United Nat. Ins. Co. v. Spectrum Worldwide, Inc., 07-55833.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation555 F.3d 772
Docket NumberNo. 07-55833.,07-55833.
PartiesUNITED NATIONAL INSURANCE COMPANY, a Pennsylvania corporation, Plaintiff-Appellee, v. SPECTRUM WORLDWIDE, INC., a California corporation; Celebrity Products Direct, Inc., a California corporation; Lisa Tremain, a California citizen; Howard Schwartz, a California citizen, Defendants-Appellants, and Monticello Insurance Company, a Delaware corporation, Defendant.
Decision Date02 February 2009

James C. Nielsen, Jennifer S. Cohn, and August L. Lohuaru, Nielsen, Haley & Abbott LLP, Los Angeles, CA, for the plaintiffs-appellees.

Peter W. Ross, Gene Williams, and Keith J. Wesley, Brown Woods & George LLP, Los Angeles, CA, for the defendants-appellants.

Appeal from the United States District Court for the Central District of California; Stephen G. Larson, District Judge, Presiding. D.C. No. CV-05-04610-SGL.

Before: HARRY PREGERSON and N. RANDY SMITH, Circuit Judges, and RANER C. COLLINS,* District Judge.

N.R. SMITH, Circuit Judge:

Spectrum Worldwide, Inc. ("Spectrum Worldwide"), Celebrity Products Direct, Inc. and Celebrity Products, Inc. (collectively "Celebrity"), Spectrum Worldwide's president Murray Moss ("Moss"), CEO Lisa Tremain ("Tremain"), and CFO Howard Schwartz ("Schwartz") (all of the defendants hereinafter referred to as "Spectrum") asks this court to determine whether the "first publication" exclusion found in the United National Insurance Company's ("United") excess insurance policy applies to infringement claims. We hold that it does. Additionally, because Spectrum presents us with a legal position that is clearly inconsistent with the position it took and benefitted from in previous litigation, judicial estoppel prevents us from allowing Spectrum to argue that it first published infringing material after purchasing its excess insurance coverage. Further, the district court did not abuse its discretion when it held Schwartz and Tremain jointly and severally liable for repayment of United's contribution.

I

In December 1997, Sunset Health Products, Inc. ("Sunset") hired Spectrum to advertise and distribute the "Hollywood 48-Hour Miracle Diet" drink ("Miracle Diet"). Soon thereafter, Tremain and Schwartz formed Celebrity to market and sell a similar product, "The Original Hollywood Celebrity Diet" drink ("Celebrity Diet"). Spectrum then terminated its contract with Sunset and began marketing Celebrity Diet.

In December 1998, and again in March 1999, Sunset demanded that Spectrum cease infringing on its Miracle Diet trademark. In October 2001, Sunset filed a trade dress infringement claim against Spectrum, alleging that Spectrum "deliberately" made Celebrity Diet's packaging and labeling so similar to Miracle Diet that it confused consumers and damaged Sunset's reputation (the "Sunset Action"). Sunset applied for a temporary restraining order ("TRO"), wherein it asked District Judge Nora Manella1 to compare Sunset's 1998 label to Spectrum's 1998 and 2001 labels to determine that Spectrum's 2001 label constituted an immediate harm to Sunset. In 1998, Sunset's Miracle Diet label prominently featured the word "Hollywood," contained the phrase "Lose Up To 10 lbs. in 48 Hours!," and included palm trees, gold stars, and Hollywood-style searchlights — all set on a blue/purple background ("Sunset's 1998 label"). Spectrum initially sold Celebrity Diet under a label featuring very similar phrasing, but set against a black background with a large gold star ("Spectrum's 1998 label"). In 1999, Spectrum changed Celebrity Diet's label, sporting the same large gold star and phrasing, but switching to a purple/blue background featuring Hollywood-style searchlights ("Spectrum's 1999 label"). In May 2001, Spectrum again altered Celebrity Diet's label, changing the font and style of the word "Hollywood" to look more like the Hollywood Hills sign, and modified the star and searchlights ("Spectrum's 2001 label").

Judge Manella granted the TRO based on the dramatic change between Spectrum's 1998 and 2001 labels. In the subsequent preliminary injunction hearing, however, Spectrum argued that it changed its 1998 label in 1999, and that its 1999 label was so similar to its 2001 label that Sunset was not in danger of experiencing immediate harm. Judge Manella accepted Spectrum's position, and denied Sunset's preliminary injunction action on this basis. Spectrum therefore continued profiting from the sale of Celebrity Diet, while deepening potential insurers' liability.

In 2001, United also issued Spectrum a one million dollar excess third party liability policy (the "United Policy") related to an underlying policy issued by Monticello Insurance Company (the "Monticello Policy"). United's policy became effective on April 26, 2001, and is "subject to definitions, terms, conditions, exclusions and limitations contained in the [Monticello Policy]," which indemnifies Spectrum for damages resulting from "advertising injury" liability, meaning injury arising from:

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;

d. Infringement of copyright, title or slogan.

The United Policy does not, however, apply to an "advertising injury ... arising out of oral or written publication of material whose first publication took place before the beginning of the policy period."

After subsequent hearings on cross-motions for summary judgment in the Sunset Action, the parties were left with Sunset's core trade-dress infringement claim. Spectrum and Sunset then settled the Sunset Action for a total of $3,220,000 paid to Sunset, funded by Spectrum's insurers. United contributed $420,000 to the settlement, pursuant to its obligations under the United Policy.

United sought reimbursement of its settlement contribution through a Complaint filed against Spectrum on June 24, 2005. United moved for summary judgment, arguing that the United Policy's first publication exclusion eliminated its indemnification obligations. Finding the first publication exclusion generally applicable to infringement claims, the district court nonetheless denied United's motion on September 6, 2006 because "triable issues of fact" prevented the court from determining whether Spectrum's offending actions occurred prior to the United Policy's effective date.

United moved for reconsideration, based on its claim that Sunset's advertising injury had already been determined by Judge Manella in the Sunset Action. After reviewing Judge Manella's findings, the district court reconsidered and granted United's motion for summary judgment, holding that Spectrum's 1999 label formed the substance of Sunset's advertising injury, and therefore that the first publication exclusion eliminates United's liability. The district court entered a judgment against Spectrum Worldwide, Schwartz, and Tremain in the amount of $420,000 plus interest. Spectrum moved for reconsideration, arguing first that the district court should not have relied upon Judge Manella's previous findings, and second that Schwartz and Tremain should not have been included in the judgment. The district court denied Spectrum's motion on May 11, 2007. Spectrum filed a Notice of Appeal on June 6, 2007, and satisfied the judgment.

II

We review de novo a district court's decision to grant summary judgment. Thomas v. City of Beaverton, 379 F.3d 802, 807 (9th Cir.2004). We do not weigh the evidence or determine the truth of the matter, but only determine whether there is a genuine issue of fact for trial. See Balint v. Carson City, 180 F.3d 1047, 1054 (9th Cir.1999). We may affirm on any basis supported by the record, Valdez v. Rosenbaum, 302 F.3d 1039, 1043 (9th Cir. 2002).

III

Spectrum argues that the United Policy's first publication exclusion does not apply to Sunset's infringement claim, because (1) first publication exclusions do not apply to infringement actions in California and (2) even if the clause applies to infringement actions, summary judgment was not proper to determine whether Spectrum first published infringing material before the United Policy took effect. We find that (1) the United Policy unambiguously applies to infringement actions, and (2) summary judgment is proper to determine the date of first publication in this case, because Spectrum is judicially estopped from presenting and prevailing on inconsistent arguments before the district courts.

A

Insurance policy interpretation is a question of California law, which requires courts to initially look to the insurance policy language in order to ascertain its plain meaning. Cal. Civ.Code § 1636; Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 44 Cal.Rptr.2d 370, 900 P.2d 619, 627 (1995). Because insurance policy interpretation must give effect to the parties' "mutual intention" at the time they formed the contract, Cal. Civ.Code § 1636, the parties' intent should be inferred solely from the written provisions of the contract. Cal. Civ.Code § 1639. The written provisions should be examined "together, so as to give effect to every part, if reasonably practicable." Cal. Civ.Code § 1641. If a written policy provision is "clear and explicit," it must be given proper effect. E.g., Fireman's Fund Ins. Co. v. Superior Court, 65 Cal.App.4th 1205, 78 Cal.Rptr.2d 418, 422 (1997).

On the other hand, if a policy provision is capable of two or more reasonable constructions, it is "ambiguous," Waller, 44 Cal.Rptr.2d 370, 900 P.2d at 627 (citing Bay Cities Paving Grading, Inc. v. Lawyers' Mutual Ins. Co., 5 Cal.4th 854, 21 Cal.Rptr.2d 691, 855 P.2d 1263, 1271 (1993)), and courts "must resolve the ambiguity in favor of the insured, consistent with the insured's reasonable expectations," ...

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