Professional Service Network, Inc. v. American Alliance Holding Company

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1018
Professional Service Network, Inc.,
Plaintiff-Appellee,
v.
American Alliance Holding Company,
Defendant-Appellant.
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 99-C-381-S--John C. Shabaz, Chief Judge.
Argued September 8, 2000--Decided January 29, 2001
Before Flaum, Chief Judge, and Posner and Rovner,
Circuit Judges.
Posner, Circuit Judge. This diversity suit
between two insurance companies comes to us from
the grant of summary judgment for the plaintiff,
Professional Service Network (PSN), by Chief
Judge Shabaz in the district court. The suit is
governed, so far as substantive matters are
concerned, by Wisconsin law. The appeal, by the
defendant, American Alliance Holding Company,
presents issues concerning Wisconsin’s doctrine
of contractual duress and the federal principles
governing abstention in favor of a parallel
litigation pending in another court; Chief Judge
Shabaz had denied Alliance’s motion to stay the
present suit in favor of a parallel suit filed by
Alliance in North Carolina. We begin by trying to
unravel the tangle, both substantive and
procedural, that is the history of the parties’
dispute.
The story begins in February of 1998 when the
parties executed an agreement by which PSN bought
from Alliance, for $11.2 million subject to post-
closing adjustment, all the stock in another
insurance company, Century American Insurance
Company. The agreement made PSN responsible for
calculating the post-closing adjustment. In
September of 1998 it notified Alliance that
because of a decline in Century’s book value,
Alliance owed it a refund of $2.7 million of the
purchase price. While negotiating over the form
in which Alliance would make the refund, the

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parties got into a squabble over another
contract, a risk-management agreement that was
Century’s principal asset. This squabble
eventually went to arbitration, and the
arbitrator decided that both parties were at
fault and ordered no relief. Another dispute
involving Century also brewed up between PSN and
Alliance and resulted in a lawsuit between the
parties in a North Carolina state court.
Negotiations over the refund to PSN collapsed
and Alliance refused to pay. So in January of
1999 PSN sued Alliance for $2.7 million in the
Western District of Wisconsin. The case was
assigned to Chief Judge Shabaz.
Another provision of the stock purchase
agreement by which PSN had acquired Century from
Alliance required PSN jointly with Alliance to
file with the Internal Revenue Service, by
February 16, 1999, an election under section
338(h)(10) of the Internal Revenue Code to treat
the stock sale as a sale of assets for tax
purposes. The election would save Alliance $5
million in taxes. But it would be effective only
if the IRS received notice of the election by the
sixteenth; and having been sued by PSN, Alliance
worried that PSN might not cooperate in making
the deadline. Alliance decided to apply some
pressure. Early in February its lawyer phoned
PSN’s lawyer and told her that PSN would be in
breach of the stock purchase agreement if it did
not cooperate in the filing of the tax notice.
She replied that Alliance’s failure to pay the
post-closing adjustment excused PSN from
performing its remaining obligations under the
stock purchase agreement, including the
obligation to cooperate in filing the tax notice.
On the tenth, Alliance’s lawyer delivered to his
opposite number a letter warning her that unless
PSN joined in the filing of the tax notice,
Alliance would sue for the tax benefit that would
be lost. Five days later Alliance filed its
answer to PSN’s complaint in the Western District
of Wisconsin together with a counterclaim.
Alliance claimed in the counterclaim that its
agreement to pay the post-closing adjustment had
been orally modified. The suit was settled the
next day, just in time to file the tax notice
with the IRS. The parties agreed in the
settlement to refer their dispute over the post-
closing adjustment to an independent certified
public accountant, and PSN agreed to file the tax
notice jointly with Alliance; and this was done,
so Alliance got its tax benefit. The suit was
duly dismissed a few days later by agreement of
the parties, and in April the CPA was appointed.
The following month, shortly before the CPA was

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due to issue his determination of the amount of
post-closing adjustment owed PSN by Alliance,
Alliance filed a suit against PSN in a North
Carolina state court, seeking, among other
remedies, rescission of the settlement agreement
on the ground that it had been procured by
duress. Alliance has tried to get that lawsuit
consolidated with the other North Carolina suit.
PSN responded to Alliance’s new suit the next
month by filing its own new suit in the Western
District of Wisconsin against Alliance, seeking
enforcement of the settlement agreement; and the
case was again assigned to Chief Judge Shabaz.
Alliance counterclaimed, seeking relief similar
to what it had sought in its North Carolina suit
of the previous month. On PSN’s motion for
summary judgment in the new Western District of
Wisconsin case (which is the case before us), the
judge rejected the defense of duress, declared
the settlement agreement valid, and dismissed
Alliance’s counterclaims. He had already denied
Alliance’s motion to stay the case in favor of
the North Carolina action. Alliance appeals both
the judgment and the denial of the stay.
Alliance argues that it was financially
distressed and so had no choice but to settle
PSN’s first suit the Western District of
Wisconsin in order to receive the $5 million tax
benefit immediately. Therefore, it argues, PSN
obtained the settlement by duress, and so the
settlement should be voided. Duress is a basis
under the common law of contracts in Wisconsin as
elsewhere for rescinding a contract, and a
settlement is for this purpose a contract. Wurtz
v. Fleischman, 293 N.W.2d 155, 160 (Wis. 1980);
Pope v. Ziegler, 377 N.W.2d 201, 203 (Wis. App.
1985); JPM, Inc. v. John Deere Industrial
Equipment Co., 94 F.3d 270, 272 (7th Cir. 1996)
(Wisconsin law); Selmer Co. v. Blakeslee-Midwest
Co., 704 F.2d 924 (7th Cir. 1983) (same); see
generally E. Allan Farnsworth, Contracts sec.sec.
416-419 (3d ed. 1999). Duress, understood most
concretely, is the situation in which one person
obtains a temporary monopoly that it tries to use
to obtain a benefit to which it is not entitled.
In the famous case of Alaska Packers’ Ass’n v.
Domenico, 117 Fed. 99 (9th Cir. 1902), seamen on
board a ship that was fishing for salmon in
Alaskan waters during the short fishing season
struck for higher wages. The captain agreed to
modify the workers’ employment contract to pay
them the higher wages that they were demanding,
but when the ship returned to port the employers
refused to honor the modification and the court
refused to enforce it. The captain had acted
under duress in agreeing to the modification
because, had he not done so, the fishing season
would have been ruined, since the strikers had an

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effective albeit temporary monopoly of the labor
supply necessary to continue with the fishing;
and it would not have been feasible to sue them
as a means of recouping the loss. See also
Contempo Design, Inc. v. Chicago & Northeast
Illinois District Council of Carpenters, 226 F.3d
535, 550 n. 9 (7th Cir. 2000); Rissman v.
Rissman, 213 F.3d 381, 387 (7th Cir. 2000);
Oxxford Clothes XX, Inc. v. Expeditors Int’l of
Washington, Inc. 127 F.3d 574, 579 (7th Cir.
1997); Austin Instrument, Inc. v. Loral Corp.,
272 N.E. 2d 533 (N.Y. 1971).
So we must ask whether PSN had a monopoly-like
position vis-a-vis Alliance when it demanded that
Alliance settle the case as a condition precedent
to PSN’s jointly filing the tax notice that
Alliance was (we may assume) desperate for. The
answer is no. Part of the reason is that unlike
the captain of the fishing vessel, Alliance had a
legal remedy right at hand. Even if a liquidity
crisis would have made its normal remedy, namely
fighting the case to judgment, inadequate to
stave off disaster, it had only to ask Chief
Judge Shabaz for a temporary restraining order
or, if time permitted--and it did permit, as
we’re about to see--a preliminary injunction
requiring that PSN join in the filing of the tax
notice. The inadequacy of the legal remedy and
resulting irreparable harm to Alliance unless it
obtained judicial protection against PSN’s
settlement demand would have established a
prerequisite for equitable relief. Alliance would
not even have had to file a new suit in order to
obtain such relief. The suit that the parties
were negotiating to settle was filed and pending.
Alliance had only to file a motion with Chief
Judge Shabaz.
Alliance argues that the time was too short. It
was not, and anyway the fault lay with it for not
doing anything to stop the clock before time ran
out on February 16. Alliance should have realized
no later than when it read PSN’s complaint--filed
on January 14, 1999, more than a month before the
tax deadline--that PSN was likely to balk at the
joint filing. PSN’s suit charged Alliance with
having reneged on the post-closing-adjustment
term of the stock purchase agreement, and it was
only to be expected that PSN would take the
position that its duty to perform under the
agreement was suspended by Alliance’s breach. It
is true that not every breach excuses the other
party from continued performance; in particular,
minor breaches do not. Ranes v. American Family
Mutual Ins. Co., 580 N.W.2d 197, 200 (Wis. 1998);
Management Computer Services, Inc. v. Hawkins,
Ash, Baptie & Co., 557 N.W.2d 67, 77 (Wis. 1996);
Myrold v. Northern Wisconsin Cooperative Tobacco
Pool, 239 N.W. 422 (Wis. 1931); Farnsworth, supra

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sec. 8.15, pp. 580-81. But Alliance’s alleged
breach, the refusal to refund almost 25 percent
of the contract price, was not minor. Any doubts
that PSN would balk were dispelled by the phone
conversation between the parties’ lawyers and at
this point Alliance still had at least a week in
which to apply for judicial relief. It piddled
the week away. It says it did this because it
expected the case to settle, as of course the
case did. But it should have known that unless it
took steps to obtain judicial relief, PSN would
have no incentive to abandon its position that
the refusal to refund excused it from having to
join in the filing of the tax notice--unless
Alliance yielded to PSN’s settlement demand.
We said that Alliance’s failure to seek judicial
help was part of the reason its defense of duress
failed as a matter of law. It was not the whole
reason because if PSN’s claim to be excused from
cooperating in the filing of the tax notice by
Alliance’s refusal to make the refund had been
frivolous, an inference would have arisen that
the purpose had been to force Alliance to incur
expenses of litigation that alone might have been
enough, given Alliance’s distressed financial
position, to force it to accede to those terms;
and then Alliance might have a valid case of
duress. Sufrin v. Hosier, 128 F.3d 594, 599 (7th
Cir. 1997); Farnsworth, supra, sec. 4.17, p. 267.
The analogy to the tort of malicious prosecution
would be close in such a case. Another way to
state the principle is that exhaustion of
remedies is not a prerequisite to suing for
duress, since, if it were, a party in PSN’s
position (or in the position of the Alaska
seamen) might be able to use the costs of suit as
a lever to obtain an undeserved benefit. Even a
colorable suit brought or maintained for an
improper purpose--not to win the suit but to
obtain some collateral benefit (the classic
example is suing your daughter’s fiancee in the
hope that the strain of litigation will cause the
engagement to be broken off)--is actionable in
tort, as an abuse of process, though we needn’t
try in this case to align that tort principle
with the doctrine of duress in the law of
contracts.
Far from arguing that PSN’s litigating position
was frivolous or an abuse of process, however,
Alliance, in an effort to explain why it dribbled
away the week before the tax deadline, emphasizes
the difficulty it would have had in marshaling a
convincing case for judicial relief against PSN’s
refusal to play ball in the filing of the tax
notice. That is tantamount to an acknowledgment
that PSN had a colorable case for conditioning
the performance of its obligation with respect to
the tax notice on Alliance’s paying the post-

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closing adjustment as required by the stock
purchase agreement. We add that the term that was
"forced" on Alliance by PSN hardly seems
extortionate, namely referring the calculation of
the post-closing adjustment to an independent
CPA. And that too is material to an assessment of
a defense of duress. Wurtz v. Fleischman, supra,
293 N.W.2d at 160. If the alleged victim of
duress is complaining about a term that he could
have been expected to agree to even if not under
duress, the inference of duress is weakened,
along with the further inference that duress
caused whatever harm the victim is seeking to
redress.
We turn to the denial of the stay of the North
Carolina litigation. There is no hard and fast
rule on when parallel litigation should be stayed
in the interest of judicial economy. See, e.g.,
Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1, 16 (1983);
Colorado River Water Conservation District v.
United States, 424 U.S. 800, 817-18 (1976);
Interstate Material Corp. v. City of Chicago, 847
F.2d 1285, 1288-90 (7th Cir. 1988). But the
history of the parties’ dispute makes this an
easy case. The case originated in a settlement of
the previous lawsuit between these parties that
had been assigned to Chief Judge Shabaz. His was
the logical court, and he the logical judge of
that court, to resolve a dispute over the
settlement of the earlier case. The fact that
Alliance beat PSN to the filing by a month in an
effort to obtain a friendlier forum (the North
Carolina state court) was a very poor reason for
staying the suit that had been filed in the most
appropriate forum. Cf. Allendale Mutual Ins. Co.
v. Bull Data Systems, Inc., 10 F.3d 425, 431 (7th
Cir. 1993); Tempco Electric Heater Corp. v. Omega
Engineering, Inc., 819 F.2d 746, 749-50 (7th Cir.
1987). True, another case between the parties was
pending in North Carolina, but the issues in it
appear to be unrelated to the dispute stemming
from the post-closing adjustment term of the
stock purchase agreement.
So the district court must be affirmed. But
before closing we must remark a recurrent
procedural matter--the frequent failure of
litigants in this court, in this case both
litigants, to comply with 7th Cir. R. 28(a) and
(b), concerning the statement of subject-matter
jurisdiction in the appellant’s and appellee’s
brief in a diversity case. Rule 28(a)(1) requires
the appellant in its brief in such a case to
state the citizenship of each party, and if the
party is a corporation to indicate both the state
of incorporation and the state of the party’s
principal place of business, and if an
unincorporated association to indicate the

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citizenship of each of its members. Rule 28(b)
requires the appellee to submit its own
jurisdictional statement if the appellant’s is
not complete and correct. Both rules were flouted
here.
So far as the citizenship of the parties is
concerned, all the appellant’s brief stated is
that this suit is "brought by a Wisconsin
Plaintiff, Professional Service Network, Inc.
(’PSN’) against a North Carolina Defendant,
American Alliance Holding Company (’American
Alliance’)." The plaintiff was thus identified as
a corporation, triggering the requirement of
stating its place of incorporation and the place
of its principal place of business, but neither
was stated. The character of the defendant,
whether a corporation or an unincorporated
association, was not indicated. Despite the
palpable nonconformity of the appellant’s brief
with the requirement of Rule 28(a)(1), the
appellee’s brief recited that the statement of
jurisdiction in the appellant’s brief was
complete and correct. We directed the parties to
show cause why the appeal should not be dismissed
as a sanction for the flagrant violation of the
court’s rules. The parties’ response demonstrated
that there was indeed diversity, and so we have
relented; but we take this occasion to remind the
bar of the importance of complying with our rules
and of the risk that violators run of being
sanctioned.
Affirmed.

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