Cgs Indus. Inc. v. the Charter Oak Fire Ins. Co.

Decision Date16 November 2010
Docket NumberNo. 10–CV–3186.,10–CV–3186.
Citation751 F.Supp.2d 444
PartiesCGS INDUSTRIES, INC., Plaintiff,v.The CHARTER OAK FIRE INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Eastern District of New York

OPINION TEXT STARTS HERE

Andrew M. Sussman, David A. Gauntlett, Gauntlett & Associates, Irvine, CA, Eugene Killian, Jr., Killian & Salisbury, P.C., Iselin, NJ, for Plaintiff.Celeste M. Butera, Lawrence Adam Levy, Rivkin Radler LLP, Uniondale, NY, for Defendant.

MEMORANDUM & ORDER

JACK B. WEINSTEIN, Senior District Judge.

+----------------------------------------------------------------------------+
                ¦I. ¦Introduction                                                    ¦447    ¦
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                ¦   ¦                                                                ¦       ¦
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                ¦II.¦Facts and Procedural History                                    ¦447    ¦
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   A.   Web Xtend Liability Policy                                      447
                   B.   Five–Four Suit                                                  448
                   C.   Instant Proceedings                                             448
                
                III. Contentions of the Parties, Law, and Application to Facts          449
                
   A.   Contentions of the Parties                                      449
                   B.   Standard                                                        449
                   C.   Law and Application to Facts                                    449
                
        1.  Interpretation of Insurance Policies                        449
                        2.  Infringement of “Slogan” or “Title”                         450
                        3.  “In the course of” Advertising                              451
                        4.  Exclusions                                                  452
                
            a.   Knowledge of Falsity                                   452
                            b.   First Publication Exclusion                            452
                
                IV. Conclusion                                                          453
                

I. Introduction

CGS Industries, Inc. (CGSI) sues The Charter Oak Fire Insurance Company (“Charter Oak”) for breach of contract for its failure to defend CGSI in an underlying litigation. It is alleged that Charter Oak breached its contractual duties by failing to defend CGSI in a trademark suit brought by Five Four Clothing, Inc. and FiveFour Group LLC (collectively, “Five Four”) in the United States District Court for the Central District of California (“Five Four Litigation”). Sought are declaratory relief stating that Charter Oak has a duty to defend CGSI in the Five Four Litigation and pay its attorneys' fees and costs, damages resulting from this alleged breach of contract, and costs of this suit.

CGSI moved for partial summary judgment as to Charter Oak's duty to defend. See Fed.R.Civ.P. 56; D.E. No. 10. Charter Oak moved for judgment on the pleadings and opposed CGSI's motion. See Fed R. Civ. P. 12(c); D.E. Nos. 21, 26. By court order, Charter Oak's motion for judgment on the pleadings was converted to one for summary judgment. Order, Oct. 13, 2010, D.E. No. 36. For the reasons set forth below, CGSI's motion for partial summary judgment is granted and Charter Oak's cross-motion for summary judgment is denied.

II. Facts and Procedural HistoryA. Web Xtend Liability Policy

Defendant Charter Oak issued a commercial general liability policy to CGSI for August 31, 2009 through August 31, 2010. See Am. Compl. at ¶ 6, Ex. 1; Def.'s Mem. of Law in Support for its Mot. for Judg. on the Pleadings (“Def.'s Mem.”) at 4. Included in the policy is an endorsement titled “Web Xtend Liability—New York.” See Decl. of Leonard M. Braun in Supp. of Pl.'s Mot for Summ. Judg. as to Liab. on Def.'s Duty to Defend (“Braun Decl.”), Ex. 1 at CG F2 1003 05, p. 1. This endorsement (“Web Xtend Policy”) obligates Charter Oak, in relevant part, to pay damages of ‘advertising injury,’ caused by an offense committed in the course of advertising [CGSI's] goods, products or services.” Id. “Advertising injury,” in turn, is defined in the Web Xtend Policy as “injury, arising out of ... [i]nfringement of copyright, title or slogan....” Id. at p. 4.

The Web Xtend Policy is subject to a number of exclusions. As relevant to the instant suit, they are: (1) an exclusion for advertising injury “caused by or at the direction of [CGSI] with the knowledge that the act would violate the rights of another and would inflict” such injury; and (2) advertising injury “arising out of oral, written or electronic publication of material whose first publication took place before the beginning of the policy period.” Id. at p. 1–2.

B. Five–Four Suit

On December 23, 2009, Five Four filed a complaint against Wal–Mart Stores, Inc. (“Wal–Mart”) for trademark and trade dress infringement relating to Five Four's trademarks and trade dress. See Braun Decl., Ex. 2. On March 24, 2010, Five Four filed its second amended complaint, adding CGSI as a defendant. See id., Ex. 4. On July 18, 2010, a third amended complaint (“Five Four Complaint”) was filed alleging eight claims, entitled “Federal Trademark Counterfeiting,” “Federal Trademark Infringement,” “Federal False Designations of Origin and False Descriptions,” “Trade Dress Infringement,” “False Advertising,” “Common Law Trademark Infringement and Unfair Competition,” State Statutory Unfair Competition,” and “Constructive Trust.” See id., Ex. 12 (“Five Four Compl.”) at 6–10.

Five Four alleged that Wal–Mart and CGSI, among others, “have counterfeited and/or infringed [its] trademarks by advertising, distributing, selling and/or offering for sale unauthorized goods including without limitation apparel bearing unauthorized reproductions of [its] trademarks.” Id. at ¶ 29. These trademarks allegedly “embod[y] the spirit of modern culture,” and through “longstanding use, advertising and registration, ... have achieved a high degree of consumer recognition.” Id. at ¶¶ 13, 17. They are purportedly “highly recognized by the public and serve to identify the source of the goods as from Five Four.” Id. at ¶ 20.

Throughout Five Four's second amended complaint, various allegations concerning the defendants' state of mind were made. See, e.g., id., Ex. 4 at ¶ 43 (Defendants' acts are deliberate and intended to confuse the public ....”); id. at ¶ 67 (Defendants' unlawful acts ... were intended to capitalize on Plaintiffs' goodwill for Defendants' own pecuniary gain.”); see id., Ex. 6 at ¶ 69 (Defendants' acts are willful, deliberate, and intended to confuse the public and to injure Plaintiffs.”).

After CGSI informed Charter Oak of the Five Four Litigation, Charter Oak denied CGSI's request for a defense on February 18, 2010. See Declaration of Bruce A. McDonald (“McDonald Decl.”), Ex. 6. CGSI informed Charter Oak of Five Four's second and third amended complaints, and Charter Oak maintained it had no duty to defend, claiming that there was no alleged “advertising injury” and that several policy exclusions might apply. See id., Exs. 7, 8, 10; Braun Decl. at ¶ 15.

C. Instant Proceedings

CGSI commenced the instant proceeding on July 13, 2010. See Compl. for (1) Declaratory Judgment, (2) Breach of Contract; D.E. No. 1. Sought are a declaratory judgment stating that Charter Oak has a duty to defend CGSI in the Five Four Litigation and pay its costs, and damages resulting from Charter Oak's alleged breach of the Web Xtend Policy. See Am. Compl. at ¶¶ 54, 58. CGSI also seeks to recover its costs and attorneys' fees of the instant proceedings. Id., Prayer for Relief, at ¶ 4. After filing an amended complaint on August 4, 2010, CGSI moved for partial summary judgment. See D.E. Nos. 10–16. On August 31, 2010, Charter Oak answered the complaint and moved for judgment on the pleadings pursuant to Rule 12(c). See D.E. Nos. 20, 21, 26. After Charter Oak moved to stay CGSI's summary judgment motion until after its motion was decided, on October 12, 2010, it was ordered that all motions were to be treated as cross-motions for summary judgment. See Fed.R.Civ.P. 12(d); D.E. No. 36.

III. Contentions of the Parties, Law, and Application to Facts

A. Contentions of the Parties

Charter Oak moves for summary judgment, arguing that the Five Four Complaint does not allege an infringement of “slogan” or “title,” as used in the Web Xtend Policy. Def.'s Mem. at 1. This failure, defendant argues, implies that the Web Xtend Policy does not apply. Id. Charter Oak also contends that the Web Xtend Policy's exclusion for “knowing[ly] violat[ing] [the] rights of another,” see Am. Compl., Ex. 1, Part 3 at 1, applies since the Five Four Complaint alleges willful conduct. See Def.'s Mem. at 21. Finally, it is maintained that CGI's allegedly improper conduct occurred prior to the policy period. Id. at 25.

CGSI argues that the factual allegations underlying the Five Four Complaint trigger the Web Xtend Policy. It is contended that CGSI's alleged infringement of Five Four's trademark constitutes “infringement of title” and “infringement of slogan.” Pl.'s Mot. for Summ. Judg. at 1–2. The Policy's exclusions, it is also argued, cannot free Charter Oak from its duty to defend because there is a potential for coverage. CGSI maintains that it is still entitled to a defense even though the facts, as decided in the Five Four Litigation, may ultimately bar indemnity. Id. at 2.

B. Standard

Summary judgment is appropriate if “there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); see Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Powell v. Nat'l Bd. of Med. Exam'rs, 364 F.3d 79, 84 (2d Cir.2004). Dismissal is warranted when after construing the evidence in the light most favorable to the non-moving party and drawing all reasonable inferences in its favor, there is no genuine issue...

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