Opinion
CASE NO: CV-05-4610-SGL (RZx).
September 4, 2006
This case concerns who should pay for the settlement of a lawsuit brought for trademark and trade dress infringement (and related state law claims) by Sunset Health Products, Inc. ("Sunset") against Spectrum Worldwide, Inc., Celebrity Products Direct, Inc., Lisa Tremain, and Howard Schwartz (collectively, the "insured") in October, 2001. The parties settled the underlying lawsuit with the primary insurer, Monticello Insurance Company ("Monticello"), contributing $920,000 to the settlement amount and the excess insurer, United National Insurance Company ("United'), providing an additional $420,000. In contributing towards the settlement amount, United made clear that it did so with a reservation of rights. This suit seeks to iron out whether that reservation has merit by way of United's motions against Monticello and the insured to recoup the money it contributed to the settlement. United argues that either (1) Monticello's contribution did not exhaust its coverage limit and therefore, as the primary insurer, it was liable for the entire settlement amount; or (2) that a policy exclusion exempted United from having to contribute to the settlement and, therefore, it is entitled to indemnification from the insured for the amount United contributed to the settlement amount. In response, the insured have filed a counterclaim against United for bad faith delay before contributing to the settlement. Thus, to resolve this dispute, the Court must explore the nature of theSunset lawsuit and the terms contained in Monticello's and United's policy.
Sunset marketed a diet drink called the "Hollywood 48-Hour Miracle Diet" beginning in 1997 and entered into an agreement with insured to distribute its product. The labeling used on Sunset's diet drink product "contain[ed] three dark palm trees, two large stars in the upper right and left hand corners, eight search lights, a city skyline, a background of numerous small stars in a blue/purple/pink sky, and yellow bordering," with the product name "printed in red capital letters on a movie marquee towards the bottom of the label," and "contain[ing] directions and slogans, such as `clean, detoxify and rejuvenate your body'. . . ." (Pl's Request Judicial Notice, Ex. 9 at 3-4).
In mid-1998 the insured terminated its license and distribution agreement with Sunset and immediately began marketing a competing diet drink called the "Original Hollywood Celebrity Diet." The product, and its original labeling, were described in this Court's Order in the underlying Sunset litigation as having "a light bluish-green bordering and contained a large reddish-gold Hollywood star displayed prominently in the middle of the label with a black sky and numerous small stars." (Pl's Judicial Notice, Ex. 9 at 5). The label's background was changed to a "bluish-purple color" and the Hollywood star on the label was made to a straight gold color in January, 1999. (Id.). In May, 2001, insured made some additional changes to the labeling of its diet drink bottle — it now "included four yellow narrow searchlights behind the large gold star," the star was "enlarged and placed in a large gold circle," and the existing print on the label was changed to "reflect the style and format of the famous Hollywood sign" — but otherwise the product and its labeling remained the same. (Id.). In October, 2001, Sunset filed suit in federal court against insured. The filing of the suit was quickly brought to the attention of insured's primary and excess insurers, Monticello and United, respectively.
Monticello had issued to the insured a commercial general liability insurance policy effective from September 8, 2000, to September 9, 2001. The policy contained the following coverage limits:
2. The Policy Aggregate Limit is the most "we" will pay for the sum of:
a. Damages under Coverage except damages because of "bodily inujury" or "property damage" included in the "products-completed operations hazard";
b. Damages under Coverage B;
c. Medical expenses under Coverage C; and
d. Damages because of "bodily injury" or "property damage" included in the "product-completed operations hazard."
3. Subject to 2. above, the Each Occurrence Limit is the most "we" will pay for the sum of:
a. Damages under Coverage A;
b. Damages under Coverage B;
c. Medical expenses under Coverage C; because of all "bodily injury," "property damage," "personal injury" and "advertising injury" arising out of any one "occurrence."
The declarations page to the policy regarding coverage limits reads as follows: LIMITS OF INSURANCE
General Aggregate Limit (Other Than Products-Completed $1,000,000 Operations) Products-Completed Operations Aggregate Limit INCLUDED Personal and Advertising Injury Limit (Any One Person or INCLUDED Organization) Each Occurrence Limit $1,000,000 Fire Damage Limit (Any One Fire) $50,000 Medical Expense Limit (Any One Person) EXCLUDED Other Coverage Limit Deductible, each claim $1,000 Later an endorsement was effected increasing the general aggregate limit to $2 million.The Monticello policy states that it covers "`advertising injury' caused by an offense committed in the course of advertising `your' goods, products or services but only if the offense was committed in the `coverage territory' during the policy period." The policy, however, excludes from coverage "`advertising injury' . . . [a]rising out of oral or written publication of material whose first publication took place before the beginning of the policy period." The term "advertising injury" is defined in the policy as "injury arising out of one or more of the following offenses: a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; . . . c. Misappropriation of advertising ideas or style of doing business; or d. Infringement of copyright, title or slogan." The policy specifically excludes "emotional distress" and "patent infringement" from the definition of advertising injury.
United issued to the insured a policy for excess coverage up to $1,000,000 per occurrence and in the aggregate effective from April 26, 2001, to September 8, 2001. United's policy notes that it is "subject to [the] definitions, terms, conditions, exclusions and limitations" contained in Monticello's policy. In other words, Monticello's policy terms and exclusions were poured into United's policy.
In June, 2004, a mediation was conducted in connection with theSunset litigation. The mediation resulted in a mediator's proposal to settle the case, but the mediation broke down without all the parties agreeing to settle. "Following [this] unsuccessful attempt to mediate [the dispute], counsel for [the insured] and Sunset commenced settlement discussions of their own." (Defs's First Am. Counterclaim at 4). "Those talks resulted in an understanding that a settlement could be effected for an agreed sum," if the insured could gets its insurers to pay the sum. Apparently the sum the insured and Sunset arrived at was the same sum originally proposed by the mediator in the earlier unsuccessful mediation. "Thereafter, [the insured] conferred with their primary and excess carrier to discuss the proposal, which fell within the reasonable range of settlement values, provided for a release of the insureds, and fell within the limits of the available insurance provided that United contribute to the settlement." (Id.). Although Monticello agreed to the settlement proposal, United allegedly "failed and refused to offer the funds within United's policy limits necessary to settle Sunset's claim." (Id.). Instead, it allegedly "dragged out the settlement negotiations for many months and then finally offered to pay," but even then under a reservation of rights, the delay allegedly causing the insured to incur more than $80,000 in fees, costs, and expenses. (Id.).
United seeks to recoup from Monticello the portion United contributed ($420,000) to the settlement. Monticello, as noted earlier, provided $920,000 towards the settlement amount. Resolution of United's motion turns on whether Monticello was on the hook for the entire settlement amount (that is, $1.34 million) thereby negating United's need to provide the $420,000 as excess coverage. This, in turn, is contingent upon whether the General Aggregate Limit (worth $2 million) in Monticello's policy applied to the advertising injuries alleged in the Sunset litigation, or whether the Occurrence Limit (worth $1 million) applied to those advertising injuries (everybody agreeing that there was but one occurrence or offense committed in connection with the Sunset matter). If the former, then Monticello was indeed responsible for the entire settlement amount and United is entitled to recoup that portion it contributed to the same. If the latter, then Monticello was responsible only for the amount that it did tender and United is not entitled to summary judgment as against Monticello.
Monticello did not provide $1 million because it had already incurred $80,000 in costs in defending the Sunset litigation at the time of settlement. These costs were deducted from the amount contributed as Monticello's policy had a "burning limit," meaning that fees, costs, and expenses incurred in defending an action lessened the total funds available.
The source for this uncertainty is the limitation of coverage table contained in the declarations page to the policy. There it is noted that the Advertising Injury Limit was "INCLUDED," but nowhere states into what provision or provisions it was included. United contends that the declarations page clearly points to the Advertising Injury Limit as being subsumed within the General Aggregate Limit. As United frames the question: "Because an informational table is read from top to bottom, a layperson reading Monticello's declaration page would understand that `INCLUDED' next to the Personal and Advertising Injury Limit refers to the only number above — the General Aggregate Limit." (Pl's Mot. Summ. J. Monticello at 9). United further asserts that, if this reading of the declarations page conflicts with language in the policy, the declarations page should control and the Court should find that the $2 million General Aggregate Limit applies. It is undoubtedly true that an insurance policy is to be read as a layman (not an insurance or legal expert) would read it. See Crane v. State Farm Fire Cas. Co., 5 Cal.3d 112, 115 (1971). It is also true that the declarations page is a part of the insurance contract and that, if it conflicts with language in the policy, it controls. See Fidelity Dep. Co. of Maryland v. Charter Oak Fire Ins. Co., 66 Cal.App.4th 1080, 1087 (1998).
The supposition underlying United's argument is that the declarations page itself contains clear language demonstrating to what the Advertising Injury Limit applies. The Court is not convinced that is the case. Instead, the declarations page itself appears ambiguous. To begin, it notes that the Advertising Injury Limit is "Included," but never states which category limit or limits it is included within — the General Aggregate Limit, the Occurrence Limit, some other category limit, or some combination thereof. Although United is correct that perhaps its reading is the most reasonable construction of the declarations page, this does not mean that it is the only reasonable construction. One could reasonably read the declarations page's reference to the Advertising Injury Limit as being "Included" within an item listed either below it or above it. That the convention is to read a page from top to bottom does not necessarily mean that a line entry placed on atable is subsumed within the item immediately above it. Line entries on tables are oftentimes self-contained items without any connection to those entries immediately above or below. Employing the term "Included" in connection with a particular line entry could simply serve as a means of informing the reader that there is a limit for advertising injuries, and that the limit's numerical amount is provided elsewhere (perhaps not even on the table itself). The question is not which is the most reasonable interpretation, but rather whether one interpretation, and only one interpretation, is clear, which is something that the Court cannot say is the case here. In short, the declarations page, far from being a model of clarity as United would have it, is instead a source of ambiguity. Given that the declarations page itself is ambiguous as to what the Advertising Injury Limit is included within and whether it is in fact included within the General Aggregate Limit, reference to the policy language must be made to resolve that ambiguity. See United Servs. Automobile Ass'n. v. Baggett, 209 Cal.App.3d 1387, 1397 (1989) (confusion regarding declarations page resolved by referring to "Limits of Liability" section in the policy).
The policy language clearly demonstrates that coverage for "advertising injuries" was limited to the Occurrence Limit, "subject to" the General Aggregate Limit serving as a ceiling when multiple occurrences are involved. United quibbles with this point, noting that the policy's reference to the Occurrence Limit denotes the existence of advertising injuries involving "occurrences". United finds this formulation problematic because the policy defines advertising injuries in terms of specific "offenses", not occurrences. Because an advertising injury resulting in an occurrence was not (and, indeed, could not be) at issue in the Sunset litigation, United posits that the language in the policy would seemingly exempt application of the Occurrence Limit in this case. United may be correct on that particular point, but its argument concerns an issue far removed from the one prompting the Court to consult the policy language in the first place. The ambiguity sought to be resolved is whether the Advertising Injury Limit is included in the General Aggregate Limit or the Occurrence Limit, not whether the Occurrence Limit, as explicated in the policy, confuses concepts such as occurrence and offense in the context of the phrase that defines an advertising injury itself. The policy language clearly and unmistakably informs the reader that the Occurrence Limit sets out the most Monticello will pay for damages under Coverage B "because of . . . [an] `advertising injury,'" subject to the General Aggregate Limit when more than one occurrence is concerned.
A fundamental problem with United's reading of the policy on this point is that it would necessarily read out the policy's reference to "advertising injury" in connection with payments under the Occurrence Limit. If, as United argues (and, indeed, the policy's definitions so provide), an advertising injury applies only in the connection with he commission of certain "offenses," then the policy's reference to Monticello paying for damages under the Occurrence Limit due to "advertising injuries" per "occurrence" would be a nullity, there never being an occasion when such an "occurrence" would arise.
Given that the Advertising Injury Limit was included within the Occurrence Limit (subject to the General Aggregate Limit only insofar as multiple occurrences are at issue), Monticello was not on the hook for the entire settlement amount tendered in resolving the Sunset litigation, but only for the $1 million Occurrence Limit (less expended costs, which totaled $80,000). As that is what Monticello submitted in connection with the settlement of the matter, United is not entitled to summary judgment to recoup the amount it tendered as excess coverage.
Shifting gears, United seeks indemnification from the insured, claiming that the first publication exclusion in the policy exempted it from having to contribute to the settlement amount. Two arguments have been tendered by the insured as to why the first publication exclusion was inapplicable to the Sunset litigation: (1) The exclusion is ambiguous as to whether it covered trademark and trade dress infringement claims; and (2) they published "new and distinct" material in May, 2001 (namely, the changes made to the label on their diet drink), thereby breaking the exclusion's application to the Sunset litigation.
The principal argument raised by the insured for finding the first publication exclusion ambiguous with respect to trademark and trade dress infringement claims is because a number of other courts have so held. This argument ignores a cardinal rule in interpreting insurance policies — gauging whether a policy clause is ambiguous turns on the particular policy and circumstances in that case, not the wholesale determination that a clause is ambiguous in each and every policy where it is found.See E.M.M.I. Inc. v. Zurich American Ins. Co., 32 Cal.4th 465, 470 (2004); St Paul Fire Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co., 101 Cal.App.4th 1038, 1056 (2002). Here, a close look at the exclusion at issue demonstrates that it is not ambiguous as to whether it covers claims for trademark and trade dress infringement.
The exclusion reads that an "`advertising injury' arising out of oral or written publication of material whose first publication" occurred before the policy was in place is not covered. The policy therefore poured the definition of advertising injury into what was covered by the exclusion. Advertising injury includes the "infringement of copyright, title or slogan," but not "patent infringement." The Court understands the policy's reference to "title or slogan" as a term of art for trademark infringement. As one court noted: "A plain reading of this provision suggests that there is coverage only if [the insured] is alleged to have infringed [another party's] ownership interest in or exclusive right to use a copyright, title, or slogan." Applied Bolting Technology Products, Inc. v. United States Fidelity Guaranty Co., 942 F. Supp. 1029, 1034 (E.D. Pa. 1996). Such exclusivity in ownership to a title or slogan is certainly akin to that employed in the protection of a mark one places on it's goods as is the case in trademark law. See Conversive, Inc. v. Conversagent, Inc., 433 F.Supp.2d 1079, 1087 (C.D. Cal. 2006) ("Federal registration of a mark is prima facie evidence that the registrant is the owner of the mark and that the registrant has the exclusive right to use the mark on the goods and services specified in the registration"). Indeed, a trademark is nothing more than a word or symbol allowing a purchaser to identify the origin of a given product and the good will flowing from such an association. See Industrial Rayon Corp. v. Dutchess Underwear Corp., 92 F.2d 33, 35 (2nd Cir. 1937) ("[A] trademark is not property in the ordinary sense, but only a word or symbol indicating the origin of a commercial product"). Words and symbols are common in the use of titles or slogans in association with one's wares or services. Therefore, the phrase "title or slogan" is not that different from what the concept of trademark speaks to — a trademark is a symbol or a word (or phrase) used to associate one's goods with one's business. Such symbols or words (or phrases) are typically employed in titles or slogans placed on products or used to pitch those products — the oral and written material spoken of by the exclusion's terms. Indeed, that was the very question at issue in the Sunset litigation — whether the insured's use of the terms "Hollywood" and "Diet" in conjunction with other symbols and phrases on its products labels infringed those used in conjunction with Sunset's diet drink.
That the policy's reference to "infringement of a title or slogan" was meant to encompass trademark infringement claims is further deduced by looking to the surrounding terms employed by the policy. First, the policy speaks of "infringement." Use of such a term is commonly employed in connection with the infringement of intellectual property — copyright, trademark, and patent. Thus, when the policy speaks of the insured's infringement of something through their advertising, this certainly brings to mind these intellectual property concepts. Putting to rest any doubt on the point is the fact that the policy then goes on to speak of two of three forms of intellectual property infringement. The policy uses the phrases "copyright" and "patent" in conjunction with "infringement." Such a conjoining buttresses the point that the policy was speaking to claims for intellectual property infringement, which would include trademark infringement especially where the policy also speaks of the "titles and slogans" concepts intertwined with the use of marks.
The case principally (and nearly exclusively) relied upon by the insured for the proposition that the first publication exclusion is ambiguous in the context of trademark infringement claims is Arnette Optic Illusions, Inc. v. ITT Hartford Group, Inc., 43 F.Supp.2d 1088, 1096 (C.D. Cal. 1998). (Defs' Opp. Mot. Summ. J. at 16-19). That case, however, has been subsequently overruled by the Ninth Circuit in an unpublished decision (a decision not even cited or alluded to by insured). See Maxtech Holding, Inc. v. Federal Ins. Co., 1999 WL 1038281, at 3 n. 4 (9th Cir. Nov. 12, 1999) ("We disagree with Arnette, however, because we decline to read the policy language as ambiguous"). There the Ninth Circuit held that "the language of the exclusion logically applies to any and all advertising injuries, regardless of how those specific injuries are described under the policy" because "[a]n advertising injury will necessarily arise out of an oral or written publication and, hence, the language is clear in its intent and purpose" Id. at *3 n. 4.
Thus, in the context of this case the Court finds that the first publication exclusion was not ambiguous as to whether it applied to trademark or trade dress infringement claims; it clearly does apply to such claims.
This leaves insured's final argument that the exclusion does not apply because it published new material after the policy's effective date when it changed the labels on its products in May, 2001. Resolution of this argument turns on the meaning of the term "material" contained in the exclusion.
The insured posits that a debate exists (and apparently the case law it has cited accepts the premise for such a debate) over whether the later publication must be the same as or simplysimilar to the earlier publication for the exclusion to apply. Such a debate, however, ignores the exclusion's plain language. The exclusion is keyed to the substance of the advertising injury at issue and how that injury arose: Was the source for the alleged "advertising injury" in the underlying litigation "published" before the policy's effective date. See Applied Bolting 942 F. Supp. at 1036.
This reading of the policy's exclusion is supported by the only published California state court decision to construe the exclusion's language. In Ringler Associates Inc. v. Maryland Casualty Co., 80 Cal.App.4th 1165 (2000), the insured had been sued for slandering a third party. The slanders had allegedly occurred in the 1980s, and the insured had secured a policy covering a one-year period from 1990 to 1991. The insurer denied coverage, claiming that the slanders had first been published prior to the policy period. The insured countered that the third party's complaint may include allegations of additional slanders during the policy period, and then posited that the exclusion was ambiguous as to whether the earlier and later publications had to be identical for the later publication to be excluded from coverage. Id. at 1179. The court disagreed, noting that the exclusion's reference to the "first publication" was keyed to the publication that initially caused the injuries alleged against the insured. Whether the later publication differed in certain respects from the earlier one was immaterial if those differences did not contribute to the substance of the harm alleged against the insured:
[T]he first-publication exclusion language at issue is intended to and in fact bars coverage of an insured's continuous or repeated publication of substantially the same offending material previously published at a point of time before a policy incepts, while not barring coverage of offensive publications made during the policy period which differ in substance from those published before commencement of coverage.Id. at 1183.
Thus, a reading of the exclusion's terms and the relevant state case law interpreting the same demonstrates that the crucial question is what was it about the insured's publication that harmed the other side. Only after that question is resolved can a court turn to the existence of any differences or dissimilarities in the insured's post-policy publications to decide whether the exclusion applies. Even then the existence of such dissimilarities in the insured's post-policy publications is relevant only insofar as the insured can show that it was those differences or dissimilarities that are the source of the advertising injury at issue in the case. It is on this point that the factual record before the Court is open to debate.
The CFO for the insured, in pleadings submitted in connection with the Sunset litigation, confirmed that the modification made to its product label in May, 2001, was immaterial to the basis for Sunset's infringement claims. The CFO noted that the label history for his company's product demonstrated that only "incremental modifications" were made to the product's label. (Decl. Howard Schwartz ¶ 5). He then noted that those modifications were not relevant to Sunset's allegations, as the basic label features have remained constant since the insured first marketed its product: "The labels generally feature — in varying degrees of emphasis — the same images, including: (i) a prominent star set in the front, center of the label; (ii) a background color; and (iii) four search lights emanating from the bottom center of the label." (Decl. Howard Schwartz ¶ 6 (emphasis added)). Indeed, the CFO downplayed the role that the 2001 modifications to the label had to the underlying suit, terming them only as the insured's effort to take existing elements on its label and make them more congruous with a license it had obtained to use the City of Hollywood's logo. As he characterized the 2001 label change: The label was modified "so that" the prior use of "the word `Hollywood' appear[ed] in the font and style of the famous Hollywood sign on the preexisting purple background," the "preexisting star was modified to appear more exactly as the Hollywood Walk of Fame star, and" the "four preexisting search lights were modified to appear more exactly as the same search lights that appear in the Hollywood Chamber of Commerce logo." (Decl. Howard Schwartz ¶ 9 (emphasis added)).
In contrast, the material submitted by Sunset in connection with the litigation was more opaque as to whether the 2001 label change constituted an independent, or simply derivative source for the trademark and trade dress infringement. Sunset's President submitted a declaration in the Sunset litigation wherein he described the basis for his company's trademark and trade dress claims against the insured as follows:
[The `Original Hollywood Celebrity Diet's] status as an imitation of [The `Hollywood 48-Hour Miracle Diet'] is shown by the fact that it copies the printed words and trade dress of the Hollywood 48-Hour Miracle Diet by prominently using the words "Hollywood" and "Diet" in its name; is advertised, marketed, and promoted as a specially-formulated juice to be used as a two-day (forty-eight hour) juice . . .; is sold in a thirty-two ounce plastic bottle in a shape identical to that of 48-Hour's bottle; is the same color as Plaintiff's product; states on its label that it will "clean, detoxify and rejuvenate your body"; and is covered by a blue label depicting a gold star with background stars and with Hollywood-style searchlights shining behind it and containing the words "Lose Up to 10 Pounds in 2 Days."
(Decl. Lawrence J. Turner ¶ 16 (emphasis added)). Nearly everything in the Sunset President's declaration concerns label elements present on the insured's product before the 2001 label change. The one exception is the President's reference to "Hollywood-style searchlights." It is unclear whether Sunset's reference to Hollywood-style search lights was meant to refer to the 1999 label or the 2001 label. United is correct that the Sunset complaint's conjunction of "Hollywood-style search lights" with a "blue label" could refer to the 1999 label, as this Court's prior order noted that it was in 1999 that insured first employed a "bluish-purple background" and did not change that background color in 2001. (Pl's Judicial Notice, Ex. 9 at 5). That said, a comparison between the 2001 label and the one immediately preceding it in 1999 demonstrates that the earlier label's use of "searchlights" (such as they were) quite literally pale in comparison. (Compare Exhibit 3 to Exhibit 4 attached). Indeed, it is even hard to see the searchlights that the insured had been using in connection with its product's label before the 2001 label change. This leaves open the question of whether this "Hollywoodization" of the search lights on the insured's product was what Sunset was referring to in its complaint, and, relatedly, whether it was this label change that was a contributing agent to the trademark and trade dress infringement claim brought against the insured.
Reviewing Sunset's complaint reveals that this latter point is a very real possibility. Sunset's complaint identified the infringing aspects of insured's product as follows:
Defendant's product prominently uses the word "Hollywood" in its name; is advertised, marketed and promoted as a specially-formulated juice to be used as a two-day (forty-eight hour) juice fast designed to detoxify the body and cause weight loss; is sold in a thirty-two (32) ounce plastic bottle in a shape identical to that of the Hollywood 48-Hour Miracle Diet's bottle and its product has the same color as Plaintiff's product; states on its label that it will "clean, detoxify and rejuvenate your body"; and is covered by a blue label depicting a gold star with Hollywood-style searchlights shining behind it and containing the words "Lose up to 10 pounds in 2 days."
(Pl's Request Judicial Notice, Ex. 5 ¶ 23 (emphasis added)).
Again, the complaint recites many elements of the insured's product label that were pre-existing to the 2001 label modification. The exception again being Sunset's recital of the blue label containing Hollywood-searchlights shining behind it, which, as noted above, a factual dispute exists as to whether this was a reference to the 1999 or 2001 product label. The next line in the complaint is the one that squarely places at issue whether these label modifications (be they those done in 1999 or 2001) may have formed some of the substance of Sunset's trademark and trade dress claims:
Up until recently, the label for Defendants' product was predominantly black in color and did not include a depiction of Hollywood-style searchlights. However, in their efforts to pass off Defendants' product as Plaintiff's Hollywood 48-Hour Miracle Diet, Defendants . . . changed the label to a blue label that includes Hollywood-style searchlights — deliberately making their label more similar to that of Plaintiff's product.
(Pl's Request Judicial Notice, Ex. 5 ¶ 23).
This passage in the complaint clearly stipulates that this portion of the insured's allegedly infringing behavior — where a factual dispute exists — is the most particularly egregious aspect of its conduct (perhaps egregious enough to form a fundamental predicate of Sunset's claim). Sunset's allegation that this "recent" label modification made the insured's product look "more similar" to its own and resulted in tying the same to the insured's alleged "effort to pass off" their "products" as Sunset's certainly raises triable issues of fact as to whether it was this aspect of the insured's label (be it the 1999 or the 2001 label to which it was referring) and overall trade dress which formed the substance of Sunset's claim, or whether it was the other label elements noted in the complaint that were existing before that modification that formed the substance of its complaint. Without a resolution of these factual questions, the Court cannot determine whether the exclusion applies in this case.
The final argument lodged by United is that the insured's amended counterclaim for bad faith delay in settlement should be stricken as a necessary factual allegation underlying that claim is barred by the mediation privilege. The Court has treated this issue exhaustively in its March 3, 2006, Order and will not belabor the point here. United's basic position is that, because the post-mediation discussion between the insured and Sunset used the mediator's proposal, the mediation privilege bars it from being plead in the complaint. As explained by United: "Spectrum does not allege that the `understanding' was anything other than the amount proposed by the mediator in confidence. . . ." (Pl's Mot. Summ. J. at 5-6). United's position is simply untenable.
In the March 3, 2006, Order the Court commented that "[t]he pleadings suggest that the other communications occurred subsequent to that [mediation] session, during other settlement discussions, and are thus not clearly covered by the California or federal mediation privileges." (Pl's Request Judicial Notice, Ex. 5 at 6). United has cited no authority for the proposition that simply because parties discuss in subsequent settlement discussions what took place or offers made during an earlier mediation, that such reference extends the reach of the mediation privilege into those settlement discussions as well. Instead, United simply seeks for this Court to declare such practice as a "transparent attempt to conform the facts to the requirements of the cause of action." (Pl's Mot. Summ. J. at 6). The Court would find United's position more persuasive but for the fact that, in its earlier pleadings, the insured did make reference to "other settlement discussions" occurring "subsequent to that [mediation] session." (Pl's Request Judicial Notice, Ex. 5 at 6). Given this finding regarding the state of the insured's earlier pleading in this case, the Court cannot say that their additional allegation that during one of these post-mediation discussions the parties came to a understanding on how to settle the case is a transparent attempt to conform the facts to what the law requires.
Accordingly, the Court DENIES United's motion for summary judgment as to defendant Monticello, DENIES United's motion for summary judgment as to the insured, and DENIES United's motion to strike the insured's amended counterclaim.
IT IS SO ORDERED.