Great American E&S Insurance Company v. Toy Quest Ltd.

Background

Great American E&S Insurance Company ('Great American') has been defending several policyholders — including Toy Quest Ltd., various individual defendants, Aquawood, LLC, Banzai International Limited, and ASI, Inc. — in an underlying civil lawsuit called ASI, Inc. v. Aquawood, LLC, No. 19-763 ('ASI Action'). The ASI Action involves claims for abuse of process. Great American has been providing that defense under a 'reservation of rights,' meaning it reserved the right to later argue it was never obligated to defend or pay.

Great American then filed this separate declaratory judgment action (a lawsuit seeking a court ruling on the parties' legal rights before a final dispute arises) asking the court to declare it has no duty to defend or indemnify its policyholders in the ASI Action. The core legal theory is that its insurance policy covers 'malicious prosecution' but that abuse of process — a related but distinct intentional tort — does not trigger that coverage.

Prior Related Litigation

Before this case was filed, the same court addressed virtually the identical question in General Star Indemnity Co. v. Toy Quest Ltd., No. 22-2258, 2025 WL 253413 (D. Minn. Jan. 21, 2025). There, under the same policy language, the court ruled that 'malicious prosecution' unambiguously means only malicious prosecution, and therefore an abuse of process claim does not trigger coverage. That ruling is now on appeal before the United States Court of Appeals for the Eighth Circuit.

The Motion to Stay

Shortly after Great American moved for judgment on the pleadings (a motion asking the court to rule in its favor based solely on the parties' written filings, without further discovery), Defendants filed a motion to stay — i.e., to pause — this case pending the Eighth Circuit's decision in the General Star appeal. Magistrate Judge David T. Schultz denied the motion to stay from the bench on April 30, 2025. Defendants timely appealed that denial to the district court.

By the time of the district court's ruling, the motion for judgment on the pleadings had been fully briefed and argued, and discovery had been stayed pending resolution of that motion.

Standard of Review

Because a motion to stay is a non-dispositive pretrial matter (it does not itself end the case), the district court reviews the magistrate judge's ruling under a highly deferential standard: it will reverse only if the ruling was 'clearly erroneous or contrary to law.' A finding is clearly erroneous only when the reviewing court is left with a 'definite and firm conviction that a mistake has been committed.' A decision is contrary to law when it fails to apply or misapplies relevant statutes, case law, or procedural rules.

Analysis

Stay Factors

Defendants argued the magistrate judge failed to consider the full range of factors identified in Garcia v. Target Corp., 276 F. Supp. 3d 921 (D. Minn. 2016). Those factors include the effect on discovery, conservation of judicial resources, clarification of the law, prejudice to the plaintiff, burden on the parties, length of the stay, and hardship to the defendant — alongside the 'standard factors' of likelihood of success on the merits, irreparable injury to the movant, balance of equities, and public interest.

The court found no clear error. Even if the magistrate judge had applied only the 'standard factors,' other courts in this district have done so without error. More importantly, the transcript showed the magistrate judge specifically addressed judicial resources, the impact on discovery, and discussed at length the potential impact of the Eighth Circuit's forthcoming decision in General Star.

Irreparable Harm

The party seeking a stay must show it will suffer irreparable harm — harm that cannot be remedied by money damages — if no stay is issued. The magistrate judge acknowledged Defendants might suffer 'some pain' but found it fell short of irreparable harm. The district court agreed: the alleged financial harms (unrecoverable defense expenses) could be remedied through a damages award if Great American is later found to have wrongly withdrawn its defense. The other prejudice Defendants alleged was found to be too speculative. No clear error was found.

Judicial Economy

Defendants argued a stay would conserve resources by avoiding litigation that might need to be redone after the Eighth Circuit rules. The magistrate judge, however, concluded that proceeding to decide a fully briefed, potentially dispositive motion actually promotes judicial economy. The district court agreed, noting that Defendants' efficiency argument was also weakened by their rejection of an offer from Great American to stipulate to judgment and consolidate this case with General Star before the Eighth Circuit.

Impact of the General Star Appeal

Defendants argued the magistrate judge gave no weight to the likelihood that the Eighth Circuit's decision in General Star would control the outcome here. The court rejected this characterization, pointing to the hearing transcript showing the magistrate judge proactively questioned Defense Counsel about whether Defendants would be bound by however the Eighth Circuit ruled. The magistrate judge gave the issue 'thoughtful consideration,' even if not the weight Defendants preferred.

Prejudice to Great American

The district court found no clear error in the magistrate judge's determination that a stay would prejudice Great American. Defendants themselves acknowledged at the hearing that if Great American continues paying for the defense and it is later determined it had no duty to defend, Great American may be unable to recover those defense costs. Under Landis v. N. Am. Co., 299 U.S. 248 (1936), only a 'fair possibility' of damage to the non-movant is required — a standard the court found satisfied here.

Disposition

Judge Tunheim overruled Defendants' appeal and affirmed Magistrate Judge Schultz's order denying Defendants' motion to stay. The case proceeds, with the motion for judgment on the pleadings ready for decision.