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Naxos, LLC v. American Family Insurance Co.

United States District Court, W.D. Washington, Seattle

November 20, 2019

NAXOS, LLC, Plaintiff,
v.
AMERICAN FAMILY INSURANCE COMPANY, Defendant.

          ORDER DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

          JAMES L. ROBART, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Before the court are two motions: (1) Defendant American Family Insurance Company's (“AFI”) motion for partial summary judgment regarding judicial estoppel (MSJ (Dkt. # 31); see also Reply (Dkt. # 43)); and (2) Plaintiff Naxos, LLC's (“Naxos”) motion to strike redundant, immaterial, impertinent, or scandalous material from AFI's motion for partial summary judgment, which is included in Naxos's opposition to AFI's motion for summary judgment (See Resp. (Dkt. # 36) at 3-4). Having considered the parties' submissions, the appropriate portions of the record, and the relevant law, the court DENIES AFI's motion for partial summary judgment.[1]

         II. BACKGROUND

         A. Naxos's 2014 Bankruptcy Petition

         Although the underlying action between Naxos and AFI is an insurance coverage dispute, AFI's motion centers on Naxos's conduct during a bankruptcy proceeding. Naxos owns and operates Spiro's Greek Restaurant in Kent, Washington. (Compl. (Dkt. # 1-2) ¶ 3.1.) On August 4, 2014, Naxos filed for Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Western District of Washington. (See Muth Decl. (Dkt. # 32) ¶ 2, Ex. A.[2]) As part of that proceeding, Naxos submitted bankruptcy schedules that detailed the estimated value of Naxos's personal property, among other things. (See Id. ¶ 4, Ex. C at 44-48 (the “Personal Property Schedule”).) The Personal Property Schedule, which Naxos filed on September 17, 2014, estimated that the value of Naxos's “[m]achinery, fixtures, equipment, and supplies used in business” was $3, 800, and the value of its “[i]nventory” was $2, 500.[3] (See Id. at 46.) Those two line items, $1, 968.66 in checking account funds, and an estimated $250, 000 value attached to Spiro's ongoing business operations, made up the entirety of Naxos's declarations on the Personal Property Schedule. (See Id. at 44-46.)

         On February 16, 2015, Naxos filed an amended plan of reorganization in the bankruptcy proceeding that proposed that Naxos continue to run Spiro's and pay its creditors from cash flow received from the restaurant. See In Re: Naxos, LLC, Dkt. # 52 at 1, 6. That same day, Naxos filed a proposed disclosure statement and included a copy of the previously-filed Personal Property Schedule identifying $3, 800 worth of “[m]achinery, fixtures, equipment, and supplies used in business” and $2, 500 worth of “[i]nventory” as an exhibit in support of that disclosure statement.[4] See Id. Dkt. ## 57, 57-2 at 2-6. The bankruptcy court confirmed Naxos's plan of reorganization on April 15, 2015, see Id. Dkt. # 83; granted Naxos's application for entry of a final decree on February 15, 2017, see Id. Dkt. # 110; and closed Naxos's bankruptcy proceeding on March 1, 2017, see Id. 3/1/17 Dkt. Entry.

         B. The Sewage Spill and Naxos's Insurance Claim

         On August 5, 2015-about a year after Naxos's bankruptcy filing-“[o]ver 600 gallons of black water sewage spewed from a ruptured sewer pipe” into Spiro's. (See Compl. ¶¶ 3.1-3.4.) Naxos claims that this incident caused significant damage to Spiro's and ultimately forced Naxos to cease all business operations at the restaurant. (See Id. ¶¶ 3.5-3.7.) After this sewage spill, Naxos notified its insurer, AFI, about the incident. (See Id. ¶ 3.8.) Although AFI eventually began issuing payments to Naxos in response to Naxos's insurance claim, Naxos alleges that AFI failed to adequately respond to Naxos's claim and continues to improperly withhold amounts owed to Naxos. (See Id. ¶¶ 3.9-3.34.)

         The parties' insurance policy dictates that either AFI or Naxos may make a demand for an independent appraisal of the loss in the event that the parties disagree on the amount of the loss. (Neal Decl. (Dkt. # 37) ¶ 2, Ex. 1 (Dkt. # 37-1) (the “Policy”) at 36.) The policy states that any such appraisal “will be binding.”[5] (See id.) Pursuant to this provision, Naxos demanded an appraisal. (See Resp. at 2-3.) According to Naxos, “[b]oth Naxos and AFI[] appeared in this appraisal, selected their own appraisers who in turn chose a neutral umpire, and submitted witnesses, evidence and briefing.” (Id. at 3.) During the appraisal, AFI argued that the actual cash value (“ACV”) of Naxos's loss to its “Business Personal Property”-which AFI defined to include both “Kitchen Capital Equipment (e.g., Appliances)” and “Business Personal Property (e.g., Other Equipment)”-was $63, 617.38 and the replacement cost value (“RCV”) of that loss was $93, 405.43.[6] (See Neal Decl. ¶ 3, Ex. 2 at 12; see also Id. ¶ 4, Ex. 3 at 7.) On March 6, 2018, the appraisal panel issued its final award and determined that the ACV of the loss to Naxos's Business Personal Property was $109, 136.80 and the RCV was $136, 421.00.[7](Neal Decl. ¶ 5, Ex. 4.)

         C. The Underlying Action

         Naxos filed its complaint in King County Superior Court on August 3, 2018. (See Compl. at 9.) AFI removed Naxos's lawsuit to this court on August 30, 2018. (Not. of Removal (Dkt. # 1).) Naxos pleads causes of action for (1) breach of contract, (2) insurance bad faith, (3) negligent claims handling, (4) violation of Washington's Consumer Protection Act, and (5) violation of Washington's Insurance Fair Conduct Act. (Compl. ¶¶ 4.1-8.5.) Naxos alleges that each cause of action arises out of AFI's handling of Naxos's claim to recover insurance proceeds as a result of the sewage spill at Spiro's. (See Id. ¶¶ 3.2-3.34.) AFI counterclaims for (1) breach of contract, (2) misrepresentation and concealment, and (3) bad faith and violation of the Washington Consumer Protection Act. (Answer (Dkt. # 15) at 13-14.)

         III. ANALYSIS

         AFI's motion presents a narrow question of judicial estoppel. AFI seeks to estop Naxos from seeking damages of over $6, 300 for the loss of “Business Personal Property”-a term that AFI does not define-based on the representations Naxos made in the Personal Property Schedule.[8] (See MSJ at 1-2.) Because Naxos valued its “inventory” at $2, 500 and its “machinery, fixtures, equipment, and supplies used in business” at $3, 800 in the bankruptcy proceeding, AFI argues that Naxos should be judicially estopped from claiming more than $6, 300-the combined total of those amounts-in insurance coverage for Business ...


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