Sport Supply Group, Inc. v. Columbia Cas. Co.

• Decision Date: 07 July 2003
• Docket Number: No. 02-10929.,02-10929.
• Citation: 335 F.3d 453
• Parties: SPORT SUPPLY GROUP, INC., Plaintiff-Appellant, v. COLUMBIA CASUALTY COMPANY; RSKCo Claims Service, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

335 F.3d 453

SPORT SUPPLY GROUP, INC., Plaintiff-Appellant, v. COLUMBIA CASUALTY COMPANY; RSKCo Claims Service, Inc., Defendants-Appellees.

No. 02-10929.

United States Court of Appeals, Fifth Circuit.

July 7, 2003.

COPYRIGHT MATERIAL OMITTED

John J. Little (argued), Little Pedersen Fankhauser, Dallas, TX, for Sport Supply Group Inc.

John C. Tollefson (argued), Goins, Underkofler, Crawford & Langdon, Dallas, TX, for Columbia Casualty Co.

David P. Brenner (argued), Burns, Anderson Jury & Brenner, Austin, TX, for RSKCo Claims Service.

Appeal from the United States District Court for the Northern District of Texas.

Before DUHÉ, EMILIO M. GARZA and DeMOSS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Sport Supply, Inc. ("Sport Supply") appeals the district court's grant of summary judgment in favor of Columbia Casualty Company ("Columbia") and RSKCo Claims Service, Inc. ("RSKCo"). Sport Supply filed suit against Columbia, alleging that the insurer was required to reimburse Sport Supply for part of the cost of defending a counterclaim brought by MacMark Corporation ("MacMark"). Sport Supply contended that MacMark's allegations of trademark infringement fell under the provisions of the insurance policy relating to "advertising injury." Sport Supply also filed suit against RSKCo, the loss adjusting company that it had retained pursuant to the insurance agreement, asserting various state law claims. Sport Supply alleged that RSKCo was largely responsible for Columbia's failure to provide coverage in this case. Because we conclude that Sport Supply was not entitled to coverage under the insurance policy, we affirm the district court's judgment in favor of Columbia and RSKCo.

I

The origins of the instant case can be found in the dispute between Sport Supply and MacMark. MacMark entered a licensing agreement with Sport Supply, which permitted Sport Supply to use MacMark's "Macgregor" trademark on certain sporting goods. MacMark later accused Sport Supply of breaching that licensing agreement by attempting to sell products bearing the Macgregor trademark on the Internet. MacMark eventually sent a letter to Sport Supply, stating that it planned to terminate the licensing agreement. In response, Sport Supply brought an action in Texas state court, seeking a declaration that it was not in breach of the agreement. MacMark filed a counterclaim, which alleged in relevant part that Sport Supply had breached the licensing agreement by advertising, offering to sell, and selling products with the Macgregor trademark on the Internet.¹

Sport Supply and MacMark eventually settled their dispute. Sport Supply was not required to pay any compensation to MacMark, but, according to Sport Supply, it spent a considerable amount of money defending MacMark's counterclaim. Sport Supply therefore requested that Columbia, its insurer, pay part of Sport Supply's defense costs. Columbia responded that Sport Supply was not entitled to coverage.

Sport Supply subsequently brought the instant action against Columbia in Texas state court, seeking to recoup those defense costs. Sport Supply also filed suit against RSKCo, raising numerous state law claims. The case was removed to the federal district court for the Northern District of Texas, which had diversity jurisdiction over the dispute. The district court granted the defendants' motions for summary judgment. Sport Supply now appeals.

II

We review the district court's ruling on a motion for summary judgment de novo, applying the same legal standard as the district court. Wyatt v. Hunt Plywood Co., 297 F.3d 405, 408 (5th Cir.2002). Summary judgment should be granted only when there is "no genuine issue as to any material fact[.]" FED. R. CIV. P. 56(c); Wyatt, 297 F.3d at 408-09. An issue of fact is material only "if its resolution could affect the outcome of the action." Wyatt, 297 F.3d at 409.

In determining whether there is a dispute as to any material fact, we consider all of the evidence in the record, but we do not make credibility determinations or weigh the evidence. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). Instead, we "draw all reasonable inferences in favor of the nonmoving party[.]" Id.; Wyatt, 297 F.3d at 409. If we determine, after giving credence to the facts as presented by the nonmoving party, that "the moving party is entitled to a judgment as a matter of law," we affirm the grant of summary judgment. FED. R. CIV. P. 56(c).

Sport Supply has requested that Columbia reimburse it for part of the cost of defending MacMark's counterclaim. Thus, this case involves the "duty to defend." See Pa. Pulp & Paper Co. v. Nationwide Mut. Ins. Co., 100 S.W.3d 566, 568, 570 (Tex.App.-Houston [14th Dist.] 2003, pet. filed) (applying the "duty to defend" standard when the insured sued "to recover the cost of defending against a counterclaim"). In Texas, an insurance company's duty to defend depends on the factual allegations in the complaint and the policy language. See Farmers Tex. County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex.1997); Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997).² Thus, in determining whether Columbia must reimburse Sport Supply for its defense costs, we consider the factual allegations in MacMark's counterclaim and the terms of the policy issued by Columbia.

This case turns on whether the insurance policy that Columbia issued to Sport Supply covers MacMark's counterclaim.³ The parties appear to agree that MacMark alleged facts to support a claim of trademark infringement. Sport Supply insists that MacMark's trademark infringement claim is covered by the "advertising injury" provisions of the policy. The policy covers "`[a]dvertising injury' caused by an offense committed in the course of advertising [Sport Supply's] goods, products, or services[.]" In the policy, "[a]dvertising injury" is defined as an 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;

b. Oral or written publication of material that violates a person's right of privacy;

c. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title or slogan.

Sport Supply contends that trademark infringement constitutes either the "[m]isappropriation of advertising ideas" or the "[i]nfringement of copyright, title or slogan." Therefore, Sport Supply asserts MacMark's trademark infringement claim is covered by the policy.

Columbia responds that, regardless whether trademark infringement can be deemed an "advertising injury," Sport Supply is not entitled to insurance benefits. Columbia asserts that one of the policy exclusions applies to negate coverage. The policy specifically excludes coverage for "`[a]dvertising injury' arising out of ... [b]reach of contract, other than misappropriation of advertising ideas under an implied contract[.]" Columbia contends that MacMark's alleged "advertising injury" arose out of Sport Supply's breach of its licensing agreement with MacMark. We agree.⁴

Under Texas law, when an exclusion prevents coverage for injuries "arising out of" particular conduct, "[a] claim need only bear an incidental relationship to the described conduct for the exclusion to apply." Scottsdale Ins. Co. v. Tex. Sec. Concepts & Investigation, 173 F.3d 941, 943 (5th Cir.1999) (applying Texas law) (emphasis added). MacMark's counterclaim alleged that Sport Supply breached their licensing agreement by advertising and selling products with the Macgregor trademark on the Internet. It seems clear that MacMark's alleged injury bears at least an "incidental relationship" with Sport Supply's breach of contract. See Pa. Pulp, 100 S.W.3d at 572-73 (interpreting the same policy language and concluding that the alleged injury — misappropriation of trade secrets — arose out of the breach of a licensing agreement); Southstar Corp. v. St. Paul Surplus Lines Ins. Co., 42 S.W.3d 187, 191 (Tex.App. — Corpus Christi 2001, no pet. h.) (interpreting an insurance policy with a similar exclusion and concluding that the alleged injury — the unauthorized use of a company name — arose out of the breach of a dissolution agreement); see also Callas Enters., Inc. v. Travelers Indem. Co. of Am., 193 F.3d 952, 955-56 (8th Cir.1999) (interpreting an identical insurance policy and concluding that the alleged injuries — including trademark infringement — arose out of the breach of an exclusive agency contract). Therefore, as Columbia asserts, the exclusion for injuries "arising out of breach of contract" appears to apply in this case.

The exclusion does, however, provide an exception for "misappropriation of advertising ideas under an implied contract[.]" In order to complete the analysis required in duty to defend cases, we examine whether this exception to the breach of contract exclusion could apply in this case. Cf. Pilgrim Enters., Inc. v. Maryland Cas. Co., 24 S.W.3d 488, 498 (Tex.App. — Houston [1st Dist.] 2000, no pet. h.) (observing that courts must find a duty to defend if the insurance policy "potentially" covers the insured). Thus, we consider whether Sport Supply's alleged trademark infringement could constitute the "misappropriation of [an] advertising idea[]."⁵

Courts have differed considerably over whether trademark infringement constitutes the "misappropriation of advertising ideas." Compare Callas Enters., 193 F.3d at 956 (adopting the conclusion of the Sixth Circuit that "misappropriation of advertising ideas or style of doing business" does not include trademark infringement), and Advance Watch Co. v. Kemper Nat'l Ins. Co., 99 F.3d 795, 802 (6th Cir.1996) (holding that "`[m]isappropriation of advertising ideas or style of doing business'... refer[s] to the...