Century Sur. Co. v. Seidel

• Decision Date: 25 June 2018
• Docket Number: No. 17-10026,17-10026
• Citation: 893 F.3d 328
• Parties: CENTURY SURETY COMPANY, Plaintiff–Appellee v. Scott M. SEIDEL, Trustee of the Pastazios Pizza, Incorporated Creditor Trust, Defendant–Appellant Jane Doe, Intervenor Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

893 F.3d 328

CENTURY SURETY COMPANY, Plaintiff–Appellee

v. Scott M. SEIDEL, Trustee of the Pastazios Pizza, Incorporated Creditor Trust, Defendant–AppellantJane Doe, Intervenor Defendant–Appellant.

No. 17-10026

United States Court of Appeals, Fifth Circuit.

FILED June 25, 2018

Neil K. Gilman, Walter J. Andrews, Esq., Hunton Andrews Kurth, L.L.P., Washington, DC, James Winford Bowen, Gregory G. Hesse, Hunton Andrews Kurth, L.L.P., Dallas, TX, for Plaintiff–Appellee.

Davor Rukavina, Esq., Munsch Hardt Kopf & Harr, P.C., Dallas, TX, for Defendant–Appellant.

Grady Michael Gruber, Esq., Brian E. Mason, Dorsey & Whitney, L.L.P., Trey Crawford, Crawford Wishnew & Lang, P.L.L.C., Laura Fontaine, Gruber Hail Johansen Shank, L.L.P., Jeffrey Scott Levinger, Levinger, P.C., Dallas, TX, for Intervenor Defendant–Appellant.

Before STEWART, Chief Judge, and JOLLY and OWEN, Circuit Judges.^*

E. GRADY JOLLY, Circuit Judge:

Ajredin Deari, owner of Pastazios Pizza, Inc., lured eighteen-year-old Jane Doe to his restaurant. Doe alleged that Deari and his restaurant—yes, the insured restaurant itself—plied Doe with alcohol despite her protests. Once Doe was unconscious, Deari then drove her to a nearby hotel and sexually assaulted her. This insurance-coverage case asks whether Century Surety Company breached a contractual duty to defend and indemnify Deari’s restaurant in the underlying state tort lawsuit brought by Jane Doe.

The district court granted summary judgment in favor of Century, applying the insurance policy’s liquor-liability and intentional-harm exclusions. Doe and the restaurant’s trustee now appeal. But because Doe and the trustee concede that all of Doe’s injuries arose out of or resulted from the restaurant’s criminal act of giving alcohol to a minor, we hold that the policy’s criminal-act exclusion applies and bars all coverage claims. Thus, we affirm.

I.

A.

Jane Doe’s complaint in the underlying state-court litigation, which concluded with a twenty-million dollar judgment in her favor, alleged the following facts: In April 2011, Doe was an eighteen-year-old high school graduate. She met with a man named Dritan Kreka at a restaurant called Back 9 Sports Bar & Grill ("Back 9"), to interview for a position at Kreka’s own restaurant and to discuss "other possible networking opportunities."

At Back 9, Kreka introduced Doe to Ajredin Deari, who owned a nearby restaurant called Pastazios Pizza, Inc. ("Pastazios"). Deari asked Doe how old she was, and she informed him that she was eighteen years old. Deari subsequently tried to order Doe an alcoholic beverage, but Back 9’s server "refused to bring the beverage because [Doe] was underage." So Deari suggested that the three of them should move the conversation to Pastazios. Thus, the three of them drove from Back 9 to Pastazios.

Along the way, Deari stopped at a liquor store to purchase a bottle of 80–proof liquor, Crown Royal Black. He took it with him to Pastazios. Neither he nor Pastazios was licensed to serve hard liquor.

Upon arriving at Pastazios, "Deari proceeded to walk inside of Pastazios, grab a round of beers, and placed one of the beers in front of [Doe] and encouraged her to drink it." "Deari then went back inside Pastazios and came out with a round of shots of Crown Royal Black that had been placed into 2–ounce plastic salad dressing cups from Pastazios and encouraged [Doe] to drink it."

Doe’s complaint then alleges that, over the next few hours, Deari and "Pastazios" "continued to encourage and provide [Doe] with more and more alcoholic products from within and owned by Pastazios, despite [Doe] telling them she did not want anymore." Following two beers and three 2–ounce shots of Crown Royal Black, "things started getting fuzzy" for Doe. "Pastazios then proceeded to provide [Doe] with yet another 2–ounce shot of 80 proof hard liquor." In total, Deari and "Pastazios" gave Doe "5–6 shots of Crown Royal Black and 3 beers." Although Doe expressed "grave concerns about her growing level of intoxication and her inability to function normally, ... [Doe] was effectively detained as a direct result of being provided intoxicating products by Pastazios."

The complaint alleges that "Pastazios" then "allowed" Deari and Kreka to load the drunken Doe into a car on Pastazios’ property. Doe lost consciousness. A urine test would later reveal that Doe had been given a date-rape drug called Rohypnol. Doe regained consciousness sometime later in a hotel room, only to find that Deari was sexually assaulting her. During that encounter, Deari infected Doe with herpes. Deari later pleaded no-contest to the crime of aggravated assault.

B.

In 2013, Doe sued Kreka, Deari, and Pastazios in Texas state court. Against Kreka and Deari, Doe alleged a variety of intentional torts. Against Pastazios, Doe alleged negligence, gross negligence, Dram Shop liability, false imprisonment, and premises liability. Against all three defendants, Doe requested punitive damages.

Century Surety Company ("Century"), the insurer of Pastazios, initially provided Pastazios a defense under a Commercial General Liability Policy ("Policy"). A few months later, however, Century withdrew its defense and advised Pastazios that it had no duty to defend under the Policy based on the factual allegations in Doe’s complaint.

Century then filed this action in federal court, seeking a declaratory judgment that it had no duty under the Policy to defend or indemnify Pastazios.

In 2014, Pastazios filed for bankruptcy because it could no longer afford to defend against Doe’s lawsuit. The bankruptcy court confirmed a plan of reorganization, creating the Pastazios Pizza Inc. Creditor Trust ("Trust").¹ Scott Seidel was appointed trustee ("Trustee"), and the Trust was assigned all of Pastazios’ causes of action, including those arising under the Policy.

In 2015, back in state court, Doe won a bench-trial verdict against Pastazios and Deari. The state-court judge entered "Findings of Fact and Conclusions of Law," which were drafted by Doe’s attorneys with no objection from Pastazios. The judgment held Pastazios and Deari jointly and severally liable for over twenty million dollars. With respect to Pastazios, the state court found the restaurant liable for gross negligence, Dram Shop liability, and "negligent" false imprisonment, and imposed punitive damages. Despite Century’s repeated offers to fund an appeal, no appeal was filed.

C.

After obtaining her twenty-million-dollar state-court judgment, Doe intervened in this declaratory-judgment action, as a judgment creditor, to enforce Pastazios’ rights under the Policy by asserting several counterclaims against Century. Relevant here, Doe and the Trustee asserted that Century breached its duties under the Policy to defend and to indemnify Pastazios with respect to the underlying suit brought by Doe.

All parties moved for summary judgment. The district court granted Century’s motion, holding that Century had neither a duty to defend nor a duty to indemnify Pastazios. With respect to the duty to defend, the district court based its denial of coverage on a finding that Doe’s claim against Pastazios was not covered because of two exclusions: the liquor-liability and intentional-act exclusions. Reasoning that the duty to defend is "broader" than the duty to indemnify, the district court then held that Century thus had no duty to indemnify. Doe and the Trustee ("Appellants") appealed.

II.

We begin our consideration of this appeal by setting out the basic legal principles that broadly guide us. "We review grants and denials of summary judgment de novo. Summary judgment is appropriate when ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ " Lyda Swinerton Builders, Inc. v. Okla. Surety Co. , 877 F.3d 600, 609 (5th Cir. 2017) (internal citation omitted) (quoting Fed. R. Civ. P. 56(a) ).

"We may affirm summary judgment on any legal ground raised below, even if it was not the basis for the district court’s decision." Performance Autoplex II Ltd. v. Mid-Continent Cas. Co. , 322 F.3d 847, 853 (5th Cir. 2003). Both sides raised the Policy’s criminal-act exclusion in the proceedings before the district court and argued the exclusion on appeal. The Policy’s criminal-act exclusion, if it applies, is thus an appropriate ground for affirmance.

The interpretation of an insurance contract is a question of law reviewed de novo. Principal Health Care of La., Inc. v. Lewer Agency, Inc. , 38 F.3d 240, 242 (5th Cir. 1994). In this diversity case, Texas’s rules of contract interpretation control our reading of the Policy. See Lyda Swinerton Builders , 877 F.3d at 609. "Under Texas law, the interpretation of insurance contracts is governed by the same rules that apply to contracts generally. The terms used in an insurance policy are to be given their ordinary and generally accepted meaning, unless the policy shows that the words were meant in a technical or different sense. The contract is to be considered as a whole, with each part given effect and meaning." Canutillo Indep. Sch. Dist. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. , 99 F.3d 695, 700 (5th Cir. 1996) (citations omitted).

III.

At issue in this appeal are Century’s duties to defend and indemnify Pastazios in the underlying suit brought by Doe. At the outset, although the parties raised several coverage issues, including the threshold issues of whether there was coverage under the Policy in the first place or whether Deari is an "insured" under the Policy, it is unnecessary for us to address those issues because we conclude that the criminal-act exclusion, addressed by all parties both in the proceedings below and in this appeal, applies and bars all coverage. We hold that Century had no duty to defend because Doe’s complaint demonstrates that all of Doe’s damages arose out of Pastazios’ criminal act of giving alcohol to a minor. We also hold that Century has no duty to indemnify because it was established at...