Founders Insurance Company v. Billy's Bar & Grill LLC, et al

Filing 35

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S 30 MOTION FOR DEFAULT JUDGMENT. (Ordered by Chief Judge Barbara M. G. Lynn on 4/13/2020) (mla)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
FOUNDERS INSURANCE COMPANY,
Plaintiff,
v.
BILLY’S BAR & GRILL LLC, et al.,
Defendants.

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Civil Action No. 3:18-cv-00367-M

MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFF’S MOTION FOR DEFAULT JUDGMENT
Before the Court is Plaintiff’s Motion for Default Judgment. (ECF No. 30). For the
following reasons, the Motion is GRANTED.
I.

Factual and Procedural Background
Plaintiff Founders Insurance Company is an Illinois insurance company that was the

former insurer of Defendant Billy’s Bar & Grill, LLC (“BB&G”). (ECF No. 1 ¶¶ 1, 3, 12). This
insurance coverage dispute stems from a September 30, 2011, incident in which Matthew Kunkle
was allegedly injured when he crashed his motorcycle after drinking at BB&G. (Id. ¶ 16).
Defendant Joe Polanco is a former member and manager of BB&G who resides in and is a
citizen of Texas. (Id. ¶ 10). BB&G and Polanco are the remaining Defendants, against whom
Plaintiff seeks default.
Plaintiff seeks a declaratory judgment that the Liquor Liability Policy No. LLTX000892
(the “Founders Policy”), which lists BB&G as the named insured, was cancelled effective
September 5, 2011. Plaintiff also seeks a declaratory judgment that it has no duty to defend or
indemnify the Defendants for claims in a related Collin County suit by Kunkle, arising from

injuries Kunkle allegedly incurred in the September 30, 2011, crash. On September 3, 2013,
Kunkle filed suit in Collin County, Texas, against BB&G, Polanco, and others (the “Collin
County suit”). (Id. ¶ 16, Ex. C at 6; Matthew Kunkle v. Billy’s Bar & Grill, LLC, et al., No. 21903508-2013 (219th Dist. Ct., Collin County, Tex. Sept. 3, 2013). The court in the Collin County
suit entered default judgment against BB&G and Polanco on March 24, 2020, and that case is
now closed. Kunkle, No. 219-03508-2013.
Because the Defendants have been served and not answered, the allegations in the
Plaintiff’s suit are deemed true. J&J Sports Productions, Inc. v. Morelia Mexican Restaurant,
Inc., 126 F. Supp. 3d 809, 815 (N.D. Tex. 2015).
On October 19, 2011, Plaintiff issued a Policy Declaration that states that the Founders
Policy was cancelled effective September 5, 2011. (ECF No. 1 ¶ 46, Ex. A). Plaintiff sent the
Policy Declaration to the Policy insureds. (Id.) No insured disputed the Policy Declaration
provision that stated that the effective date of the Policy cancellation was September 5, 2011, due
to non-payment of premium. (Id.)
On October 1, 2013, Plaintiff received a fax from one of Kunkle’s attorneys, with a copy
of Kunkle’s petition in the Collin County suit. (ECF No. 1, Ex. D). In an October 3, 2013,
telephone conversation with that attorney, Plaintiff told him that the Founders Policy did not
cover the motorcycle crash, and that Plaintiff had provided the relevant policy documents to
Kunkle’s prior counsel, including the notice of policy cancellation. (ECF No. 1 ¶ 20).
On April 4, 2018, Defendant Polanco, who was incarcerated in the Mark W. Michael
Unit of the Texas Department of Criminal Justice, was served by delivery of summons and a
copy of the Complaint to Defendant Polanco’s agent for service of process, as designated by the
Warden of the Mark W. Michael Unit. See Fed. R. Civ. P. 4(e); see also Tex. Civ. Prac. & Rem.

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Code § 17.029(c). Proof of proper service was provided through the affidavit of Anderson
County Deputy Sheriff Darrell Meissner, who served the documents. (ECF No. 6; see also Fed.
R. Civ. P. 4(l)(1)). Polanco did not file an answer or otherwise respond. He is not an active
service member or a minor. (See ECF Nos. 6, 30-1).
On April 13, 2018, Defendant BB&G, a former limited liability company formed under
the laws of Texas, was served with process by delivery of summons and a copy of the Complaint
to the Texas Secretary of State. See Fed. R. Civ. P. 4(e); see also Tex. Civ. Prac. & Rem. Code
§ 17.026. Defendant BB&G forfeited its charter on February 21, 2014. (See ECF No. 1, Ex. B).
BB&G no longer maintains a registered agent in Texas, and the Texas Secretary of State was
thus BB&G’s agent for service of process as designated under Texas law. See Tex. Bus. Org.
Code § 5.251. Proof of proper service was provided through the process server’s affidavit.
(ECF No. 11; see also Fed. R. Civ. P. 4(l)(1)). BB&G did not file an answer or otherwise
respond.
On January 19, 2020, Plaintiff moved for default judgment against Defendants. (ECF
No. 30). Plaintiff seeks judgment against Polanco and BB&G declaring that the Founders Policy
was cancelled effective September 5, 2011 and that it has no duty to defend or indemnify BB&G
or Polanco.1
II.

Legal Standard
Under Rule 55, courts may enter default judgment against a defendant who has failed to

plead or otherwise defend. Fed. R. Civ. P. 55(a), (b). “Default judgment is proper only if the
well-pleaded factual allegations in the [ ] Complaint establish a valid cause of action.” United
States v. 1998 Freightliner Vin #: 1FUYCZYB3WP886986, 548 F. Supp. 2d 381, 385 (W.D. Tex.

Plaintiff also seeks a default judgment against former parties to this case, but a default judgment is not available
against parties who have been dismissed.
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2008); see also Nishimatsu Const. Co., Ltd. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th
Cir. 1975).
The Fifth Circuit employs the following six factors when reviewing a motion
for default judgment: (1) “whether material issues of fact are at issue,” (2) “whether there has
been substantial prejudice,” (3) “whether grounds for default are clearly established,” (4)
“whether default was caused by good faith mistake or excusable neglect,” (5) “harshness
of default judgment,” and (6) “whether the court would feel obligated to set aside a default on the
defendant’s motion.” Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998).
Thus, in determining whether a default judgment is appropriate, the Court’s analysis is
twofold. First, the Court must determine whether entry of default judgment is procedurally
appropriate. In this case, based on the evidence before it, the Court has ordered the Clerk to
enter default. If the Court finds that a default judgment would now be procedurally appropriate,
the Court must assess whether there is a sufficient basis in the pleadings for the relief requested.
Nishimatsu, 515 F.2d at 1206.
III.

Analysis
A. Jurisdiction
The Court has subject matter jurisdiction under 28 U.S.C. § 1332(a). (ECF No. 1 ¶ 8).

There is complete diversity and the amount in controversy exceeds $75,000, excluding costs and
interest.
B. Lindsey Factors
The Court finds that the six Lindsey factors make default appropriate here. Lindsey, 161
F.3d at 893. Defendants failed to answer or otherwise respond to Plaintiff’s Complaint, and thus
there are no material facts in dispute. Nearly two years have elapsed since service of the

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Complaint on Defendants. The grounds for default judgment against Defendants are clearly
established, as Defendants were properly served with the summons and the Complaint nearly two
years ago, and have not answered or otherwise appeared. There is no evidence before the Court
to indicate that Defendants’ failure to file an answer or otherwise respond to Plaintiff’s
Complaint was the result of a good faith mistake or excusable neglect. Defendants’ failure to file
a responsive pleading or otherwise defend this case for nearly two years mitigates the harshness
of a default judgment. Finally, the Court is not aware of any facts that would give rise to good
cause to set aside the default judgment if challenged by Defendants.
C. Whether Plaintiff’s Complaint Establishes a Viable Claim for Relief
Although, due to their default, Defendants are deemed to have admitted the allegations
set forth in the Complaint, the Court must nevertheless review the pleadings to determine
whether Plaintiff has established a viable claim for relief.
The Founders Policy provides that it “shall be interpreted, construed, governed by and
enforced in accordance with the laws of the State of Illinois . . . .” (ECF No. 1, Ex. A at 6). The
Court therefore construes the Founders Policy under Illinois law. Under Illinois law,
an insurer has no duty to defend where it is “clear from the face of the underlying complaint that
the allegations fail to state facts which bring the case within, or potentially within, the policy’s
coverage.” United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73
(1991). An insurer’s duty to defend is broader than its duty to indemnify. Pekin Ins. Co. v.
Wilson, 237 Ill. 2d 446, 457–58 (2010) (“The duty to indemnify arises only when
the insured becomes legally obligated to pay damages in the underlying action that gives rise to a
claim under the policy. The duty to defend an action brought against the insured, on the other
hand, is determined solely by reference to the allegations of the complaint”).

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Plaintiff seeks judgment declaring that the Founders Policy was cancelled effective
September 5, 2011. (ECF No. 1 ¶ 1). Plaintiff also seeks judgment declaring that it has no duty
to defend or indemnify BB&G or Polanco, as all of Kunkle’s claims arose from injuries Kunkle
allegedly incurred on September 30, 2011, after the Founders Policy was cancelled.
The following facts in the Complaint are deemed true as a result of Defendants’ default.
The Founders Policy was cancelled effective September 5, 2011, for non-payment of premium.
(Id. ¶ 31). Kunkle’s Original Petition in the Collin County suit states that the date of loss on
which Kunkle bases his claims is September 30, 2011. (Id.) Thus, the claims asserted by
Kunkle in the Collin County suit are not within the coverage period of the Founders Policy. (Id.
¶ 32).
The Founders Policy also states, under “Exclusions to Coverage,” that “[t]his insurance
does not apply to:
f. Liquor License Not in Effect
“Injury” arising out of any alcoholic beverage sold, served, or furnished while
any required license is suspended or after such license expires, is cancelled or
revoked.”
(Id. ¶ 33). According to the Texas Alcoholic Beverage Commission (“TABC”), neither Polanco
nor “Billy’s Bar and Grill,” the name under which Polanco represented to Plaintiff that he
conducted business, was issued a liquor license or permit by the TABC. (Id. ¶ 34, Ex. G). Thus,
the “Liquor License Not in Effect” exclusion precludes coverage for claims arising from
Kunkle’s injuries. (Id. ¶ 34). Based on the date of cancellation and the liquor license provision
in the Founders Policy, that Policy could not provide any coverage to Defendants Polanco and
BB&G. The Court therefore does not reach the other policy provisions cited by Plaintiff to
establish that it has no obligations to the Defendants under the Policy.

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Based on the above analysis, the Court concludes that Plaintiff is entitled to a default
judgment against Defendants granting a declaration that it is not liable to Defendants on the
Founders Policy
Pursuant to 28 U.S.C. § 2201(a), as to all claims for insurance coverage asserted or that
could have been asserted by Defendants BB&G and Polanco against Plaintiff on the Founders
Policy pertaining to claims brought against those Defendants by third party Kunkle in the Collin
County Suit, the Court DECLARES the following:
(1) The Founders Policy was cancelled effective September 5, 2011.
(2) Plaintiff has and had no duty to defend or indemnify BB&G or Polanco on claims
brought against them by Kunkle that arose from the motorcycle accident on September 30, 2011,
after the Founders Policy was cancelled.
(3) Plaintiff does not now have, has not had, and will not have any obligation to BB&G
or Polanco under the Founders Policy, by reason of any claim, fact or circumstance pertaining to
the Collin County suit or the claims arising from the alleged injuries incurred by Kunkle as
asserted in the Collin County suit.
Costs of court are taxed against Defendants.
Final judgment shall issue by separate order.
SO ORDERED.
April 13, 2020.
BARBARA M. G. LYNN
CHIEF JUDGE

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