Opinion
Case No. 2:99-CV-88.
December 13, 1999.
OPINION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Now before the Court is plaintiff's motion for summary judgment filed September 14, 1999. The Court held a hearing on the motion on November 29, 1999, and at that time took the matter under advisement. After having carefully considered the parties' arguments made both in their briefs and at the hearing, the Court will grant plaintiff's motion for summary judgment for the reasons set forth below.
I
Plaintiff, an insurer, seeks a declaratory judgment to determine the scope of the duty to defend its insured under an "advertising injury" clause contained in a commercial general liability policy. In response, defendant has counter-claimed against plaintiff, asserting breach of contract, estoppel, and violation of the Uniform Trade Practices Act. There are no legally relevant disputes of fact, and the controlling issue of law requires the Court to construe the language of the insurance contract that affords the insured coverage for "advertising injury."
Defendant is a manufacturer whose products, replacement blades for conveyor belt cleaners, compete directly with that of Arch Environmental Equipment, Inc. ("Arch Environmental").
Both defendant and Arch Environmental solicit the same customer base. The sales method employed by the two competitors, however, is distinct. Defendant sells by employing salespersons who deal directly with potential customers rather than by general advertising. In these sales calls, defendant's salespersons represent its products perform as well as those advertised by Arch Environmental, but sell for only one-half the price.
Arch Environmental received complaints on several occasions, however, from maintenance workers employed by customers who had purchased replacement blades from defendant. Unaware that their own in-house purchasing agents had purchased defendant's replacement blades instead of Arch Environmental's, the maintenance workers telephoned Arch Environmental with complaints about the blades' quality. Arch Environmental believed the confusion over which company had manufactured the replacement blades resulted from violations of law, and initiated suit against defendant.
On September 3, 1997, defendant was sued in a case captioned Gordon Belt Scrappers, Inc. and Arch Environmental Equipment, Inc. v. Argonis, Inc. ("Gordon Belt"), filed in the United States District Court for the Northern District of Illinois. In their complaint, the Gordon Belt plaintiffs asserted two claims against defendant. Court I alleged a claim of patent infringement. Count II alleged defendant's "aforesaid activities and other related activities" constituted unfair competition under Kentucky and Illinois law.
Plaintiff had previously sold defendant a general commercial liability policy ("Policy") having an effective date of October 1, 1997. The Policy provided that plaintiff would defend and indemnify defendant if defendant became legally obligated to pay damages as a result of "personal injury" or "advertising injury." In relevant part, the Policy granted coverage for:
The parties have not made it clear in their briefs on what basis the Policy, having an effective date of October 1, 1997, affords coverage for a complaint filed September 3, 1997.
(1) "Personal injury" caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you;
(2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services. . . .
Shortly after being served in Gordon Belt, defendant notified plaintiff of the suit and requested that plaintiff undertake the defense. In response, plaintiff communicated its contention that the patent infringement and unfair competition claims, as pled, failed to qualify as either personal injury or advertising injury under the Policy. Defendant asserted the Gordon Belt was so vaguely pled as to fall arguably within the definition of "advertising injury" or "personal injury" under the Policy.
Although defendant settled the underlying suit in December 1998, plaintiff initiated this action to determine liability for the approximately $219,000 in costs and fees expended by defendant in the Gordon Belt litigation.
Significantly, however, defendant conceded at the hearing that as part of its trial strategy it had elected not to take any discovery other than that undertaken in the underlying action. As a result, the only evidence offered by defendant in opposition to the motion, the deposition of Neil Archer, President of Arch Environmental, was not taken in preparation for the instant action.
In its motion opposing summary judgment, defendant claimed plaintiff moved for summary judgment "without any opportunity for discovery." This claim does not comport with the record. Plaintiff's complaint was filed April 23, 1999, and defendant answered the complaint on July 1, 1999. Both parties have thus had ample time for discovery.
II
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
To establish a "genuine" issue, the non-moving party cannot rest on its pleadings, but most point to evidence in the record upon which a reasonable jury could find for it. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When determining whether there is a genuine issue of material fact, a court must view the evidence in a light most favorable to the non-moving party. Id. at 255.
A.
The central issue before the Court is whether the Gordon Belt plaintiffs' claims of patent infringement and unfair competition arguably qualify as advertising injury under the Policy. If so, a duty to defend arises under Michigan law.
See Detroit Edison Co. v. Michigan Mutual Ins, Co., 102 Mich. App. 136 (1980). To resolve this question the Court must engage in a two-step analysis. First, the Court determines whether the contractual language at issue is ambiguous.
Second, the Court `is required to consider the allegations pleaded in the [underlying] action in the light of the coverage provisions and exclusions in the policy[.]" Advance Watch Co. Ltd. v. Kemper Nat'l Ins, Co., 99 F.3d 795, 798 (6th Cir. 1996).
The Court commences its analysis by determining whether the relevant contractual text presents an ambiguity.
The Policy defines `advertising injury" as a claim arising out of one of 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;
b. Oral or written publication of material that violates a person's right of privacy;
c. Misappropriation of advertising or style of doing business; or
d. Infringement of copyright, title or slogan.
When called upon to interpret an insurance contract, the Court construes clear and unambiguous provisions according to the plain and ordinary meaning of the terms used in the policy. Trierweiler v. Frankenmuth Mutual Insurance Co., 216 Mich. App. 653, 656 (1996). Where the policy's terms are clear, "courts are bound by the specific language set forth in the agreement." Heniser v. Frankenmuth Mutual Insurance Co., 449 Mich. 155, 160 (1995).
Defendant does not contend the Policy is ambiguous. Indeed, the Sixth Circuit has on two occasions held identical policy language to be unambiguous. See ShoLodge, Inc. v. Travelers Indemnity Co. of Il., 168 F.3d 256 (6th Cir. 1999); United National Insurance Co. v. SST Fitness Corp., 182 F.3d 447 (6th Cir. 1999). In accordance with the above cases, the Court holds the terms of the Policy setting forth coverage for advertising injury are unambiguous.
B.
The Court thus proceeds to the second step in the analysis to determine whether the language of the Policy delineating coverage for advertising injury encompasses the allegations made in the Gordon Belt complaint. The Court simply compares the allegations made in the Gordon Belt complaint with those terms of the Policy that set forth coverage for advertising injury. See Advance Watch, 99 F.3d at 798. Although sparsely worded, count I of the Gordon Belt complaint clearly alleges defendant infringed a patent held by the plaintiffs. Arguing the allegation of patent infringement does not meet the policy coverage for advertising injury, plaintiff cites Sixth Circuit case law interpreting an advertising injury clause for "copy-right, title or slogan" infringement. ShoLodge, 168 F.3d at 260. In ShoLodge, the Sixth Circuit held an advertising injury provision identical to that of the Policy does not extend to service mark, trademark or trade dress claims. Although ShoLodge was decided under Tennessee law, the panel expressly noted there was "`no material difference between Michigan and Tennessee law regarding principles of insurance contract interpretation." Id. at 259. In SST Fitness, the Sixth Circuit extended the analysis in ShoLodge and held an advertising injury clause identical to that set forth in the Policy did not encompass a claim for patent infringement. Comparing the facts at bar with the relevant case law, the Court finds the facts in ShoLodge and SST Fitness are indistinguishable from those presented here. Hence, as a matter of law, the Court finds plaintiff had no duty to defend defendant against allegations of patent infringement.
Defendant maintains, however, that the count II unfair competition claim triggered plaintiff's duty to defend either as disparagement or as misrepresentation. In its entirety, the Gordon Belt unfair competition claim alleged:
The aforesaid activities and other related activities of the defendant Argonics have caused damages and irrefutable injury to the Plaintiff Gordon Belt and Arch and constitute unfair competition under the statutes and common law of the states of Illinois and Kentucky.
Defendant argues by referring to "the aforesaid activities and other related activities of the defendant Argonics," the allegations of unfair competition did not simply restate the patent infringement claim asserted in count I. Because the Gordon Belt complaint was vaguely pled to include `other related activities," defendant contends the allegations arguably fell within the advertising injury clause. According to defendant's reasoning, plaintiff was therefore obligated to look beyond the complaint's allegations to the underlying facts to determine whether coverage was possible, resolving any doubts in the insured's favor.
As a matter of law, however, the Court finds that plaintiff has no duty to defend unless the complaint alleges the insured "specifically committed one of the four types of `advertising injury' specified in the policy. . . ." SST Fitness, 182 F.3d at 450. In SST Fitness, the Sixth Circuit construed an insurance contract under Ohio law containing an advertising injury clause identical to that of the Policy. Like the court in ShoLodge, the court in SST Fitness observed that attempts to distinguish Ohio contract law from Michigan contract law in the insurance context "are unavailing." Id. at 451. Moreover, like defendant, the complaint in SST Fitness had alleged unfair competition.
Nevertheless, the Sixth Circuit rejected the argument that the duty to defend arises from a general claim of unfair competition where the insured cannot identify specific language in the insurance contract triggered by the allegations of the complaint. Id. at 452. Accordingly, this Court likewise declines to read the duty of defend into the Policy where the underlying complaint alleged a claim of unfair competition which in essence duplicated a claim of patent infringement.
See SST Fitness, 182 F.3d at 452 n. 2.
III
Even were the law to accord with defendant's interpretation, defendant has nevertheless failed to adduce any facts sufficient to support an inference that the count II unfair competition claim raised any issues beyond the patent infringement alleged in count I of the Gordon Belt complaint. In its oral argument, defendant attempted to develop the position that the plaintiffs in the underlying action contended that defendant disparaged Arch Environmental's products.
The only evidence defendant submits in support of that contention is the deposition of Neil Archer. Nowhere in Archer's deposition testimony, however, does he state defendant made any negative remarks about or comparisons to Arch Environmental"s products. To the contrary, Archer states defendant "has spent maybe $3.00 advertising. They depend on our advertising." Rather than claiming defendant's salespersons made detractions of Arch Environmental's products, Archer stated defendant's salespersons' "approach is that we'll sell you a product that will do the same thing for half of the money. . . ." The principal charge leveled against defendant by Archer is that defendant's salespersons sold to Arch Environmental's customer list. Assuming such a statement as true, Archer's statements nevertheless fail to support a claim of disparagement.
Furthermore, defendant did not present any evidence from which a reasonable jury could infer that defendant misappropriated any advertising ideas and style of doing business that "refers to a company's `comprehensive manner of operating its business.'" Poof Toy Products, Inc. v. United States Fidelity and Guaranty Co., 891 F. Supp. 1228, 1232 (E.D.Mich. 1995). Neither does Archer's testimony establish that count II of the Gordon Belt complaint alleged defendant misappropriated Arch Environmental's advertising ideas and style of business, nor copied Arch Environmental's style of advertising. Rather, Archer merely states that defendant's sales force sold directly to Arch Environmental's customer base. Because defendant sold directly to customers instead of advertising its products, Archer's testimony does not establish defendant misappropriated Arch Environmental's ideas or style of business.
Finally, defendant argues that to the extent disparagement exists, it must be covered either as personal injury or advertising injury under the Policy.
This argument fails for two reasons. First, because defendant has not adduced any direct or inferential evidence of disparagement, the unfair competition claim does not trigger the duty to defend. Second, the complaint itself fails to set forth any damage to the plaintiff's name, business reputation or goodwill constituting "personal injury" as defined by the Policy. Absent such allegations, the duty to defend does not arise. See SST Fitness, 182 F.3d at 452.
IV
Having resolved the dispositive issues the Court turns to consider the four counter-claims defendant asserted against plaintiff: (1) breach of contract regarding "personal injury" coverage; (2) breach of contract regarding "advertising injury" coverage; (3) waiver/estoppel; and, (4) unfair trade practices. In the above analysis, the Court has disposed of the bases for the counter-claims alleging breach of contract.
Defendant presented these claims on the briefs, but did not elect to argue them before the court at the hearing.
Neither the personal injury nor the advertising injury clauses at issue encompass patent infringement the essence of the Gordon Belt complaint's allegations. Hence, plaintiff had no contractual duty to defend defendant, and plaintiff is entitled to summary judgment on the first two counter-claims.
In its third counter-claim, defendant contends plaintiff is estopped to deny coverage for the unfair competition claim because it did not respond to the tender letters on that issue. The Court finds this argument to be without merit. The two counts alleged in the underlying litigation were substantively equivalent in that the unfair competition claim relied upon the same allegations that formed the basis for the claim of patent infringement. As the patent infringement claim was properly denied, the claim for unfair competition was impliedly and properly denied.
In its last counter-claim, defendant asserts plaintiff violated the Uniform Trade Practices Act ("UTPA"), M.C.L.A. 500. 2001 et. seq. However, plaintiff properly observes that no basis exists for a private cause of action for a ("UTPA"), violation under Michigan law. See Young v. Michigan Mutual Ins. Co., 139 Mich. App. 600 (1984).
Accordingly, summary judgment will be granted to plaintiff on defendant's fourth counter-claim.
V
Under settled case law in this circuit, a claim of patent infringement does not give rise to the duty to defend where an unambiguous "advertising injury" clause affords coverage for "[i]nfringement of copyright, title or slogan." As both counts of the underlying complaint in essence rested upon allegations of patent infringement, the Court finds plaintiff had no duty to defend defendant. Accordingly, plaintiff's motion for summary judgment will be granted. An order consistent with this opinion shall issue forthwith.
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
In accordance with the Court's written opinion of even date, IT IS HEREBY ORDERED that plaintiff's motion for summary judgment is GRANTED. Accordingly, JUDGMENT IS AWARDED to plaintiff on all counts of plaintiff's complaint.IT IS FURTHER ORDERED that plaintiff's motion for summary judgment on all counter-claims raised by defendant is hereby GRANTED. Accordingly, JUDGMENT IS AWARDED to plaintiff on all counter-claims raised by defendant.