646 F.3d 210 (5th Cir. 2011), 09-20666, Continental Cas. Co. v. Consolidated Graphics, Inc.

Docket Nº:09-20666.
Citation:646 F.3d 210
Opinion Judge:OWEN, Circuit Judge:
Party Name:CONTINENTAL CASUALTY COMPANY, Plaintiff-Appellee, v. CONSOLIDATED GRAPHICS INC.; Thousand Oaks Printing & Specialties, Inc., doing business as T/O Printing; Daniel Chambers, an Individual, Defendants-Appellants, v. Sentry Insurance, A Mutual Company, Intervenor Plaintiff-Appellee.
Attorney:John Charles Tollefson (argued), Beth Dunn Bradley, Stephen Andrew Melendi, Tollefson, Bradley, Ball & Mitchell, L.L.P., Dallas, TX, for Plaintiff-Appellee. Richard P. Colquitt (argued), Fulbright & Jaworski, L.L.P., Houston, TX, for Defendant-Appellant. Kathleen Hopkins Alsina (argued), Phelps D...
Judge Panel:Before DENNIS, OWEN and SOUTHWICK, Circuit Judges.
Case Date:July 07, 2011
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 210

646 F.3d 210 (5th Cir. 2011)

CONTINENTAL CASUALTY COMPANY, Plaintiff-Appellee,

v.

CONSOLIDATED GRAPHICS INC.; Thousand Oaks Printing & Specialties, Inc., doing business as T/O Printing; Daniel Chambers, an Individual, Defendants-Appellants,

v.

Sentry Insurance, A Mutual Company, Intervenor Plaintiff-Appellee.

No. 09-20666.

United States Court of Appeals, Fifth Circuit.

July 7, 2011

Page 211

John Charles Tollefson (argued), Beth Dunn Bradley, Stephen Andrew Melendi, Tollefson, Bradley, Ball & Mitchell, L.L.P., Dallas, TX, for Plaintiff-Appellee.

Richard P. Colquitt (argued), Fulbright & Jaworski, L.L.P., Houston, TX, for Defendant-Appellant.

Kathleen Hopkins Alsina (argued), Phelps Dunbar, L.L.P., Houston, TX, Lisa Martin Lampkin, Selman Breitman, L.L.P., Los Angeles, CA, for Intervenor Plaintiff-Appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before DENNIS, OWEN and SOUTHWICK, Circuit Judges.

OWEN, Circuit Judge:

Consolidated Graphics Inc., Thousand Oaks Printing & Specialties, Inc., and Daniel Chambers (collectively, the Consolidated Graphics defendants) seek to recover the cost of defending a suit against them and indemnity for an adverse judgment entered against them in that suit from two insurers, Continental Casualty Company (Continental) and Sentry Insurance (Sentry). The Consolidated Graphics defendants appeal the district court's grant of summary judgment in favor of the insurers. We affirm.

I

This case concerns whether either Sentry, the primary insurer, or Continental, an excess insurer, has a duty to defend

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and indemnify the Consolidated Graphics defendants in an underlying tort suit. We begin with the facts of that underlying litigation.

Thousand Oaks Printing & Specialties, Inc. (Thousand Oaks), a California corporation, is a subsidiary of Consolidated Graphics, a large printing and graphics corporation. Rudamac, Inc. (Rudamac) is a family-owned printing company in California. Daniel Chambers, the nephew of Rudamac's owner and president, was employed by Rudamac for approximately nine years. When Chambers's aunt refused to give him an ownership interest in the company, he devised a scheme to direct a substantial portion of Rudamac's business to Thousand Oaks and to become an employee of one of the Consolidated Graphics defendants. He allegedly misappropriated trade secrets, including price information, private data regarding product prices, profit margins, and information about promotions given, to three of Rudamac's customers: Dacor, AIG and Tiger Woods Foundation. Thousand Oaks and Consolidated Graphics were allegedly actively complicit in this scheme.

Rudamac sued Consolidated Graphics, Thousand Oaks, and Chambers in California state court for misappropriation of trade secrets, unfair business practices, intentional interference with prospective economic advantage, breach of fiduciary duty, constructive trust, unjust enrichment, a demand for an accounting, and intentional interference with at-will employment relations. Rudamac alleged that Chambers acted for himself and as the undisclosed agent of Consolidated Graphics and Thousand Oaks. The case was tried to a jury on theories of misappropriation, interference, and breach of fiduciary duty, and the jury found against the Consolidated Graphics defendants on all counts. The jury awarded Rudamac $5,698,000 in compensatory damages. The jury also awarded $1,500,000 in punitive damages against Thousand Oaks and $6,647,000 in punitive damages against Consolidated Graphics. The judgment rendered in the California trial court was affirmed on appeal.

Consolidated Graphics and its subsidiaries were insured under two primary liability insurance policies issued by Sentry and an excess liability insurance policy issued by Continental. Each of the policies provided liability coverage for " advertising injury." While the Rudamac litigation was pending, Continental brought a declaratory judgment action against the Consolidated Graphics defendants in federal court, which had diversity jurisdiction. Sentry intervened. Both Continental and Sentry sought a declaratory judgment that they had no duty to defend or indemnify the Consolidated Graphics defendants in the Rudamac litigation, contending that no " advertising injury" had been alleged in that underlying suit or had occurred within the meaning of the policies. The parties filed cross motions for summary judgment, and the district court granted summary judgment in favor of Continental and Sentry. The Consolidated Graphics defendants now appeal.

II

We first consider Sentry's policies and its duty to defend. The parties agree that Texas law governs, and Texas law instructs that an insurer's duty to defend is determined under the eight-corners doctrine. 1 The court considers only the factual allegations in the pleadings and

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the terms of the insurance policy.2 " If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured." 3

In applying the eight-corners rule, the court construes the pleadings liberally.4 The liability insurer has a duty to defend " if the facts alleged in the pleadings would give rise to any claim within the coverage of the policy." 5

The Sentry policies included liability coverage for " advertising injury" and provided:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of " personal injury" or " advertising injury" to which this insurance applies. We will have the right and duty to defend any " suit" seeking those damages.

....

[ ]b[.] This insurance applies to:

....

(2) " Advertising injury" caused by an offense committed in the course of advertising your goods, products or services....

" Advertising injury" is defined 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;

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.

The policy does not define the term " advertising" or " advertisement."

The Consolidated Graphics defendants rely on only one of the foregoing offenses, " [m]isappropriation of advertising ideas or style of doing business," in support of their claim in this court that Sentry had a duty to defend them. They point to four paragraphs in the complaint filed by Rudamac in the underlying tort litigation, which alleged:

19. Plaintiff's customer and supplier lists are compilations of detailed information about each of its customers and suppliers.... [T]his information typically included specialized information, including a list of key personnel and decision-makers with the customer or supplier's company as well as specific contract information....

....

21. Plaintiff's trade secret/financial information includes price information, including private data regarding the competitive pricing of the products, profit margin, particularized pricing information such as mark ups, discounts, or other promotions given....

22. Plaintiff's marketing strategies include Plaintiff's long and short-term plans for developing new and existing

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suppliers for various orders and products.

....

42. Plaintiff alleges ... that [Defendants] utilized [Rudamac's] successful business history and pricing strategy to solicit and misappropriate customers ... of [Rudamac]....

The district court concluded that the allegations regarding " pricing ... promotions" alleged " [m]isappropriation of [an] advertising idea[ ]" within the meaning of Sentry's policy. We will assume, without deciding, that this is a correct construction of the policy under Texas law. We...

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