U.S. Fid. & Guaranty Co. v. Ashley Reed Trading, Inc.
| Decision Date | 20 August 2014 |
| Docket Number | No. 11 Civ. 4782RMB.,11 Civ. 4782RMB. |
| Citation | 43 F.Supp.3d 271 |
| Parties | UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff, v. ASHLEY REED TRADING, INC., James Ressler, Scott Ressler, Fendi Adele S.r.l., Fendi S.r.l., Fendi North America, Inc., Burlington Coat Factory Warehouse Corp. and Cohoes Fashions, Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Robert Jeremiah Tracy, Stefanie Robin Munsky, Clifton Budd & DeMaria, LLP, New York, NY, for Plaintiff.
James Ressler, New York, NY, pro se.
Michele A. Daitz, Flowers & O'Brien, LLC, Hoboken, NJ, Lawrence Figowe Morrison, The Morrison Law Offices, P.C., Richard L. Mattiaccio, Squire Patton Boggs (U.S.) L.L.P., New York, NY, for Defendants.
DECISION & ORDER
On July 12, 2011, Plaintiff United States Fidelity and Guaranty Company (“USF & G”) filed a complaint against Defendants Ashley Reed Inc. (“Ashley Reed”), Scott Ressler, James Ressler (collectively, the “Ashley Reed Defendants”), Fendi Adele, S.r.l., Fendi S.r.l, and Fendi North America, Inc. (collectively, “Fendi”), seeking a declaratory judgment that three liability insurance policies issued by USF & G to Ashley Reed between 2003 and 2006 (the “Insurance Policies” or “Policies”) do not obligate USF & G to indemnify the Ashley Reed Defendants for the judgment entered by this Court against them on April 26, 2013 in the action entitled Fendi Adele, S.r.l., et al. v. Ashley Reed Trading Inc., et al. No. 06–CV–0243 (the “Fendi Action”). (See Compl., dated July 12, 2011.)1
On September 28, 2011, and October 20, 2011, respectively, the Ashley Reed Defendants (and Fendi) filed counterclaims seeking indemnification under the Policies for the judgment in the Fendi Action. (See Answer and Counterclaims, dated September 28, 2011 (Dkt. # 17); Amended Answer and Counterclaims, dated October 20, 2011 (Dkt. # 28).) Defendant James Ressler also asserted a counterclaim seeking damages for USF & G's alleged bad faith refusal to settle the Fendi Action. (See Amended Answer and Counterclaims, dated July 23, 2013 (Dkt. # 84).)
On May 10, 2013, the Court permitted Burlington Coat Factory Warehouse Corp. and Cohoes Fashions, Inc. (collectively, “BCF”, and, together with the Ashley Reed Defendants and Fendi, “Defendants”) to intervene in this action as defendants and counterclaimants. (See Order, dated May 10, 2013 (Dkt. # 69.)) On May 17, 2013, BCF filed a counterclaim against USF & G seeking indemnification under the Policies for a judgment entered by United States District Judge Leonard B. Sand against the Ashley Reed Defendants on April 5, 2012 in an action entitled Fendi S.R.L. v. Burlington Coat Factory Warehouse Corp., No. 06–CV–0085 (LBS) (MHD) (the “BCF Action”).2
On January 16, 2014, Defendants moved for summary judgment pursuant to Federal Rule of Civil Procedure 56, arguing, among other things, that: (1) the Insurance Policies should provide coverage for the judgments in the Fendi and BCF Actions because the Ashley Reed Defendants' acts of trademark infringement “clearly constitute ‘advertising’ as defined in the Policies,” and “[t]he award of a trademark infringer's profits is an award of ‘damages' ”; and (2) “[n]either the [Policies'] Knowledge of Falsity Exclusion nor the First Publication Exclusion excludes ‘advertising injury’ coverage under subparagraph (c) [of the Policies].”
On February 10, 2014, USF & G filed an opposition and cross-motion for summary judgment, arguing, among other things, that: (1) the Insurance Policies' coverage for “advertising injury” does not apply to the judgments in the Fendi and BCF Actions because “no sums were awarded based on any Fendi injury arising from the [Ashley Reed] Defendants' advertising of the infringing goods” and because “the disgorgement of profits and the trebling thereof awarded in the [Fendi] Action does not constitute an award of ‘damages' under the USF & G Policies”; (2) the Policies' “known falsity” and “prior publication” exclusions apply “since it is undisputed that the [Ashley Reed] Defendants were willfully counterfeiting Fendi-branded goods” and were doing so “for years before the first USF & G Policy commenced”; and (3) Defendant James Ressler's counterclaim against USF & G should be dismissed because “nowhere in the record is there any suggestion that USF & G controlled how the [Fendi] Action was to be defended, chose what defenses to assert, or whether the [Ashley Reed] Defendants could settle the [A]ction,” and because, “[u]nder New York law, it has been recognized that bad faith cannot be established when the insurer has an arguable basis for denying coverage.”
On February 27, 2014, Defendants filed a reply. On March 12, 2014, USF & G filed a reply. (See Pl.'s Reply Mem. of Law in Supp. of Pl.'s Cross–Mot. for Summ. J., dated March 7, 2014 (“Pl. Reply”).) Oral argument was held on July 30, 2014. (See Hr'g Tr., dated July 30, 2014.)
For the reasons set forth below, the Court denies Defendants' joint motion for summary judgment, and grants USF & G's cross-motion for summary judgment.3
The following facts are undisputed except as otherwise noted.
Plaintiff USF & G is an insurance company engaged in providing commercial, property and liability insurance products and services. Defendant Ashley Reed is a New York company engaged in the purchase and sale of off-price branded handbags and other luxury goods in New York and elsewhere. Defendants Scott Ressler and James Ressler are the President and Vice President, respectively, of Ashley Reed. Defendant Fendi is a manufacturer of luxury handbags, shoulder bags, purses, wallets and other items, and is the owner of federally-registered trademarks associated with its products. Defendant BCF is a corporation engaged in the sale of apparel.
On January 12, 2006, Fendi filed a complaint against the Ashley Reed Defendants (the “Fendi Complaint”) alleging trademark infringement in violation of the Lanham Act, 15 U.S.C. §§ 1114 & 1125, based upon the Ashley Reed Defendants' “sale and offering for sale of goods of counterfeits of Fendi's registered trademarks.” (See Compl. dated Jan. 11, 2006 (Ex. 1 to Decl. of Victor Genecin, dated Jan. 9, 2014 (“Genecin Decl.”)), ¶¶ 47, 60, 76.) Fendi sought damages and an accounting of the Ashley Reed Defendants' profits pursuant to 25 U.S.C. § 1117(a), and trebling pursuant to 25 U.S.C. § 1117(b), on the grounds that Ashley Reed Defendants intentionally used the Fendi trademarks “with knowledge that such marks were counterfeit marks.” (Id. ¶¶ 59–60.)
On February 16, 2010, the Court granted summary judgment in favor of Fendi, finding that “Defendants sold counterfeit merchandise bearing one or more of the Fendi Marks,” in violation of the Lanham Act. On January 4, 2013, the United States Court of Appeals for the Second Circuit affirmed the Court's holding that the Ashley Reed Defendants were liable for trademark infringement “for the entire 2001 to 2006 period.” Fendi Adele S.R.L. v. Ashley Reed Trading, Inc., 507 Fed.Appx. 26, 30 (2d Cir.2013). “[T]he district court correctly concluded that Ashley Reed's infringement was willful as a matter of law.” Id. at 31–32.
On April 22, 2013, the Court issued an Order awarding Fendi $29,855,043, which was three times the amount of the Ashley Reed Defendants' (counterfeit) sales from 2001 through 2006, pursuant to 25 U.S.C. § 1117(a) and (b). (Corrected Order, dated April 22, 2013 (Ex. 15 to Genecin Decl.).) The Court entered judgment for this amount on April 26, 2013. (Judgment # 13,0819, dated April 26, 2013 (Ex. 2 to Genecin Decl.).)
On January 5, 2006, Fendi filed a lawsuit in the Southern District of New York against BCF alleging trademark infringement based upon BCF's sale of counterfeit Fendi products. (See Amended Complaint, dated Jan. 20, 2006 (Ex. 7 to Genecin Decl.); Pl.'s Statement Pursuant to Local Rule 56.1, dated Feb. 21, 2014 (“Pl. 56.1”), ¶ 51.) In a Memorandum and Order, dated February 8, 2010, District Judge Leonard B. Sand granted Fendi's motion for summary judgment on the issue of liability, finding BCF liable for the “sale of counterfeit [Fendi] goods,” in violation of the Lanham Act, 15 U.S.C. §§ 1114 & 1125. (Memorandum and Order, dated Feb. 8, 2010 (Ex. 9 to Genecin Decl.), at 11–16, 20.) The Court also found that Ashley Reed, which had sold the counterfeit Fendi products to BCF in the first instance, was required to indemnify BCF because it had “made a promise as to the authenticity of the goods,” and BCF “would not be subject to the instant trademark infringement ... actions but for [Ashley Reed's] breach of this warranty.” (Id. at 26.) Fendi and BCF subsequently settled as to the amount owed by BCF. On April 5, 2012, the Court entered a judgment requiring Ashley Reed to indemnify BCF in the amount of $248,257.14. (Judgment # 12,0550, dated April 5, 2012 (Ex. 10 to Genecin Decl.).)4
As noted, Defendants seek a declaratory judgment requiring USF & G to indemnify the Ashley Reed Defendants under liability insurance policies covering the period February 8, 2003 to February 8, 2004 (the “2003 Policy”); the period February 8, 2004 to February 8, 2005 (the “2...
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