Cgs Indus. Inc. v. the Charter Oak Fire Ins. Co.
| Decision Date | 15 April 2011 |
| Docket Number | No. 10–CV–3186.,10–CV–3186. |
| Citation | 74 UCC Rep.Serv.2d 241,777 F.Supp.2d 454 |
| Parties | CGS INDUSTRIES, INC., Plaintiff,v.The CHARTER OAK FIRE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of New York |
OPINION TEXT STARTS HERE
David A. Gauntlett, Gauntlett & Associates, Irvine, CA, for plaintiff CGS Industries, Inc.Lawrence A. Levy & Celeste M. Butera, Rivkin Radler LLP, Uniondale, NY, for defendant The Charter Oak Fire Insurance Company.
I. Introduction
CGS Industries, Inc. (“CGS”) sues The Charter Oak Fire Insurance Company (“Charter Oak”) for (1) breach of contract for its failure to defend CGS in an underlying litigation; and (2) indemnification of CGS for damages covered under an insurance contract.
It is alleged that Charter Oak breached its insurance contractual duties by failing to defend CGS in a trademark suit brought by Five Four Clothing, Inc. and FiveFour Group LLC (collectively, “Five Four”) against CGS and Wal–Mart Stores, Inc. (“Wal–Mart”) in the United States District Court for the Central District of California (“Five Four litigation”). The complaint seeks declaratory relief holding that in the Five Four litigation Charter Oak: (1) had a duty to defend CGS; (2) pay CGS's attorney fees, costs, and damages (to itself and Wal–Mart); and the legal fees of Wal–Mart.
Plaintiff moved for partial summary judgment finding Charter Oak had a duty to defend CGS in the Five Four litigation. See Fed.R.Civ.P. 56; Docket Entry No. 10. On Nov. 16, 2010, the court granted CGS's motion for partial summary judgment as to Charter Oak's duty to defend. 751 F.Supp.2d 444 (E.D.N.Y.2010).
Charter Oak now moves for partial summary judgment seeking a declaration that CGS is not entitled to indemnification for: (1) Wal–Mart's imputed portion of a $250,000 settlement paid by CGS to resolve the Five Four litigation; or (2) defense costs, including attorney's fees, in the sum of $57,379.44 incurred by Wal–Mart in the Five Four litigation. See Fed.R.Civ.P. 56; Docket Entry No. 95.
On March 18, 2011, the court heard oral argument on this motion and denied it. Tr. of Or. Arg., p. 30:16–17; Docket Entry No. 108. Because the law on the subject is unclear and to some extent presents issues of first impression, the parties were permitted to submit further written argument.
Upon consideration of these submissions, Charter Oak's motion for partial summary judgment is denied in part. It has no obligation to reimburse CGS for WalMart's fees and costs in the Five Four litigation; to that extent only Charter Oak's motion for partial summary judgment is granted.
II. Facts and Procedural BackgroundA. Web Xtend Liability Policy
Charter Oak issued a commercial general liability policy to CGS covering the period of August 31, 2009 through August 31, 2010. See Charter Oak's Local Rule 56.1 Statement in Supp. of Mot. for Summ. Judg., Docket Entry No. 96 (“Charter Statement”), ¶ 26; Decl. of Celeste M. Butera in Supp. of Charter Oak's Mot. for Summ. Judg., Docket Entry No. 98 (“Butera Decl.”), Ex. 12. Included in the policy is an endorsement titled “Web Xtend Liability—New York.” See Charter Statement, ¶ 27; Butera Decl. (Ex. 12). This endorsement (“Web Xtend Policy” or the “insurance agreement”) obligates Charter Oak to pay damages of “advertising injury,' caused by an offense committed in the course of advertising [CGS's] goods, products or services.” Ex. 12, at form no. CG F2 10 03 05, p. 1. “Advertising injury” is defined in the Web Xtend Policy as “injury, arising out of ... [i]nfringement of copyright, title or slogan....” Charter Statement, ¶¶ 29–30; Ex. 12, at form no. CG F2 10 03 05, p. 4.
The Web Xtend Policy is subject to several exclusions. As relevant to this motion, excluded is “Contractual Liability,” “advertising injury' ... for which the insured assumed liability in a contract or agreement.” (the “contractual liability exclusion”). Charter Statement, ¶ 31; Ex. 12, at form no. CG F2 10 03 05, p. 2.
The exclusion is subject to several exceptions; the relevant one reads: “This exclusion does not apply to: ... advertising injury' ... that the insured would have in the absence of contract or agreement.” (the “exception”). Id.
B. Underlying Five–Four Litigation
On December 23, 2009, Five Four filed a complaint against Wal–Mart for trademark and trade dress infringement relating to Five Four's trademarks and trade dress. See Charter Statement, ¶ 1; Butera Decl., Ex 1. On March 24, 2010, Five Four filed its second amended complaint, adding CGS as a defendant. See, Butera Decl., Ex. 3 at p. 1. On July 18, 2010, a third amended complaint (the “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. 5 (“Five Four Compl.”) at 6–10.
Five Four alleged that Wal–Mart and CGS, among other things, “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.” Five Four Compl. 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.
CGS and Wal–Mart were jointly referred to as the “defendants” throughout the complaint. See Butera Decl., Ex 5. No separation was made between damages caused by Wal–Mart and those caused by CGS. Id. Nor did the complaint specifically allege that CGS and Wal–Mart were jointly and severally liable for the alleged damages.
C. Charter Oak's Refusal to Defend CGS
After CGS informed Charter Oak of the Five Four litigation, Charter Oak denied CGS's requests for a defense. See Charter Statement, ¶¶ 2, 5, 8; Butera Decl., Exs. 2, 4, 6. Charter Oak maintained it had no duty to defend, claiming that there was no alleged “advertising injury” and that several policy exclusions applied, including the contractual liability exclusion. Id.
D. Instant Suit
CGS commenced the instant suit on July 13, 2010. See Compl. for (1) Declaratory Judgment; and (2) Breach of Contract; Docket Entry No. 1. Sought were a declaratory judgment stating that Charter Oak has a duty to defend CGS in the Five Four litigation and to pay its costs and damages resulting from Charter Oak's alleged breach of the insurance contract. See Am. Compl. at ¶¶ 54, 58. CGS also sought to recover its costs and attorneys' fees in the instant proceedings. Id., Prayer for Relief, at ¶ 4.
After filing an amended complaint on August 4, 2010, CGS moved for partial summary judgment contending Charter Oak had a duty to defend CGS in the Five Four litigation. See Docket Entry Nos. 10–16. On November 16, 2010 the Court granted CGS's motion for summary judgment on the duty to defend. It ruled that Charter Oak was obligated to defend CGS in connection with the Five Four litigation. Charter Statement, ¶ 11; 751 F.Supp.2d 444 (E.D.N.Y.2010).
Thereafter, CGS moved for summary judgment regarding the quantification of its damages in connection with Charter Oak's duty to defend. Docket Entry No. 49. On November 30, 2010, the Court denied the motion, holding that quantification of damages was an issue for trial. Docket Entry No. 56.
E. Resolution of the Five Four Litigation in a Settlement wholly Paid by CGS
On January 31, 2011, Charter Oak took the deposition of Leonard M. Braun, the Treasurer of CGS. Charter Statement, ¶ 16; Butera Decl., Ex 14. Braun testified that Wal–Mart demanded indemnification from...
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