Mesa Underwriters Specialty Ins. Co. v. Secret's Gentleman's Club

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 18a0514n.06
No. 17-3779
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
MESA UNDERWRITERS SPECIALTY INSURANCE ) Oct 16, 2018
CO., ) DEBORAH S. HUNT, Clerk
)
Plaintiff-Appellant, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE
SECRET’S GENTLEMAN’S CLUB; GLMR, INC., dba ) NORTHERN DISTRICT OF
Secret’s; SHARON SNYDER, Individually and as ) OHIO
Administratrix of the Estate of Deceased Desiree Snyder; )
TERRY SNYDER, )
)
Defendants-Appellees. ).
)
BEFORE: GIBBONS, WHITE, and STRANCH, Circuit Judges.
HELENE N. WHITE, Circuit Judge. In this insurance-coverage declaratory-judgment
action, Plaintiff Mesa Underwriters Specialty Insurance Co. (Mesa) appeals the district court’s
grant of partial summary judgment in favor of Defendants Secret’s Gentleman’s Club and GLMR,
Inc.1 (together Secret’s), and Sharon and Terry Snyder (the Snyders), and the district court’s denial
of Mesa’s motion for judgment on the pleadings. We AFFIRM.
I.
On April 5, 2014, twenty-two year old Desiree Snyder was killed when the vehicle she was
a passenger in was struck head-on by a vehicle driven by Julio Vargas who, heavily intoxicated,
1
At the time, Defendant GLMR did business as Secret’s.
No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
was driving the wrong way on I-480. Minutes before the head-on collision, Defendant Secret’s,
an adult entertainment bar in Cleveland, had ordered Vargas to leave its establishment.
At the time, Mesa insured Secret’s under a Commercial General Liability Coverage policy
that afforded liability coverage for “bodily injury” (defined to include death) caused by an
“occurrence” (defined as an “accident”; the term “accident” is not defined in the policy). PID 220,
222/Policy. As pertinent here, the policy contained a liquor liability exclusion, which excluded
coverage for:
“Bodily Injury” or “property damage” for which any insured may be held liable by
reason of:
(1) Causing or contributing to the intoxication of any person;
(2) The furnishing of alcoholic beverages to a person under the legal
drinking age or under the influence of alcohol; or
(3) Any statute, ordinance or regulation relating to the sale, gift,
distribution or use of alcoholic beverages.
PID 725/Liquor Liability Exclusion.
A. State-Court Action
Desiree’s parents, Defendants Sharon and Terry Snyder, filed an action in the Cuyahoga
County Court of Common Pleas against Vargas, Secret’s, Gigi’s Lounge (another adult
entertainment bar insured by Mesa), and others not pertinent here, alleging claims of common-law
negligence, wrongful death, conscious disregard/willful and wanton misconduct, survivorship,
loss of consortium, and violations of Ohio’s Dram Shop Act, Rev. Code § 4399.18, by Gigi’s
Lounge and Secret’s. Cuyahoga Court of Common Pleas Case No. CV-15-839575 filed 1/28/15.
PID 57/state court complaint.
After receiving notice of the state-court action, Mesa notified Secret’s by letter dated
February 25, 2015, that it would not defend or indemnify Secret’s against what it termed a “liquor
2
No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
liability” claim. PID 681. Mesa provided a defense for Gigi’s Lounge in the state-court action
because Gigi’s had purchased additional liquor-liability coverage. PID 1613/Dist. Ct. Op.
Secret’s obtained counsel at its own expense.2 Trial in the state court action was scheduled
for May 25, 2016. On May 9, 2016, the Snyders and Secret’s executed a Confidential Agreement
and Stipulation for Consent Judgment under which the parties agreed to “enter into a consent
judgment on Plaintiffs’ causes of action for Negligence and Conscious Disregard (Counts Five (5)
and Six (6) of Plaintiffs’ Complaint) for all wrongful death, survivorship, conscious pain and
suffering, and loss of consortium damages,” and GLMR agreed to pay the Snyders $200,000
toward the judgment. This Confidential Agreement further provided:
4. In consideration of the payments toward the judgment . . . and the mutual
promises set forth herein, GLMR hereby assigns any claims it has against the
Insurer including indemnification, breach of contract, failure to defend and
indemnify, breach of fiduciary duties and bad faith, along with enforcement of any
judgment awarded to Plaintiffs other than reimbursement provisions contained
herein. GLMR further agrees to (1) provide truthful testimony and to cooperate in
any supplemental or separate action brought by Plaintiffs against the Insurer . . .
and (2) cooperate with any attorney selected by Plaintiffs, at no cost to GLMR, to
bring the claim or claims against the Insurer in Plaintiffs’ own name or defend
claims under any declaratory judgment action brought by the insurer against
GLMR.
In consideration of the payments toward the judgment . . . the Parties hereby agree
that Plaintiffs will obtain a judgment against GLMR in an amount to be determined
by the Court at a designated hearing (“Lawsuit Judgment”). Plaintiffs agree not to
execute on the Lawsuit Judgment against GLMR except against the Insurer as set
forth herein. Should Plaintiffs prevail in a final judgment against the Insurer and
the judgment is satisfied, or settle with the insurer and the settlement is paid, the
Parties agree that GLMR shall immediately cease Periodic Payments. Any
settlement shall be with the consent of GLMR and this consent shall not be
unreasonably withheld.
2
During the pendency of the state-court action, Secret’s counsel wrote Mesa at least four letters, several directing
Mesa’s attention to the Snyders’ claims of common-law negligence unrelated to the sale or service of alcohol, and
urging Mesa to reconsider its denial of a defense. See PID 686-87/letter dated 3/25/15; PID 820/letter dated 8/25/15.
Mesa’s response to Secret’s March 25, 2015 letter was that it had “no reason to ascribe any veracity to Plaintiffs’
allegations,” and advised that it would continue to deny coverage and defense for the claims for reasons including that
“all the claims against the Defendants are subject to the liquor liability exclusion.” PID 693, 694/Mesa letter dated
6/25/15 on cover page and 7/15/15 elsewhere. Mesa did not respond to Secret’s August 25, 2015 letter. PID
851/Declaration of Secret’s counsel, Ronald Lee, ¶ 9.
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In addition, should Plaintiffs prevail against or settle with the Insurer, Plaintiffs
agree, upon payment of the judgment or settlement by the insurer, to reimburse
GLMR for attorneys fees, costs, and the amounts paid up to that point in this
Agreement on a pro rata basis in comparison to the judgment entered by the Trial
Court . . . .
....
10. Plaintiffs agree to defend, indemnify and hold harmless the Defendants from
any and all claims, demands . . . of any nature or kind. . . .
11. This Agreement and Stipulation and its implementation are strictly confidential
and may not be disclosed to any other party, except Defendants’ and Plaintiffs’
insurers . . . and by order of a court having jurisdiction or otherwise required by
law; and otherwise by written agreement of the Parties.
PID 1460-62.3
The trial proceeded as scheduled. Almost a week into trial, the Snyders and Gigi’s Lounge
settled. The case went forward against Secret’s and GLMR. Around May 31, 2016, Secret’s and
the Snyders entered into an Amended Stipulation for Consent Judgment allowing Secret’s to
continue to deny liability and allowing the state court to determine Secret’s liability and damages,
if any, for the Snyders’ common-law negligence, wrongful death, and survivorship claims:
Now come the Plaintiffs and Defendant, GLMR, Inc., by and through their counsel
of record, and hereby stipulate that the Trial Court can consider a consent judgment
being entered against Defendant GLMR, Inc. on Counts [1, 5, 6, and 7] of Plaintiffs’
Complaint for an amount to be determined by the Trial Court at a hearing on
Plaintiffs’ damages, including but not limited to, survivorship damages . . . ,
wrongful death damages . . . and loss of consortium.
....
Defendant Secrets specifically denies liability on any causes of action brought by
Plaintiffs, but agree[s] to allow the Trial Court to evaluate the liability evidence and
damages prior to entering a consent judgment, if any. Defendant Secrets has filed
an Answer denying the substantive portions of Plaintiffs’ Complaint and that
3
On May 18, 2016, the Snyders and GLMR filed a “Stipulation for Consent Judgment (Partial Against Defendant
GLMR, Inc.,” which provided:
Now come the Plaintiffs and Defendant, GLMR, Inc., by and through their counsel of record, and
hereby stipulate to a consent judgment being entered against Defendant GLMR, Inc. on Counts [1,
5, 6, and 7] of Plaintiffs’ Complaint for an amount to be determined by the Trial Court at a hearing
on Plaintiffs’ damages, including but not limited to, survivorship damages . . . , wrongful death
damages . . . and loss of consortium.
Plaintiffs’ claims against all other Defendants currently in the action remain pending.
PID 530-32.
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Answer remains in full force and effect until the Court holds a hearing and evaluates
the evidence on liability and damages.
All previous stipulations for future consent judgments are null and void.
PID 895-97/Amended Stip. For Consent J. filed electronically 5/31/16; PID 1614/Dist. Ct. Op.
The state court scheduled an evidentiary hearing for August 3, 2016. Before that hearing,
the Snyders withdrew their Dram Shop claims against Secret’s, so there were no statutory claims
before the state court. The evidentiary hearing was held pursuant to the Amended Stipulation for
Consent Judgment quoted above. The evidentiary record included 25 deposition transcripts and
numerous other admitted exhibits. It is undisputed that Mesa had notice of the hearing, but it did
not participate in the hearing on behalf of Secret’s. Counsel for Gigi’s Lounge, paid for by Mesa,
was present, although by that time Gigi’s Lounge and the Snyders had settled all claims. PID
1614/Dist. Ct. Op.
On September 28, 2016, the state court issued its Findings of Fact and Conclusions of Law,
portions of which are quoted below.
On August 3, 2016, this Court held an evidentiary hearing to determine the liability,
if any, of Defendant GLMR, Inc. dba Secrets Gentleman’s Club (hereinafter
“Secrets”) on Counts One (wrongful death claims), Five (common law negligence
claims) and Seven (survivorship claims) of Plaintiffs’ Complaint, as well as the
damages to be awarded on these claims, if any.
This hearing was held pursuant to an Amended Stipulation for Consent Judgment
(“Stipulation”) filed on May 31, 2016. In this Stipulation, Secrets agreed this Court
could properly determine its liability on these Counts, if any, after first conducting
an evidentiary hearing and fully evaluating both the liability and damages evidence
contained in the evidentiary record.
Notice of the August 3, 2016 hearing was provided to all parties . . . . Mesa chose
not to intervene or be heard during this hearing, the purpose of which was to
determine the liability of its insured and the damages to be awarded, if any. At no
point during this entire litigation did Mesa defend Secrets, whether under a
reservation of rights or otherwise, despite having repeated opportunities to do so.
In addition, at no point in time before the hearing date of August 3, 2016 or the
earlier trial date of May 25, 2016 did Mesa file a declaratory judgment in this or
any other court to seek a determination of its duty to defend or indemnify Secrets.
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
After fully considering the evidence and testimony presented at the hearing, and
also independently reviewing all of the relevant pleadings, depositions, trial
exhibits, and entire evidentiary record pertaining to the claims at issue, this Court
issues the following Findings of Fact and Conclusions of Law:
I. FINDINGS OF FACT
....
3. The toxicological evidence shows that Julio Vargas’ blood alcohol content
(BAC) at the time of the crash around 11:44-11:45 pm was likely .263 to .265–well
over three times the legal limit . . . .
4. As discussed in greater detail below, this Court’s determination of Secrets’
liability is not premised on its selling or furnishing of alcoholic beverages to Mr.
Vargas or on a statutory violation of Ohio’s Dram Shop statute, R.C. § 4399.18.
Instead, and pursuant to the parties’ Stipulation, this Court’s sole focus is on
Secrets’ alleged common law negligence based on the unique and case-specific
facts and attendant circumstances involved here, as alleged in Count Five of
Plaintiffs’ Complaint and further supported and augmented by the evidentiary
record. These claims are separate, distinct and independent from the sale or service
of alcoholic beverages.
....
6. In order to properly evaluate Secrets’ liability for its alleged failure to discharge
its common law duty of reasonable or due care to avoid foreseeable harm to others,
it is first necessary to examine Mr. Vargas’ known alcohol consumption before
arriving at Secrets, his extremely intoxicated condition when he arrived at Secrets
after leaving nearby Gigi’s Lounge, and the unique facts and attendant
circumstances of what transpired while Vargas was at Secrets on April 5, 2014.
Julio Vargas and His Alcohol Consumption Before Arriving at Secrets
....
8. As of April 5, 2014, Julio Vargas did not have a valid driver’s license.
....
10. At around 5:00-5:30 pm on April 5, 2014, Julio Vargas drank two beers at
home around dinner time . . . . He drank two . . . beers and two or three shots of
Hennessy in [a] liquor store’s parking lot and also snorted some cocaine. He then
went to an adult entertainment bar (now known to be Fox’s Den) where he
consumed three more beers and three more shots of Hennessy. By this point,
Vargas had already consumed at least 7 beers and 5-6 shots of Hennessy, for a total
of at least 12-13 drinks. He was visibly and noticeably intoxicated at this point.
....
12. Upon arriving at Gigi’s at approximately 7:22 pm, Vargas promptly ordered a
Corona beer and another shot of Hennessy.
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13. After consuming these two additional drinks, which would have been at least
drink numbers 13-14 or 14-15, Vargas was admittedly so intoxicated that he
actually blacked out and lacks a memory of what happened after that. In fact, he
has no memory of even later going to Secrets that evening.
14. Gigi’s owner, Jennifer Fievet, provided two discovery depositions. In the first
one, she testified that she kicked Vargas out of the bar at approximately 8:35 pm
because he was “weird,” non-responsive, irrational, staring her down, and also
trying to take another customer’s money. He had also inappropriately shoved her,
leaving a bruise, and was behaving aggressively.
....
18. Jennifer Fievet was deposed a second time . . . after Gigi’s cash receipts were
finally produced . . . . According to the cash receipts, Fievet served Vargas at least
three more alcoholic beverages once she took over as bartender . . . By this time–
before being ejected from Gigi’s–Vargas had at least 18 to 19 or more alcoholic
drinks on board.
....
Julio Vargas’ Conduct After Arriving at Secrets
....
24. There is a dispute over how many drinks Vargas was served at Secrets. Only
two credits [sic] card receipts were produced for actual drinks being purchased by
Vargas using the credit card bearing the name of “Sandra Torres” on it–a charge
for $6.75 at 9:03 pm for a dancer drink, and the other for a beer at 9:24 pm.
....
31. After Vargas made the credit card purchases for the dancer drink and his beer
downstairs at Secrets, he and the dancer known as Sabrina walked upstairs to the
VIP area where Ms. Corpening was bartending. Vargas purchased another drink
for Sabrina, but Corpening testified that she did not serve Vargas anything. She
states that Sabrina did come up to her 2-3 times to get a drink for herself.
....
II. CONCLUSIONS OF LAW
....
2. Plaintiffs’ common law negligence claims are sufficiently distinct, separate and
independent from a statutory cause of action premised on the sale or service of
alcohol. Their common law negligence claims are based on the case-specific facts
and attendant circumstances involved here and relate to Secrets’ negligence in
failing to fulfill its admitted duty of preventing a noticeably intoxicated patron from
driving. This includes Secrets’ negligence in failing to inform the Cleveland Police
Officer working on its premises of Julio Vargas’ noticeably and extremely
intoxicated condition, of his assault of a club dancer in violation of Ohio law, and
of his unauthorized use of a woman’s credit card that was clearly not his own. It
also includes Secrets’ negligence in failing to take any action whatsoever to prevent
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
Vargas from driving, despite the foreseeable consequences of its inaction in these
regards, along with its negligence in instead choosing to personally escort Vargas
out of the club to ensure that he would drive away in the extremely intoxicated
condition he was in.
....
7. This Court concludes, based on the unique and case-specific facts and attendant
circumstances . . . that Secrets had a common law duty to use reasonable care to
prevent foreseeable harm to others, including to Desiree Snyder . . . . Beyond this
Court’s determination in this regard, Secrets itself admits that it has an obligation
or duty to prevent known intoxicated patrons from driving. This includes Secrets’
duty to call or involve the police to prevent patrons who are known to be noticeably
intoxicated from driving, or to, at a minimum, provide them with a ride or call them
a taxi.
8. This Court’s determination is also supported by the fact that this was not a
situation in which an extremely intoxicated patron merely slipped away undetected
or under the radar unbeknownst to the establishment or its management. To the
contrary, Vargas was physically brought to Secrets’ management after assaulting a
dancer on its premises and for all intents and purposes detained by Secrets’
management for a period of at least 15-20 minutes between at least 11:20 [and]
11:35 pm.
....
10. Based on the toxicological evidence [that Vargas’s BAC was likely between
.263 and .265], this Court agrees with Plaintiffs’ experts that any claim by Manager
Vianueva that he did not perceive Vargas’ noticeably intoxicated state is
incomprehensible. In fact, multiple experts have opined that Vargas would have
been giving off objectively noticeable and visible signs of intoxication at this time.
11. . . . [T]his Court also holds that Secrets breached its common law duty of
reasonable or due care. This includes but is not limited to a breach of its admitted
duty to prevent noticeably intoxicated patrons from driving, as well as its breach of
its duty to use reasonable care to prevent foreseeable harm to others under the same
or similar attendant circumstances as those involved in this unique case. This Court
further holds that Secrets’ negligent acts and omissions as described herein are a
proximate cause of Desiree Snyder’s conscious pain and suffering and wrongful
death.
12. Secrets’ Management acknowledges that if Vargas was intoxicated, they would
have to call the police. But here, Vargas was more than merely intoxicated. He
was over three times the legal limit, had just criminally assaulted a dancer and was,
contrary to Secrets’ own rules, trying to use a credit card that was clearly not his
own.
13. Incredibly, when Secrets’ General Manager was questioned about why he did
not involve the police, he testified that he did not do so “because they take forever”
and have too slow a response time. This testimony lacks credibility and is
contradicted by the evidentiary record . . . . As the on-premises General Manager
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
and minority owner of Secrets, Vianueva knew that a uniformed Cleveland Police
Officer was actually working on-premises at Secrets that evening . . . .
....
15. [] By choosing to personally escort Vargas out of its club in an extremely
intoxicated condition, which cannot reasonably be disputed based on the
toxicological evidence, Secrets did nothing to meet its common law duties . . . .
16. Had Secrets notified Officer Butler of Vargas’ extremely intoxicated condition,
Vargas wouldn’t have driven anywhere . . . . This Court agrees with the expert
opinion of Gregory Baeppler, himself a former Cleveland Police Officer with 31
years on the force, that Officer Butler would have been trained and duty-bound to
intervene and prevent Vargas from driving. This is particularly true in light of the
additional facts . . . that were present when Manager Vianueva had 15-20 minutes
of direct face-to-face contact with Vargas . . . . This includes the fact that Vargas
had just criminally assaulted a dancer and was also attempting to use a credit card
that was obviously not his own. In the first instance, this trained officer would have
quickly and easily recognized the numerous visible and noticeable signs of
intoxication that any person with a BAC of likely 0.263-0.265 would be giving off,
and would have prevented Vargas from driving. Beyond that, this trained officer
would more likely than not have taken steps to verify Vargas’ identity and would
have quickly learned that Vargas had a suspended driver’s license, an outstanding
DUI warrant, and had just recently been charged with another DUI and hit and run
charges in Cleveland just a few months earlier. Alternatively, the officer would
have been required to investigate and take appropriate actions in response to
Vargas’ criminal assault of the club’s dancer, including by having Vargas detained
and/or charged.
....
19. As noted herein, these Findings of Fact and Conclusions of Law pertain solely
to Secrets’ common law negligence and a determination of its proportionate share
of the liability for the survivorship and wrongful death damages sustained by
Decedent Desiree Snyder and her Estate. When, as here, the case-specific facts
and attendant circumstances show independent acts or omissions of negligence
that are separate, distinct and independent from the sale or service of alcohol,
Ohio Courts have permitted common law negligence actions to be maintained
against the establishment. Mid-Continent Ins. Co. v. Coder, 563 Fed. Appx. 422
(6th Cir. 2014); Prince v. Buckeye Union Ins. Co., 5th Dist. Richland No. 92-CA-
6, 1992 WL 362578 (Dec. 2, 1992); Auto-Owners Ins. Co. v. JC KC, Inc., 9th Dist.
Summit No. 18937, 1998 WL 766695 (Nov. 4, 1998); see also Williams v. Saga
Enterprises, Inc., 225 Cal. App. 3d 142, 274 Cal. Rptr. 901 (Cal. App. 1990)
(genuine issue of fact of whether employees allowing drunk patron to drive away
breached duty to innocent motorist).
20. . . . [T]he case-specific facts and attendant circumstances involved here are even
more egregious than those involved in the cases cited above. Here, unlike in those
cases, a uniformed police officer was actually on the club’s premises, but its
management negligently chose not to get him involved to handle a patron who was
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objectively and extremely intoxicated. Unlike those cases, moreover, the extremely
intoxicated patron had just committed a criminal assault on the club’s premises,
further justifying the need for immediate police involvement to prevent Vargas
from leaving and driving away.
21. To summarize, Secrets’ negligence claims in this case are separate, distinct and
independent from any statutory claim involving or arising from its sale or service
of alcohol. In fact, Secrets’ failure to cooperate in the official police investigation
or to preserve or produce its cash receipts and other evidence pertaining to the night
of April 5, 2014 make it difficult for this or any other court to ascertain how much
alcohol Secrets may have served to Vargas beyond the one beer it admits serving
him more than two hours before its management chose to twice eject him. That
said, the following facts are known and have been established. Here, Vargas had
at least 19 or more drinks before arriving at Secrets in a blacked out state. The
toxicological evidence shows he was objectively, extremely and noticeably
intoxicated throughout his time at Secrets, including during the 11:20-11:35 time
period that Secrets’ management had constant and direct face-to-face interactions
with Vargas. This was ten minutes or less before the fatal crash occurred . . . .
22. For the reasons set forth above, this Court enters judgment in favor of Plaintiffs
and against Defendant GLMR, Inc. dba Secrets Gentleman’s Club and its related
Defendants . . . . On the issue of apportionment, this Court apportions liability for
these damages to Defendant GLMR, Inc. dba Secrets Gentleman’s Club and its
related Defendants in the amount of one-third . . ., to . . . Gigi’s Lounge in the
amount of one-third . . . and to Julio Vargas in the amount of one-third . . . . Based
on this apportionment, this Court hereby enters a final judgment in favor of
Plaintiffs and against Defendant GLMR, Inc. dba Secrets Gentleman’s Club and its
related Defendants in the amount of $8,038,305.66. FINAL. IT IS SO ORDERED.
PID 318-19, 334-44 (call numbers and some record citations omitted, underlining and italics in original, other
emphases added).
B. The Instant Declaratory Action
Mesa filed this declaratory judgment action against the Snyders and Secret’s in federal
district court on August 15, 2016, after the state-court evidentiary hearing, but before the state
court issued its opinion on September 28, requesting a declaration that it had no duty to indemnify
Secret’s in the underlying state-court action. PID 1615/Dist. Ct. Op.
The Snyders and Secret’s, separately represented, each filed an Answer and Counterclaims
for Declaratory Judgment, Breach of Contract, Bad Faith, and Breach of Fiduciary Duty. PID 130-
181. Mesa filed Answers to the counterclaims. R. 26 & 27. The parties agreed at a December 6,
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
2016 status conference on a bifurcated case-management plan under which the declaratory
judgment issues would be decided first. R. 23/PID 1630-Dist. Ct. Op.
Mesa filed a motion for judgment on the pleadings, and Secret’s and the Snyders filed
motions for partial summary judgment. Mesa also filed a motion to dismiss the counterclaims,
arguing that Secret’s “lacks standing to assert them in light of its assignment of all of its claims to
[the Snyders],” and that the Snyders’ counterclaims should be dismissed “until they can establish
a valid assignment of claims,” that is, until they produced the alleged assignment agreement.4 PID
1363. Mesa’s motion for judgment on the pleadings argued that the Snyders’ and Secret’s
exclusive remedy is the Ohio Dram Shop Act and that the state court’s decision finding Secret’s
liable for common-law negligence separate, distinct, and independent from any statutory claims
arising from its sale or service of alcohol to Vargas is contrary to Ohio law. PID 1630. Mesa
further asserted that the state court’s liability determination is not entitled to preclusive effect for
reasons including that the issues before the district court were never actually litigated in state court
4
Mesa argued:
The Defendants present the Court with a vexing conundrum: They both assert counterclaims that
can belong to only one of them.
Secrets, as Mesa’s insured, asserts counterclaims for breach of contract and bad faith for Mesa’s
denial of both a defense and coverage . . . .
The Snyders are asserting the same claims, but they were never insured by Mesa. Instead, they
allege that Secrets assigned its claims to them and, as assignees, they have the right to assert the
claims that could otherwise belong only to Secrets.
The Snyders did not attach the alleged settlement/assignment agreement to their counterclaim, so
the Court has no way to tell–apart from the allegations in their pleading–if they are truly the owners
of these claims.
....
It is clear that only one of the Defendants can have standing to sue Mesa for these claims. But which
one?
PID 1365/Mesa Mo. to Dismiss Defendants’ Counterclaims and Mo. to Strike Defendants’ Dispositive Motions, filed
3/24/17 (citation omitted).
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because Secret’s conceded liability and agreed to allow the Snyders to obtain a judgment against
it.
Secret’s and the Snyders’ motions for partial summary judgment sought enforcement of
the state-court judgment, asserting that Mesa is bound by the state court’s judgment and liability
determinations and that Secret’s is entitled to both a defense and indemnity from Mesa.5
The district court denied Mesa’s motion for judgment on the pleadings and granted Secret’s
and the Snyders’ motions for partial summary judgment. The district court concluded that
collateral estoppel precluded relitigation of Secret’s liability:
While Mesa may disagree with the State Court’s determination that Secrets is liable
for common law negligence–separate, distinct and independent from anything
having to do with the sale or service of alcohol–the doctrine of collateral estoppel
precludes Mesa from attempting to relitigate Secrets’ liability in this Court.
Further, there is nothing to suggest that the State Court failed to consider all
available evidence or thoroughly evaluate the claims before it and, had Mesa
wished to challenge the evidence or opine as to the applicability of a particular case
to the facts and circumstances of this case, the appropriate place to do so was in the
State Court Action.
PID 1633/Op. 7/21/17. The district court further determined that under the insurance-policy
language Mesa had a duty to indemnify Secret’s. PID 1633-34. Regarding Mesa’s duty to defend,
the district court concluded that because the Snyders’ common-law negligence claims were not
“indisputably outside the contracted policy coverage” and could arguably have been covered under
the Policy, Mesa’s duty to defend was triggered. PID 1635-36. This appeal followed.
II. Standard of Review
This court reviews de novo the district court’s grant of summary judgment, Sumpter v.
Wayne Cty., 868 F.3d 473, 480 (6th Cir. 2017), and its denial of judgment on the pleadings, Fortney
& Weygandt, Inc. v. Am. Mfrs. Mut. Ins. Co., 595 F.3d 308, 310 (6th Cir. 2010), as well as its
5
After presenting argument at a May 31, 2017 status conference, R. 51, the parties filed supplemental briefs, R. 52,
53, 54. PID 1631.
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
interpretation of Ohio state law in this diversity case, Berrington v. Wal-Mart Stores, Inc., 696 F.3d
604, 607 (6th Cir. 2012).
III. Collateral Estoppel
Mesa asserts that the district court erred by applying collateral estoppel to a collusively
obtained state-court judgment that failed to satisfy the required elements under Ohio law.
Under Ohio law, collateral estoppel, or issue preclusion, prevents relitigation of any fact or
issue that “(1) was actually and directly litigated in the prior action; (2) was passed upon and
determined by a court of competent jurisdiction; and (3) when the party against whom [issue
preclusion] is asserted was a party in privity with a party to the prior action.” Thompson v. Wing,
637 N.E.2d 917, 923 (Ohio 1994) (citing Whitehead v. Gen. Tel. Co., 254 N.E.2d 10 (Ohio 1969)).
Mesa does not dispute the second requirement, that the state court was one of competent
jurisdiction, but does challenge the other two.
A. Actually Litigated
Mesa first asserts:
The issue the Appellees seek to establish in this coverage case is . . . that Secrets’
common law negligence was “separate, distinct, and independent” from the sale or
service of alcohol. This issue, when viewed in light of both the [May 9, 2016]
Settlement and Assignment Agreement [in which Mesa contends Secret’s conceded
liability] and the Defendants’ failure to fully disclose it to the trial judge, bears most
immediately on two elements of collateral estoppel:
(1) Whether the fact or issue was “actually litigated”; and
(2) Whether dicta can support application of collateral estoppel.
Even assuming that in Ohio an issue or fact that is stipulated is not actually litigated for
purposes of preclusion analysis, Secret’s did not concede liability, stipulate to liability, or refuse
to defend itself. Appellant Br. 42-43. As the state court made clear, it held the evidentiary hearing
pursuant to the parties’ May 31, 2016 Amended Stipulation for Consent Judgment, under which
Secret’s and the Snyders agreed that the state court would determine Secret’s liability, if any, on
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
the Snyders’ common-law negligence, wrongful death, and survivorship claims, and damages.
PID 318/State Ct. Op.; see also PID 1615/Dist. Ct. Op. Liability and damages were not stipulated.
Mesa also complains that the parties were required to, but did not, disclose the earlier May 9, 2016
Confidential Agreement to the state court, claiming that the failure to disclose “confirms the
collusive nature of the hearing” and that the parties’ “conduct leaves little doubt that the
Underlying Judgment was the result of collusion between the litigants,” Appellant’s Br. 45-46.
But Mesa does not explain how it was prejudiced by the parties’ non-disclosure of the May 9
agreement when the later May 31 agreement preserved Secret’s right to contest liability controlled
at the hearing.
Mesa points to remarks of the Snyders’ counsel at the state-court evidentiary hearing as
conceding Secret’s liability, asserting that these remarks make clear that the only issue before the
state court was damages, not liability. Appellant Br. 44. This claim fails as well. As the state
court’s opinion makes clear, the evidentiary hearing proceeded pursuant to the parties May 31,
2016 Amended Stipulation for Consent Judgment, which stated:
Defendant Secrets specifically denies liability on any causes of action brought by
Plaintiffs, but agree[s] to allow the Trial Court to evaluate the liability evidence and
damages prior to entering a consent judgment, if any. Defendant Secrets has filed
an Answer denying the substantive portions of Plaintiffs’ Complaint and that
Answer remains in full force and effect until the Court holds a hearing and evaluates
the evidence on liability and damages.
PID 895-96.
Mesa’s next argument, that dicta cannot support collateral estoppel, goes like this. The
district court did not actually decide the issue whether Secret’s common-law negligence claim was
separate, independent, and distinct from the sale or service of alcohol, i.e., the state court’s
statements to that effect were dicta because a finding of separate and distinct acts of negligence
was not necessary to the state court’s negligence finding. Appellant Br. 42, 46-49. This claim too
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
fails. The state court clearly determined that Secret’s common-law negligence claims were
separate from the sale or service of alcohol, and that Ohio law allowed such claims to be
maintained under the circumstances presented:
When, as here, the case-specific facts and attendant circumstances show
independent acts or omissions of negligence that are separate, distinct and
independent from the sale or service of alcohol, Ohio Courts have permitted
common law negligence actions to be maintained against the establishment. Mid-
Continent Ins. Co. v. Coder, 563 Fed. Appx. 422 (6th Cir. 2014); Prince v. Buckeye
Union Ins. Co., 5th Dist. Richland No. 92-CA-6, 1992 WL 362578 (Dec. 2, 1992);
Auto-Owners Ins. Co. v. JC KC, Inc., 9th Dist. Summit No. 18937, 1998 WL
766695 (Nov. 4, 1998); see also Williams v. Saga Enterprises, Inc., 225 Cal. App.
3d 142, 274 Cal. Rptr. 901 (Cal. App. 1990) (genuine issue of fact of whether
employees allowing drunk patron to drive away breached duty to innocent
motorist).
PID 341/State Ct. Op. Conclusions of Law 19. The state court was well aware that it could not
determine Secret’s liability for common-law negligence without addressing whether the Snyders’
negligence claims were sufficiently distinct from sale-or-service-of-alcohol claims such that they
were independently viable. As stated several times in its opinion, the state court expressly and
necessarily determined that, given the unique facts and circumstances here, Ohio law permitted
the Snyders to maintain their separate negligence claims. The state court could not have ruled in
the Snyders’ favor, i.e., could not have found Secret’s liable to the Snyders, if the Dram Shop Act
provided the Snyders’ exclusive remedy. Mesa’s dicta argument fails.
Mesa reasserts this argument later in its appellate brief, stating that the issue in the
underlying action was Secret’s liability for negligence, while the issue here is insurance coverage,
i.e., that the state court did not determine whether Secret’s negligence was separate, distinct, and
independent from the sale or service of alcohol for purposes of applying the liquor liability
exclusion and thus the issue here, coverage, is not identical to the issue in the underlying state-
court action. Appellant Br. 50. That is partially correct. The coverage issue was not before the
state court, and the state court did not address the issue. However, the state court did address
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
whether the Snyders’ negligence claims were adequately supported and sufficiently distinct from
the sale or service of alcohol such that the Snyders could recover damages in a separate common-
law negligence action. Thus, collateral estoppel requires that we take as true that the negligence
claims were distinct, but not necessarily that this distinct claim is covered under Mesa’s insurance
policy.
Mesa also asserts that collateral estoppel does not apply because the state court did not
issue a final judgment, specifically because the state court resolved only three of the Snyders’ ten
claims and its final order did not state “there is no just reason for delay.”6 See Ohio R. Civ. P.
54(B). The only purportedly “remaining” claim Mesa mentions is a Dram Shop Act claim. See
Appellant Br. 11.
In Ohio, a final judgment is “one which determines the merits of the case and makes an
end to it.” State ex rel. Curran v. Brookes, 50 N.E.2d 995, 998 (Ohio 1943). The entry “must
disclose the present intention of the court to terminate the action and should contain a sufficiently
definitive formal statement indicating such an intention.” Vanest v. Pillsbury Co., 706 N.E.2d 825,
830 (Ohio Ct. App. 1997).
Here, as the state court made clear, it ruled only on the Snyders’ common-law negligence
claims because the Snyders had withdrawn their Dram Shop claim. The state court stated at the
August 3, 2016 hearing, “[s]o the court is clear there is not a dram shop claim pending against
Secrets.” PID 1208. And the state court’s opinion reiterates, “There are no statutory claims for
this court to adjudicate here,” PID 648, and ends with, “this Court hereby enters final judgment in
6
Mesa’s cited cases are factually inapposite. For example, in Barker v. Bryant, 2016-Ohio-7728, ¶ 5 (Ct. App. 2016),
the court did indeed observe, “Absent the mandatory language that ‘there is no reason for delay,’ an order that does
not dispose of all claims is subject to modification and is not final and appealable.” In that case, however, the trial
court specifically deferred adjudication of an issue related to attorney’s fees. Id. at ¶ 8. But in the instant case, the
state court’s judgment and damages award for Desiree’s wrongful death rendered the remaining claims, all non-
statutory, moot.
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
favor of Plaintiffs and against [Secret’s].” PID 658. The judgment was labeled “FINAL,” a
separate entry states “DIS. W/PREJ-FINAL,” and the Clerk was ordered to issue notice in
accordance with Ohio Civ. R. 58(B). PID 1034. Once the state court awarded the Snyders
damages for their daughter’s wrongful death, any remaining claims were mooted and were merged
in the judgment; the ruling was final and immediately appealable. See State ex rel. Whitehead v.
Sandusky Cty. Bd. of Comm’rs, 979 N.E.2d 1193, 1198 (Ohio 2012) (“[E]ven though all the claims
or parties are not expressly adjudicated by the trial court, if the effect of the judgment as to some
of the claims is to render moot the remaining claims or parties, then compliance with Civ. R. 54(B)
is not required to make the judgment final and appealable.” (quoting State ex rel. A & D Ltd. P’ship
v. Keefe, 671 N.E.2d 13, 19 (Ohio 1996)). An express statement of “no just reason for delay”
under Ohio Civ. R. 54(B) is not required to establish finality under such circumstances. Wise v.
Gursky, 421 N.E.2d 150, 152 (Ohio 1981). Further, the Cuyahoga County Court of Common Pleas
issued a Certificate of Judgment to the district court. PID 1065. Mesa’s claim that the state court
did not issue a final judgment fails.
B. Privity/Mutuality
Mesa also asserts that collateral estoppel does not apply for lack of mutuality. Mesa claims,
incorrectly, that the district court did not address this element. In fact the district court addressed
mutuality at some length:
Mesa was in privity with Secrets and could have sought a declaration as to its rights
and obligations or otherwise intervened in the State Court Action, but failed to do
so despite having ample opportunity.
Collateral estoppel applies to an insurer who denies coverage and a defense to its
insureds and chooses not to intervene or otherwise protect its interests or those of
its insureds. ALD Concrete & Grading Co. v. Chem-Masters Corp., 111 Ohio App.
3d 759, 764, 677 N.E.2d 362 (Franklin County 1996) (“Because Buckeye Union in
the present case was given notice and opportunity to defend in the underlying
action, and declined to do so based on an asserted lack of coverage, appellant
properly concedes upon appeal that it is collaterally estopped from attacking the
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
factual and legal conclusions of the trial court in the underlying action, most
significantly the trial court’s finding that the damages were caused by the sole
negligence of Chem-Masters.”) (citing Howell v. Richards, 45 Ohio St. 3d 365,
367-68, 544 N.E.2d 878, 881 (1989)). See also Blair v. Mann, 1999 Ohio App.
LEXIS 1630, at *3 (Ohio Ct. App., Lawrence County Apr. 8, 1999); Patterson v.
Tice, 91 Ohio App. 3d 414, 419, 632 N.E.2d 962 (Tuscarawas County 1993);
Stephenson v. Duriron Co., 292 F. Supp. 66, 82 [] (S.D. Ohio Oct. 21, 1968). While
Mesa may disagree with the State Court’s determination that Secrets is liable for
common law negligence–separate, distinct and independent from anything having
to do with the sale or service of alcohol–the doctrine of collateral estoppel precludes
Mesa from attempting to relitigate Secrets’ liability in this Court.
PID 1631-32. The district court’s analysis is correct. Ohio law is clear that collateral estoppel
applies to an insurer who denies coverage and a defense to its insured and chooses not to intervene
or otherwise protect its interests or those of its insured. See Howell v. Richardson, 544 N.E.2d
878, 881 (Ohio 1989) (collateral estoppel applies “to those in privity with the litigants and to those
who could have entered the proceeding but did not avail themselves of the opportunity”); see also
Patterson v. Tice, 632 N.E.2d 962, 965–66 (Ohio Ct. App. 1993) (insurer collaterally estopped by
trial court’s default judgment and factual determinations after denying a defense and failing to
intervene).
Mesa cites the factually inapposite Goodson v. McDonough Power Equip., Inc.,
443 N.E.2d 978 (Ohio 1983), where the issue was whether the manufacturer of an allegedly
defective lawnmower was bound by a jury verdict in favor of another consumer in a different
jurisdiction. Consistent with the general understanding of the elements of collateral estoppel, the
court answered in the negative:
[T]here were two totally separate accidents, with two different models of a riding
lawnmower manufactured in different years by appellant manufacturer; there were
different operators of the equipment with perhaps totally different mechanical
capabilities; different terrain and weather conditions; also, the same rules of law
were not applicable in both states—Florida had enacted a comparative negligence
statute at the time of the accident in that case, while Ohio still had the rule of
contributory negligence at that time; and, what is critically important to the
appellant, the differing trial techniques and appellate determinations that would
have been made by legal counsel in the prior case if it had been known that the
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
judgment would have been utilized in subsequent cases to estop a defense on the
question of liability. Without the necessity of further analysis . . . , we conclude
that the appellees would not be reasonably able to show the requisite “identity of
issues” for the application of nonmutual collateral estoppel.
Goodson, 443 N.E.2d at 988. The facts of Goodson are very different from the ones in the current
case. The two proceedings here involve the same occurrence.
Mesa also cites Bentley v. Grange Mutual Casualty Ins. Co., 694 N.E.2d 526, 531 (Ohio
Ct. App. 1997), where the issue was “whether persons who are wrongful-death statutory
beneficiaries of a single decedent and who have identical rights to UM coverage under a single
insurance policy are in privity with each other within the meaning of the doctrine of collateral
estoppel such that an adjudication of the right of one to UM coverage will be binding on the
others.” The Bentley court also answered in the negative:
“Generally, a person is in privity with another if he succeeds to an estate or an
interest formerly held by another.” Whitehead, 20 Ohio St. 2d 108, 49 O.O.2d 435,
254 N.E.2d 10, at paragraph four of the syllabus. Appellees did not succeed to an
interest of their parents. Their rights to UM coverage, although identical, are
independent of the rights of their parents. Under the Restatement of the Law 2d,
Judgments, other factors can contribute to a determination of privity, but appellant
has not alleged that appellees controlled the Cuyahoga County action, that appellees
agreed to be bound by the Cuyahoga County action, that appellees were represented
by their parents in the Cuyahoga County action, or that there existed between
appellees and their parents any substantive legal relationship resulting in
preclusion. “Most courts * * * will not bind a nonparty to a decision adverse to his
interests merely because a common question of fact or law exists in the cases and
the nonparty had the same general interest as one of the parties to the lawsuit.”
Semmel, Collateral Estoppel, Mutuality and Joinder of Parties (1968), 68 Colum.
L. Rev. 1457, 1460. Appellees were entitled to their individual day or days in court
and were under no obligation to make their day in court the same as that of their
parents.
Id. at 531–32 (call numbers omitted). Thus, the Bentley court found no privity. However, as
discussed, there is privity here. Neither Goodson nor Bentley assist Mesa. Because Mesa and
Secret’s are in privity, the mutuality/privity element of collateral estoppel is met.
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
C. Mesa’s Cases Are Distinguishable
Mesa also asserts that “Ohio courts routinely determine coverage under policies subsequent
to, and independent of, consent judgments between defendants,” citing, among other cases,
Kovesdy v. Utica Fire Insurance Co., 695 N.E.2d 1165 (Ohio Ct. App. 1997). Kovesdy is
inapposite for several reasons. First, the underlying liability judgment in Kovesdy was entered
“based on stipulations by the parties” and there is no indication that the trial court actually decided
the liability issues or the bases for liability. Kovesdy, 695 N.E.2d at 1166. This leads to the second
distinction: there was no collateral estoppel asserted or addressed in Kovesdy because although the
judgment determined liability, it did not purport to address the underlying factual bases for that
liability. Third, the Kovesdy complaint “alleged in a single count that defendants sold and served
alcohol to underage patrons, including decedent and the tortfeasor” and that the deadly collision
“occurred ‘as a direct and proximate result of the acts or failure of action as required by Revised
Code Chapter 43 [the statutes pertaining to Liquor].’” Id. Thus, unlike the instant case, which
was decided entirely on independent common-law negligence claims, the Kovesdy complaint did
“not allege a separate [n]egligen[ce claim],” id. at 1168, and was based entirely on violations of
the liquor control laws.
Mesa also cites Mustard v. Owners Insurance Co., 6 N.E.3d 1235, 1237 (Ohio Ct. App.
2014), in which judgment creditors brought an action against the judgment debtor’s liability
insurer seeking satisfaction of a stipulated judgment. Mustard too is inapposite for similar reasons.
The parties in Mustard stipulated that the bar was liable under Ohio’s Dram Shop Act and for
common-law negligence for serving alcohol to a noticeably intoxicated patron. Id. Thus, there
was no judicial determination of the basis of liability, and it was undisputed that the bar’s liability
arose from the sale or service of alcohol. Id. In contrast, the state court in the instant case
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
adjudicated Secret’s liability on the Snyders’ common-law negligence claims, which it determined
were unrelated to the sale or service of alcohol.
D. Collusion
Mesa argues for the first time on appeal that collateral estoppel cannot apply because the
underlying judgment was the result of collusion between Secret’s and the Snyders, relying again
on the May 9, 2016 Confidential Agreement, specifically, Secret’s assignment of claims to the
Snyders. Appellant Br. 45-46. This issue is forfeited for failure to raise it below.7 See Armstrong
v. City of Melvindale, 432 F.3d 695, 699–700 (6th Cir. 2006). Further, the May 9 and May 18, see
supra n.3, stipulations for a consent judgment were expressly rendered null and void by the May
31 Amended Stipulation for Consent Judgment, which permitted the trial court to “consider a
consent judgment being entered,” allows the trial court “to evaluate the liability evidence and
damages prior to entering a consent judgment, if any,” and expressly provides that Secret’s
“Answer denying the substantive portions of Plaintiffs Complaint . . . remains in full force and
effect until the Court holds a hearing and evaluates the evidence on liability and damages.” PID
895-96 (emphasis added). As to the assignment of claims provisions, Mesa has not explained how
they establish collusion when they were dependent on the Snyders obtaining a judgment.
For these reasons, we affirm the district court’s determination that collateral estoppel
precluded Mesa from relitigating Secret’s liability for common-law negligence.
IV. Secret’s Standing
Mesa next asserts that the district court erred in granting Secret’s partial summary judgment
without considering whether Secret’s had standing to assert counterclaims against Mesa. Mesa
7
Mesa did not raise collusion in its Motion for Judgment on the Pleadings, PID 521-25, or in its Reply Brief to the
Snyders’ and Secret’s motions for partial summary judgment, PID 1230-32. Secret’s argues the issue is waived.
Secret’s Br. 23.
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
asserts that because Secret’s assigned its claims to the Snyders under the Confidential Settlement
(dated May 9, 2016) Secret’s lacked standing. According to Mesa, Secret’s contractual right to
recovery from the Snyders does not provide Secret’s standing to assert the assigned claims against
Mesa. Appellant Br. 18. The district court’s opinion acknowledges that Mesa sought to dismiss
Secret’s (and the Snyders’) counterclaims, but does not address the standing argument. PID 1630.
Mesa cites one case, Breech v. Liberty Mutual Fire Insurance Co., No. 2:15-cv-2633, 2015
WL 6859676 (S.D. Ohio Nov. 9, 2015), in which a contractor sought to intervene under Federal
Rule of Civil Procedure 24 or for joinder under Rule 19. The contractor sought to be paid for work
it performed on the plaintiff’s house after the house was damaged and the plaintiff made a claim
under her homeowner’s insurance policy. Id. at *1. The plaintiff opposed the motion, asserting
that the movant did not have a substantial legal interest in the matter. Id. The magistrate judge
recommended concluding that the movant was not entitled to intervene of right for reasons
including that the contract between the movant and the plaintiff “does not demonstrate any intent
on the part of Plaintiff to assign her rights under the insurance policy,” thus the movant “is not an
assignee of any rights under the insurance policy.” Id. at *2. Regarding permissive intervention,
the court determined that the movant had not articulated a substantial legal interest in “the property
or transaction that is the subject of the action.” Id. (quoting Fed. R. Civ. P. 24(a)(2)). The court
noted that “[t]he questions of law or fact that would be material to Movant’s claim arise solely
from its contractual relationship with Plaintiff, which . . . is distinct from Plaintiff’s contractual
relationship with Defendant.” Id. at *3. Breech bears no resemblance to this case, where Secret’s,
the tortfeasor and insured, assigned its rights to the Snyders, but still had an economic interest in
the coverage issue.
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
To establish Article III standing Secret’s must show: 1) it suffered an injury in fact, 2) that
is fairly traceable to the challenged conduct of Mesa, and 3) that is likely to be redressed by a
favorable judicial decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Secret’s
bears the burden of showing that it has standing, see Summers v. Earth Island Inst., 555 U.S. 488,
493 (2009), and “[w]here, as here, a case is at the pleading stage,” Secret’s “must ‘clearly
. . . allege facts demonstrating’ each element.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547
(2016) (quoting Warth v. Seldin, 422 U.S. 490, 518 (1975) (second alteration in original)). The
court “must accept as true all material allegations of the complaint, and must construe the
complaint in favor of the complaining party.” Parsons v. U.S. Dep’t of Justice, 801 F.3d 701, 710
(6th Cir. 2015) (quoting Warth, 422 U.S. at 501).
Secret’s pleaded facts demonstrating each element of Article III standing: that it “incurred
substantial damages including but not limited to attorney fees, litigation costs, [and] court ordered
damages” as a result of Mesa’s denial of a defense in the state court, and that the damages it
incurred will be redressed by a favorable ruling. See PID 414-17/Secret’s Answer and
Counterclaims.
We agree with Secret’s that its assignment of claims to the Snyders, while reserving the
right to recover legal fees and expenses it incurred due to Mesa’s denial of a defense and coverage,
is a valid partial assignment under Ohio law. See Stephenson v. Duriron, 292 F. Supp. 66, 80 (S.D.
Ohio 1968), aff’d, 428 F.2d 387 (6th Cir. 1970) (applying Ohio law and holding that parties may
validly assign a portion of their rights against an insurer for indemnity, breach of contract, and
breach of warranty while reserving to themselves the right to recover legal expenses they incurred
in having to defend the underlying lawsuit).
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
For these reasons, we reject Mesa’s argument that Secret’s lacked standing to assert its
counterclaims.
V. Duty to Defend
Under Ohio law, an insurer’s duty to defend arises when a complaint alleges claims that
arguably could be covered under the insurance policy. Cincinnati Ins. Co. v. CPS Holdings, Inc.,
875 N.E.2d 31, 33 (Ohio 2007). However, an insurer “is not obligated to defend any claim that is
clearly and indisputably outside the contracted policy coverage.” Id.
Mesa relies on a number of Ohio cases it asserts undermine the state trial court’s
determination that action or inaction by Secret’s supported common-law liability independent of
its statutory Dram Shop liability.8 Mesa argues that because plaintiff had no viable independent
common-law claim under Ohio law, there was no arguable liability against which Mesa had a duty
to defend. But, assuming, arguendo, that the cases do, in fact, show that the state trial court found
common-law liability where it should not have, collateral estoppel precludes relitigation of that
determination in this proceeding. Mesa could have provided a defense against these claims, thus
establishing their asserted invalidity, or sought declaratory judgment in a timely manner, but it did
neither.
We turn to the question whether the district court correctly determined that Mesa owed a
duty to defend under its policy, which rests on whether the complaint alleged a claim that
potentially or arguably falls within the policy’s coverage. Ohio Gov’t Risk Mgmt. Plan v.
Harrison, 874 N.E.2d 1155, 1160 (Ohio 2007). “An insurer has an absolute duty to defend an
action when the complaint contains an allegation in any one of its claims that could arguably be
8
Although the cited cases establish that in the vast majority of cases the statutory Dram Shop action will be the
exclusive remedy against the liquor-permit holder, the cases do not directly undermine the state trial court’s
determination because none involve claims that are independent of the furnishing of alcohol.
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
covered by the insurance policy, even in part and even if the allegations are groundless, false, or
fraudulent.” City of Sharonville v. Am. Emp’rs Ins. Co., 846 N.E.2d 833, 837 (Ohio 2006). Mesa
does not contend that there is no coverage under the policy’s statement of coverage; rather, it
argues that coverage is excluded by the liquor liability exclusion, which excludes coverage for
“Bodily Injury” or “property damage” for which any insured may be held liable by
reason of:
(1) Causing or contributing to the intoxication of any person;
(2) The furnishing of alcoholic beverages to a person under the legal
drinking age or under the influence of alcohol; or
(3) Any statute, ordinance or regulation relating to the sale, gift,
distribution or use of alcoholic beverages.
PID 725.
The district court determined that the state-court complaint included allegations that were
not “indisputably outside the contracted policy coverage” and arguably could have been covered
under the policy. The district court correctly noted that the Snyders’ allegations “contemplate
action or inaction on the part of Secrets’ employees which would arguably amount to negligence
whether or not Mr. Vargas was sold or consumed any alcohol at Secrets.” PID 1635-36. And, as
the district court observed, “even if [Mesa’s] initial review of the Complaint did not convince Mesa
of its duty to defend Secrets, Mesa was contacted repeatedly by Secrets’ Counsel regarding the
fact that allegations of common-law negligence–separate and distinct from causing or contributing
to Mr. Vargas’s intoxication or the sale or service of alcohol–were being asserted.” PID 1636/Dist.
Ct. Op.; see Mid-Continent Ins. Co. v. Coder, 563 F. App’x 422, 427 (6th Cir. 2014) (applying
Ohio law in action brought by insurer seeking declaration that it had no duty to defend or indemnify
its insured tavern in an underlying action, and noting, “[t]he district court was wrong to assert that,
because the complaint’s invocation of the Dram Shop Act and its alleged claim of common-law
negligence are mutually exclusive, they cannot both be read in the complaint. It is well settled in
Ohio law that litigants are permitted alternative or hypothetical pleading.”)
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No. 17-3779, Mesa Underwriters Specialty Ins. Co., v. Secret’s Gentleman’s Club et al.
We find no error and affirm the district court’s duty-to-defend determination.
VI. Duty to Indemnify
We turn to the ultimate question of coverage. The district court first found that coverage
is provided under the insuring language:
The Policy provides coverage for bodily injury claims caused by an “occurrence”
during the policy period . . . . The Policy defines “bodily injury” to include death,
and “occurrence” is defined as an “accident,” which is not defined in the Policy.
Under Ohio law, when a liability insurance policy defines “occurrence” as an
“accident,” a negligent act committed by an insured qualifies as an “occurrence.”
PID 1633. The district court then turned to the liquor liability exclusion:
The Policy’s Liquor Liability exclusion applies solely to claims for “(1) causing or
contributing to the intoxication of any person[;] (2) the furnishing of alcoholic
beverages to a person under the legal drinking age or under the influence of alcohol;
or (3) any statute, ordinance or regulation relating to the sale, gift, distribution or
use of alcoholic beverages.” As determined by the State Court, Secrets is liable for
[Desiree] Snyder’s death based on its negligent acts that are separate, distinct, [and]
independent from and unrelated to the sale and service of alcohol and/or statutory
Dram Shop provisions. Accordingly, pursuant to the express language of the
Policy, Mesa is required to indemnify Secrets on the Snyders’ common-law
negligence claims which have been adjudicated to final judgment in the State Court.
PID 1633-34/Dist. Ct. Op. Again, we agree.
Although Mesa insists that Secret’s liability is premised on “contributing to the intoxication
of Vargas,” this is contrary to the state court’s decision and analysis. Because Mesa presents no
argument undermining the district court’s analysis of the policy language, we AFFIRM the district
court’s determination that Mesa has a duty to indemnify Secret’s.
The district court’s judgment is AFFIRMED in all respects.
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