Nautilus Insurance Company v. S&A Pizza, Inc. et al

Filing 54

ORDER granting in part and denying in part S&A Pizza, Inc. and Jeffrey Rumaner's 45 Motion to Dismiss for Failure to State a Claim and for Lack of Subject Matter Jurisdiction: (1) the motion to dismiss is granted as to the Crossclaim seeking contribution, and (2) the motion is otherwise denied. Signed on 7/29/2022 by District Judge Roseann Ketchmark. (Skelton, Sara)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
NAUTILUS INSURANCE COMPANY,
Plaintiff,
v.
S&A PIZZA, INC., JEFFREY RUMANER,
PIPELINE PRODUCTIONS, INC.,
MICHAEL EDMONDSON, BRETT
MOSIMAN, MIDWEST PRODUCTION
SERVICES, LLC, PLT, LLC,
Defendants.

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Case No. 4:21-00643-CV-RK

ORDER
Before the court is Crossclaim Defendants S&A Pizza and Jeffrey Rumaner’s motion to
dismiss the Crossclaim of Defendants Pipeline Productions, Inc., Michael Edmondson, Brett
Mosiman, PLT, LLC, and Midwest Production Services, LLC. (Doc. 45.) The motion is fully
briefed. (Docs. 48, 49.) For the reasons set forth below, the motion to dismiss is GRANTED in
part and DENIED in part as follows: (1) the motion to dismiss is granted as to the Crossclaim
seeking contribution, and (2) the motion is otherwise denied.
I. OVERVIEW
On April 21, 2008, Michael Edmondson, Pipeline Productions, Inc., and S&A Pizza
entered the “Operating Agreement of Crossroads Live, LLC” (“Operating Agreement”). (Doc. 42
at ¶ 14, Doc. 25-1 at 1.) The Operating Agreement provided for the formation of a limited liability
company called Crossroads Live, LLC, (“Company”) for the purpose of producing and operating
music events in Kansas City. (Doc. 42 at ¶ 15.) The ownership interests of the initial members
were as follows: Edmondson 14.3%, Pipeline Productions 34.7%, and S&A Pizza 51%. (Id.)
On October 16, 2021, Pipeline Productions, Inc; Michael Edmondson; Brett Mosiman;
PLT, LLC; and Midwest Production Services, LLC’s (collectively, the “Pipeline Defendants”)
filed an amended complaint (the “Underlying Lawsuit”) against S&A Pizza and Mr. Rumaner
(“Crossroads Defendants”), among others in Pipeline Productions, Inc. et al v. S&A Pizza, Inc.,
Case No. 4:20-cv-00130-RK. (Doc. 42 at ¶ 12.) The Underlying Lawsuit alleges, in relevant part,
that Crossroads Defendants conspired to steal the Company’s business, reputation, and assets from

its other members (Pipeline Productions and Edmonson) to prop up his own failing business
interests. (Id. at ¶ 13.)
On April 18, 2022, Nautilus Insurance Company (“Nautilus”) filed an amended complaint
in the instant lawsuit against Pipeline Defendants and Crossroads Defendants seeking recission of
and restitution for an insurance policy (the “Policy”) Nautilus previously issued to S&A Pizza.
(See generally id.) Specifically, Nautilus seeks relief based on alleged material misrepresentations
made on August 6, 2019, by S&A Pizza in its Commercial Insurance Application (“Application”).
(Id. at ¶¶ 50-58.) Alternatively, the Amended Complaint asks the Court to declare that the Policy
does not provide coverage for the claims in the Underlying Lawsuit, and Nautilus has no duty to
defend or indemnify Crossroads Defendants in the Underlying Lawsuit under the Policy. (Id. at
¶¶ 59-111.) Finally, also in the alternative, the Amended Complaint seeks a declaration that
Nautilus owes no insurance coverage for any punitive damages awarded in the Underlying
Lawsuit. (Id. at ¶¶ 112-117.)
In the Application, S&A Pizza utilized Class code 90758 to identify S&A Pizza’s business
as “mobile concessions”. (Id. at ¶ 44.) The Application further states that S&A Pizza does not
own and/or rent any parking facilities, that no social events are sponsored by S&A Pizza, and that
S&A Pizza is not actively participating in any joint ventures. (Id. at ¶¶ 45-46.) S&A Pizza also
indicated in the Application that it is not a subsidiary of another entity and that it does not have
any subsidiaries. (Id. at ¶ 43.) In its Amended Complaint, Nautilus alleges that the aforementioned
descriptions were material misrepresentations, and that had Nautilus been aware of the exact nature
of S&A Pizza’s business, it would not have issued the Policy and/or would have specifically
excluded coverage for such business operations. (Id. at ¶¶ 47-48.)
Pipeline Defendants filed their Answer, Affirmative Defenses, and Crossclaim to the
Amended Complaint on April 29, 2022. (Doc. 44.) Pipeline Defendants asserted a single
crossclaim against Crossroads Defendants for contribution and indemnity (“Crossclaim”). (Doc.
44 at Crossclaim ¶¶ 7-10.)

In its Crossclaim, Pipeline Defendants assert that the alleged

misrepresentations outlined in the Amended Complaint constitute “misconduct,” as defined in the
Operating Agreement between Pipeline Defendants and Crossroads Defendants, and entitles
Pipeline Defendants to indemnity and contribution of all liability and attorney’s fees deriving from
the Amended Complaint. (Id.)

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Crossroads Defendants move to dismiss the Crossclaim under Rule 12 of the Federal Rules
of Civil Procedure for lack of subject matter jurisdiction and failure to state a claim for contribution
and indemnity.
II. LEGAL STANDARDS
A. Rule 12(b)(1) standard
Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a party may move to dismiss
a claim for lack of subject matter jurisdiction. The court must be certain it has subject matter
jurisdiction before it proceeds. Ark. Blue Cross & Blue Shield v. Little Rock Cardiology Clinic,
P.A., 551 F.3d 812, 816 (8th Cir. 2009). In deciding a Rule 12(b)(1) motion, a district court is
required to distinguish between a facial attack and a factual attack. Croyle ex rel. Croyle v. United
States, 908 F.3d 377, 380 (8th Cir. 2018). “In a facial challenge to jurisdiction, all of the factual
allegations concerning jurisdiction are presumed to be true and the motion is successful if the
plaintiff fails to allege an element necessary for subject matter jurisdiction.” Titus v. Sullivan, 4
F.3d 590, 593 (8th Cir. 1993). In a factual attack, the Court “may look outside the pleadings to
affidavits or other documents.” Moss v. United States, 895 F.3d 1091, 1097 (8th Cir. 2018). The
party invoking federal jurisdiction must prove jurisdictional facts by a preponderance of the
evidence. Id. “Because at issue in a factual 12(b)(1) motion is the trial court’s jurisdiction—its
very power to hear the case—there is substantial authority that the trial court is free to weigh the
evidence and satisfy itself as to the existence of its power to hear the case.” Osborn v. United
States, 918 F.2d 724, 730 (8th Cir. 1990). “[No presumption of] truthfulness attaches to plaintiff’s
allegations, and the existence of disputed material facts will not preclude the trial court from
evaluating for itself the merits of jurisdictional claims.” Titus, 4 F.3d at 593 n.1. Finally, “[i]t is
to be presumed that a cause lies outside [of the Court’s] limited jurisdiction, and the burden of
establishing the contrary rests upon the party asserting jurisdiction.” Kokkonen v. Guardian Life
Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted).
Here, though the parties do not specify the standard under which this motion to dismiss for
lack of subject matter jurisdiction is to be analyzed, the motion briefing refers only to materials
that are necessarily embraced by the pleadings and exhibits attached to them.

Carlsen v.

GameStop, Inc., 833 F.3d 903, 908 (8th Cir. 2016). Accordingly, the Court examines its subject
matter jurisdiction under the standard used for a facial attack.

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B. Rule 12(b)(6) standard
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss
a complaint for failing to state a claim for relief. In order to avoid dismissal under Rule 12(b)(6),
a complaint must allege “enough facts to state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007). The plausibility standard requires a showing of
more than just a mere possibility that the relief sought is in fact obtainable. Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). When reviewing a 12(b)(6) motion to dismiss, the Court is obligated to
accept the plaintiff’s specific factual allegations as true but it is not obligated to accept the
plaintiff’s legal conclusions. Brown v. Medtronic, Inc., 628 F.3d 451, 459 (8th Cir. 2010). The
Court shall not dismiss a complaint simply because it doubts the plaintiff’s ability to prove all
necessary factual allegations. Twombly, 550 U.S. at 556. Consequently, a well-pleaded complaint
will defeat a motion to dismiss even though recovery seems very unlikely. Id.
III. Analysis
A. The Court has supplemental subject matter jurisdiction over Pipeline
Defendants’ Crossclaim
Crossroads Defendants argue that the Court lacks subject matter jurisdiction over Pipeline
Defendants’ crossclaim. Specifically, Crossroads Defendants argue that the Crossclaim does not
arise from the same transaction or occurrence as the subject matter of the Amended Complaint.
It is undisputed that the Court has jurisdiction over the Amended Complaint because the
parties involved are of diverse citizenship and the amount in controversy exceeds $75,000. Rule
13(g) of the Federal Rules of Civil Procedure states:
A pleading may state as a crossclaim any claim by one party against a compart if
the claim arises out of the same transaction or occurrence that is the subject matter
of the original action or of a counterclaim, or if the claim related to any property
that is the subject matter of the original action.
Jurisdiction over crossclaims is governed by 28 U.S.C. § 1367, which provides that federal courts
have supplemental jurisdiction over all claims that are so related to the original action that they
form part of the same case or controversy. Claims form part of the same case or controversy when
they “derive from a common nucleus of operative fact.” ABF Freight Sys., Inc. v. Int’l Brotherhood
of Teamsters, 645 F.3d 954, 963 (8th Cir. 2011) “A plaintiff’s claims derive from a common
nucleus of operative fact if the claims are such that he would ordinarily be expected to try them all

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in one judicial proceeding.” One Point Sols., LLC v. Borchert, 486 F.3d 342, 350 (8th Cir. 2007)
(quoting United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966)).
The Eighth Circuit has yet to identify a specific standard courts should use to determine
whether a crossclaim arises out of the same transaction or occurrence as the subject matter of the
original claim. However, to determine whether a counterclaim arise out of the same transaction
or occurrence as the initial complaint the Eighth Circuit has articulated four tests. Cochrane v.
Iowa Beef Processors, Inc., 596 F.2d 254, 264 (8th Cir. 1979). Specifically, the Eighth Circuit has
articulated four specific factors that indicate whether a counterclaim sufficiently arises out of the
same transaction or occurrence: (1) Does the counterclaim raise issues of law and fact that are
largely the same with the initial claim?; (2) Would res judicata bar a subsequent suit on the
counterclaim?; (3) Will substantially the same evidence support or refute the initial claim and
counterclaim?; and (4) is there a logical relationship between the initial claim and the
counterclaim? Id. If the answer is “yes” to any of these inquiries, the claim and counterclaim arise
out of the same transaction or occurrence and supplemental jurisdiction is proper. Pecore v.
Jennie-O Turkey Store, Inc., 990 F. Supp. 2d 984, 988 (D. Minn. 2014). Because there is no
Eighth-Circuit-prescribed test specific to supplementary jurisdiction over crossclaims, courts in
this circuit have employed the Cochrane factors in such analysis. E.g. W. World Ins. Co. v. David
Halphin, No. 12-1397-CV-DGK, 2013 WL 3665251, at *1-3 (W.D. Mo. July 12, 2013).
Crossroads Defendants argue that the Crossclaim does not bear a significant enough
connection to the subject matter of the Amended Complaint to give rise to supplemental subject
matter jurisdiction. Their primary arguments are that the Crossclaim and the Amended Complaint
do not share overlapping legal and factual issues; that adjudicating the Amended Complaint and
the Crossclaim in the same case would cause unnecessary expenses; and that the Amended
Complaint focuses on the Policy and the Application, while the Crossclaim focuses on the
Operating Agreement.
First, the Court finds that the Amended Complaint and the Crossclaim involve overlapping
factual issues – specifically, the allegations that S&A Pizza made material misrepresentations in
the Application. Pipeline Defendants do not allege that any of the allegations in the Underlying
Lawsuit entitle them to indemnity or contribution in the instant case. Rather, Pipeline Defendants’
claim that S&A Pizza’s alleged misrepresentation in the Application, if proven true, would

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constitute “misconduct” under the terms of the Operating Agreement, and thus they would be
entitled to indemnification as to their attorneys’ fees regarding the instant lawsuit.
The Amended Complaint and the Crossclaim also have a logical relationship that requires
them to be litigated together. The “logical relationship” test “requires a determination of whether
the essential facts of the various claims are so logically connected that considerations of judicial
economy and fairness dictate that all the issues be resolved in one case.” Blue Dane Simmental
Corp. v. Am. Simmental Ass’n, 952 F. Supp. 1399, 1410 (D. Neb. 1997). The Eighth Circuit has
found that claims and counterclaims are logically related if they are triggered by the same event.
Tullos v. Parks, 915 F.2d 1192, 1196 (8th Cir.1990) (in litigation stemming from a contest for
control of a bank holding company and its sole subsidiary bank, the initial suit brought claims
based on federal securities laws, then counterclaims were brought for violations of the federal
securities laws, as well as claims implicating only state law, and the Eighth Circuit found the
counterclaims implicating only state law to be compulsory counterclaims ancillary to the plaintiffs’
federal claims properly giving rise to ancillary jurisdiction).
Here, both the Amended Complaint and the Crossclaim arise from the same “triggering
event” allegation:

that S&A Pizza made a material misrepresentation in the Application.

Furthermore, in Pipeline Defendants’ Crossclaim, Pipeline Defendants simply reallege the
allegations set forth in the Amended Complaint and assert that the same facts constitute
“misconduct” under the terms of the Operating Agreement. Like in Tullos, the claims of the
Amended Complaint and Crossclaim were all triggered, to some extent, by the same event: S&A
Pizza filling out the Application. 915 F.2d at 1196.

In sum, then, the essential facts of the

Amended Complaint and the Crossclaim are so logically connected that considerations of judicial
economy and fairness dictate that all the issues be resolved in one case.
In so ruling, the Court finds Crossroads Defendants’ reliance on Western World Insurance
Co. v. David Halpin unavailing. In Western World, the Court found that it lacked subject matter
jurisdiction over a crossclaim that did not arise out of the same transaction or occurrence that was
the subject matter of the original action. Id. at *2. The initial complaint in Western World sought
a declaration from the court that Western World was not obligated under an insurance policy to
defend or indemnify the defendant for damages stemming from a fire. Id. Specifically, Western
World argued that an exclusion in the insurance policy for roofing operations that involved
torching, hot tar, wand, or similar heat processes applied to exclude coverage for the fire that

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occurred. Id. at *3-4. One of the defendants subsequently filed a crossclaim of negligence against
the roof builder. Id. at *1. The crossclaim alleged that the roof builder was negligent and that
negligence caused the fire. Id. at *2. The Court found the crossclaim for negligence had no relation
to the initial complaint seeking declaratory relief because it would not need to determine whether
the roof builder was negligent in its work to decide the declaratory judgment action, which would
be based on whether under the insurance policy obligated the plaintiff to defend or indemnify the
roof builder under the policy’s exception to coverage in certain circumstances, including where
hot tar is used in its roofing work. Id.
Here, in contrast, the Amended Complaint and the Crossclaim both involve factual and
legal questions deriving from the Application. Unlike in Western World, the Crossclaim here is
concerned with the precise factual situation alleged in the initial complaint: that S&A Pizza made
a material misrepresentation in the Application. The only allegation that Pipeline Defendants
assert beyond what was alleged in the initial complaint is that the allegations set forth in the
Amended Complaint constitute “misconduct” under the Operating Agreement.
The Court finds the instant case more analogous to Penberthy v. Courtyard Management,
No. 16-00412-CV-W-BP, 2017 WL 5068514 (W.D. Mo. July 24, 2017). In Penberthy, the Court
exercised supplemental subject matter jurisdiction over a crossclaim for indemnity stemming from
an initial complaint seeking damages for negligence. Id. at *1. The initial complaint in Penberthy
alleged that the plaintiff fell and was injured because defendant hotel and its subcontractors
negligently failed to inspect and maintain a handicap bar. Id. The hotel filed crossclaims for
indemnity and contribution based on allegations that the acts of negligence of one of the
contractors who built the handicap bar caused the plaintiff’s alleged injuries. Id. The hotel brought
this crossclaim based on an agreement it had with the contractor stating, “[the contractor] shall
indemnify, defend and hold harmless [the hotel] . . . against all claims, damages, losses and
expenses . . . arising out of or resulting from performance of the work.” Id. As in Penberthy,
Pipeline Defendants are only bringing their Crossclaim to assert their rights as provided in the
Operating Agreement.
The Court finds the Crossclaim is logically related to, and arises out of, the same
transaction and occurrence that is the subject matter of the Amended Complaint. Therefore, the

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Cochrane test has been satisfied, and the Court has supplemental subject matter jurisdiction over
the Crossclaim. 1
B. The Crossclaim fails to state a claim for contribution
In response to the Amended Complaint, Pipeline Defendants filed a crossclaim seeking
contribution to the extent they may be held liable for the claims in the Amended Complaint. In
their motion to dismiss, Crossroads Defendants argue the Crossclaim fails to state a claim for
contribution because Crossroads Defendants and Pipeline Defendants are not jointly liable for
Nautilus’ claims in the Amended Complaint.
Contribution and indemnity are uniquely different concepts. Safeway Stores, Inc. v. City of
Raytown, 633 S.W.2d 727, 729 n. 3 (Mo. 1982). Contribution divides the loss between tortfeasors
by commanding each tortfeasor to pay his own proportionate share. Id. “The two primary
requisites of the right to contribution are (1) the parting seeking contribution and the party from
whom it is being sought share a common liability or burden, and (2) the party seeking contribution
has discharged more than his fair share of that common liability or burden.” SSM Health Care St.
Louis v. Radiologic Imaging Consultants, LLP, 128 S.W.3d 534, 539 (Mo. Ct. App. 2003).
“Common liability exists when two or more actors are liable to an injured party for the same
damages, even though their liability may rest on different grounds.” Guillard v. Niagara Mach.
& Tool Works, 488 F.2d 20, 22 (8th Cir. 1973).
Crossroads Defendants argue that Pipeline Defendants will not incur a common liability
for which they could seek contribution because Nautilus only seeks a declaration that the Policy
does not obligate Nautilus to defend Crossroads Defendants in the Underlying Lawsuit. In
response, Pipeline Defendants admit that the probability of requiring contribution in the Amended
Complaint is low but included a contribution claim out of an abundance of caution.
The Court finds that Pipeline Defendants have failed to state a claim for contribution.
Pipeline Defendants have failed to plead more than a mere possibility that contribution might be
obtainable. In its Amended Complaint, Nautilus does not seek monetary relief, nor does it allege
any misconduct by Pipeline Defendants. It is therefore apparent that no common liability exists.

In so finding, the court also rejects Pipeline Defendants’ conclusory argument, offered without
support or citation to authority, that adjudicating both the Amended Complaint and the Crossclaim in the
same suit would cause unnecessary expense.
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Because Pipeline Defendants have failed to adequately state a claim for contribution,
Crossroads Defendants’ motion to dismiss the contribution claim is granted.
C. The Crossclaim states a claim for contractual indemnity.
Finally, the Crossroads Defendants argue the Crossclaim fails to state a claim for
contractual indemnity because the alleged misrepresentations in the Application as described in
the Amended Complaint do not constitute “misconduct” under the terms of the Operating
Agreement.
Under Section 6.5(A) of the Operating Agreement, indemnity is available if a party engages
in “misconduct”, which the Operating Agreement defines as:
[A]ny action taken or failure to act on behalf of the Company [if] such action or
omission was outside the scope of the Business, an intentional breach of this
Agreement, constituted bad faith or wanton or willful misconduct, embezzlement
or conversion of Company property, or misrepresentation of the financial condition
of the Company.
(Doc. 25-1 at 12.) Under Section 6.5(C) the “misconduct” must have caused the liability or costs
for which the indemnitee seeks indemnification:
Each Member and Successor hereby agrees to indemnify and hold the Company
and each other Indemnified Person wholly and completely harmless from any
liability, cost, or damage that any such Indemnified Person may incur (including
reasonable legal and other expenses incurred in defending against such liability,
cost, or damage) resulting from the Misconduct of such Member or Successor.
(Id.)
Crossroads Defendants’ argument is based on their argument that S&A Pizza did not make
the alleged misrepresentations on behalf of the Company. Instead, Crossroads Defendants claim
that S&A Pizza filed the Application strictly in the interest of S&A Pizza, which it argues is
“outside the scope of the Business,” and results in Crossroads Defendants not being obligated to
indemnify Pipeline Defendants under the terms of the Operating Agreement. Alternatively,
Crossroads Defendants assert that if the Court determines that Crossroads Defendants engaged in
misconduct, that such Misconduct did not cause the liability, damages, or cost for which Pipeline
Defendants seek indemnification. Instead, it is Crossroads Defendants’ contention that the fees
for which Pipeline Defendants seek indemnification stem solely from Nautilus’s decision to seek
declaratory judgment.
Indemnity shifts responsibility from one person to another. SSM Health Care St. Louis,
128 S.W.3d at 539. Missouri generally follows the American Rule regarding attorneys’ fees,
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requiring each party to pay its own attorneys’ fees unless a statute or a contract specifically permit
recovery of attorneys’ fees. Monarch Fire Prot. Dist. of St. Louis Cty. v. Freedom Consulting &
Auditing Servs., Inc., 644 F.3d 633, 637 (8th Cir. 2011).
Crossroads Defendants’ argument that S&A Pizza filed the Application strictly in its own
interest and therefore they are not obligated to indemnify Pipeline Defendants under the terms of
the Operating Agreement is unpersuasive. At the time when S&A Pizza filed the Application,
S&A Pizza owned 51% of the Company. (Doc. 44 at Crossclaim ¶ 5; Doc. 42 at ¶¶ 45, 52.) These
allegations are sufficient to support a plausible theory that S&A Pizza pursued insurance coverage
because it was in the best interest of the Company, such that it would not fall “outside the scope
of the Business” under the Operating Agreement’s definition of misconduct. In other words,
because it is alleged that S&A Pizza had considerable stake in the Company when it filed the
Application, it is plausible that S&A Pizza did so on behalf of the Company and within the scope
of the Business.
Crossroads Defendants’ alternative argument that the attorneys’ fees for which Pipeline
Defendants seek indemnification stem solely from Nautilus’s decision to seek declaratory
judgment is also without merit.

Nautilus filed its Amended Complaint based on alleged

misrepresentations made by S&A Pizza in the Application, not because of any conduct of Pipeline
Defendants. Section 6.5(C) of the Operating Agreement requires each Member to the agreement
to indemnify the other Members for any attorneys’ fees that are a result of the Member’s
Misconduct. Since the Amended Complaint derives from the alleged misrepresentations made by
S&A Pizza, the language in Section 6.5(C) applies in this precise scenario. Therefore, it is the
alleged misrepresentations made by S&A Pizza that, if proven true, would constitute misconduct
and entitle Pipeline Defendants to indemnification, not the decision by Nautilus to seek declaratory
judgment.
The Court finds that Pipeline Defendants have plead a plausible claim for indemnification
under the terms of the Operating Agreement. Accordingly, Crossroads Defendants’ motion to
dismiss the crossclaim for indemnification for failure to state a claim is denied.

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Conclusion
For the reasons above, Crossroads Defendants’ motion to dismiss (Doc. 45) is GRANTED
as to Pipeline Defendants’ Crossclaim for contribution and DENIED in all other respects.
IT IS SO ORDERED.
s/ Roseann A. Ketchmark
ROSEANN A. KETCHMARK, JUDGE
UNITED STATES DISTRICT COURT
DATED: July 29, 2022

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