Cincinnati Specialty Underwriters Ins. Co. v. Cent. Ky. Lodging, Inc.

• Decision Date: 04 October 2021
• Docket Number: Civil Action No. 5: 21-103-DCR
• Citation: 565 F.Supp.3d 912
• Parties: CINCINNATI SPECIALTY UNDERWRITERS INSURANCE COMPANY, Plaintiff, v. CENTRAL KENTUCKY LODGING, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

565 F.Supp.3d 912

CINCINNATI SPECIALTY UNDERWRITERS INSURANCE COMPANY, Plaintiff,

v.CENTRAL KENTUCKY LODGING, INC., et al., Defendants.

Civil Action No. 5: 21-103-DCR

United States District Court, E.D. Kentucky, Central Division. (at Lexington).

Signed October 4, 2021

Kimberly A. Kyle, Kohnen & Patton LLP, Cincinnati, OH, for Plaintiff.

C. Randall Raine, George Edward Henry, II, Henry, Watz, Raine & Marino, PLLC, Lexington, KY, for Defendants Central Kentucky Lodging, Inc., Nathan B. Dodge, Brian R. Dodge.

MEMORANDUM OPINION AND ORDER

Danny C. Reeves, Chief Judge

Plaintiff Cincinnati Specialty Underwriters Insurance Company ("Cincinnati Specialty") filed this action for declaratory relief concerning its rights and obligations under two insurance policies that may cover the conduct of several defendants in Estate of Rima A. Abbas, et al. v. ABDCO, LLC d/b/a/ Horseshoes KY Grill & Saloon, et al. , No. 19-CI-01315, a case pending in Fayette Circuit Court ("the State Court Action"). [See Record No. 1.] Cincinnati Specialty named these parties, as well as the Estates of Rima A. Abbas, Issam Ali Abbas, Ali Joseph Abbas, Isabella Ava Abbas, and Giselle Layla Abbas (collectively, "the Abbas Estates" or "the Estates"), who brought the State Court Action, as defendants in this declaratory judgment action. [Id. ]

The Abbas Estates have moved to dismiss this case, arguing that the factors set forth in Grand Trunk W.R. Co. v. Consolidated Rail Corp. , 746 F.2d 323, 326 (6th Cir. 1984), counsel against the exercise of jurisdiction. It also contends that Cincinnati Specialty has waived its right to bring a declaratory judgment action in this Court. [Record Nos. 18 and 18-1] The defendant's motion will be granted because the Grand Trunk factors weigh against this Court exercising jurisdiction.

I.

An intoxicated Joey Lee Bailey drove his truck southbound in the northbound lane of Interstate 75 for several miles during the early morning hours of January 6, 2019. His actions resulted in a head-on collision with a vehicle carrying Dr. Rima A. Abbas, Issam Ali Abbas, Ali Joseph Abbas, Isabella Ava Abbas, and Giselle Layla Abbas. [Record No. 18-2, ¶¶ 138-45] Bailey and the Abbas family all were killed in the collision. [Id. at ¶¶ 142-43.] A forensic toxicology report revealed that Bailey had a blood alcohol content of .306% and also had Alprazolam in his system. [Id. at ¶ 144.]

The Abbas Estates, plaintiffs in the State Court Action, alleged that Bailey had been served alcoholic beverages at several establishments on the evening of the incident, including: (1) ABDCO, LLC d/b/a Horseshoes KY Grill & Saloon ("ABDCO") in Lexington, Kentucky; (2) a Roosters restaurant franchise in Georgetown, Kentucky; and, potentially, (3) JIMALOU, Inc. d/b/a Rose & Jim's Bar in Georgetown, Kentucky. [Record No. 18-2, ¶¶ 97-137]

The Estates claim that Brian Dodge was the sole LLC manager and member of ABDCO when Bailey was served there. [See id. at ¶ 46.] Dodge also allegedly owned Central Kentucky Lodging, Inc. (which operated a Days Inn in the building where ABDCO was located on North Broadway in Lexington) and leased a portion of the premises to ABDCO. [Id. at ¶¶ 47-51, 147.] The Abbas Estates asserted that "the assets, management, and operations" of both ABDCO and Central Kentucky Lodging were "were so comingled with [Brian Dodge] personally" that these entities functioned as alter egos of their owner. [Id. at ¶¶ 64, 66.] Additionally, Nathan Dodge (Brian's nephew) "was a primary managing employee of" both ABDCO and Central Kentucky Lodging according to the Estates. [Id. at ¶¶ 53-54, 58-59.] It was further alleged that Brian and Nathan Dodge "engaged in the free exchange of assets and joint decision-making with regard to [Central Kentucky Lodging] and ABDCO's respective operations in order to maximize the profitability of each of these businesses." [Id. at ¶ 63.]

ABDCO, through Brian Dodge, entered into an April 9, 2019 administrative plea agreement for a violation of Kentucky Revised Statutes ("KRS") § 244.080(2) relating to the bar's service of Bailey in a case before Office of Lexington-Fayette Urban County Government Alcoholic Beverage Control. [See Record No. 18-3.] ABDCO submitted to a $10,000.00 fine and a ten-day suspension of alcohol sales in its administrative guilty plea. [Record No. 18-3]

The Abbas Estates filed the State Court Action on April 9, 2019, naming as a defendant, inter alia , Central Kentucky Lodging for alleged "violations of KRS § 413.214 (The Kentucky Dram Shop Act); violations of KRS § 244.080, alleging negligence per se; and violations of Fayette County Ordinance 282-2005 § 3-28." [Record No. 1-4, pp. 2-3] Central Kentucky Lodging maintained a commercial general liability policy ("the General Policy") with a coverage limit of $1,000,000.00 per occurrence and commercial excess liability policy ("the Excess Policy") with a coverage limit of $2,000,000.00 per occurrence with Cincinnati Specialty Underwriters Insurance Co. ("Cincinnati Specialty"), the plaintiff in this action. [See Record No. 1-4, p. 1; see also Record Nos. 1-2 and 1-3.]

Cincinnati Specialty, by counsel, sent a May 15, 2019 reservation of rights letter to Brian Dodge, which noted that the Estates’ complaint alleged that: (1) Central Kentucky Lodging and ABDCO were a joint venture or single business enterprise sharing profits, management, and expenses; (2) Central Kentucky Lodging engaged in a "continuing course of grossly negligent, reckless and/or wanton conduct, as indicated by at least one other instance of over service that resulted in death[ ] within the last five years"; and (3) as a result, the Estates are entitled to punitive damages. [Record No. 1-4, p. 3] The letter stated that an endorsement of the General Policy precluded coverage for bodily injuries for which Central Kentucky Lodging "may be held liable by reason of causing or contributing to the intoxication of any person or the furnishing of alcoholic beverages to a person ... under the influence of alcohol...." [Id. (alterations in original).] According to the letter, this provision may be applicable inasmuch as the Estates claimed that Central Kentucky Lodging and ABDCO were a joint venture, which could render Central Kentucky Lodging liable for ABDCO's service of Bailey. [Id. at 3-4.] The letter continued by stating that the commercial general liability and commercial excess liability policies excluded coverage for: (1) expected or intended damages, i.e. , those damages that are "not accidental"; (2) "any claim of indemnification for punitive or exemplary damages"; and (3) any damages in excess of the policies’ coverage limits. [Id. at pp. 3-4.]

Having noted these issues, counsel for Cincinnati Specialty wrote that the insurer would provide defense counsel for Central Kentucky Lodging, subject to a "full and complete reservation of all rights[,] respectfully reserv[ing] the right to deny coverage for this Lawsuit" as well as the "right[s] to withdraw this defense and to deny any duty to indemnify" the insured and the right to "seek recovery of attorney fees expended if it is [later] determined that [Cincinnati Specialty] has no duty to defend." [Id. at 4.] Importantly, the May 15, 2019 letter also provided:

Please note that CSU [i.e. , Cincinnati Specialty] reserves its right to file a declaratory judgment action requesting that the Court determine whether, and to what extent, it is required to defend and/or indemnify Central [i.e. , Central Kentucky Lodging], and to intervene in this Lawsuit in order to request that the Court to [sic ] address CSU's duty to defend and/or indemnify Central and to allocate any verdict between covered and non-covered losses. Please be advised that this reservation of rights and/or possible legal actions may create a conflict of interest between CSU and Central.

[Id. at 4.]

The Abbas Estates allege that a different entity, Kennedy's Hospitality, LLC, subsequently filed its articles of organization on May 28, 2019. [Record No. 18-2, ¶ 77] This LLC purportedly received all of ABDCO's assets and continues to operate the bar once known as Horseshoes KY Grill & Saloon under a different unidentified name. [See id. at ¶ 80.] The operative Fifth Amended Complaint in the State Court Action does not identify the members or managers of this LLC. [See id. at ¶¶ 76-82.]

The Abbas Estates also assert that Advanced Lodging Solutions, LLC filed its articles of organization on July 18, 2019. [Record No. 18-2, ¶ 70] This LLC, whose sole member and manager is Nathan Dodge, allegedly "received substantially all of [Central Kentucky Lodging's] hotel-related assets and now continues the operation of the [Days Inn] hotel once belonging to [Central Kentucky Lodging]." [Id. at ¶ 74.] Specifically, Central Kentucky Lodging subleased the hotel to Advanced Lodging Solutions on August 15, 2019, and also "transferred property rights to ... the fixtures, improvements and personal property associated with the hotel, the operation of its business of 176 hotel rooms, and its franchise agreement with Days Inn Worldwide, Inc." [Id. at ¶¶ 152, 155.] The Estates contend that Brian Dodge maintained significant control over the property, going so far as to sign a new franchise agreement on Central Kentucky Lodging's behalf with Days Inn Worldwide on August 27, 2019, after the hotel itself had been subleased to Advanced Lodging Solutions. [Id. at ¶¶ 159, 161.]

The Abbas Estates allege that the transfers of assets from ABDCO to Kennedy's Hospitality and from Central Kentucky Lodging to Advanced Lodging Solutions were made "at least partially for the purpose of evading creditors," including the Estates. [Id. at ¶¶ 82-83.] They further assert that the transfers were made without adequate consideration, were concealed by Central Kentucky Lodging and ABDCO, and left those entities undercapitalized or insolvent "taking into account their substantial anticipated debts with regard the Plaintiffs’ claims." [Id. at ¶¶...