U.S. Fid. & Guaranty Co. v. Fendi Adele S.R.L.
Decision Date | 17 May 2016 |
Docket Number | 14–3474–cv.,Docket Nos. 14–3435–cv |
Citation | 823 F.3d 146 |
Parties | UNITED STATES FIDELITY AND GUARANTY COMPANY, Plaintiff–Counter–Defendant–Appellee, v. FENDI ADELE S.R.L., Fendi S.R.L., Fendi North America, Inc., Defendants–Counter–Claimants–Appellants, Burlington Coat Factory Warehouse Corporation, Cohoes Fashions, Inc., Intervenors–Defendants–Counter–Claimants–Appellants, Ashley Reed Trading, Inc., Scott Ressler, James Ressler, Defendants–Counter–Claimants. |
Court | U.S. Court of Appeals — Second Circuit |
Robert J. Tracy (Stefanie Robin Munsky, on the brief), Clifton Budd & DeMaria LLP, New York, NY, for Plaintiff–Counter–Defendant–Appellee United States Fidelity and Guaranty Company.
Victor Genecin (Richard L. Mattiaccio and Corrine A. Irish, on the brief), Squire Patton Boggs, LLP, New York, NY, for Defendants–Counter–Claimants–Appellants Fendi Adele S.R.L., Fendi S.R.L., and Fendi North America, Inc.
George M. Vinci, Jr. (David B. Picker, on the brief), Spector Gadon & Rosen, P.C., Philadelphia, PA, for Intervenor–Defendants–Counter–Claimants–Appellants Burlington Coat Factory Warehouse Corporation and Cohoes Fashions, Inc.
Before: SACK, CHIN, and DRONEY, Circuit Judges.
In this case, a seller of merchandise was insured under two liability insurance policies for any damages it was obligated to pay because of an “advertising injury.” During the coverage period, it sold goods bearing counterfeit trademarks. In two underlying lawsuits, it was found liable for, inter alia, trademark infringement. The insurer brought this action below seeking a declaration that it owed no duty to indemnify the insured under the policies. The district court held that the policies did not cover the losses because they were not the result of an “advertising injury.” We agree, and we therefore affirm.
Defendants–Counter–Claimants–Appellants Fendi Adele S.R.L., Fendi S.R.L., and Fendi North America, Inc. (collectively, “Fendi”) manufacture luxury handbags, shoulder bags, purses, wallets, and other items, and own associated federally-registered trademarks. Ashley Reed Trading, Inc. (“Ashley Reed”) engages in the purchase and sale of off-price branded handbags and other luxury goods in New York and elsewhere, and Scott Ressler and James Ressler are its principals. Intervenors–Defendants–Counter–Claimants–Appellants Burlington Coat Factory Warehouse Corporation and its subsidiary Cohoes Fashions, Inc. (together, “Burlington”) purchase clothing and other merchandise at wholesale and resell to the public at discounted prices. Burlington regularly purchased merchandise from Ashley Reed.
During the relevant time period, Ashley Reed sold counterfeit Fendi goods—fashion accessories that were not Fendi products, but that displayed one or more Fendi trademarks and otherwise reproduced the appearance of genuine Fendi products—to Burlington and others.
Plaintiff–Counter–Defendant–Appellee United States Fidelity and Guaranty Company (“USF & G”) is an insurance company that provides commercial, property, and liability insurance. It issued three liability insurance policies to Ashley Reed between 2003 and 2006. Two of the policies are at issue in this case—the 2003 Policy, effective February 8, 2003 through February 8, 2004, and the 2004 Policy, effective February 8, 2004 through February 8, 2006 (together, the “Policies”).
The Policies provide that USF & G will “pay those sums that the insured becomes legally obligated to pay as damages because of ... ‘advertising injury’ to which this insurance applies.” App. at 383, 964. “Advertising” is defined as “attracting the attention of others by any means for the purpose of seeking customers or supporters or increasing sales or business.” Id. at 400, 981. “Advertising injury” includes injury resulting from four specified “offenses,” including: Id. at 400, 981.
In January 2006, Fendi sued Ashley Reed for trademark counterfeiting, false designation of origin, and trademark dilution in violation of the Lanham Act, 15 U.S.C. §§ 1114(1)(a), 1125(a), and 1125(c), and unfair competition and trademark dilution under New York law (the “First Action”). Fendi sought treble damages pursuant to 15 U.S.C. § 1117(b), on the ground that Ashley Reed intentionally used the Fendi trademarks with knowledge that they were counterfeit. The district court entered a permanent injunction, and awarded Fendi treble damages, prejudgment interest, fees, and costs.
On appeal, this Court affirmed, but vacated the district court's limitation of the damages award to counterfeits sold by Ashley Reed between 2005 and 2006 and remanded for a determination of whether damages should be awarded for the entire 2001 to 2006 period that Ashley Reed had infringed. On April 26, 2013, the district court entered on remand an award reflecting the amount of Ashley Reed's sales of counterfeit goods from 2001 to 2006, trebled, as well as attorneys' fees and costs, for a total monetary award of $34,650,885.91.
USF & G initially denied coverage for the First Action, by letter dated May 11, 2006. It later agreed, however, to pay for the defense of the action, subject to a reservation of rights letter, but continuing to deny indemnification.
In January 2006, Fendi separately sued Burlington, alleging the sale of counterfeit Fendi-branded merchandise that Burlington had purchased from Ashley Reed (the “Second Action”). Burlington asserted third-party claims against Ashley Reed. Fendi and Burlington settled as to Fendi's claims against Burlington, and on April 5, 2012, Burlington obtained a judgment requiring Ashley Reed to pay it damages, attorneys' fees, costs, and interest totaling $248,257.14. This amount reflected Burlington's profits from the sale of counterfeit goods it had purchased from Ashley Reed, as well as attorneys' fees, costs, and interest. See Fendi Adele S.R.L. v. Burlington Coat Factory Warehouse Corp., 867 F.Supp.2d 427, 434, 438 (S.D.N.Y.2012). Unlike in the First Action, the damages here were not trebled. Id. at 433–34.
On July 12, 2011, USF & G commenced this action below against Fendi and the Ashley Reed defendants, seeking a declaration that it owed no duty under the Policies to indemnify Ashley Reed with respect to the First Action. Fendi asserted a counterclaim seeking indemnification for the judgment entered against Ashley Reed in the First Action. Burlington was given permission to intervene to seek indemnification under the Policies for the judgment entered against Ashley Reed in the Second Action. Cross-motions for summary judgment followed.
On August 20, 2014, the district court granted summary judgment in favor of USF & G. The district court held that the basis of Ashley Reed's liability “was the sale—not the advertising—of counterfeit Fendi products,” and therefore that there was no basis for indemnification under the Policies. U.S. Fid. & Guar. Co. v. Ashley Reed Trading, Inc., 43 F.Supp.3d 271, 278 (S.D.N.Y.2014).
Judgment was entered accordingly and this appeal followed.
We review de novo a district court's grant of summary judgment, “construing the evidence in the light most favorable to the non-moving party and drawing all reasonable inferences in its favor.” SCR Joint Venture L.P. v. Warshawsky, 559 F.3d 133, 137 (2d Cir.2009) (internal quotation marks omitted). “Because interpretation of an insurance agreement is a question of law, we review the district court's construction of the [Policies] de novo.” VAM Check Cashing Corp. v. Fed. Ins. Co., 699 F.3d 727, 729 (2d Cir.2012).
The parties agree that New York law governs the interpretation of the Policies. In deciding whether an insurance policy requires an insurer to indemnify an insured's loss, we must first examine whether there is a “reasonable basis for a difference of opinion as to the meaning of the policy.” Fed. Ins. Co. v. Int'l Bus. Machs. Corp., 18 N.Y.3d 642, 646, 942 N.Y.S.2d 432, 965 N.E.2d 934 (2012) (internal quotation marks omitted). If there is, “the language at issue would be deemed to be ambiguous and thus interpreted in favor of the insured.” Id. This is because “New York follows the maxim of contra proferentem in insurance cases: where the plain language of a policy permits more than one reasonable reading, a court must adopt the reading upholding coverage.” VAM Check Cashing, 699 F.3d at 732.
Int'l Bus. Machs. Corp., 18 N.Y.3d at 646, 942 N.Y.S.2d 432, 965 N.E.2d 934 (internal citations, alterations, and quotation marks omitted).
“The duty to indemnify is determined by the actual basis for the insured's liability to a third person, and does not turn on the pleadings, but rather on whether the loss, as established by the facts, is covered by the policy.” Atl. Mut. Ins. Co. v. Terk Techs. Corp., 309 A.D.2d 22, 28, 763 N.Y.S.2d 56...
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