Cumulus Investors, LLC v. Hiscox, Inc. et al

Filing 39

OPINION AND ORDER: Defendants' Motion to Dismiss 23 is DENIED. (Written Opinion). Signed by Judge Eric C. Tostrud on 2/18/2021. (RMM)

CASE 0:20-cv-01919-ECT-HB Doc. 39 Filed 02/18/21 Page 1 of 23

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Cumulus Investors, LLC,

File No. 20-cv-1919 (ECT/HB)

Plaintiff,
v.

OPINION AND
ORDER

Hiscox, Inc. and Hiscox Insurance
Company Inc.,
Defendants.

Scott Godes, Barnes & Thornburg LLP, Washington, DC; Christopher L. Lynch, Barnes
& Thornburg LLP, Minneapolis, MN; and Carrie Marie Raver, Barnes & Thornburg LLP,
Fort Wayne, IN, for Plaintiff Cumulus Investors, LLC.
Joseph A. Oliva, Goldberg Segalla LLP, New York, NY; Marci Goldstein Kokalas,
Goldberg Segalla LLP, Newark, NJ; and Christopher L. Goodman, Thompson, Coe,
Cousins & Irons, LLP, Saint Paul, MN, for Defendants Hiscox, Inc. and Hiscox Insurance
Company Inc.
________________________________________________________________________
Plaintiff Cumulus Investors, LLC filed this action after it was denied employee theft
coverage under a commercial crime policy issued by Defendants Hiscox, Inc. and Hiscox
Insurance Company Inc. (together, “Hiscox”). Hiscox has moved to dismiss the case on
two grounds under Federal Rule of Civil Procedure 12(b). First, Hiscox argues there is not
subject-matter jurisdiction over the case. It says Cumulus has failed to allege injury-infact sufficient to satisfy Article III. This is not correct. Cumulus alleges economic losses
for which it seeks insurance coverage, and that is enough. Second, Hiscox argues that
Cumulus has failed to allege facts plausibly showing coverage under the policy. The
central issue in resolving this aspect of Hiscox’s motion is whether Cumulus and non-party

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GigaMedia Access Corporation (“Giga”) are named insureds under the policy. The policy
identifies the named insured as “NJK Holding Corp. and all subsidiaries and affiliates
which are owned, managed or controlled by NJKHolding Corp. [sic] or the Kazeminy
Family, or for whom the NJK Holding Corp[.] or the Kazeminy family have insurance
responsibilities[.]” Cumulus alleges that the Kazeminy family owns Cumulus, and that
Cumulus owns substantial stock in Giga—enough so that Giga is an “affiliate[] . . . owned,
managed or controlled” by the Kazeminy family. Therefore, says Cumulus, both it and
Giga are named insureds, so Cumulus is entitled coverage for an employee theft that Giga
employees committed against Cumulus. Key terms in the policy’s definition of named
insured are used ambiguously.

Applying Minnesota’s canons of insurance-policy

construction, those ambiguities must be resolved in Cumulus’s favor.

Because a

reasonable interpretation of the policy permits the conclusion that Cumulus and Giga are
both “affiliates . . . owned, managed or controlled . . . by the Kazeminy Family,” Cumulus
has stated a claim for coverage under the Policy. Hiscox’s motion to dismiss will be denied.
I
A
This coverage dispute concerns the “Kazeminy Family” and their relationship with
three businesses organizations. The first organization, Cumulus, is an LLC “wholly owned
by the Kazeminy Family.” Compl. ¶¶ 22 [ECF No. 1]. Cumulus’s members are Nasser
Kazeminy, Yvonne Kazeminy, and six LLCs. Id. ¶ 5. Each member-LLC is owned by a
different South Dakota trust. The sole beneficiary of each trust is a different individual
named Kazeminy: Tanya M. Kazeminy, Nader Kazeminy, Yasmin Yvonne Kazeminy,
2

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Amira Isabella Kazeminy, Finn Jamie Kazeminy MacKay, and Callum Kazeminy
MacKay. Id. And each trust shares the same five trustees: Rhonda Donahoe, Louis Freeh,
Nader Kazeminy, Tanya Kazeminy, and Great Western Bank. Id.
The second company is GigaMedia Access Corporation, which also conducted
business as “GigaMedia Corporation” and “GigaTrust.”

Id. ¶ 22.

Cumulus began

purchasing shares in Giga in October 2010, eventually accumulating 10,589,706 Series E
Preferred shares. Id. ¶ 24. Cumulus also owned 45,650,449 Series F shares. Id. “[B]ased
on stock capitalization tables, Cumulus was the largest and most material shareholder of
Giga,” id., owning between 31.26% and 33.99% of its stock, id. ¶ 26.
Finally, a third company relevant to this dispute is NJK Holding Corp., “a
corporation organized under the laws of Minnesota.” Id. ¶ 7. The Complaint does not
describe the ownership structure of NJK Holding Corp. The Kazeminy family has
negotiated insurance coverage for NJK Holding Corp. as a named insured under multiple
policies, including the policy involved in this coverage dispute. Id. ¶¶ 9, 65.
B
Next are the facts underlying Cumulus’s insurance claim. On or around May 10,
2019, a Giga employee, Robert Bernardi, “made an urgent request to Cumulus for $10
million.” Id. ¶ 27. According to Bernardi and fellow employee, Nihat Cardak, Giga
needed the funds to avoid defaulting on a $25 million loan with JP Morgan Chase Bank.
Id. ¶¶ 28–29. The following day, Cumulus agreed to loan Giga $4 million, id. ¶ 30, while
“Nasser Kazeminy secured another $4,000,000 from his friend and [] Bernardi represented
he would provide the remaining $2,000,000 in order to secure the full $10,000,000,” id.
3

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¶ 29. Bernardi provided Giga’s wire transfer information in an email and claimed he would
route Cumulus’s funds to a JP Morgan account. Id. ¶ 31. Cumulus extended Giga a $4
million loan “in reliance on financial statements, bank statements, and a letter that
purported to be from Giga’s outside counsel.” Id. ¶ 30.
Months later, Cumulus discovered the $4 million it loaned was not used to pay down
Giga’s JP Morgan loan. Instead, “Bernardi and Cardak . . . improperly took the money and
characterized those payments to themselves as large bonuses and other incentive payments
from funds that were provided to Giga as capital investments or loans, without applying
the money to Giga business purposes.” Id. ¶ 33. To obtain the loan from Cumulus,
“Bernardi and Cardak had manipulated data to misrepresent profits and solvency.” Id.
¶ 30. Cumulus would learn that the financial documents and letter it relied on were
falsified, and that the “May 10, 2019 letter from Giga’s outside counsel contain[ed] a
forged signature.” Id. According to Cumulus, it would not have loaned Giga $4 million
but for these falsified documents. Id.
Around the same time that they obtained the loan from Cumulus, Bernardi and
Cardak “sought to engage in a merger and reorganization involving Crystal Financial,
LLC” that “would effectively place Giga under Crystal’s control.” Id. ¶ 34. As the largest
Giga shareholder, Cumulus needed to sign off on the transaction. Yet without consulting
Cumulus, “Bernardi and/or Cardak” completed the deal by “forg[ing] Cumulus’[s]
consent.” Id. ¶ 35. The merger rendered Cumulus’s shares in Giga “worthless.” Id. ¶ 36.
In November 2019, Cumulus discovered the fraudulent scheme after Giga’s deal
with Crystal. Id. ¶ 37. Cumulus notified Giga that it had defaulted on the $4 million loan.
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On November 11, Giga signed and verified a confession of judgment of $4,630,888.89 in
Nevada state court for its failure to repay the loan. Id. ¶ 38; see also Oliva Decl. Ex. 1 at
4 (“Proof of Loss Stmt.”) [ECF No. 26-1].1 On February 14, 2020, the United States
Attorney for the Southern District of New York “nam[ed] Cumulus as a federal crime
victim in the case against [] Bernardi and Giga.” Compl. ¶ 39. Giga filed for bankruptcy
and now “has little to no assets.” Proof of Loss Stmt. at 4. Cumulus alleges it has lost over
$17 million as a result of the scheme, and that it has yet to recover any of this sum. Compl.
¶¶ 40–41.
C
On November 20, 2019, Cumulus notified Hiscox that it was seeking coverage for
employee theft under a commercial crime policy issued for the period of October 19, 2019,
to October 19, 2020 (“the Policy”). Compl. ¶¶ 8, 43, 57; see Compl. Ex. 1 (“Hiscox
Policy”) [ECF No. 1-2]. The Policy contains a “Crime Coverage Part” that covers
“fidelity,” including a $5 million limit for:
A. loss of or damage to money, securities, or other property [from]:
1. Employee Theft: sustained by you resulting directly from theft or
forgery committed by an employee, whether identified or not,
acting alone or in collusion with other persons[.]

1

This Proof of Loss statement is fairly embraced by the Complaint, see Compl.
¶¶ 70–74, 83, and Cumulus has not disputed its authenticity, even referencing the exhibit
for support in its Rule 12 response, see Pl.’s Mem. in Opp’n at 25 [ECF No. 35]. It may
therefore be relied on without converting Hiscox’s motion into one for summary judgment.
See Gorog v. Best Buy Co., 760 F.3d 787, 791–92 (8th Cir. 2014).
5

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Hiscox Policy at 3, 11. Each bold term in the employee theft definition is defined either in
a section “applicable to all Coverage Parts” or in the Crime Coverage Part itself. Some
terms are defined in both places. Where “the same term is defined” in both sections, “the
definition in the [Crime] Coverage Part . . . govern[s] the coverage provided[.]” Id. at 9.
Hiscox denied Cumulus’s claim under the employee theft provision, Compl. ¶¶ 94, 98, so
it’s necessary to examine the operative Policy language and how Cumulus says that
language leads to coverage in this case.
First, the Policy covers only employee theft resulting in “loss of or damage to
money, securities, or other property.” Hiscox Policy at 11. Under the Crime Coverage
Part, money includes “currency, including Bitcoin or any other digital currency, crypto
currency, or electronic currency, coins, or bank notes in current use anywhere in the world
and having a face value” and “funds on deposit at a financial institution.” Id. at 24.
Securities “means instruments or contracts representing money, property, or a debt or
equity interest in an entity, including . . . stocks and bonds, whether or not evidenced by a
certificate[.]” Id. at 25. In Cumulus’s view, it lost money when it loaned $4 million to
Giga that “Bernardi and/or Cardak stole for their own enrichment,” Compl. ¶ 52, and it lost
securities when “Bernardi and/or Cardak committed forgeries,” rendering its Giga shares
worthless, id. ¶ 53.
Second, employee theft coverage is triggered only by “theft or forgery.” Hiscox
Policy at 11. Theft “means the unlawful taking of property to its owner’s deprivation.” Id.
at 25. Forgery “means signing the name of another person or organization with the intent
to deceive, whether in writing or through an electronic identifier.” Id. at 23. Cumulus
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alleges that a theft occurred when Bernardi and/or Cardak wrongfully obtained the $4
million loan. Compl. ¶ 44. Cumulus also alleges that two forgeries occurred: (1) “[t]he
forged signature on the May 10, 2019 letter purporting to be from Giga’s outside counsel,”
id. ¶ 45, and (2) “[t]he forging of Cumulus’[s] signature in the merger documents,” id. ¶ 46.
Third, employee theft coverage is triggered only by theft or forgery “committed by
an employee . . . acting alone or in collusion with other persons.” Hiscox Policy at 11.
Employee “means an employee as defined in each Coverage Part,” id. at 9, and the Crime
Coverage Part defines numerous categories of employees. Those definitions include both
(1) a “natural person . . . [a] while in your service; [b] whom you compensate directly by
salary, wages, or commissions; and [c] whom you have the right to direct and control while
performing services for you,” and (2) a “natural person who is your manager, director, or
trustee while performing acts within the usual duties of an employee.” Id. at 21–22. Also,
in a section titled “Other provisions affecting coverage,” the Crime Coverage Part states
that “[a]n employee of any insured is considered an employee of every insured.” Id. at
27. Cumulus alleges that Bernardi and Cardak were employees of Giga, that Giga is an
insured, and that Bernardi and Cardak are therefore employees under the Policy. Compl.
¶¶ 47–49, 51.
Finally, the Policy’s employee theft coverage is limited to losses “sustained by
you.” Hiscox Policy at 11. “You, your, or insured means any individual or entity
expressly described as an insured in any Coverage Part you have purchased.” Id. at 10.
In a section titled “Who is an insured,” the Crime Coverage Part defines “you, your, or
insured” as “a named insured, subsidiary, employee benefit plan, or acquired entity,
7

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as defined [there].” Id. at 14–15. Only the “named insured” basis for coverage is relevant
in this case. The Crime Coverage Part defines named insured as “the entity identified in
Item 1 of the [Policy] Declarations.” Id. at 15. Item 1 originally identified “NJK Holding
Corp.” as the sole named insured. Id. at 2. Endorsement 7 to the Policy, however,
broadened Item 1 to include “NJK Holding Corp. and all subsidiaries and affiliates which
are owned, managed or controlled by NJKHolding Corp. [sic] or the Kazeminy Family, or
for whom the NJK Holding Corp[.] or the Kazeminy family have insurance
responsibilities[.]” Id. at 40. Though dated November 20, Endorsement 7 was effective
October 19, 2019.2 Id. Cumulus alleges that this definition of named insured is “used in
multiple insurance policies by the Kazeminy family,” who had originally “sought, and
received, confirmation that this definition would be used in the [] Policy on October 11,
2019.” Compl. ¶ 9. The amended definition does not contain bold text and only one of its
terms—subsidiary—is defined anywhere in the Policy. The terms “Kazeminy Family” and
“affiliate[],” for example, are not defined or used elsewhere in the Policy. Nor does the
Policy define “owned,” “managed,” or “controlled.” Compl. ¶¶ 10–12.
Cumulus contends that it and Giga are both named insureds under the Policy. First,
Cumulus alleges it “is wholly owned by the Kazeminy Family,” id. ¶ 22, and that “Nasser

2

The Parties disagree precisely how and when Endorsement 7 was agreed upon. See
Defs.’ Mem. in Supp. at 4 n.2 [ECF No. 25]; Pl.’s Mem. in Opp’n at 6 n.1; Defs.’ Reply
Mem. at 1–2 n.1 [ECF No. 36]. And on this point, the Parties have each filed materials not
embraced by the Complaint. See Oliva Decl., Ex. 2 [ECF No. 26-2]; Kazeminy Decl., Ex.
A [ECF No. 34-1]. Regardless, for purposes of its Rule 12 motion, Hiscox accepts that
Endorsement 7 applies. See Defs.’ Reply Mem. at 9. Thus, these exhibits will be
disregarded for purposes of resolving Hiscox’s motion.
8

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Kazeminy, a member of the ‘Kazeminy Family’ . . . , owned the largest membership
interest in Cumulus,” id. ¶ 23. Thus, in Cumulus’s view, it is a company “owned, managed,
and controlled by the Kazeminy Family.” Id. ¶ 42. Second, Cumulus says, because the
Kazeminy family owns Cumulus, and because Cumulus “was the largest owner of Giga,
with stock ownership ranging between 31.26% and 33.99%,” Giga was also an
“affiliate . . . owned, managed or controlled . . . by the Kazeminy Family.” Id. ¶ 50.
D
Cumulus filed its Complaint on September 8, 2020, invoking diversity jurisdiction
and alleging one count of breach of contract. Id. ¶¶ 2, 99–104. Cumulus asserts that the
Policy’s insureds have performed their contractual obligations, and that the Policy’s plain
language provides Cumulus employee theft coverage for its losses.

Id. ¶¶ 100–01.

Alternatively, Cumulus contends that the Policy’s language is ambiguous as applied to its
claim, but that a reasonable interpretation still results in coverage. Id. ¶ 102. Therefore,
says Cumulus, Hiscox has breached its obligations under the Policy by denying coverage.
Id. ¶ 103.
Hiscox has filed a motion to dismiss under Rule 12. ECF No. 23. Hiscox argues
essentially that (1) Cumulus lacks Article III standing to sue under the Policy and (2)
Cumulus has not stated a claim because it does not meet the coverage elements under the
Policy’s employee theft provision. Defs.’ Mem. in Supp. at 19–27.

9

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II
Hiscox argues that Cumulus has not established Article III standing. “Federal
jurisdiction is limited by Article III of the Constitution to cases or controversies; if a
plaintiff lacks standing to sue, the district court has no subject-matter jurisdiction.” Carlsen
v. GameStop, Inc., 833 F.3d 903, 908 (8th Cir. 2016) (quoting ABF Freight Sys., Inc. v.
Int’l Brotherhood of Teamsters, 645 F.3d 954, 958 (8th Cir. 2011)). To establish Article
III standing, a plaintiff must allege facts showing it has “(1) suffered an injury in fact, (2)
that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to
be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540,
1547 (U.S. 2016). “Standing under Article III to bring a claim in federal court is distinct
from the merits of a claim,” Enter. Fin. Grp., Inc. v. Podhorn, 930 F.3d 946, 950 (8th Cir.
2019), and “[i]t is crucial . . . not to conflate Article III’s requirement of injury in fact with
a plaintiff’s potential causes of action, for the concepts are not coextensive,” Braden v.
Wal-Mart Stores, Inc., 588 F.3d 585, 591 (8th Cir. 2009).
Cumulus has alleged facts establishing each element of Article III standing. First,
“[t]o establish injury in fact, a plaintiff must show that he or she suffered an invasion of a
legally protected interest that is concrete and particularized and actual or imminent, not
conjectural or hypothetical.” Spokeo, 136 S. Ct. at 1548 (quoting Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560 (1992) (internal quotation marks omitted)). When an alleged
harm is “economic,” “the ‘injury in fact’ question is straightforward.” Wallace v. ConAgra
Foods, Inc., 747 F.3d 1025, 1029 (8th Cir. 2014) (citation omitted). Cumulus has pled
extensive allegations of economic harm. Cumulus’s losses stem from the $4 million it
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loaned to Giga at Bernardi’s request, Compl. ¶¶ 29–30, 52, and the devaluation of its shares
in Giga, caused by Giga’s reorganization under Crystal, id. ¶¶ 36, 53. Together, Cumulus
alleges these losses exceeded $17 million, id. ¶ 40, and that, having sustained these losses,
it’s now been deprived coverage under the Policy, id. ¶¶ 41, 103–04.

Cumulus’s

allegations describe an actual injury that is concrete and particularized. Second, Cumulus
plausibly alleges a causal link between Hiscox’s conduct and its alleged injury: Hiscox
breached its contractual obligations under the Policy by denying Cumulus coverage for an
employee theft and refusing to cover its losses above the Policy’s $50,000 deductible. Id.
¶ 103. Third, Cumulus seeks an award of damages that would redress its alleged injury.
See id. at 18.
III
A
Next, Hiscox has moved to dismiss under Rule 12(b)(6). In reviewing a motion to
dismiss for failure to state a claim, a court must accept as true all of the factual allegations
in the complaint and draw all reasonable inferences in the plaintiff’s favor. Gorog, 760
F.3d at 792 (citation omitted). Although the factual allegations need not be detailed, they
must be sufficient to “raise a right to relief above the speculative level . . . .” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). The complaint must “state a
claim to relief that is plausible on its face.” Id. at 570. “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009).
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There is diversity jurisdiction over this case under 28 U.S.C. § 1332. See Compl.
¶¶ 2–5.3 “Federal courts sitting in diversity apply state substantive law.” Morgantown
Mach. & Hydraulics of Ohio, Inc. v. Am. Piping Prods., Inc., 887 F.3d 413, 415 (8th Cir.
2018). The Parties agree that Minnesota law governs interpretation of the Policy. Defs.’
Mem. in Supp. at 16; Pl.’s Mem. in Opp’n at 11. Minnesota law will therefore be applied
here. BBSerCo, Inc. v. Metrix Co., 324 F.3d 955, 960 n.3 (8th Cir. 2003). The Minnesota
Supreme Court’s decisions are binding authority, and when it “has not decided an issue, it
is up to this court to predict how [it] would resolve that issue.” Cont’l Cas. Co. v. Advance
Terrazzo & Tile Co., 462 F.3d 1002, 1007 (8th Cir. 2006).
B
Minnesota’s “[g]eneral principles of contract interpretation apply to insurance
policies.” Carlson v. Allstate Ins. Co., 749 N.W.2d 41, 45 (Minn. 2008) (citation omitted).
“Interpretation of an insurance policy and application of the policy to the facts in a case are
questions of law[.]” Am. Fam. Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn. 2001).
Unambiguous terms are given their “plain and ordinary meaning,” while ambiguous
language is construed liberally in favor of coverage. Travelers Indem. Co. v. Bloomington

3

For purposes of diversity jurisdiction, the Hiscox defendants are corporate citizens
of Illinois, Delaware, and New York. Compl. ¶¶ 3–4. Cumulus is an LLC whose
membership includes two Florida citizens and six LLCs that are “100% owned” by a South
Dakota trust. Id. ¶ 5. The trustees of those trusts are citizens of Minnesota, Florida, South
Dakota, and the United Kingdom. Id. The beneficiaries of the trusts are citizens of Florida,
California, and the United Kingdom. Id. At the motion hearing, Cumulus confirmed there
are no other persons or entities that could be considered direct or indirect “members” of
Cumulus, and Hiscox has not challenged this assertion. Thus, there is complete diversity
of citizenship between the parties.
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Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006). Minnesota courts apply this canon
even in disputes, like this one, “involving a sophisticated insured with equal bargaining
power.” Econ. Premier Assurance Co. v. W. Nat’l Mut. Ins. Co., 839 N.W.2d 749, 755
(Minn. Ct. App. 2013); see also 35A Am. Jur. 2d Fidelity Bonds & Insurance § 5 (Feb.
2021 Update).

Undefined policy terms are ambiguous when they “are reasonably

susceptible to more than one interpretation.” Gen. Cas. Co. v. Wozniak Travel, Inc., 762
N.W.2d 572, 575 (Minn. 2009); Carlson, 749 N.W.2d at 45–46.
Cumulus claims it is entitled to coverage under the Policy’s employee-theft
provision, which obligates Hiscox to pay for:
A. loss of or damage to money, securities, or other property:
1. Employee Theft: sustained by you resulting directly from
theft or forgery committed by an employee, whether
identified or not, acting alone or in collusion with other
persons[.]
Hiscox Policy at 11. Cumulus alleges that the Policy’s insureds have fulfilled their
contractual obligations, Compl. ¶ 100, and neither Party asserts that an exclusion applies.
Thus, whether Cumulus has stated a claim for breach of contract turns on whether the
employee theft provision’s coverage elements have been met.
1
First, there is no doubt that Cumulus’s claim is for the “loss of or damage to money
[and] securities” under the Policy’s terms. Cumulus lost “money”—i.e., “currency”—
when it allegedly loaned $4 million to Giga under false pretenses. Compl. ¶ 30; see Hiscox
Policy at 24. And Cumulus suffered the loss of or damage to “securities”—i.e., “stocks

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and bonds”—when Bernardi and Cardak arranged the sale of Giga in a transaction that left
Cumulus’s shares “worthless.” Compl. ¶¶ 34–36; see Hiscox Policy at 25.
2
Second, the Policy’s employee theft coverage is limited to losses “resulting directly
from theft or forgery.” Hiscox Policy at 11. Under the Crime Coverage Part, “[t]heft
means the unlawful taking of property to its owner’s deprivation.” Id. at 25. “Forgery
means signing the name of another person or organization with the intent to deceive,
whether in writing or through an electronic identifier.” Id. at 23.
Cumulus has adequately pleaded that two separate forgeries occurred: (1) “[t]he
forged signature on the May 10, 2019 letter purporting to be from Giga’s outside counsel,”
Compl. ¶ 45, and (2) “[t]he forging of Cumulus’[s] signature in the merger documents,” id.
¶ 46. In each instance, Bernardi or Cardak allegedly signed the name of another person
(Giga’s lawyer) or organization (Cumulus) with intent to deceive. And in both cases,
Cumulus’s loss “result[ed] directly” from the forgery. Hiscox Policy at 11. “Cumulus
would not have made the $4,000,000 loan without having received and seen the letter with
the forged signature of Giga’s counsel,” Compl. ¶ 30, and “Bernardi and/or Cardak forged
Cumulus’s consent” to a transaction that rendered its shares in Giga “worthless,” id.
¶¶ 35–36.
Cumulus has also alleged a theft occurred as defined in the Policy. Bernardi
committed an “unlawful taking of property to its owner’s deprivation” when he falsified
documents, manipulated financial data, and lied to obtain a $4 million loan—a loan he did
not intend to repay. Compl. ¶¶ 30–33. There are innumerable criminal and civil statutes
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barring Bernardi’s conduct. In Minnesota, for example, “[a]cts constituting [criminal]
theft” include “obtain[ing] . . . the possession, custody, or title to property” of another “by
intentionally deceiving [them] with a false representation which is known to be false, made
with intent to defraud, and which does defraud the person to whom it is made,” including
by making “a promise . . . with intent not to perform.” Minn. Stat. § 609.52, subd. 2(a).
3
Third, the Policy covers only losses “sustained by you.” Hiscox Policy at 11. Under
a reasonable interpretation of the Policy, Cumulus falls within the Crime Coverage Part’s
definition of “you,” which includes the “named insured.” Hiscox Policy at 14. “Named
insured means the entity identified in Item 1 of the Declarations.” Id. at 15. Item 1
identifies “NJK Holding Corp. and all subsidiaries and affiliates which are owned,
managed or controlled by NJKHolding Corp. [sic] or the Kazeminy Family[.]” Id. at 40.
Several key terms used in Item 1 are undefined. The Policy does not define the “Kazeminy
Family;” the phrase “owned, managed or controlled”; or the term “affiliate[]”; and, though
“subsidiary” is defined in the Policy, it does not appear in bold text in Item 1. While
undefined policy language is not “per se . . . ambiguous,” Ritrama, Inc. v. HDI-Gerling
Am. Ins. Co., 796 F.3d 962, 969 (8th Cir. 2015), each of these terms can be reasonably
interpreted in multiple ways in the context in which they’re used.
First, consider the Policy’s use of “family,” which can ordinarily mean a group
limited to “one or two parents and their children” or can more broadly refer to “[a] group
of persons related by descent or marriage[.]” Family, Am. Heritage Dictionary of the Eng.
Language, https://www.ahdictionary.com/word/search.html?q=family (last visited Feb.
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17, 2021). As used in Item 1, is the “Kazeminy Family” limited to one immediate family,
to an entire lineage, or to some other group? Does it cover every “Kazeminy” who is
associated with a certain portfolio of companies, such as the eight individuals who are
direct or indirect members of Cumulus? See Compl. ¶ 5.
And to what extent must the Kazeminy family “own[], manage[] or control[]” an
affiliate or subsidiary? The verb “own” can mean to “have or possess as property,” as in
“own[ing] a chain of restaurants,” or it can mean to “have control over.” Own, Am.
Heritage

Dictionary

of

the

Eng.

Language,

https://www.ahdictionary.com/word/search.html?q=own (last visited Feb. 17, 2021). Does
“owning” a company under Item 1 require owning all of its stock, a majority of stock, or
something less than that? To “control” can ordinarily mean to “exercise authoritative or
dominating influence over” or to “direct.” Control, Am. Heritage Dictionary of the Eng.
Language, https://www.ahdictionary.com/word/search.html?q=control (last visited Feb.
17, 2021). May the Kazeminy family “control” an affiliate or subsidiary by controlling a
majority of seats on its board or, as Cumulus reasonably argues, by having “the power to
vote enough of the shares in a corporation to determine the outcome of matters that the
shareholders vote on”? Pl.’s Mem. in Opp’n at 28 (quoting Corporate Control, Black’s
Law Dictionary (10th ed. 2014)).
Finally, “subsidiar[y] and affiliate[]” are also both susceptible to more than one
reasonable interpretation. For instance, does Item 1 use “subsidiar[y]” as it was defined in
the Crime Coverage Part, even though it does not appear in bold text? See Auto-Owners
Ins. Co. v. Kammerer, 386 F. Supp. 3d 1030, 1035–37 (D. Minn. 2019) (concluding that
16

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defined term could “reasonably . . . be understood to have different meanings . . .
depending on whether the word appear[ed] in bold or plain text”).

And what of

“affiliate[],” used side-by-side with subsidiary, and which ordinarily means “[a]
corporation that is related to another corporation by shareholdings or other means of
control; a subsidiary, parent, or sibling corporation”? Adherent Labs., Inc. v. DiPietro, No.
A17-1961, 2018 WL 3520843, at *4 (Minn. Ct. App. July 23, 2018) (quoting Affiliate,
Black's Law Dictionary (9th ed. 2009)).
Having established the ambiguity of several terms used in Item 1, the next step is to
determine whether a reasonable interpretation of those terms leads to Cumulus’s inclusion
as a “named insured.” Under Minnesota law, undefined terms reasonably susceptible to
more than one interpretation are construed in favor of coverage. Wozniak Travel, Inc.,
762 N.W.2d at 575. Item 1 must be construed according to “what a reasonable person in
the position of the insured would have understood” it to mean. Midwest Fam. Mut. Ins.
Co. v. Wolters, 831 N.W.2d 628, 636 (Minn. 2013) (cleaned up).
A reasonable interpretation of Item 1’s terms permits the conclusion that Cumulus
is a named insured. Start with the terms “Kazeminy Family” and “owned, managed or
controlled.” Cumulus alleges it is an LLC “wholly owned by the Kazeminy Family,”
Compl. ¶ 22; that its members are Nasser Kazeminy, Yvonne Kazeminy, and six memberLLC’s; and that each member-LLC is “100% owned” by a trust that solely benefits
someone named Kazeminy, id. ¶ 5. Cumulus also alleges the broadened definition of
“named insured” is “used in multiple insurance policies by the Kazeminy family for
insurance purposes.” Id. ¶ 9. On these facts, the insured could have reasonably understood
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CASE 0:20-cv-01919-ECT-HB Doc. 39 Filed 02/18/21 Page 18 of 23

“Kazeminy Family” to mean individuals named Kazeminy who are direct or indirect
members of Cumulus. In turn, a reasonable person could conclude that Cumulus is
“owned, managed, or controlled” by these same individuals who, directly and indirectly,
form its entire membership.
Whether Cumulus is a “subsidiar[y]” or “affiliate[]” is a closer call. If a named
insured includes “NJK Holding Corp. and all subsidiaries and affiliates which are owned,
managed or controlled by NJKHolding Corp. [sic] or the Kazeminy Family,” must the
named insured be a subsidiary or affiliate of NJK Holding Corp., or can it be one that is
simply owned, managed, or controlled by the Kazeminy Family, without qualification?
Because the terms “subsidiary” and “affiliate” each describe a company by its association
with some other entity, a reasonable person would understand that a named insured must
be an affiliate or subsidiary of NJK Holding Corp. Naturally, then, Cumulus is not a
“subsidiar[y].” A subsidiary is defined both ordinarily and in the Policy4 to describe a
company that is, in some manner, under another company’s control. See Subsidiary
Company,

Am.

Heritage

Dictionary

of

the

Eng.

Language,

https://www.ahdictionary.com/word/search.html?q=subsidiary+company (last visited Feb.

4

The Crime Coverage Part defines subsidiary as “any entity of which the named
insured has management control, either directly or through one or more other
subsidiaries.” Hiscox Policy at 15. “Management control” means having “[1] an
ownership interest of more than 50%; [2] an ownership interest representing more than
50% of the voting, appointment, or designation power for the selection of a majority of the
board of directors, the management committee members, or the members of the
management board, whichever is applicable; or [3] the right, whether by law, contract, or
otherwise, to elect, appoint, or designate a majority of the board of directors, the
management committee, or the management board, whichever is applicable.” Id. at 10.
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CASE 0:20-cv-01919-ECT-HB Doc. 39 Filed 02/18/21 Page 19 of 23

17, 2021) (“A company having more than half of its stock owned by another company.”);
Subsidiary Corporation, Black's Law Dictionary (11th ed. 2019) (defining a “subsidiary
corporation” as one “in which a parent corporation has a controlling share”). As an LLC,
Cumulus does not issue stock. And Cumulus has not alleged that NJK Holding Corp. is its
owner or member, or that NJK Holding Corp. otherwise exerts control over Cumulus.
Instead, the Complaint catalogues Cumulus’s entire membership without mention of NJK
Holding Corp. See Compl. ¶ 5. Thus, the term subsidiary cannot be reasonably interpreted
to include Cumulus, an LLC in which NJK Holding Corp. has no direct or indirect
membership interest.
But Cumulus could also be an “affiliate[]” of NJK Holding Corp. Used alongside
subsidiary, “affiliate” means something different. See Brookfield Trade Ctr., Inc. v. Cnty.
of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998) (“[W]e are to interpret a contract in such a
way as to give meaning to all of its provisions.”); Ritrama, 796 F.3d at 967 (finding that
undefined term used alongside a similar, defined term, meant something different). A
reasonable interpretation of affiliate, as used in Item 1, includes a “sibling” entity that is
related to NJK Holding Corp. by common ownership or “other means of control.”
DiPietro, 2018 WL 3520843, at *4 (quoting Affiliate, Black's Law Dictionary (9th ed.
2009)); see also Mey v. DIRECTV, LLC, 971 F.3d 284, 289–90 (4th Cir. 2020) (applying
ordinary meaning, companies were affiliates “by virtue of their common ownership”);
Securus Techs. Inc. v. Global Tel*Link Corp., 676 F. App’x 996, 999–1000 (Fed. Cir.
2017) (broadly interpreting affiliate as “overlapping” with usage of nearby subsidiary and
encompassing parent under “common control” with its subsidiary); Nat’l Union Fire Ins.
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CASE 0:20-cv-01919-ECT-HB Doc. 39 Filed 02/18/21 Page 20 of 23

Co. v. Beelman Truck Co., 203 F. Supp. 3d 312, 320 (S.D.N.Y. 2016) (“[T]he plain
meaning of the word ‘affiliate’ unambiguously includes corporations controlled by the
same person or entity.”); BOKF, N.A. v. BCP Land Co., No. 6:14-cv-03025-MDH, 2016
WL 951636, at *8–9 (W.D. Mo. Mar. 9, 2016).
Though Cumulus has not described its relationship with NJK Holding Corp. in the
Complaint, there seems to be no reasonable dispute that the two entities are related through
common ownership and other means of control. For one, Nader Kazeminy owns or holds
positions of significant control within both entities. On one hand, he is NJK Holding
Corp.’s chief executive officer. See Office of the Minnesota Secretary of State, Business
Record

Details:

NJK

Holding

Corporation,

https://mblsportal.sos.state.mn.us/Business/SearchDetails?filingGuid=8d1edb0e-a3d4e011-a886-001ec94ffe7f (last visited Feb. 17, 2021).5 On the other, he is a Cumulus
member, its “President,” and a trustee of six indirect member-trusts. see Compl. ¶ 5;
Kazeminy Decl. [ECF No. 34]. Nasser Kazeminy’s ownership and control also straddles
both entities. He has both “owned the largest membership interest in Cumulus,” Compl.
¶ 23, and been NJK Holding Corp.’s “[c]hairman” and “sole shareholder.” NJK Holding
Corp. v. Araz Grp., Inc., 878 N.W.2d 515, 516 (Minn. Ct. App. 2016); Kazeminy v.
Kazeminy, No. A18-0029, 2019 WL 664893, at *3 (Minn. Ct. App. Feb. 19, 2019). And
the Kazeminy family has exhibited its control by purporting to negotiate coverage for

5

Public records, such as those filed with the Minnesota Secretary of State, may be
considered without converting a Rule 12 motion into one for summary judgment. Noble
Sys. Corp. v. Alorica Cent., LLC, 543 F.3d 978, 982 (8th Cir. 2008).
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CASE 0:20-cv-01919-ECT-HB Doc. 39 Filed 02/18/21 Page 21 of 23

“multiple insurance policies” on behalf of NJK Holding Corp. and its affiliates. Compl.
¶ 9. Because Cumulus is related to NJK Holding Corp. by common ownership and
substantial means of control, it is an “affiliate” under a reasonable construction of Item 1.
4
Last, a theft or forgery must have been committed by an “employee.” Hiscox Policy
at 11. The Parties agree that Bernardi and Cardak were employees of Giga. Compl.
¶¶ 47–48; Defs.’ Mem. in. Supp. at 26. There’s no doubt that, if Giga is an “insured,” then
Bernardi and Cardak would meet the Policy’s sweeping definition of employee. See
Hiscox Policy at 9, 21–22, 36. And under a subsection titled “Joint insured,” the Crime
Coverage Part states that “[a]n employee of any insured is considered an employee of
every insured.” Hiscox Policy at 27. Thus, if Giga is an “insured,” then Cumulus has a
claim for theft or forgery committed by Giga’s “employee[s],” Bernardi and Cardak.
Just like Cumulus, Giga can only be considered an “insured” if it meets Item 1’s
definition of “Named Insured” as an “affiliate[] . . . owned, managed or controlled by . . .
the Kazeminy Family.” Hiscox Policy at 14, 40. The Parties dispute whether Giga was
“owned, managed or controlled” by the Kazeminy family.

Hiscox points out that

“Cumulus has not alleged that it had any management control over Giga”; “has not alleged
that Cumulus holds any position on Giga’s Board”; and is not alleged to have had “more
than 50% of the voting, appointment or designation power” to select a majority of Giga’s
board. Defs.’ Mem. in Supp. at 22. Cumulus counters that Giga was “owned, managed or
controlled . . . by the Kazeminy Family” because “Cumulus, a company owned by the
Kazeminy Family, was the largest owner of Giga, with stock ownership ranging between
21

CASE 0:20-cv-01919-ECT-HB Doc. 39 Filed 02/18/21 Page 22 of 23

31.26% and 33.99%.” Compl. ¶ 50. To help its case, Cumulus points out that, to
accomplish Giga’s merger with another company, Bernardi needed to forge its consent.
Pl.’s Mem. in Opp’n at 28.
As noted supra, the phrase “owned, managed or controlled” is used ambiguously in
the Policy. In Giga’s case, the issue is whether it was “owned, managed or controlled” by
the Kazeminy family, who indirectly held around one-third of Giga’s stock through
Cumulus.6 When interpreting insurance policies, Minnesota courts do not consider words
or phrases in isolation, but rather “in the context of the entire contract.” Eng’g & Constr.
Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695, 705 (Minn. 2013) (citation omitted).
Here, the Policy’s other provisions suggest that the Kazeminy family “owned” or
“controlled” Giga as its largest shareholder. Where the Policy uses terms of “ownership,”
for instance, it does so in terms of degree and, in some cases, the Policy recognizes
“ownership” interests of less than fifty percent. For example, the Policy covers vendor
theft by employees “with[out] an ownership interest greater than 25% in the vendor.”
Hiscox Policy at 11. It also contains a carveout for theft by certain “owners” who have “a
25% or greater ownership in any one or more insureds.” Id. at 36. Finally, as Cumulus
points out, other Policy language explicitly calls for a “controlling ownership interest,” id.
at 35, or requires “an ownership interest of more than 50%,” id. at. 10. Item 1 doesn’t.
“[W]ords of inclusion,” like Item 1, must be “broadly construed,” Wozniak Travel, Inc.,
762 N.W.2d at 575, so “owned” and “controlled” cannot be reasonably construed to require

6

Because Cumulus was an “affiliate” of NJK Holding Corp., Giga was also an
affiliate by virtue of Cumulus’s one-third interest.
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CASE 0:20-cv-01919-ECT-HB Doc. 39 Filed 02/18/21 Page 23 of 23

owning more than 50% of a company’s stock, nor in the other ways that Hiscox suggests.
A reasonable person could understand that the largest shareholder of a company—one
controlling between 31.25% and 33.99% of its shares through ownership of an LLC—owns
or controls that company.
Item 1’s ambiguous language can be reasonably construed to include Giga as a
named insured under the Policy. As a named insured, Giga meets the Policy’s definition
of “insured” and its employees—Bernardi and Cardak—fall within the Policy’s definition
of “employee.” Cumulus has therefore met the Policy’s coverage elements for employee
theft.
*
Under a reasonable interpretation of the Policy, Cumulus has plausibly alleged facts
that would entitle it to coverage for employee theft. Cumulus has therefore stated a claim
for breach of contract, and Hiscox’s Rule 12(b)(6) motion to dismiss will be denied on this
basis.
ORDER
Based upon all of the files, records, and proceedings in the above-captioned matter,
IT IS ORDERED THAT Defendants’ Motion to Dismiss [ECF No. 23] is DENIED.

Dated: February 18, 2021

s/ Eric C. Tostrud
Eric C. Tostrud
United States District Court

23