American Family Mutual Insurance Company, S.I. v. BoKim

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF MISSOURI

WESTERN DIVISION

AMERICAN FAMILY MUTUAL )

INSURANCE COMPANY, S.I., )

)

Plaintiff, )

)

v. ) Case No. 20-00812-CV-W-HFS

BOKIM, LLC, a Missouri Limited )

Liability Company, and )

NHAT MINH PHAM d/b/a )

L&N NAILS & SPA. )

)

)

Defendants. )

ORDER

Defendant, BoKim, LLC, has filed a motion to dismiss a complaint

seeking declaratory judgment filed by plaintiff, American Family Mutual

Insurance Company. BoKim seeks dismissal pursuant to Fed.R.Civ.P.

12(b)(6). Nhat Minh Pham d/b/a L&N Nails & Spa (“Pham”) is also a

named defendant in this action, but has not joined the dismissal

motion.

Background1

On or about Jan. 3, 2008, BoKim owned property in Jackson

County, Missouri, specifically, a building addressed as 2614

Independence Avenue, Kansas City, Missouri (“the Premises”). On or

about the same date, BoKim leased the building to Tuyet Nguyen,

defendant Pham’s predecessor in tenancy, for a term of 10 years.2 At

some time prior to Oct. of 2014, Tuyet sold her nail salon to Pham, and

on or about Oct. of 2014, Pham, representing himself as the sole

proprietor d/b/a L&N Nail Salon, assumed the lease agreement with

BoKim.

At some point, not here disclosed, American Family issued a

Businessowner’s Policy to Pham for the period of Oct. 1, 2015 through

Oct. 1, 2016, which included property and liability coverage.

(Complaint: ¶ 11, Ex. A). At some point, again not here disclosed, Pham

1 The facts are taken from pleadings filed by the parties, and when in dispute, will be noted.

2 The property consisted of 6 storefronts on the first floor and 16 apartment units above.

employed Hong Thu Nguyen (“Hong”) as a nail technician and

represented her to BoKim as manager of the salon.

On October 12, 2015, a fire occurred which totally destroyed the

Premises. Christopher Anderson, Daniel Werner, Larry Leggio, and John

Mesh, firefighters from the Kansas City, Missouri Fire Department

responded to the fire. American Family Mutual Ins. Co. v. Anderson, et

al. Case No. 20-105-FJG. Anderson and Werner were injured by falling

debris and sustained severe and permanent injuries, and Leggio and

Mesh died as a result of their injuries. (Id, pg. 1). An investigation

resulted in the arrest of Hong for intentionally setting the fire; and that

both Hong and Pham conspired in a fraudulent effort to secure

insurance coverage from American Family.

After a jury trial, Hong was found guilty of 2 counts of arson in the

1st degree, 2 counts of murder in the 2nd degree, and 2 counts of assault

in the 2nd degree; on Sep. 21, 2018, she was sentenced to 30 years

imprisonment. Pham pled guilty to presenting a claim to American

Family containing false statements and materially misleading

information. On Jul. 8, 2019, sentence was suspended, and Pham was

placed on probation for 3 years and directed to pay $2,000 in

restitution to American Family.

State Court Actions

A. The Anderson Case No. 1816-CV25857

Christopher Anderson, Heather Anderson, Daniel Werner, Melissa

Leggio, and Felicia Mesh filed a civil action in state court seeking

damages against Hong, American Family, and others3 for wrongful

death and bodily injury of the firefighters resulting from the fire set by

Hong. (Complaint: ¶ 20). American Family defended Hong in the civil

action while concurrently seeking declarative relief here that it had no

duty to defend her. (Id: ¶ 21). As a compromise settlement to avoid

litigation expenses, American Family settled the civil action on Hong’s

behalf for $600,000 which it claims was the aggregate limit of liability

coverage provided by the policy, and is now exhausted. (Id: ¶¶ 22-23).

3 Other named defendants include Motorola Solutions, Inc., Tusa Consulting Services II, LLC, and Farmers

Insurance Company, Inc.

American Family sought declarative relief in Case No. 20-105-FJG

contending that it had no duty to defend or indemnify Hong in the

underlying Anderson lawsuit and that the Policy was void. (Case 20-105:

p. 2). The Anderson defendants filed a motion to dismiss contending

that the same claims were pending in the underlying suit and American

Family was seeking to circumvent the state court action. (Id). On Nov. 9,

2020, the Anderson defendants, Hong, and American Family filed a

stipulation of dismissal of all claims asserted against Hong and

American Family in the underlying action. (Id). Judge Gaitan then

directed the parties to file a status report indicating what, if any impact

the dismissal has on the pending motions before him for declaratory

relief and dismissal. The parties ultimately agreed to the dismissal with

prejudice of their respective claims. (Case 20-105, Doc. 20).

B. The BoKim Case

On April 29, 2020, BoKim filed a Petition for Damages

in state court (Case No. 2016-CV11341), against Pham as the owner of

L&N Nails & Spa. (Doc. 1-5, Exh. E, ¶¶ 1-2). BoKim alleged that on Jan.

3, 2008, it leased the building at 2614 Independence Avenue, Kansas

City, Mo., to Tuyet Nguyen as Pham’s predecessor in tenancy for a lease

term of 10 years; and at some time prior to Oct. 2014, Tuyet sold her

nail salon to Pham. (Id: ¶¶ 6-8). Also, on or before Oct. 2014, Pham

represented himself as the sole proprietor of the nail salon and

assumed the lease agreement with BoKim. (Id: ¶¶ 9-10).

BoKim states that par.8 of the lease agreement required Pham as

lessee to indemnify, defend and hold BoKim as lessor harmless for all

loss liability, costs, damages and expenses that occur or be claimed

with respect to any person(s) or property on the Premises resulting

from any act or omission by or through the lessee, its agents,

employments, invitees or any person on the Premises. (Id: ¶ 11). The

lease also required Pham to maintain at all times during the lease

period comprehensive general liability insurance with single limit

coverage of not less than 1 million dollars for injury or death of persons

and from property damage. (Id). During the lease term Pham was

required to furnish BoKim with a certificate of insurance and name

BoKim as an additional named insured. (Id). BoKim alleges that

although Pham had general liability insurance with American Family he

did not include BoKim as an additional insured. (Id: ¶¶ 12-13).

BoKim alleged that Pham invited Hong Thu Nguyen onto the

Premises, employed her as a nail technician, and represented her as

manager of the salon business. (Id: ¶¶17-18). On Oct. 12, 2015, a fire

occurred on the Premises which destroyed the property and two

responding firefighters dies; it was subsequently determine that Hong

set the fire, and she was convicted of arson and murder. (Id: ¶¶ 19-21).

Beginning on Oct. 15, 2015, BoKim requested confirmation from

Pham and American Family that BoKim was an additional insured on

the insurance policy, without success. (Id: ¶¶ 22-25). BoKIm alleged

that Pham recovered money from American Family, but failed to

include BoKim as an additional insured. (Id: ¶¶ 26-27).

BoKim asserted claims for breach of contract, negligence, and

negligent hiring.

Discussion

American Family has filed suit in this court seeking a declaratory

judgment that it owes no duty to neither BoKim nor Pham because: (1)

the policy became void due to Pham’s fraudulent conduct; or (2) the

coverage limit has been exhausted; or (3) all damages sought in the

state court action were caused by the intentional criminal conduct of

Hong.

BoKim, in opposition to the declarative relief sought by American

Family, has filed a motion to dismiss the complaint arguing that it

would be premature for this court to grant such relief when there are

active cases pending in state court regarding the same issues. BoKim

refers to his state court case against Pham; the Anderson state case4;

and Hong’s pending appeal, and contends that declaratory relief at this

time would foreclose his ability to add necessary parties.

In Royal Indem. Co. v. Apex Oil Co., 511 F.3d 788, 792, the court

noted that although rare, federal courts may sometimes – under the

4 As noted above, this matter has been resolved by the stipulation of dismissal of all claims filed by the Anderson

defendants, Hong, and American Family.

doctrine of abstention - refrain from exercising jurisdiction over a case

properly filed in federal court; citing, County of Allegheny v. Frank

Mashuda Co., 360 U.S. 185, 188 (1959)(this doctrine, under which a

district court may decline to exercise or postpone the exercise of its

jurisdiction, is an extraordinary and narrow exception to the duty of a

district court to adjudicate a controversy properly before it). Therefore,

under the standard articulated in Colorado River Water Conservation

District v. United States , 424 U.S. 800, 817 (1976), a federal court

should only abstain from a case in which there are parallel state

proceedings for “exceptional circumstances.” However, “parallel

proceedings for exceptional circumstances” need not be required in

actions under the Declaratory Judgment Act. Royal Indem. Co., at 792;

citing, Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995)(federal courts

have more discretion to abstain in an action when a party seeks relief

under the Declaratory Judgment Act).

Courts have utilized this broad discretion and held that the key

consideration for the district court is to ascertain whether the issues in

controversy between the parties to the federal action can be better

settled by the state court in light of the scope and nature of the

pending state court proceeding. Continental Western Insurance

Company v. Auto-Owners Insurance, 2021 WL 1518639 * 2

(W.D.Mo.)(suits are parallel if substantially the same parties litigate

substantially the same issues in different forums).

Here, the parties in the federal and state cases are substantially

the same: BoKim and Pham are parties in the state case and both are

named defendants in the case here in federal court. American Family,

as the plaintiff here, would likely also have an interest in any liability it

may have in the event of a favorable outcome for BoKim in state court.

Whether to abstain also turns on whether American Family,

BoKim and Pham are litigating substantially the same issues, governed

by state law, in the federal and state cases; which here, will be

governed by Missouri contract law. Continental Western Insurance,

2021 WL 1518639 at *2; citing, TNT Speed & Sport Center, Inc. v.

American States Ins. Co., 114 F.3d 731, 732 (8th Cir. 1997)(finding that

the interpretation of insurance policies is governed by state law). Next

to be considered is whether the claims of all the parties in interest can

satisfactorily be adjudicated in the state court proceeding, and, if so,

then the parties are litigating substantially the same issues. Id.

In BoKim’s state court action, he seeks damages from Pham for,

among other things, allegedly breaching the lease agreement by failing

to name BoKim as an additional insured on the American Family

insurance policy and storing toxic materials on the Premises. In the

federal court case, American Family has named both BoKim and Pham

as defendants and seeks an order declaring that: (1) Pham’s liability

coverage is void due to his fraudulent misrepresentations (Doc. 1, ¶¶

36-45); and (2) it has no duty to defend Pham in BoKim’s state court

action because damages were caused by an intentionally set fire, as

opposed to an “occurrence” defined in the Policy as an “accident.” (Id:

¶¶46-54).

American Family relies on Endurance American Specialty

Insurance Company v. Brown et al., Case No. 19-654-GAF. (Doc. 9-1). In

that case Brown filed suit in state court against Lake Rat, and Keith and

David Dickey when Keith Dickey’s car allegedly crossed the center lane

crashing into Brown’s car resulting in severe and disabling injuries to

Brown. (Id: p. 1). In this underlying suit Brown alleged that prior to the

collision Lake Rat (insured by Endurance) continued to serve Keith

Dickey intoxicating liquors while he was visibly intoxicated. (Id: p. 2). In

reliance on Scottsdale Ins. Co. v. Detco Industries, Inc., 426 F.3d 994 (8th

Cir. 2005), where the court the absence of parallel proceedings where

the state court lawsuit involved issues regarding Detco’s liability for

damages relating to a fire and explosion at its facility, and the federal

lawsuit between Detco and Scottsdale involved insurance coverage.

Scottsdale, at 997. Judge Fenner held that the underlying state court

action seeking damages for personal injuries was not parallel to the

federal case before him regarding insurance coverage.

The resulting decisions in Scottsdale and the Endurance Ins. Case

before Judge Fenner are distinguishable from the matter at bar in that

questions of insurance coverage has been raised in both BoKim’s state

case against Pham as well as in American Family’s present case seeking

a declaration that it owes no duty to either BoKim or Pham; unlike in

Scottsdale, where the state action sounded in tort and the federal

action in contract. Scottsdale, at 999. Consequently, questions before

the state court will include whether there was a breach of the Policy by

Pham’s fraudulent conduct such that the Policy became void resulting

in American Family having no duty to defend Pham in BoKim’s suit

alleging breach of the lease agreement and negligence. And, such a

ruling by the state court would then render as moot the relief sought by

American Family in this court. Continental Western Ins. Co., 2021 WL

1518639 at *3. Thus, abstention here is appropriate. Wilton, 515 U.S. at

288 n.2(where the basis for declining to proceed is the pendency of a

state proceeding, a stay will often be the preferable course, because it

assures that the federal action can proceed without risk of a time bar if

the state case, for any reason, fails to resolve the matter in

controversy).5

Accordingly, defendant BoKim’s motion to dismiss the complaint

(Doc. 7) is DENIED, and this matter is STAYED pending resolution of the

proceeding before the state court.

s/ Howard F. Sachs

HOWARD F. SACHS

UNITED STATES DISTRICT JUDGE

April 30, 2021

Kansas City, Missouri

5 In considering the stated positions of the parties regarding a “hypothetical” garnishment proceeding in the event of

a favorable ruling for BoKim in the state court action, such an outcome has been known to occur. And, upon such an

occurrence, the suits were considered parallel even though the federal declaratory action was filed before the state

court garnishment action was filed. Federated Mut. Ins. Co. v. Shernaman Enterprises, Inc., 2014 WL 6775832 *3

(E.D.Mo.).