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Scottsdale Insurance Co. v. I-20 HD Ultra Lounge LLC

United States District Court, N.D. Alabama, Eastern Division

April 19, 2019

SCOTTSDALE INSURANCE COMPANY, Plaintiff,
v.
I-20 HD ULTRA LOUNGE, LLC, and MARGIE REE BONNER-MITCHELL, Defendants.

          MEMORANDUM OPINION AND ORDER

          ABDUL K. KALLON UNITED STATES DISTRICT JUDGE.

         Scottsdale Insurance Company brings this declaratory judgment action pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57 to determine its rights under a commercial general liability policy it issued to I-20 HD Ultra Lounge with respect to a pending lawsuit filed against Ultra Lounge in state court. Doc. 1. Ultra Lounge has counter-claimed against Scottsdale, alleging six state law claims. Doc 6. Scottsdale has moved to dismiss the counterclaims, and Ultra Lounge has moved to partially dismiss Scottsdale's claims. Docs. 9-10; 15. Ultra Lounge has also moved to amend to restate its counterclaims and to add purported necessary parties. Doc. 24. The motions are fully briefed and ripe for review. See docs. 14, 18, 17, 23. For the reasons stated more fully below, Ultra Lounge's motion to dismiss is granted, Ultra Lounge's motion to amend is granted in part, and Scottsdale's motion to dismiss is granted in part.

         I. STANDARD OF REVIEW

         Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” “[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action” are insufficient. Id. (citations and internal quotation marks omitted). By contrast with Rule 8(a)'s fairly liberal pleading standard, Federal Rule of Civil Procedure 9(b) requires a party to “state with particularity the circumstances constituting fraud or mistake.”

         Federal Rule of Civil Procedure 12(b)(6) permits dismissal when a complaint fails to state a claim upon which relief can be granted. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. (citations and internal quotation marks omitted). A complaint states a facially plausible claim for relief “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). Ultimately, this inquiry is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

         II. BACKGROUND

         This action arises out of an insurance dispute between Scottsdale and its policyholder Ultra Lounge, a night club operator. Ultra Lounge purchased from Scottsdale a general liability insurance policy, effective October 1, 2014 to October 1, 2015, which provided coverage for “bodily injury” and “property damages” caused by an “occurrence.” Doc. 1 at 6; see doc. 1-1. The policy obligated Scottsdale to defend Ultra Lounge against any “suit” seeking damages to which the insurance applies. Docs. 1 at 6; 1-1 at 9.

         In March 2016, Margie Ree Bonner-Mitchell (“Mitchell”) filed suit against Ultra Lounge and Nikolaus Danvar Mitchell (“Nikolaus”) in the Circuit Court of Calhoun County, Alabama. See Mitchell v. I-20 Ultra Lounge, LLC, No. 11-CV-2016-900112.00 (Ala. Cir. Ct. Mar. 3, 2016). Mitchell alleged that Nikolaus' car hit her while she was walking, causing her to sustain bodily injuries. Doc. 1-2 ¶ 10. Nikolaus had allegedly been drinking alcoholic beverages at an Ultra Lounge bar before driving his car that night. Id. ¶ 11. For her injuries, Mitchell seeks compensatory and punitive damages from Ultra Lounge for various tort claims, and violations of Alabama's “Dram Shop Act, ” Alabama Administrative Code 20-X-5-.14. Doc. 1-2 at 3-8.

         Scottsdale filed the present action seeking declaratory judgment that it does not owe coverage to Ultra Lounge for the Mitchell action, that it has no duty to defend Ultra Lounge against the Mitchell action, and that it has no duty to indemnify Ultra Lounge against the Mitchell action or for any damages or judgment awarded against Ultra Lounge. Doc. 1 at 11. Specifically, Scottsdale alleges that “endorsements” added to the parties' insurance agreement created policy exclusions related to liquor liability, assault and/or battery, and punitive or exemplary damages that bar coverage for the Mitchell action. See docs. 1 at 7-11; 1-1 at 31-32, 43, 83.

         III. ANALYSIS

         A. Ultra Lounge's Motion to Partially Dismiss

         Ultra Lounge contends that the duty to indemnify declaratory judgment claim is not yet ripe for adjudication in light of the pending Mitchell action. Doc. 15. Under Alabama law, [1] an insurer's duties to defend and indemnify are distinct, and therefore “must be analyzed separately.” United States Fid. & Guar. Co. v. Armstrong, 479 So.2d 1164, 1167 (Ala. 1985) (citations omitted). The duty to defend “is more extensive than [the] duty to [indemnify], ” and is generally determined by looking to the allegations in the underlying state action. Ladner & Co. v. S. Guar. Ins. Co., 347 So.2d 100, 102-03 (Ala. 1977). By contrast, whether a duty to indemnify exists depends “on the facts adduced at the trial of the action” against the insured. Hartford Cas. Ins. Co. v. Merchs. & Farmers Bank, 928 So.2d 1006, 1013 (Ala. 2005); see Tanner v. State Farm Fire & Cas. Co., 874 So.2d 1058, 1066 (Ala. 2003) (“The insured's conduct rather than the allegedly injured person's allegations determine whether the insurer has a duty to indemnify.”). Accordingly, contrary to Scottsdale's contentions, “[t]he duty to indemnify does not rise out of a duty to defend” and cannot be determined prior to the resolution of the underlying state action. Alabama Gas Corp. v. Travelers Cas. & Sur. Co., 990 F.Supp.2d 1163, 1167 (N.D. Ala. 2013), aff'd, 568 Fed.Appx. 837 (11th Cir. 2014); see, e.g., State Farm Fire & Cas. Co. v. GHW, 56 F.Supp.3d 1210, 1215 (N.D. Ala. 2014) (“It is too early for the Court to address the indemnity issue because the state court action against [the insured] remains pending.”); Pharmacists Mut. Ins. Co. v. Godbee Med. Distributors, Inc., 733 F.Supp.2d 1281, 1286 (M.D. Ala. 2010) (“[A] determination of the duty to indemnify cannot be made at a preliminary stage in the proceedings, when it is still possible for the plaintiff in the underlying lawsuit to change the theory of liability and assert a claim that is covered by the policy at issue.”).

         State court records indicate that the Mitchell action remains pending. See Mitchell v. I-20 Ultra Lounge, LLC, No. 11-CV-2016-900112.00 (Ala. Cir. Ct. Mar. 3, 2016). Therefore, “[b]ecause the underlying action is still pending in state court, the court . . . concludes that the duty to indemnify issue is not yet ripe, and it will thus not rule on the issue.” Employers Mut. Cas. Co. v. Smith Const. & Dev., LLC, 949 F.Supp.2d 1159, 1176 (N.D. Ala. 2013). See also Allstate Ins. Co. v. Employers Liab. Assurance Corp., 445 F.2d 1278, 1281 (5th Cir. 1971) (“[N]o action for declaratory relief will lie to establish an insurer's liability . . . until a judgment has been rendered against the insured since, until such judgment comes into being, the liabilities are contingent and may never materialize.”).[2]Accordingly, Ultra Lounge's motion to dismiss this claim is due to be granted.

         B. Scottsdale's ...


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