AEARO CORP. v. AMERICAN INTERN. SPECIALTY LINES

• Decision Date: 17 December 2009
• Docket Number: Case No. 1:08-cv-0604-DFH-DML.
• Citation: 676 F. Supp.2d 738
• Parties: AEARO CORPORATION and Aearo Company, Plaintiffs, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Indiana

676 F.Supp.2d 738

AEARO CORPORATION and Aearo Company, Plaintiffs, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Defendant.

Case No. 1:08-cv-0604-DFH-DML.

United States District Court, S.D. Indiana, Indianapolis Division.

December 17, 2009.

Anne L. Cowgur, David C. Campbell, Bingham McHale LLP, Indianapolis, IN, for Plaintiffs.

Daniel I. Graham, Jr., Kelly A. Kraft, Robert S. Marshall, Tiffany J. Beverly, Bates & Carey, LLP, Chicago, IL, for Defendant.

ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

DAVID F. HAMILTON, Circuit Judge sitting by designation.

In September 2005, Climb Tech LLC sued plaintiffs Aearo Corporation and Aearo Company for alleged wrongs arising out of Aearo's distribution of Climb Tech's fall protection products and other products that were similar to Climb Tech's products. Aearo called upon defendant American International Specialty Lines Insurance Company (AISLIC) to defend the lawsuit pursuant to the terms of the general commercial liability policy that AISLIC had issued to Aearo. AISLIC denied coverage and declined to defend the suit. Aearo defended the lawsuit and eventually settled with Climb Tech on its own. In this action under the court's diversity jurisdiction under 28 U.S.C. § 1332, Aearo seeks to recover from AISLIC the cost of the settlement and its expenses in litigating the Climb Tech suit. Both sides have filed motions for summary judgment. For the reasons explained below, AISLIC's motion is denied and Aearo's motion is granted.

Summary Judgment Standard

The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment must be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The motion should be granted so long as no rational fact finder could return a verdict in favor of the non-moving parties. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The fact that both sides have filed motions for summary judgment does not alter the applicable standard; the court must consider each motion independently and will deny both motions if there is a genuine issue of material fact. E.g., Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir.1993); Harms v. Laboratory Corp. of America, 155 F.Supp.2d 891, 905-06 (N.D.Ill.2001). In considering cross-motions for summary judgment, the court must consider the evidence through two lenses. When considering AISLIC's motion for summary judgment, the court must give Aearo the benefit of all conflicts in the evidence and the benefit of all reasonable inferences that might be drawn from the evidence in its favor, even if the evidence or the inferences seem improbable. When considering Aearo's motion for summary judgment, the roles are reversed and AISLIC receives the benefit of the conflicts and favorable inferences.

Facts for Summary Judgment

I. Background

Aearo Corporation manufactures workplace safety products and has its headquarters in Indianapolis, Indiana. On March 14, 2003, Aearo purchased a North Carolina company called SafeWaze and functionally integrated SafeWaze under the Aearo name by March 31, 2005. This integration made Aearo accountable for SafeWaze's liabilities, or at least Aearo does not dispute the point.

In 2001, SafeWaze contracted with Climb Tech, a manufacturer of fall protection equipment based in Texas, to distribute Climb Tech's products. On September 23, 2001, SafeWaze signed distribution and confidentiality agreements with Climb Tech. Dkt. No. 46, Exs. 1-A, 1-B. In these agreements, SafeWaze agreed to distribute Climb Tech's products and to receive confidential information from Climb Tech under certain conditions. In particular, Safe-Waze agreed not to disclose Climb Tech's confidential information or to manufacture any competing product. Dkt. No. 46, Ex. 1, at 11-12 (Climb Tech Complaint). On June 20, 2002, SafeWaze signed a similar confidentiality agreement with Climb Tech regarding another Climb Tech product. Dkt. No. 46, Ex. 1-C. The distribution arrangement continued until May 2003, when Climb Tech ended its relationship with SafeWaze and Aearo. Dkt. No. 46, Ex. 1, at 14.

II. The Climb Tech Suit

On September 7, 2005, Climb Tech and another plaintiff sued Aearo and several other defendants in Texas under an array of theories. Dkt. No. 46, Ex. 1. Climb Tech alleged that Aearo "essentially stole Plaintiffs' proprietary secrets and technology and produced a knock-off of Plaintiffs' proprietary design, trademark and packaging, billing the competing expansion bolt device as the `enhanced line of "SafeClaw" Anchors.'" Id. at 12-13. Aearo then "began manufacturing, producing and marketing the Infringing Products that were substantially the same as Plaintiffs' product." Id. at 13.

Climb Tech also complained about Aearo's use of Climb Tech's trademark. It alleged:

Defendants use the Mark to identify products unaffiliated with Plaintiffs' fall support devices. Unaware or complicit in the theft, many of the Defendants continue to market and sell Aearo/Safe-Waze's infringing device as if it were Climb Tech's, using Plaintiff's Mark, model number, label (including Climb Tech's name), marketing materials, text with Climb Tech's name, testing reports, specifications, images, photographs and descriptions to promote and sell Aearo/SafeWaze's Infringing Products.

Id. at 13. Climb Tech alleged that Aearo's actions were "likely to cause confusion, dilution and tarnishment of Plaintiff's Mark" and that the infringement was "knowing and willful." Id. at 13-14.

Finally, Climb Tech alleged that Aearo "engaged in deceptive practices and unfair competition in the sale and marketing of Aearo/SafeWaze's `SafeClaws' safety bolt device." Id. at 14. Aearo, it alleged, "expressly portrayed and represented the infringing product as an `enhanced version' of Climb Tech's product, creating the false impression that the newer product comes from the same source as the earlier product." Id. Climb Tech further alleged that Aearo "confuses the consuming public by falsely claiming in its sales materials. . . that Aearo/SafeWaze has `the only removable/reusable anchor point for concrete applications,' accompanied by a picture of Climb Tech's expansion bolt device.'" Id.

Climb Tech's complaint listed several causes of action: (1) misappropriation of trade secrets under Texas common law; (2) breach of contract; (3) federal trademark infringement; (4) federal trademark dilution; (5) trademark dilution under Texas state law; (6) unfair competition under Texas common law; and (7) civil conspiracy or aiding and abetting. Id. at 14-20. In the trademark infringement and dilution counts, Climb Tech alleged that it was entitled to treble damages because of the "exceptional nature of the case," in particular, because Aearo's infringement was willful. Id. at 17-18; see also Gorenstein Enterprises, Inc. v. Quality Care-USA, Inc., 874 F.2d 431, 435-36 (7th Cir.1989) (treble damages are proper under the federal trademark statute when infringement is "deliberate"). Climb Tech also requested injunctive relief, attorney fees, and punitive damages. Id. at 20-23. Climb Tech was entitled to attorney fees, it alleged, because of the "willful nature of Defendants' infringement." Id. at 22. Climb Tech further alleged that its request for punitive damages was exempt from a cap imposed by Texas state law because Aearo's knowing and willful acts made it guilty of a third degree felony under Texas state law. Id. at 22; see Texas Civil Practice and Remedies Code § 41.008(c)(13) (providing exemption).

III. The AISLIC Policy

Aearo bought two commercial insurance policies effective for the period between September 30, 2002 and September 30, 2003. One was a primary commercial liability policy from the Liberty Surplus Insurance Company and the other was a commercial umbrella policy from AISLIC.

The AISLIC policy provided that AISLIC would "pay on behalf of the Insured those sums in excess of the Retained Limit that the Insured becomes legally obligated to pay by reason of liability" for, among other things, "Advertising Injury that takes place during the Policy Period and is caused by an Occurrence." Dkt. No. 46, Ex. 2, at 4 (AISLIC Commercial Umbrella Policy Form). AISLIC also promised to "defend any claim or suit seeking damages covered by the terms and conditions of this policy," provided that the suit was for advertising injury "covered by this policy but not covered by any underlying insurance." Id. The AISLIC policy defined "Advertising Injury" as

injury arising solely out of your advertising activities as a result of one or more of the following offenses:

1. 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;

2. Oral or written publication of material that violates a person's right of privacy;

3. Misappropriation of advertising ideas or style of doing business; or

4. Infringement of copyright, title or slogan.

Id. at 6.

The AISLIC policy also listed two relevant exclusions from coverage. First, the policy excludes coverage for advertising injury "Arising out of oral or written publication of material, if done by or at the direction of the Insured with knowledge of its falsity." Id. at 10-11. Second, the policy excludes coverage for advertising injury "arising out of . . . Breach of contract, other than misappropriation of advertising ideas under an implied contract." Id.

IV. The Coverage Dispute

Aearo's primary insurer, Liberty, denied coverage for...