                                  Illinois Official Reports

                                          Appellate Court



                  Pace Communications Services Corp. v. Express Products, Inc.,
                                  2014 IL App (2d) 131058



Appellate Court              PACE COMMUNICATIONS SERVICES CORPORATION and
Caption                      TUNICA PHARMACY, INC., Individually and as the
                             Representatives of a Class of Similarly Situated Persons, Plaintiffs
                             and Citation Petitioners-Appellants, v. EXPRESS PRODUCTS, INC.,
                             Defendant (Cumberland Mutual Fire Insurance Company, Citation
                             Respondent-Appellee).


District & No.               Second District
                             Docket No. 2-13-1058


Filed                        September 10, 2014


Held                         In citation proceedings against defendant’s insurer seeking to recover
(Note: This syllabus         the settlement of an underlying action against defendant for violations
constitutes no part of the   of the Telephone Consumer Protection Act based on defendant’s
opinion of the court but     faxing of unsolicited advertisements where the parties agreed that
has been prepared by the     plaintiffs would pursue the judgment from defendant’s insurer, not
Reporter of Decisions        defendant, the trial court properly denied plaintiffs’ motion for
for the convenience of       summary judgment and dismissed the citation pursuant to the motion
the reader.)                 filed by defendant’s insurer, since defendant’s insurer had obtained
                             summary judgment in a Pennsylvania federal district court based on a
                             holding that, under Pennsylvania law, defendant’s insurer had no duty
                             to defend or indemnify defendant under the relevant insurance
                             policies, the insurer’s federal action was initiated prior to the
                             settlement of plaintiffs’ action, and the insurer was not estopped from
                             raising any policy defense.


Decision Under               Appeal from the Circuit Court of Lake County, No. 04-L-1043; the
Review                       Hon. Diane E. Winter, Judge, presiding.
     Judgment                  Affirmed.


     Counsel on                Brian J. Wanca and David M. Oppenheim, both of Anderson &
     Appeal                    Wanca, of Rolling Meadows, and Phillip A. Bock, of Bock & Hatch,
                               LLC, of Chicago, for appellants.

                               James P. Moran and Stephen A. Rehfeldt, both of Mulherin, Rehfeldt
                               & Varchetto, P.C., of Wheaton, and Michael A. Hamilton, Louis H.
                               Kozloff, and Mark H. Rosenberg, all of Nelson Levine de Luca &
                               Hamilton LLC, of Blue Bell, Pennsylvania, for appellee.



     Panel                     JUSTICE SPENCE delivered the judgment of the court, with opinion.
                               Justices McLaren and Jorgensen concurred in the judgment and
                               opinion.




                                                OPINION


¶1         Pace Communications Services Corporation and Tunica Pharmacy, Inc., represented a
       class of similarly situated persons (collectively, plaintiffs) in a class action (the class action)
       against Express Products, Inc. (Express), for, among other allegations, violations of the
       Telephone Consumer Protection Act of 1991 (TCPA) (47 U.S.C. § 227 (2000)). Cumberland
       Mutual Fire Insurance Company (Cumberland) was one of Express’s insurers. While
       plaintiffs were litigating the class action in the circuit court of Lake County, Cumberland
       sought in the United States District Court for the Eastern District of Pennsylvania a
       declaration that it had no duty to defend or indemnify Express (the federal action). Plaintiffs
       and Express settled the class action in 2009 for about $8 million, with plaintiffs agreeing to
       pursue the judgment not from Express but only from Express’s insurers. Accordingly,
       plaintiffs filed under section 2-1402 of the Code of Civil Procedure (Code) (735 ILCS
       5/2-1402 (West 2010)) a citation to discover Cumberland’s assets (the citation proceeding) in
       an effort to recover the judgment.
¶2         In September 2011, while the citation proceeding was still pending, the district court
       found that Cumberland did not have a duty to defend or indemnify Express. Plaintiffs moved
       for summary judgment in the citation proceeding, and Cumberland moved to dismiss based
       on the declaratory judgment. The circuit court denied plaintiffs’ motion for summary
       judgment and granted Cumberland’s motion to dismiss, finding that the declaratory judgment
       precluded relitigating whether Cumberland had a duty to indemnify Express. Plaintiffs appeal
       from the dismissal of the citation proceeding, and for the reasons set forth herein, we affirm.

                                                    -2-
¶3                                        I. BACKGROUND
¶4        Plaintiffs filed the class action in December 2004, alleging that Express violated
     provisions of the TCPA by faxing unsolicited advertisements to persons and companies in
     Illinois and other states without the recipients’ consent. Cumberland had issued Express
     sequential annual liability policies covering the period during which the alleged violations
     occurred.
¶5        Express notified Cumberland of the class action via a February 22, 2006, letter. On April
     11, 2006, Cumberland responded that it was declining coverage, asserting that the faxes that
     plaintiffs allegedly received were not sent during the policy periods. On April 20, 2007,
     Cumberland revisited its decision to decline coverage and agreed to participate in Express’s
     defense, under a reservation of rights.
¶6        On June 20, 2008, Cumberland filed the federal action. On June 24, 2009, Express moved
     for judgment on the pleadings, because Cumberland had not joined plaintiffs as necessary
     parties to the federal action, and the district court denied the motion.
¶7        Meanwhile, in May 2009, Express agreed with plaintiffs to settle the class action for just
     under $8 million.1 After Express filed a “Motion for Preliminary Approval of the Class
     Action Settlement Agreement and Notice to the Class” on June 15, 2009, Cumberland sent
     Express a letter stating that under the insurance policies, Express could not, except at its own
     cost, assume any obligation or incur any expense (other than for first aid) without
     Cumberland’s consent. On October 13, 2009, following a fairness hearing, the circuit court
     entered its “Final Approval of Settlement Agreement and Judgment” against Express. The
     settlement agreement stipulated that plaintiffs would seek recovery against only Express’s
     two insurers, Cumberland and Maryland Casualty Company. It further stipulated that
     plaintiffs’ counsel would undertake, at no cost to Express, the defense of Express in its
     coverage lawsuits, which included the federal action. Consequently, plaintiffs’ counsel joined
     Express’s defense in the federal action and argued its eventual appeal.
¶8        In October 2009, following the entry of the judgment against Express, plaintiffs filed the
     citation proceeding. Cumberland filed a motion to dismiss the citation proceeding for lack of
     personal jurisdiction in Illinois and, in the alternative, to dismiss or stay the action due to the
     pending federal action. The circuit court denied Cumberland’s motion, and Cumberland
     appealed to this court, challenging only the determination of personal jurisdiction. We
     affirmed the circuit court’s finding of personal jurisdiction. Pace Communications Services
     Corp. v. Express Products, Inc., 408 Ill. App. 3d 970, 980 (2011).
¶9        Meanwhile, in the federal action, on January 8, 2010, Express filed a second motion for
     judgment on the pleadings, arguing, among other things, that it had no further interest in the
     federal action and no incentive to litigate, because it had settled the class action with
     plaintiffs. The district court ordered that the motion be treated as one for summary judgment
     and it directed Cumberland to file its own motion for summary judgment with respect to the
     coverage dispute. In September 2011, the district court denied Express’s summary judgment

         1
          The precise judgment Express agreed to was for $7,999,996. In approving the settlement, the trial
     court found that Express faxed 41,064 advertisements (out of 125,191 advertisements faxed to the
     entire class) during the 2002 and 2003 coverage periods. The TCPA allows for liquidated damages of
     $500 per violation. 47 U.S.C. § 227(b)(3)(B) (2000).

                                                   -3-
       motion and granted Cumberland’s, holding that, under Pennsylvania law, Cumberland did
       not have a duty to defend or indemnify Express under the relevant insurance policies.
       Maryland Casualty Co. v. Express Products, Inc., Nos. 09-857, 08-2909, 2011 WL 4402275
       (E.D. Pa. Sept. 22, 2011). The United States Court of Appeals for the Third Circuit dismissed
       Express’s appeal as untimely. Cumberland Mutual Fire Insurance Co. v. Express Products,
       Inc., 529 F. App’x 245, 252-53 (3d Cir. 2013).
¶ 10       On remand in the citation proceeding, plaintiffs moved for summary judgment, arguing
       that Cumberland had a duty to indemnify Express in the class action and therefore was
       required to pay the judgment. The circuit court denied plaintiffs’ motion because it found that
       plaintiffs were bound by the declaratory judgment in the federal action. For the same reason,
       on September 24, 2013, the circuit court granted Cumberland’s motion to dismiss the citation
       proceeding.
¶ 11       Plaintiffs timely appealed.

¶ 12                                        II. ANALYSIS
¶ 13       Although plaintiffs argue multiple issues on appeal, if relitigation of Cumberland’s duty
       to indemnify Express is barred by collateral estoppel, we need not reach plaintiffs’ arguments
       as to whether Cumberland had a duty to indemnify Express or whether the settlement
       agreement between plaintiffs and Express was reasonable. Accordingly, we begin by
       addressing whether the declaratory judgment in the federal action bars relitigation of
       Cumberland’s duty to indemnify Express and thus defeats the citation proceeding.

¶ 14                                     A. Standard of Review
¶ 15       We first note that it was not the claim to discover Cumberland’s assets that the circuit
       court found barred but, rather, the issue of Cumberland’s duty to indemnify Express.
       Regardless, the application of both “true res judicata” (claim preclusion) and collateral
       estoppel (issue preclusion) are legal questions, which we review de novo. Lieberman v.
       Liberty Healthcare Corp., 408 Ill. App. 3d 1102, 1108 (2011); see Hayes v. State Teacher
       Certification Board, 359 Ill. App. 3d 1153, 1161 (2005) (res judicata separated into two
       distinct doctrines). The issue of Cumberland’s duty to indemnify Express was dispositive in
       the circuit court’s grant of Cumberland’s motion to dismiss and denial of plaintiffs’ motion
       for summary judgment. We review de novo a ruling on a motion to dismiss generally or a
       motion for summary judgment. Simmons v. Homatas, 236 Ill. 2d 459, 477 (2010) (“A grant
       or denial of a motion to dismiss is a question of law that we review de novo.”); American
       States Insurance Co. v. CFM Construction Co., 398 Ill. App. 3d 994, 998 (2010) (“The
       appellate court applies a de novo standard of review to the trial court’s grant or denial of a
       summary judgment motion.”); see Eclipse Manufacturing Co. v. United States Compliance
       Co., 381 Ill. App. 3d 127, 134 (2007) (turnover order arising from section 2-1402 proceeding
       was subject to de novo review). Moreover, we review a choice-of-law issue de novo. G.M.
       Sign, Inc. v. Pennswood Partners, Inc., 2014 IL App (2d) 121276, ¶ 25.

¶ 16                                    B. Collateral Estoppel
¶ 17       Plaintiffs submit three reasons why the federal declaratory judgment does not have
       preclusive effect in the citation proceeding: (1) the declaratory judgment is void under

                                                  -4-
       Pennsylvania law; (2) the law-of-the-case doctrine establishes that the declaratory judgment
       does not bind plaintiffs; and (3) the declaratory judgment does not meet the requirements for
       collateral estoppel to apply. We address each argument in turn.

¶ 18                          1. Whether the Declaratory Judgment is Void
¶ 19       Plaintiffs argue that the declaratory judgment is void because, under Pennsylvania law,
       underlying tort plaintiffs have a substantial independent interest in insurance coverage and
       are therefore necessary parties to coverage actions, such as the federal action. See Vale
       Chemical Co. v. Hartford Accident & Indemnity Co., 516 A.2d 684, 687-88 (Pa. 1986)
       (underlying tort plaintiffs were necessary parties to state declaratory judgment action
       between insurers and the underlying defendant-insured); Richards v. Trimbur, 543 A.2d 116,
       119 (Pa. Super. Ct. 1988) (where personal injury plaintiff is not joined to a state declaratory
       judgment action between insurer and insured over coverage, the court lacks jurisdiction to
       enter a declaratory judgment). Plaintiffs contend that the declaratory judgment here had no
       preclusive effect because it was entered by a court lacking subject matter jurisdiction, i.e., the
       judgment is void under Pennsylvania law.
¶ 20       The Erie doctrine provides that a federal court sitting in diversity (28 U.S.C. § 1332
       (2006)) is to apply state substantive law and federal procedural law. Chamberlain v.
       Giampapa, 210 F.3d 154, 158 (3d Cir. 2000) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64,
       78 (1938)). Plaintiffs’ argument implicitly assumes that, as in Vale, section 7540 of the
       Pennsylvania Judicial Code (PA Code) (42 Pa. Cons. Stat. Ann. § 7540 (West 2010)) was
       applicable substantive law such that their joinder in the federal action was a jurisdictional
       necessity. However, Vale does not speak to declaratory judgment actions brought in federal
       court pursuant to section 2201 of Title 28 (28 U.S.C. § 2201 (2006)), but rather applies only
       to actions brought in state court pursuant to section 7540 of the PA Code. See Liberty Mutual
       Insurance Co. v. Treesdale, Inc., 419 F.3d 216, 229 (3d Cir. 2005) (holding that Vale
       addressed procedural and jurisdictional issues, not substantive principles of law, and that thus
       Erie did not require the district court to apply Pennsylvania law to underlying plaintiffs’
       petition to intervene in insurance coverage dispute). Therefore, while section 7540 requires
       that “[w]hen declaratory relief is sought, all persons shall be made parties who have or claim
       any interest which would be affected by the declaration” (42 Pa. Cons. Stat. Ann. § 7540(a)
       (West 2010)), it applies only in Pennsylvania state court actions, not in a federal diversity
       action as here.
¶ 21       The relevant procedures in federal court are found in the Federal Rules of Civil Procedure
       (FRCP) and section 2201. Section 2201 does not contain a provision similar to section
       7540(a) of the PA Code requiring all interested persons be made parties to the action, nor
       does Rule 19 of the FRCP (Fed. R. Civ. P. 19) necessarily require joinder of an underlying
       plaintiff in a coverage dispute between an underlying defendant and its insurer.
¶ 22       Plaintiffs allude in their reply brief to the “outcome-determination” test. See Hanna v.
       Plumer, 380 U.S. 460, 467-68 (1965); Guaranty Trust Co. of New York v. York, 326 U.S. 99,
       109 (1945). They argue that allowing Cumberland to “run” to federal court to “avoid” state
       court is in direct violation of the Erie doctrine. However, they do not explain why the
       outcome of this case would be different if the declaratory judgment had come from a state
       court. The district court applied Pennsylvania contract law (see Maryland Casualty Co., 2011
       WL 4402275, at *10), the same substantive law that a Pennsylvania state court would have

                                                   -5-
       applied in deciding whether the insurance policies required Cumberland to defend or
       indemnify Express. Although Rule 19 and section 2201 did not require joinder, the
       “touchstone” of Erie is whether the federal rule “significantly affect[s] the result of a
       litigation,” regardless of whether it is technically a rule of procedure or substance. (Internal
       quotation marks omitted.) Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance
       Co., 559 U.S. 393, 406 (2010). We cannot say, nor have plaintiffs argued, that the district
       court would have interpreted the contracts differently had it been required to join plaintiffs in
       the federal action. Simply, the choice of joinder rules did not affect Express’s substantive
       rights in an outcome-determinative way.
¶ 23        Under the Erie doctrine, the district court was not required to follow the Pennsylvania
       law that would have required joining plaintiffs to the dispute, and the applicable federal law
       did not require joinder. Therefore, we find unavailing plaintiffs’ argument that the
       declaratory judgment is void for failure to join plaintiffs.

¶ 24                2. Whether the Law of the Case Prevented Application of Issue Preclusion
¶ 25        Plaintiffs argue that, even if the declaratory judgment is not void, the law-of-the-case
       doctrine established that the declaratory judgment did not apply against plaintiffs. Plaintiffs
       contend that Cumberland argued the issue of whether the declaratory judgment bound
       plaintiffs when it argued its motion to dismiss based on a lack of personal jurisdiction or
       alternatively to stay or dismiss because of the concurrently pending federal action. The
       circuit court denied the motion, reasoning that the federal action was not between the same
       parties and thus did not bar the concurrent Illinois proceeding. Plaintiffs contend, therefore,
       that the circuit court already settled the issue of whether they were bound by the outcome of
       the federal action, finding that they were not, and that the law-of-the-case doctrine barred the
       subsequent determination that plaintiffs were bound by the federal declaratory judgment.
¶ 26        The law-of-the-case doctrine generally bars relitigation of an issue previously decided in
       the same case. Krautsack v. Anderson, 223 Ill. 2d 541, 552 (2006); People v. Patterson, 2013
       IL App (2d) 120359, ¶ 15. Moreover, when a question could have been raised on a prior
       appeal but was not, that question is deemed forfeited. Kreutzer v. Illinois Commerce
       Comm’n, 2012 IL App (2d) 110619, ¶ 37. Plaintiffs argue that Cumberland could have raised
       the issue of the declaratory judgment’s preclusive effect when it appealed the circuit court’s
       finding of personal jurisdiction over it (see Pace Communications Services Corp., 408 Ill.
       App. 3d at 980), but that it did not and thus the issue is forfeited and barred.
¶ 27        We need not determine whether Cumberland forfeited the issue–or whether the issue
       could have been raised in Cumberland’s appeal–because whether the declaratory judgment
       bound plaintiffs is a separate issue from the denial of the motion to dismiss the citation
       proceeding. See American Service Insurance Co. v. China Ocean Shipping Co. (Americas),
       Inc., 2014 IL App (1st) 121895, ¶ 17 (“[A] ruling will not be binding in a subsequent stage of
       litigation when different issues are involved ***.”). Cumberland moved to dismiss under
       section 2-619(a)(3) (735 ILCS 5/2-619(a)(3) (West 2010)), which allows dismissal where
       “there is another action pending between the same parties for the same cause.” (Emphasis
       added.) The circuit court denied the motion because the federal action did not involve the
       same parties: the federal action was between Express and Cumberland, and the citation
       proceeding was between plaintiffs and Cumberland.


                                                   -6-
¶ 28       Cumberland argues that the circuit court recognized that, under Pennsylvania law, 2 the
       parties did not have to be identical for the declaratory judgment to have preclusive effect.
       However, the “same parties” requirement under section 2-619(a)(3) likewise does not require
       that the parties be identical, only that their interests be sufficiently similar. May v. SmithKline
       Beecham Clinical Laboratories, Inc., 304 Ill. App. 3d 242, 247 (1999). Regardless, the
       circuit court faced two separate and distinct issues: (1) whether the citation proceeding
       should have been stayed or dismissed due to the concurrent federal action; and (2) whether
       the declaratory judgment precluded plaintiffs’ litigation of the issue of coverage. By ignoring
       that these were separate and distinct issues, plaintiffs improperly conflate section
       2-619(a)(3)’s requirement of the “same parties” with Pennsylvania law’s requirement that the
       same parties or their privies be involved in both litigations for issue preclusion to apply (see
       Rue v. K-Mart Corp., 713 A.2d 82, 84 (Pa. 1998)). The circuit court had to determine under
       Pennsylvania law whether the requirements of collateral estoppel were satisfied, regardless of
       its ruling on the motion to dismiss. See Scheffel & Co. v. Fessler, 356 Ill. App. 3d 308,
       312-13 (2005) (law of the case not applicable when different issues involved; two different
       restrictions in restrictive covenant agreement were separate issues); Lake Bluff Heating & Air
       Conditioning Supply, Inc. v. Harris Trust & Savings Bank, 117 Ill. App. 3d 284, 290-91
       (1983) (rulings on a party’s obligation to convey title and on its obligation to repair were
       different issues, rendering law-of-the-case doctrine inapplicable). In other words, the court
       did not previously decide whether the outcome of the federal action bound plaintiffs on the
       issue of coverage. We therefore reject the argument that the law-of-the-case doctrine applies
       here.3

¶ 29                                3. Whether Issue Preclusion Applied
¶ 30        Plaintiffs argue that, even if the declaratory judgment is not void and the law-of-the-case
       doctrine does not apply, the issue of Cumberland’s duty to indemnify Express was not barred
       by collateral estoppel. They argue that the declaratory judgment did not preclude relitigation
       of the issue because: (1) the district court did not have personal jurisdiction over plaintiffs;
       (2) the issue in the federal action was not identical to the issue here; (3) plaintiffs were not
       parties to the federal action or in privity with Express; and (4) Express had no incentive to
       litigate the federal action.
¶ 31        Before addressing these arguments, however, we must determine what law we are to
       apply. The foreign judgment here was not rendered by another state court–and thus this is not
       an issue of full faith and credit (Semtek International Inc. v. Lockheed Martin Corp., 531

           2
            As discussed in the next section, Pennsylvania law applies to the determination of whether
       collateral estoppel applied.

           3
            Additionally, the application of the law-of-the-case doctrine requires a final judgment. People v.
       Patterson, 154 Ill. 2d 414, 469 (1992). A denial of a motion to dismiss, as occurred here, is an
       interlocutory order, which “may be modified or revised by a successor court at any time prior to final
       judgment.” Commonwealth Edison Co. v. Illinois Commerce Comm’n, 368 Ill. App. 3d 734, 742
       (2006). Therefore, the law-of-the-case doctrine did not apply not only because the issues were not the
       same, but also because, even if the issues had been the same, the court’s denial of the motion to dismiss
       was not final.

                                                       -7-
       U.S. 497, 506-07 (2001))–but was instead rendered by a federal court sitting in diversity
       jurisdiction. Therefore, under Semtek, the declaratory judgment has the same preclusive
       effect judgment as would a judgment of a court of the state in which the federal court sat: that
       is, we apply Pennsylvania law. Id. at 508.

¶ 32                                       a. Personal Jurisdiction
¶ 33       Plaintiffs argue that the district court did not have personal jurisdiction over them in the
       federal action. Due process requires that a party have minimum contacts with the forum state
       for a court to exercise personal jurisdiction over it (International Shoe Co. v. Washington,
       326 U.S. 310, 316 (1945)), and here plaintiffs did not avail themselves of the privilege of
       conducting activities within the forum state, nor did Cumberland even attempt to obtain
       personal jurisdiction over them. Therefore, plaintiffs argue, Cumberland’s use of the
       declaratory judgment against them in the citation proceeding violated due process.
¶ 34       Cumberland is correct that plaintiffs’ argument is a red herring. Under Pennsylvania law,
       collateral estoppel may apply when “the party against whom the plea is asserted was a party
       or in privity with a party in the prior case.” (Emphasis added.) Office of Disciplinary Counsel
       v. Kiesewetter, 889 A.2d 47, 50 (Pa. 2005). Pennsylvania law has well established that being
       in privity with a party to a judgment is sufficient to satisfy the identity-of-parties requirement
       of collateral estoppel. See, e.g., Vignola v. Vignola, 2012 PA Super 36. Personal jurisdiction
       over nonparties in the prior action is unnecessary when privity is established. See Adzigian v.
       Harron, 297 F. Supp. 1317, 1324 (E.D. Pa. 1969) (when enforcing a foreign judgment, court
       must ask whether one of two things existed in the foreign judgment: (1) personal jurisdiction
       or (2) privity).
¶ 35       In short, plaintiffs are arguing about personal jurisdiction when they should be arguing
       about privity. Cumberland established issue preclusion in the circuit court under the theory
       that plaintiffs were in privity with Express in the federal action. Plaintiffs’ personal
       jurisdiction argument is misplaced, irrelevant to our analysis, and we therefore disregard it.

¶ 36                                b. Elements of Collateral Estoppel
¶ 37       Plaintiffs’ three remaining arguments all attack whether the elements of collateral
       estoppel were satisfied in this case. As noted, we review de novo the application of collateral
       estoppel (Lieberman, 408 Ill. App. 3d at 1108), and we now examine whether the elements of
       collateral estoppel were present in this case.
¶ 38       Collateral estoppel (or issue preclusion)4 applies under Pennsylvania law if:
               “(1) the issue decided in the prior case is identical to the one presented in the later
               case; (2) there was a final judgment on the merits; (3) the party against whom the plea
               is asserted was a party or in privity with a party in the prior case; (4) the party or
               person privy to the party against whom the doctrine is asserted had a full and fair
               opportunity to litigate the issue in the prior proceeding and (5) the determination in


          4
             Like Illinois, Pennsylvania uses the terms “issue preclusion” and “collateral estoppel”
       interchangeably. See Hebden v. Workmen’s Compensation Appeal Board (Bethenergy Mines, Inc.),
       632 A.2d 1302, 1304 (Pa. 1993).

                                                   -8-
                the prior proceeding was essential to the judgment.” R.W. v. Manzek, 888 A.2d 740,
                748 (Pa. 2005).
       Plaintiffs first argue that the issues were not identical between the federal action and the
       citation proceeding. Plaintiffs’ basis for this argument is that the circuit court relied on a
       Third Circuit holding that predicted Pennsylvania law, rather than relying on Pennsylvania
       precedent. They cite Pekin Insurance Co. v. XData Solutions, Inc., 2011 IL App (1st)
       102769, ¶¶ 22-23, to argue that, since there was no Pennsylvania precedent contrary to the
       relevant Illinois law, the circuit court did not need to predict Pennsylvania law but instead
       should have applied Illinois law.
¶ 39       This argument is another red herring. Plaintiffs are arguing about what law should be
       applied to the issue of coverage, but what we must ask is whether the issue was the same in
       the federal action and the citation proceeding, not what law should decide it. See Rue, 713
       A.2d at 85. The issues in both the federal action and the citation proceeding were identical,
       that is, whether Cumberland had a duty to indemnify Express. What law applies to decide
       that issue is inapposite. In fact, plaintiffs’ argument betrays its position: arguing which state’s
       law applies to the same coverage issue assumes that the issue is identical. Accordingly, we
       reject plaintiffs’ argument and find that the first element, identity of issues, was met.
¶ 40       As to whether there was a final judgment on the merits, plaintiffs argue only that the
       declaratory judgment is void, an argument we disposed of supra. Therefore, because the
       district court entered a final, declaratory judgment, the second element was met.
¶ 41       Plaintiffs take exception to the third element, arguing that they were neither parties nor
       privies to the federal action. They argue as follows. Privity requires “an identification of
       interest of one person with another as to represent the same legal right.” (Internal quotation
       marks omitted.) Catroppa v. Carlton, 2010 PA Super 85, ¶ 9. For purposes of collateral
       estoppel, privity requires more than the mere fact that persons be “interested in the same
       question or in proving the same facts.” (Internal quotation marks omitted.) Bergdoll v.
       Commonwealth of Pennsylvania, 858 A.2d 185, 197 n.4 (Pa. Commw. Ct. 2004). Under
       Pennsylvania law, a coverage action is not a private matter between the insurer and the
       insured; the injured third party has an interest in the action, and the insurer cannot cut off
       rights against the injured third party merely by obtaining a judgment against the insured. See
       Vale, 516 A.2d at 686-88 (underlying plaintiff had an interest in declaratory judgment action
       between underlying defendant and its insurer).5 Vale supports the proposition that plaintiffs
       have rights concerning coverage, independent of Express. These independent rights could not
       be extinguished by the judgment secured by Cumberland against Express alone. Moreover,
       the settlement agreement between plaintiffs and Express did not include an assignment of
       rights but only guaranteed Express the benefit of legal representation by plaintiffs’ counsel.
       In the context of collateral estoppel, Pennsylvania has rejected the notion that counsel is in
       privity with a represented party. See Ammon v. McCloskey, 655 A.2d 549, 554 (Pa. Super.
       Ct. 1995) (finding defendant lawyer was not in privity with his client from a prior action for
       purposes of collateral estoppel, where assignee of that client subsequently sued the lawyer for
       malpractice and sought to estop the lawyer from arguing whether the client waived a certain

           5
            Plaintiffs cite many more cases, but those cases are from Illinois. Under Semtek, Pennsylvania law
       controls the application of collateral estoppel in this case, and we therefore look only to Pennsylvania
       law to interpret privity.

                                                      -9-
       defense in the prior action). Accordingly, the fact that plaintiffs’ counsel provided Express
       with legal representation is not enough to establish privity between plaintiffs and Express for
       purposes of collateral estoppel.
¶ 42        Cumberland responds as follows. Privity is established when “a substantive legal
       relationship exists *** that binds the nonparty” (Nationwide Mutual Fire Insurance Co. v.
       George V. Hamilton, Inc., 571 F.3d 299, 312 (3d Cir. 2009)), and a contract can satisfy that
       relationship (id. at 311). Here, the circuit court correctly determined that the settlement
       agreement created a substantive legal relationship between plaintiffs and Express, which
       established privity for purposes of collateral estoppel. The settlement agreement limited
       plaintiffs to recovery from Express’s insurers and stipulated that plaintiffs and Express would
       cooperate in obtaining payment of the judgment from Cumberland. Furthermore, the
       settlement agreement provided that “Plaintiffs and their counsel will undertake, at no cost to
       [Express], the defense of Express in the four coverage lawsuits,” including actions to recover
       against Cumberland, and that Express would waive conflicts of interest with respect to
       plaintiffs’ counsel’s representation of it in those lawsuits. In fact, plaintiffs’ counsel did
       provide representation to Express, appearing “Of Counsel” in the federal action and being
       listed as attorneys before the Third Circuit on Express’s appeal. In effect, the settlement
       agreement provided that plaintiffs would be responsible for protecting their interest in
       recovery through defense of Express in coverage suits and prosecution for Express in
       recovery suits. This established privity between plaintiffs and Express for purposes of
       collateral estoppel.
¶ 43        Cumberland also argues that plaintiffs’ status as Express’s judgment creditors established
       privity between them. A judgment creditor stands in the shoes of the insured and is bound by
       a prior action involving the insured’s rights under an insurance policy. See American Surety
       Co. of New York v. Dockson, 28 A.2d 316, 319 (Pa. 1942) (elucidating who is a party in
       privity for purposes of res judicata by stating that those in privity include “attaching
       creditors”); T.A. v. Allen, 2005 PA Super 49, ¶ 11 (an insured’s judgment creditors were
       precluded from pursuing garnishment action against insurer following declaratory judgment
       establishing that the insurer had no duty to indemnify the insured).6
¶ 44        We agree with Cumberland. Ammon is not helpful in this case, because it presented a
       wholly different context: whether a lawyer was in privity with a former client for purposes of
       collateral estoppel in a legal malpractice action that was brought by the former client’s
       assignee. Here, it is irrelevant whether plaintiffs’ lawyers were in privity with anyone.
       Rather, we must determine whether plaintiffs themselves were in privity with Express in the
       federal action. The proper question is whether the settlement agreement established a
       substantive legal relationship between plaintiffs and Express sufficient to find privity under
       Pennsylvania law (see Nationwide Mutual Fire Insurance Co., 571 F.3d at 311), and the fact
       that plaintiffs agreed to have their counsel represent Express, at no cost to Express, to defend
       coverage suits and prosecute recovery actions supported that the settlement agreement
       established such a legal relationship. Furthermore, Vale, as discussed supra, does not aid us.


          6
            We note, however, that in Allen the judgment creditor was a party to the declaratory judgment
       action that established that the insurer did not owe a duty to indemnify the insured. Allen, 2005 PA
       Super 49, ¶ 2.

                                                    - 10 -
       Vale interpreted section 7540 of the PA Code–which did not apply to the federal action–and
       was based on procedure, not on an interpretation of a litigant’s substantive rights.
¶ 45        The circuit court properly found that the settlement agreement established privity
       between plaintiffs and Express. The agreement created a substantive legal relationship
       between them in substance if not form. The quid pro quo of the agreement was that Express
       agreed to a judgment entered against it, and plaintiffs agreed not to pursue recovery from
       Express and agreed to defend Express in coverage disputes and prosecute recovery actions,
       through their counsel. Plaintiffs stepped into Express’s shoes by assuming responsibility for
       Express’s rights and obligations. As stated in Ammon, privity in its broadest sense includes
       “such an identification of interest of one person with another as to represent the same legal
       right.” (Internal quotation marks omitted.) Ammon, 655 A.2d at 554. The agreement perfectly
       aligned plaintiffs’ interests with Express’s. Regardless of Express’s incentive to litigate–an
       issue we address infra–plaintiffs’ and Express’s interests were the same, that is, both
       plaintiffs’ and Express’s legal interest in the federal action was a finding that Cumberland
       owed a duty to indemnify Express. Accordingly, the third element of collateral estoppel is
       satisfied.7
¶ 46        Plaintiffs next argue that the fourth element was not met, in that they did not have a full
       and fair opportunity to litigate the issue of coverage in the federal action. They contend that
       Express had no economic incentive to litigate the issue in the federal action. See Rue, 713
       A.2d at 86 (discussing the intersection of an incentive to litigate and collateral estoppel).
       They cite Express’s pleadings in the federal action where Express explained that, under the
       terms of the settlement agreement, the interest in coverage from Cumberland shifted from it
       to plaintiffs. The pleadings further asserted that Express no longer had an interest in coverage
       and that, because plaintiffs were not parties to the federal action, any opinion the district
       court rendered would be purely advisory.
¶ 47        Plaintiffs’ argument ignores the quid pro quo of the settlement agreement, elevating form
       over substance. Plaintiffs agreed that their counsel would defend Express, at no cost to
       Express, in coverage disputes, and they undertook the recovery efforts against Cumberland at
       their sole expense. Plaintiffs’ position would effectively give them two bites at the same
       apple: if Express, represented by plaintiffs’ counsel in the federal action, were to lose (as it
       ultimately did), plaintiffs would get a second chance to litigate the issue of coverage in the
       citation proceeding. This is exactly the type of undesirable relitigation that collateral estoppel
       bars. See Meridian Oil & Gas Enterprises, Inc. v. Penn Central Corp., 614 A.2d 246, 251
       (Pa. Super. Ct. 1992). The settlement agreement effectively linked Express’s incentive to
       litigate with that of plaintiffs, as evidenced by plaintiffs’ agreement to assume the defense of
       Express in coverage disputes. Accordingly, we reject plaintiffs’ argument and hold that the
       fourth element was met.
           7
            Moreover, Pennsylvania case law supports that, as a matter of law and without need to reference
       an agreement between the persons involved, creditors are in privity with their debtors for purposes of
       res judicata. See American Surety Co. of New York, 28 A.2d at 319; Munoz v. Sovereign Bank, 323 F.
       App’x 184, 188 (3d Cir. 2009) (explaining that Pennsylvania law requires an identity of parties for
       application of res judicata, which includes those in privity with parties, and those in privity include
       attaching creditors). While American Surety Co. of New York and Munoz addressed claim preclusion,
       not issue preclusion, we note that issue preclusion is an even broader concept than claim preclusion.
       Catroppa, 2010 PA Super 85, ¶ 6.

                                                     - 11 -
¶ 48       Plaintiffs do not dispute the fifth element, that the coverage issue was essential to the
       declaratory judgment. The federal action was an action to determine whether Cumberland
       owed coverage to Express. Not only was the issue of coverage essential to the judgment but,
       in fact, it was the judgment–that Cumberland was not obliged to cover Express under the
       policies. Accordingly, we hold that the fifth element was met.
¶ 49       As all the elements were met, the circuit court properly applied collateral estoppel in the
       citation proceeding, with respect to its rulings on both plaintiffs’ summary judgment motion
       and Cumberland’s motion to dismiss. Furthermore, because collateral estoppel applied, we
       need not address plaintiffs’ further arguments that Cumberland owed a duty to indemnify
       Express and that the settlement amount, for which Cumberland otherwise would have had to
       indemnify Express, was reasonable.

¶ 50                                    C. Breach of Duty to Defend
¶ 51       Plaintiffs argue that Cumberland was estopped from raising any policy
       defense–including, they assume, collateral estoppel–in the citation proceeding, because it
       breached its duty to defend. Under Employers Insurance of Wausau v. Ehlco Liquidating
       Trust, 186 Ill. 2d 127, 150-51 (1999), an insurer must “(1) defend the suit under a reservation
       of rights or (2) seek a declaratory judgment that there is no coverage,” or it will be estopped
       from raising policy defenses to coverage if it is later found to have wrongfully denied
       coverage. Plaintiffs point to Cumberland’s initial denial of coverage and subsequent letter
       confirming that it would defend Express under a reservation of rights. Plaintiffs claim that
       Cumberland did not honor its pledge to defend under a reservation of rights and failed to pay
       any defense costs. Plaintiffs acknowledge that Cumberland sought a declaratory judgment
       but highlight that it did not join plaintiffs in the federal action. Moreover, they claim that the
       federal action was not brought within a reasonable time. See Central Mutual Insurance Co. v.
       Kammerling, 212 Ill. App. 3d 744, 749-51 (1991) (affirming that insurer’s delay in bringing
       declaratory judgment action after reservation of rights–7 years after the alleged breach by the
       insured took place, 10 months after it had notice of the loss, and months after it had notice of
       a possible settlement of the controversy–estopped insurer from raising policy defenses).
       Plaintiffs continue that estoppel “applies only where an insurer has breached its duty to
       defend. Thus, a court inquires whether the insurer had a duty to defend and whether it
       breached that duty.” Ehlco, 186 Ill. 2d at 151. Plaintiffs do not argue but rather assume that
       Cumberland had a duty to defend.
¶ 52       Fatal to plaintiffs’ argument is that the federal action established that Cumberland did not
       have a duty to defend Express. There can be no breach of a duty where there is no duty to
       begin with. Moreover, Cumberland initiated the federal action to declare its lack of a duty in
       June 2008, well before Express settled the class action in May 2009 (finalized in October
       2009). These facts distinguish this case from Kammerling and align it with State Automobile
       Mutual Insurance Co. v. Kingsport Development, LLC, 364 Ill. App. 3d 946, 961 (2006)
       (finding Kammerling inapposite and a seven-month delay in seeking a declaratory judgment
       reasonable because the underlying action was still ongoing at the time of filing and because
       the insurer consistently denied having a duty to defend the insured). Therefore, Cumberland




                                                   - 12 -
       initiated an action for a declaratory judgment in a reasonable time. Accordingly, Cumberland
       was not estopped from raising any policy defense.8

¶ 53                                       III. CONCLUSION
¶ 54      For the aforementioned reasons, we affirm the Lake County circuit court’s judgment
       dismissing plaintiffs’ section 2-1402 citation to discover assets.

¶ 55       Affirmed.




           8
           Moreover, it is unclear that arguing the application of collateral estoppel is necessarily a policy
       defense as contemplated by Ehlco. Cumberland did not have to argue under the insurance policies to
       successfully present its defense, but, rather, had to establish only that the declaratory judgment met the
       elements of collateral estoppel.

                                                      - 13 -
