prioragreement that SSTAI's predecessor had executed with Wells Fargo.CPS argues in this case that SSTAI did not notify or obtain theconsent of the settlement payees, nor did it obtain any courtapproval for the changes; thus, to the extent that the 1992 Master Trust Agreement purported toalter or amend any of the provisions contained in the originalagreement documents, it was without force or effect.
By 1993, it became clear that Pardee, HA&S and SSTAI's othershareholders were aware of, and interested in tapping the excessequity that had arisen in the trust assets as the market value ofthe Treasury Bonds had grown. CPS alleges, however, that the"excess equity" was in fact illusory as to SSTAI because pursuantto the binding trust agreement, neither SSTAI nor itsshareholders had any financial interest in the trust assets, nordid they have the right to pay off the settlement recipientsearly (at a discount) to gain control of the Bonds. CPS alsoalleges that the entire increase in the value of the Bonds merelyreflected the fact that interest rates had fallen and that agreater quantity of new, lower-rate Bonds would be required togenerate the same fixed interest income that was being generatedby the current, higher-rate Bonds held in trust. These twofactors, they argue, rendered the representations made by Pardeeat the time CPS agreed to be guarantor on the SPA, fraudulent.
By the summer of 1993, Pardee, with the help of his legalcounsel, HA&S had decided to "harvest" the excess equity by usingthe trust assets (Treasury Bonds) to secure cash loans. Despitesome misgivings and discussion regarding the legality of using the trust assets as loan collateral, particularly in light of thetrust agreement, Pardee and his lawyers attempted to convinceU.S. Trust to allow SSTAI to borrow against the trust assets.U.S. Trust refused and Pardee began to look for a trustee toreplace U.S. Trust that would allow him to access the trust assetequity.
Eventually, Pardee settled on Bankers Trust Co. of New York("Bankers Trust") and using the powers that he had conferred onSSTAI in the 1992 Master Trust Agreement, replaced U.S. Trust astrustee with Bankers Trust. After some negotiations, SSTAI andBankers Trust drafted and finalized a new trust agreement onDecember 7, 1994 entitled "Settlement Services TreasuryAssignments, Inc. Master Trust Agreement ("1994 Master TrustAgreement"). The 1994 Master Trust Agreement was to supersede the1992 Master Trust Agreement and made several key changes to it.According to CPS, the changes include, inter alia, (1) theelimination of any requirement that the trust estate consist ofTreasury Bonds; (2) allowing SSTAI to decide at its discretionwhether the trust assets were more than needed to meet paymentobligations to the settlement payees and instructing BankersTrust to remit any surpluses to SSTAI; (3) authorization for thetrustee to invest the trust assets in any way that SSTAIdirected; (4) authorization for the trustee to sell the Treasury Bonds upon SSTAI's instruction; (5) allowing SSTAI the right toalter, amend, restate or terminate the trust at its solediscretion; and, (6) allowing SSTAI the right to borrow againstthe trust assets and use the borrowed funds to re-invest forSSTAI's financial benefit. CPS notes that again SSTAI did notnotify or obtain the consent of the settlement payees with regardto the changes made to the existing trust agreements.
While Bankers Trust was serving as trustee, SSTAI entered intorepurchase agreements using the Treasury Bonds as collateral toobtain a line of credit at Morgan Stanley, an investment house.Using the proceeds of the repurchase transactions, SSTAI madevarious transactions through Morgan Stanley. Pardee and SSTAIkept the proceeds of these transactions. SSTAI did not notify orobtain the consent of the settlement payees with regard to therepurchase transactions or the profits derived therefrom.
In late 1996, Pardee and the SSTAI shareholders hired BearStearns & Co. to assist them in selling SSTAI. During the saleprocess, SSTAI stressed the availability of capital to be derivedfrom the valuable Treasury Bonds. By early 1997, Bear Stearns andPardee found buyers for SSTAI, namely Charles E. Bradley Sr. andCharles E. Bradley, Jr. ("the Bradleys").5 The Bradleys, owners of an array of financial and other companies, includingSST and CPS,6 were attracted to the possibility of usingSSTAI as a vehicle for obtaining large amounts of capital throughloan and repurchase agreements. Indeed, CPS, the guarantor of theindemnity portion of the SPA, alleges that the primary reason forthe purchase of SSTAI was the buyers' belief that SSTAI had anactual financial interest in the Treasury Bonds.
On May 20, 1997, Pardee, SSTAI's other shareholders, SST andCPS executed the SPA. Pursuant to the terms of that agreement,SSTAI's shareholders agreed to sell and SST agreed to purchaseall of the outstanding shares of SSTAI in consideration of andsubject to the terms set forth in the Agreement.
In the SPA, CPS agreed, as guarantor of the contract, andsubject to its terms, to indemnify Pardee and SSTAI's othershareholders from claims arising subsequent to the purchase ofthe stock and to be indemnified from certain claims resultingfrom the shareholders' acts or omissions prior to closure of theagreement. It is the indemnification provision that lies at theheart of this instant matter, and pursuant to its terms, CPSallegedly agreed to, inter alia: . . . Indemnify and hold each of the Sellers . . . and each of the Seller's trustees and agents . . . harmless from and against and agree to defend promptly each of the Seller Indemnified Parties for, any and all losses, damages, costs, expenses, fines, penalties, settlement payments and expenses, liabilities, obligations and claims of any kind, including, without limitation, reasonable attorneys' fees, and other legal and professional costs and expenses (hereinafter referred to collectively as "Seller Losses"), that any of the Seller Indemnified Parties may at any time suffer or incur, or become subject to, as a result of or in connection with the following (the "Seller Claims"): . . . (iv) any failure of the Purchaser, the Indemnitor and/or the Company [SSTAI or Stanwich], after the date hereof, to carry out and perform its obligations under any agreement, instrument or other document to which the Company is now bound or becomes bound, (v) any fraudulent behavior by the Company, the Purchaser and/or Indemnitor arising after the date hereof, (vi) any claim that the purchase and sale of the Shares constitutes a fraudulent transfer or fraudulent conveyance under applicable federal or state law and (vii) any failure to fulfill any obligation of the Sellers, the Company [SSTAI or Stanwich] and/or the SSTAI Trust to any Payee as and when due at any time after the closing date.
In conjunction with the consummation of the sale, SST and CPSrequested that SSTAI's counsel, HA&S provide a legal opinion toprovide further assurances that SSTAI did in fact have afinancial interest in the trust assets and had the legal right toborrow against the Treasury Bonds. Relying in large part on theongoing representation of SSTAI, HA&S provided just such anopinion, and CPS now alleges that HA&S's opinion letter becamepart of the basis of the bargain. Arguing that the legal opinionrendered by HA&S along with various and sundry representationsmade by SSTAI and Pardee prior to consummation of the sale constituted false representations, CPS alleges that theindemnification clause upon which Pardee bases his claim in thismatter, in effect, is invalid.
After finalizing the stock purchase agreement in the summer of1997, the Bradleys changed the company's name from SST toStanwich Financial Services Corporation.7 Next, theBradleys entered into a repurchase agreement with Morgan Stanleyand used the proceeds to pay Pardee approximately $16 milliondollars of the purchase price for SSTAI. The Bradleys thereaftercontinued the practice of selling the U.S. Treasury Bondspursuant to their repurchase agreement with Morgan Stanley.
The Bradleys continued to search for ways to benefit from theformer SSTAI holdings and eventually instructed Stanwich to loanover $45 million to companies under their control, including CPS,NAB Asset Corporation8 and Reunion Industries,Incorporated.9 As alleged by the California class-actionplaintiffs, the Bradleys' companies were in precarious financial condition at the time the loans were made, and the loans hadlittle prospect of being repaid. Stanwich also made personalloans to both Bradleys.
In December 1997, Morgan Stanley notified Stanwich that itintended to terminate the repurchase agreements and that Stanwicheither had to repurchase the U.S. Treasury Bonds or MorganStanley would sell them. After granting Stanwich several delays,Morgan Stanley eventually sold the Bonds, paid itself from theproceeds and remitted the balance to Stanwich.
Stanwich did not disclose the loss of the Bonds to thesettlement payees. Due in large part to the loss of the Bonds, byNovember of 2000, Stanwich was no longer able to continue makingthe periodic payments to the structured settlement payees.Stanwich's inability to pay was exacerbated by the fact that itsinvestments yielded insufficient returns to satisfy the minimalobligations incurred by virtue of the Treasury Bond repurchasetransactions. As a consequence of the non-payments by Stanwich,many of the structured settlement payees asserted claims in theCalifornia courts against Pardee, CPS and other entitiesassociated with the initial structured settlements, the trustamendments and the Treasury Bond repurchase transactions. Theclaims were eventually consolidated in a class-action suit in theLos Angeles Superior Court, becoming what this Court has earlier referred to as the "California case". In that case, thesettlement recipients allege, inter alia, that one of thefundamental causes of their loss was Pardee's alteration of thetrust agreements in order to allow him to access the excess fundsgenerated by the Treasury Bonds held therein.
Pardee remains a named (and as yet non-settling) defendant inthe California case and in adversary proceedings in the U.S.Bankruptcy Court for the District of Connecticut. Here, Pardeeand the Jonathan H. Pardee Trust, relying on the indemnificationclause of the SPA, seek indemnification from CPS for their legalcosts arising from those cases. CPS has denied liability in theCalifornia case and, more importantly in this instant matter,denies indemnification liability to Pardee or SSTAI'sshareholders.
Pursuant to precedent established by this Court in Terra NovaIns. Co. v. Distefano, 663 F.Supp. 809 (D.R.I. 1987), it is thisCourt's opinion that it has the jurisdiction and discretion inthis case to stay the proceedings at this time. As Terra Novarecognizes, there is a thin line between the ripeness doctrine'stwo sources: Article III limitations on judicial power and thediscretionary power of a court to refuse to hear unripe matters.Therefore, a claim may be unripe in the prudential sense (as here) without necessarily being constitutionally defective to adegree that it deprives a court of subject matter jurisdiction.Terra Nova, 663 F.Supp. at 812. In such cases, unripe claimsmay be stayed rather than dismissed entirely. Id.; ColonialCourts Apartment Co. v. Paradis, 780 F. Supp. 88, 91 (D.R.I.,1992) (staying, rather than dismissing unripe claim).
Additionally, this Court finds further foundation upon which torest its decision to stay — rather than dismiss this case — inits inherent discretionary authority. As the Supreme Court hasstated, ". . . [the] power to stay proceedings is incidental tothe power inherent in every court to control the disposition ofthe causes on its docket with economy of time and effort foritself, for counsel and for litigants . . . [how] this can bestbe done calls for the exercise of judgment, which must weighcompeting interests and maintain an even balance." Landis v.North American Co., 299 U.S. 248, 254 (1936). Here, the statusof this case and its underlying claims, make it abundantly clearthat staying this case pending the outcome of both the Californiaand Connecticut cases is the most prudent, fair, and thereforeappropriate action to take at this time.
As noted above, at the outset of this case, CPS moved to stayall proceedings before Judge Torres pending resolution of theCalifornia case. Upon hearing arguments from both parties Judge Torres denied CPS's motion to stay and declined to dismissthe case pursuant to the ripeness doctrine. However, JudgeTorres' decision, made as it was, at such an early stage in theproceedings, is not set in stone and the law of the case doctrinedoes not preclude this Court from reconsidering the ripenessissue in light of the nearly three years of motion practice anddiscovery that has been undertaken since that time. SeeMcConaghy v. Sequa Corp., 294 F.Supp.2d 151, 160 (D.R.I. 2003)(noting that ". . . an issue must be actually decided on themerits before it can be considered the law of the case.").
To the contrary, the law of the case doctrine allows a court toexercise its discretion in determining whether or not toreconsider prior rulings by a coordinate judge. See Arizona v.California, 460 U.S. 605, 618 (1983) (holding that the law ofcase doctrine does not limit a court's power to reconsider priorrulings); Ellis v. United States, 313 F.3d 636, 646 (1st Cir.2002) (same); see also Perez-Ruiz v. Crespo-Guillen,25 F.3d 40, 42 (1st Cir. 1994) (holding that the law of the case doctrineis neither an absolute bar to reconsideration nor a limitation ona federal court's power).
As the First Circuit explained in Ellis, "reconsideration isproper if the initial ruling was made on an inadequate record orwas designed to be preliminary or tentative." Ellis, 313 F. 3dat 647. This case, given its long and checkered history and the manychanges that it has undergone since the initial filing fitssquarely within the circumstances described in Ellis. SinceJudge Torres' decision, parties and claims have been added,pleadings have been amended, extensive discovery has beenconducted and the Connecticut adversary proceeding has beenfiled. Thus at the time Judge Torres examined the question ofripeness, many of the issues now facing this Court had not yetbeen joined. This Court is not, therefore, barred from revisitingJudge Torres' earlier decision.
An examination of Judge Torres earlier bench decision offersadditional support for the application of Ellis. Indeed, thereis no question that Judge Torres intended that his decision be apreliminary one. He stated from the bench: "this matter shouldnot be dismissed at least at this point, on the ground that it isnot yet ripe." Judge Torres went on to state that "the defendanthas failed to show, at least at this point, that the mattershould be stayed." This language is avowedly preliminary innature, and this Court concludes that a revisitation of JudgeTorres' early decision is appropriate in light of the law of thecase doctrine as explicated in Ellis.
In addition, other federal courts have recognized thatfundamental questions of subject matter jurisdiction are "particularly suited for reconsideration." DiLaura v. PowerAuthority of NY, 982 F.2d 73, 77 (2d Cir. 1992); PublicInterest Research Group v. Magnesium Elektron, 123 F.3d 111, 118(3d Cir. 1997); Safir v. Dole, 718 F.2d 475, 481 n. 3 (D.C.Cir. 1983). Because the ripeness doctrine, at its core, is ajurisdictional concept, this Court's decision to reconsider JudgeTorres' decision is well grounded in the law. See Ernst &Young v. Depositors Economic Protection Corp., 45 F.3d 530, 535(1st Cir. 1995).
While it is certain that in most cases lack of ripeness isgrounds for dismissal, Operation Clean Gov't v. Rhode IslandEthics Comm'n., 315 F.Supp. 2d (D.R.I. 2004), this Courtconcludes that the most appropriate course of action in this caseis to stay all pending matters until the California andConnecticut cases are resolved. Indeed, the existence of commonfactual and legal allegations between this and the California andConnecticut cases, taken together with the overwhelming amount oftime already dedicated by all concerned to this case, makes itincumbent upon this Court to exercise its discretion to stay thiscase and in so doing preserve the practical interests of judicialeconomy.
Because many of the claims pending in this Court are likely to be litigated and decided in either the California orConnecticut cases, upon conclusion of those cases this Court willbe in a better position to determine what issues remain to belitigated here. Furthermore, the parties, as well as multiplejudges and magistrate judges on this court, have dedicatedsubstantial resources to the discovery process and dismissal atthis stage would create an unnecessary likelihood that theseefforts would have to be duplicated at a later date.
The ripeness doctrine, upon which this Court relies to staythis matter, finds its foundation in constitutional,jurisdictional and judicial economy concerns, and is applied to". . . prevent courts, through the avoidance of prematureadjudication, from entangling themselves in abstract agreements."See e.g. Abott Labs. v. Gardner, 387 U.S. 136, 148-49 (1967);PSC v. Wycoff Co., 344 U.S. 237, 242-44 (1952); Mangual v.Rotger-Sabat, 317 F.3d 45, 59 (1st Cir. 2003); Ernst & Young45 at 535; Massachusetts Ass'n of Afro-American Police, Inc. v.Boston Police Dep't, 973 F.2d 18, 20 (1st Cir. 1992); see alsoOperation Clean Gov't, 315 F.Supp. 2d (D.R.I. 2004).
While the Declaratory Judgement Act, 28 U.S.C. § 2201 (2004),empowers this Court to grant declaratory relief whereappropriate, the Act certainly does not expand subject matterjurisdiction, nor is it intended to alleviate the requirement that there exist an actual case or controversy as prescribed bythe ripeness doctrine. See Altvater v. Freeman, 319 U.S. 359,363 (1943) (holding that requirements of "case" or "controversy,"in order to sustain federal jurisdiction, are no less strictunder the Declaratory Judgment Act than in other suits; quotingUnited States v. West Virginia, 295 U.S. 463, 475 (1935)).Rather, the Act makes "[declaratory judgment] an added anodynefor disputes that come within the federal courts' jurisdiction onsome other basis." Ernst & Young, 45 F.3d at 534. The Act"neither imposes an unflagging duty upon the courts to decidedeclaratory judgment actions nor grants an entitlement tolitigants to demand declaratory remedies." Id. (quoting ElDia, Inc. v. Hernandez-Colon, 963 F.2d 488, 493 (1st Cir. 1992).
As this Court noted in Operation Clean Gov't,315 F. Supp. 2d at 187: "Because . . . [the Declaratory Judgment] Act offers litigants a window of opportunity, not a guarantee of access, the courts ultimately must decide, and have substantial discretion in determining, whether declaratory relief is appropriate in a given action. In evaluating whether declaratory relief is warranted, one critical consideration is whether the cause of action is ripe for judicial review. If it is determined that the declaratory judgment action before the court is unripe for judicial determination, there is no alternative but to dismiss the case."Id. at 194 (internal quotations omitted). Here, there is an alternative to dismissal: a stay.
To determine whether or not a particular declaratory judgmentclaim is ripe for judicial action, the United States SupremeCourt instructs the district courts to examine: (1) the fitnessof the issues for judicial determination, and (2) the hardshipto the parties of withholding court consideration. Id. at 195quoting Abbott Labs., 387 U.S. at 14 (emphasis added). Indiscussing these factors, the First Circuit has observed:"Fitness typically involves subsidiary queries concerningfinality, definiteness, and the extent to which resolution of thechallenge depends upon facts that may not yet be sufficientlydeveloped, whereas hardship typically turns upon whether thechallenged action creates a direct and immediate dilemma for theparties. Id. at 195, citing Rhode Island Ass'n of Realtors,Inc. v. Whitehouse, 199 F.3d 26, 33 (1st Cir. 1999). The partyasserting ripeness bears the burden of adducing evidence of factssufficient to establish that both prongs of the ripeness test aresatisfied. Id. at 33; Ernst & Young, 45 F.3d at 535.
In this Circuit, the "critical consideration" in determiningthe fitness of a claim is the extent to which "the claim involves uncertain and contingent events that may not occur as anticipatedor may not occur at all". Operation Clean Government,315 F.Supp. 2d at 195; Ernst & Young, 45 F.3d at 536 (quotingMassachusetts Ass'n of Afro-American Police, Inc. v. BostonPolice Dep't, 973 F.2d 18, 20 (1st Cir. 1992)). In this case itis clear that Plaintiffs' indemnity claims are contingent onevents in both the California and Connecticut cases that, giventhe nature of litigation, may not occur as anticipated and mayindeed not occur at all.10
In Rhode Island, the general rule regarding indemnity is thatno claim arises as such until the indemnitee's liability is fixedeither by entry of judgment holding the indemnitee liable or bythe settlement of the underlying claim by the indemnitee on thebelief that he is liable. A & B Constr. v. Atlas Roofing &Skylight Co., 867 F. Supp. 100, 113 (D.R.I. 1994) (holding thatindemnity arises where one party has been compelled by reason ofsome legal obligation to pay damages); Muldowney v. WeatherkingProds., 509 A.2d 441, 443 (R.I. 1986) (holding that a necessaryelement of indemnity claim is that the party seeking indemnitymust be liable to a third party); See also Runyan v. United Brotherhood of Carpenters, 566 F. Supp. 600, 609 (D. Colo.1983) (finding that no cause of action for indemnity accruesuntil there has been a judgment or settlement of claim, and thatindemnity does not accrue until the indemnitee's liability isfixed); Read Drug & Chemical Co. v. Colwill Constr. Co.,243 A.2d 548, 558 (Md.App. 1968) (stating: "[I]t is clear that theright of indemnity or contribution does not accrue until[indemnitee] suffers or pays a judgment, or settles with theplaintiffs.").
Aptly, federal courts in other jurisdictions have routinelyfound that indemnity claims are unripe until the allegedindemnitee's liability has been fixed by a judgment orsettlement. See e.g., Armstrong v. Alabama Power Co.,667 F.2d 1385, 1388-89 (11th Cir. 1982); A/S J. Ludwig MowincklesRederi v. Tidewater Constr. Corp., 559 F.2d 928, 932-33 (4thCir. 1977); Cunningham Bros., Inc. v. Bail, 407 F.2d 1165, 1169(7th Cir. 1969); National Valve & Mfg. Co. v. Grimshaw,181 F.2d 687, 689-90 (10th Cir. 1950); UNR Indus., Inc. v. AmericanMutual Liability Ins., 92 B.R. 319, 325-27 (N.D. Ill. 1988);Companion Assurance Co. v. Alliance Assurance Co.,585 F. Supp. 1382, 1385 (D.V.I. 1984).
In Mowinckles, 559 F.2d at 928, a pier constructed by thedefendant, Tidewater Construction Corporation, collapsed while aship owned by plaintiff A/S J. Ludwig Mowinckles Rederi was being unloaded causing much damage and injury. Injured pier workers andothers filed personal injury and wrongful death actions againstboth Mowinckles and Tidewater in state and federal court. Beforeany of the many suits went to trial, Mowinckles filed an actionfor indemnity against Tidewater and Lone Star, the pier owner.The District Court ruled that Mowinckles was entitled toindemnity. However, that ruling was subsequently reversed by theFourth Circuit who vacated the district court's decision on thegrounds that the indemnity claim was not ripe. The Court stated: Whether an indemnification issue is ripe for adjudication depends on the facts and circumstances of the case under consideration. Here, there has been neither a determination of liability nor a settlement in any of the personal injury or wrongful death actions pending against Mowinckles and Tidewater in the district court and state courts. We cannot tell at this time what the outcome of those actions will be; the fact finders therein may find, on the evidence presented to them, that Mowinckles or Tidewater or both are liable to the plaintiff or plaintiffs in those cases. To award, in this action, indemnification against all liability and expenses, incurred or which may be incurred by Mowinckles or Tidewater in those actions, could lead to incongruous results. The fact that they have already incurred some expenses in defending those actions does not make ripe their claims for indemnification against all potential liability and expenses. We conclude that a ruling on indemnification in the setting presented to the district court was premature.Id. at 932. See also Lincoln House, Inc. v. Dupre,903 F.2d 845, 848 (6th Cir. 1990) (citing Mowinckles and Armstrong for theproposition that where a claim is conditioned on the entry of a judgment in another case, the claim is not ripe.).
Here, liability has not been fixed by judgment or settlement inthe California and Connecticut cases, and therefore any claimsfor indemnity and declaratory relief are entirely contingent onuncertain future events. As the parties note, there is not onlyuncertainty as to whether Plaintiffs in this case will ultimatelybe held liable in the California case, it is also as yetundetermined what the factual and legal basis for liability mightbe. Lastly, the final amount, if any, of the indemnification isalmost certain to be unknown until the California and Connecticutcases are concluded.
As described by the parties, the claims pending against Pardeein California and against all of the sellers in the transactionin Connecticut include allegations that they breached (or causedthe company to breach) contractual and fiduciary duties owed tothe structured settlement payees. CPS argues that if liability isimposed on such a basis, the fact of Pardee's pre-sale breachmeans that the express representations in the SPA by Pardee tothe purchasers of the stock were false at the time of the 1997sale. CPS has represented to this Court in the summary judgmentpapers that such misrepresentations render the indemnityprovisions unenforceable for failure of consideration andnon-occurrence of conditions precedent. Obviously, this Court cannot rule on these pending matters absent an establishedindicia of liability upon which to rely.
Moreover, this Court has yet to decide the scope of theindemnity agreement itself, a decision that cannot and must notbe made until a final analysis regarding liability is forthcomingfrom the California and Connecticut courts. Under suchcircumstances, uncertainty as to the bases of Pardee's liabilitypresents this Court with an unacceptable risk of inconsistentresults between this and the other courts should this Courtattempt to adjudicate these instant claims before the naturalconclusion of the California and Connecticut cases.
Lastly, the grounds upon which the California court chooses torely in deciding that case may have more of an influence on theoutcome of this instant claim for indemnification than theoutcome of that litigation itself. For example, in addition tocontesting the factual grounds for the allegations in theCalifornia case, Pardee has also raised defenses based on theCalifornia statute of limitations, as well as asserting that hisactions were not the proximate cause of CPA's damages. Thereexists, therefore, a possibility that Pardee could prevail onthose defenses, leaving unresolved an essential element of CPS'sdefense to the indemnification claim: namely that Pardee madefalse representations in the SPA. As the First Circuit has noted, "[another] factor in thefitness calculus is the extent to which the claim is bound up inthe facts . . ." Riva v. Massachusetts, 61 F.3d 1003, 1009-10(1st Cir. 1995). As the Riva Court explains, ". . . [c]ourtsare more likely to find a claim ripe if it of an intrinsicallylegal nature, and less likely to do so if the absence of aconcrete factual situation seriously inhibits the weighing ofcompeting interests." Id. In an effort to shape theirallegations to conform with this factor Plaintiffs have attemptedto characterize the issues in this instant matter as ones thatcould be resolved with a remedy derived solely from a legalconstruction of the indemnity provision. Despite Plaintiffs' bestefforts, however, a review of the claims and allegations in thesummary judgement and other papers in this case, leads this Courtto conclude that there are indeed factual and legal questionssurrounding Pardee's liability in the California and Connecticutcases that are at the root of, and, therefore inseparable fromPlaintiffs' request for indemnification in this matter. Becausethis Court finds that Plaintiffs' case is "bound up in the facts"this additional consideration "in the fitness calculus" leads theCourt to conclude that this case is not ripe at this time.
Pursuant to Riva, ". . . [another] salient factor that entersinto the assessment of fitness involves the presence or absence of adverseness." Id. at 1010. This factor turns on such basicqueries as "whether all affected parties are before the court"and "whether the controversy as framed permits specific reliefthrough a decree of a conclusive character, as distinguished froman opinion advising what the law would be upon a hypotheticalstate of facts." Id. (quoting Aetna Life Ins. Co. v. Haworth,300 U.S. 227, 241 (1937)). Although the primary parties to theindemnification agreement at issue in this case are before theCourt, CPS has raised several plausible scenarios wherein othersnot before this Court could be adversely affected by a prematureruling.
Indeed, due to the fact that the status and amount of theindemnification is tied to and arises from the as yetundetermined outcomes in both the California and Connecticutcases parties to those cases could conceivably suffer theconsequences of a ruling by this Court. For example parties suchas Pardee's Co-Defendant Bankers Trust in the California case andthe Creditors Committee in the Connecticut case both havedemonstrable interests in the outcome of this case and yet arenot parties to the narrow indemnification matter before thisCourt. However, as evidenced by the allegations of both partiesin the pleadings, this Court cannot make a determination onindemnification without making findings of fact that could unfairly and inappropriately damage Bankers Trust, the CreditorsCommittee and others. Because this Court is not satisfied that itcan resolve this matter in a manner that mitigates the risk ofadverse effect on other, non-pleading parties, this factor "inthe fitness calculus" weighs on the side of a stay.
The hardship prong of the ripeness test turns on whether thecircumstances giving rise to the claim create "a direct andimmediate dilemma for the parties requiring them to choosebetween costly compliance and non-compliance, at the risk ofpunishment." W.R. Grace & Co. v. United States EPA,959 F.2d 360, 364 (1st Cir. 1992) (internal citations omitted). The FirstCircuit further notes that ". . . [u]tility is the flip side ofthe same coin, and an inquiring court, in assaying the hardshipto the parties, may find it revealing to ask whether "grantingrelief would serve a useful purpose, or, put another way, whetherthe sought-after declaration would be of practical assistance insetting the underlying controversy to rest." Riva,61 F.3d at 1010 (quoting Rhode Island v. Narragansett Indian Tribe,19 F.3d 685, 693 (1st Cir. 1994).
Courts, including this one, have clarified this directive andhave provided telling examples of what indeed constitutes adilemma that is sufficiently "direct and immediate" to require early intervention of the court. An oft cited example is one inwhich plaintiffs were faced with the immediate prospect ofdeciding whether to spend millions of dollars in constructioncosts for new nuclear power plants in the face of legaluncertainty as to whether the new plants would ultimately becertified. In the face of this dilemma, the Supreme Courtultimately held that ". . . [t]o require industry to proceedwithout knowing whether the moratorium [on the power plants] isvalid would impose a palpable and considerable hardship on the[utility company] . . .". Pacific Gas & Electric Co. v. StateEnergy Resources Conservation & Dev. Comm'n, 461 U.S. 190,201-02 (1978). This Court has described such a dilemma as one inwhich a party must choose "between, on one hand, detrimentallychanging their behavior in order to comply with a law and, on theother hand, refusing to comply with the law and risking theinitiation of a proceeding against them. Colonial Courts;780 F. Supp. at 91.
As the facts make clear, Plaintiffs face no such dilemma here.In point of fact, no matter what the outcome of this case is,Pardee will continue to defend himself in the California andConnecticut cases. Therefore, the remedy sought by Plaintiffs,namely the defense costs incurred in those matters, will have tobe borne by somebody regardless of who ultimately prevails here. It is this essential point that differentiates this claim fromthose that truly pose an immediate dilemma to the parties.Indeed, because the outcome of this case has no bearing onwhether or not Plaintiffs will continue to defend themselves inCalifornia and Connecticut, the possibility that Pardee would beforced to detrimentally change his behavior or that the resourcesthat Pardee spends on his defense would be largely or entirelywasted, Pacific Gas, 461 U.S. at 201-202, simply does notexist. Therefore, this Court agrees with CPS that postponing adecision here will cause no material harm to Plaintiffs becausethey can be made whole by a monetary judgement should theyultimately prevail after resolution of the out-of-state cases.See Colonial Courts Apartment Co., 780 F. Supp. at 91.
In light of the above, Plaintiffs have made no showing that(1)the outcome of this case is not contingent on the, as yet,unknown outcome of the California and Connecticut cases, and; (2)that they are faced with hardship and/or a "direct and immediatedilemma" if this case is postponed. Plaintiffs are unable,therefore, to satisfy either the fitness or the hardship prong ofthe ripeness inquiry; and it is here that the ripeness inquiryends. Plaintiffs have offered nothing to overcome theoverwhelming logic of staying this matter until such time as the out-of-state cases are resolved. Therefore, all activity in thiscase is stayed until the California and Connecticut case areresolved, or until further order of this Court.
It is so ordered.
1. There is no dispute that Stanwich defaulted on itsstructured settlement payment obligations beginning in late 2000,and that litigation has arisen in California and Connecticut as aresult thereof.
2. In re structured Settlement Litigation, Case No.BC-244111, Los Angeles California Superior Court.
3. Official Committee of Unsecured Creditors v. Jonathan H.Pardee, et al., Case No. 02-5023, United States Bankruptcy Courtfor the District of Connecticut.
4. The Bradleys and their involvement in this matter are morefully discussed later in this opinion.
5. The Bradleys are co-defendants along with Pardee in theCalifornia case.
6. Charles E. Bradley, Sr. is the founder of CPS and Chairmanof its Board of Directors. He owns nearly 25% of CPS's stock.Charles E. Bradley, Jr. has been the President and director ofCPS since its formation in 1991.
7. The Bradleys allegedly own 92.5% of Stanwich. According tothe various pleadings, Stanwich is either a Rhode Island orConnecticut Corporation with its principal place of business inStamford, Connecticut.
8. Charles E. Bradley, Sr. is the Chairman and Chief ExecutiveOfficer of NAB. NAB is a Texas corporation with its principalplace of business in California.
9. Charles E. Bradley, Sr. is the Chairman and Chief ExecutiveOfficer of Reunion Industries, Inc. Reunion is a Delawarecorporation with its principal place of business inPennsylvania.
10. It is worthy of mention that the undersigned takes noposition on the outcome of either of the pending cases and simplynotes that, as thirty-six years on the bench will attest,litigation outcomes are rarely if ever as anticipated.