Am. Econ. Ins. Co. v. Aspen Way Enters., Inc.

• Decision Date: 24 September 2015
• Docket Number: CV 14-09-BLG-SPW
• Parties: AMERICAN ECONOMY INSURANCE COMPANY, an Indiana corporation; AMERICAN STATES INSURANCE COMPANY, an Indiana corporation; and GENERAL INSURANCE COMPANY OF AMERICA, a New Hampshire corporation, Plaintiffs, v. ASPEN WAY ENTERPRISES, INC., d/b/a Aaron's Sales and Leasing, a Montana corporation; and HARTFORD FIRE INSURANCE COMPANY, a Connecticut corporation, Defendants. HARTFORD FIRE INSURANCE COMPANY, Counterclaimant and Crossclaim Plaintiff, v. AMERICAN ECONOMY INSURANCE COMPANY; AMERICAN STATES INSURANCE COMPANY; GENERAL INSURANCE COMPANY OF AMERICAN; and ASPEN WAY ENTERPRISES, INC., Counterclaim and Crossclaim Defendants. ASPEN WAY ENTERPRISES, INC., d/b/a Aaron's Sales and Leasing, Cross-Claimant, v. HARTFORD FIRE INSURANCE COMPANY, Cross-Defendant. HARTFORD CASUALTY INSURANCE COMPANY, Intervenor-Plaintiff, v. AMERICAN ECONOMY INSURANCE COMPANY; AMERICAN STATES INSURANCE COMPANY; GENERAL INSURANCE COMPANY OF AMERICAN; and ASPEN WAY ENTERPRISES, INC., Defendants to Intervenor Complaint.
• Court: U.S. District Court — District of Montana

AMERICAN ECONOMY INSURANCE COMPANY, an Indiana corporation;

AMERICAN STATES INSURANCE COMPANY, an Indiana corporation; andGENERAL INSURANCE COMPANY OF AMERICA, a New Hampshire corporation, Plaintiffs, v. ASPEN WAY ENTERPRISES, INC., d/b/a Aaron's Sales and Leasing,

a Montana corporation; and HARTFORD FIRE INSURANCE COMPANY,

a Connecticut corporation, Defendants.

HARTFORD FIRE INSURANCE COMPANY, Counterclaimant and Crossclaim Plaintiff, v. AMERICAN ECONOMY INSURANCE COMPANY; AMERICAN STATES INSURANCE COMPANY;

GENERAL INSURANCE COMPANY OF AMERICAN;

and ASPEN WAY ENTERPRISES, INC., Counterclaim and Crossclaim Defendants.

ASPEN WAY ENTERPRISES, INC., d/b/a Aaron's Salesand Leasing, Cross-Claimant, v. HARTFORD FIRE INSURANCE COMPANY, Cross-Defendant.

HARTFORD CASUALTY INSURANCE COMPANY, Intervenor-Plaintiff, v. AMERICAN ECONOMY INSURANCE COMPANY; AMERICAN STATES INSURANCE COMPANY;

GENERAL INSURANCE COMPANY OF AMERICAN;

and ASPEN WAY ENTERPRISES, INC., Defendants to Intervenor Complaint.

CV 14-09-BLG-SPW

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA BILLINGS DIVISION

September 24, 2015

OPINION and ORDER

Before the Court is the Motion for Summary Judgment filed by American Economy Insurance Company ("American Economy"), American States Insurance Company ("American States"), and General Insurance Company of America ("General Insurance") (collectively "Liberty Mutual"). Liberty Mutual seeks adeclaration that it does not owe Aspen Way Enterprises ("Aspen Way") a duty to defend in two underlying actions. For reasons discussed below, the Court finds that according to the relevant insurance policies, Liberty Mutual is not required to defend Aspen Way in the underlying actions and grants the Motion for Summary Judgment.

I. Background

Aspen Way is a franchisee of Aaron's Inc. and operates rent-to-own stores in at least Montana, Washington, and Wyoming. Relevant here, Aspen Way is defending two separate underlying actions related to its installation of software called PC Rental Agent onto computers sold or rented to customers. (Doc. 33 at 3-4).

A. The Byrd Action

In May 2011, Crystal and Brian Byrd, individually and on behalf of a class consisting of Aaron's and its franchisees' customers, sued Aspen Way, Aaron's, and other Aaron's franchisees in the United States District Court for the Western District of Pennsylvania (the "Byrd Action"). (Id. at 3). The Byrds allege that on July 30, 2010, they entered into a lease agreement for a laptop computer from Aspen Way. (Doc. 62-3 at 25). On December 22, 2010, an Aspen Way store manager erroneously believed that the Byrds were delinquent in their lease payments and appeared at the Byrds' residence to repossess the computer. (Id. at27). The store manager showed Brian Byrd a picture taken with the computer's webcam that showed him using the computer. (Id.). The Byrds asked the store manager to leave the residence and reported the incident to law enforcement. (Id.).

The Byrds later found out that Aspen Way took the picture using PC Rental Agent. (Id.). PC Rental Agent is a software product designed by a company named Designer Ware. (Id. at 17). Once installed on a computer, PC Rental Agent is generally undetectable by consumers. (Id. at 18). The installer can remotely install "Detective Mode" on the computer over the internet while it is in the consumer's possession. (Id.).

Once Detective Mode has been installed, the installer can secretly take photographs with the computer's webcam, capture keystrokes, and take screen shots. (Id.). Detective Mode transmits the gathered data to Designer Ware. (Id. at 19). Designer Ware then emails the data to the installer that activated Detective Mode. (Id.).

The Byrds allege that Aaron's franchisees have used PC Rental Agent since at least June 2009. (Id. at 17). The Byrds claim that the franchisees received private and confidential data after activating Detective Mode on their customers' computers. (Id. at 17-18). Such private data included private emails, keystroke logs for usernames and passwords, bank and credit card statements, Social Security numbers, and webcam photos of individuals in various states of undress. (Id.).Aaron's franchisees could remotely install and activate Detective Mode through Aaron's corporate server. (Id. at 21). Aaron's franchisees would also access the acquired data from Aaron's corporate server. (Id.).

The Byrds claim that Aspen Way accessed their computer via Detective Mode on about 347 occasions. (Id. at 26). While Detective Mode is no longer operational on the Byrds' computer, the Byrds allege that information obtained by Aspen Way "has been repeatedly transmitted via unencrypted email and forwarded to unknown persons and locations." (Id. at 29). In all, the Byrds claim that more than 800 customers had private information transmitted to Aaron's franchisees. (Id. at 30). The Byrds allege these customers "continue to suffer harm or potential harm," as their information "may have been possibly transmitted to other third parties thereby placing them at an increased risk of fraud and identity theft[.]" (Id. at 24). Aaron's franchisees stopped using PC Rental Agent in January 2012. (Id. at 30). Even after ceasing to use PC Rental Agent, the Byrds claim that "franchisee employees and other unknown individuals continue to possess and potentially spread" private information obtained by the software. (Id. at 33).

In their Corrected Third Amended Class Action Complaint, the Byrds brought four causes of action against Aaron's and numerous franchisees, including Aspen Way. Count I alleges a violation of the Electronic Communications Privacy Act, 18 U.S.C. § 2511 ("ECPA"). The Byrds claim that the defendants violated theECPA by "intentionally collecting, transmitting, storing and disclosing, or endeavoring to disclose, to any other person," the contents of the private data collected by PC Rental Agent. (Id. at 34). Count II alleged a tort named Invasion of Privacy, Count III alleged a conspiracy to violate the ECPA, and Count IV alleged that Aaron's aided and abetted the invasion of privacy. (Id. at 35-40).

On March 31, 2014, the District Court granted in part and denied in part Aaron's Motion to Dismiss for Failure to State a Claim. Byrd v. Aaron's, Inc., 14 F. Supp. 3d 667, 674 (W.D. Pa. 2014). The Court held that the Byrds sufficiently pled a claim for liability under the ECPA as to Count I. Id. at 675. The Court dismissed Counts II, III, and IV. Id. at 674. As to Count II, the Court adopted a Magistrate Judge's Report and Recommendation that concluded that Wyoming law does not have a tort cause of action for invasion of privacy. Id. at 692-93. As to Count III, the Court held that the ECPA does not allow for secondary liability. Id. at 674-75. The Byrds apparently conceded that they could not maintain a cause of action for Count IV. Id. at 694. Accordingly, the ECPA claim in Count I is "the only remaining claim." Id. at 675.

The Court also denied Aspen Way's Motion to Dismiss for Lack of Personal Jurisdiction. Id. at 675-76. In a separate order on March 31, 2014, the Court denied the Byrds' motion for class certification. Byrd v. Aaron's, Inc., 2014 WL 1316055, at *1 (W.D. Pa. Mar. 31, 2014). On April 16, 2015, the Third Circuitreversed the denial of class certification. Byrd v. Aaron's Inc., 784 F.3d 154, 160 (3d Cir. 2015). Since the District Court received the Third Circuit's mandate, there apparently has been a discovery dispute but there is no scheduling order in place. See Minute Entries (Docs. 371, 374, 377, 381), Byrd v. Aaron's Inc., Civil Action No. 1:11-101-CB-SPB (W.D. Pa. May 26, June 24, July 29, and August 25, 2015).

In May 2011, Aspen Way demanded coverage from Liberty Mutual for the Byrd Action. Liberty Mutual agreed to defend Aspen Way, but did so under a complete reservation of rights. (Doc. 62-30). In particular, Liberty Mutual reserved the right to institute a declaratory judgment action and withdraw its defense at any point. (Id. at 8-9).

B. The Washington Action

On October 18, 2013, the State of Washington sued Aspen Way in Spokane County Superior Court, Washington ("Washington Action"). (Doc. 33 at 4). In the Complaint for Injunctive and Other Relief, the State claimed that Aspen Way installed PC Rental Agent and Detective Mode without adequate notice to customers. (Doc. 62-7 at 4). The State also made allegations similar to the Byrd Action regarding PC Rental Agent and Detective Mode's capabilities. (Id.). The State alleged that Detective Mode relayed private information via email to Aspen Way stores located in Washington without any customer knowledge. (Id.).

The State's Complaint contained four causes of action. Count 1 alleged that Aspen Way made material misrepresentations to its customers by failing to alert them to the presence or capabilities of Detective Mode in violation of Washington's Consumer Protection Act, RCW 19.86.020. (Id. at 5). Count 2 alleged that Aspen Way collected their customers' private information in violation of Washington's Computer Spyware Act, RCW 19.270.020. (Id. at 6). Count 3 alleged that Aspen Way violated the Computer Spyware Act by failing to provide to its customers the ability to decline the installation of Detective Mode. (Id. at 8). Finally, Count 4 alleged that Aspen Way violated the Consumer Protection Act by unfairly collecting their customers' private information and pictures. (Id. at 9). Although Count 4 is titled "Unfair Collection and Disclosure of Private and Confidential Information," the State did not allege there was any disclosure. Instead, the State alleges that it was the "unfair gathering of extremely private information" that caused injury to the consumers. (Id.).

On February 4, 2015, the State and Aspen Way entered into a Consent Decree. (Doc. 62-8). Aspen Way did not admit to the alleged violations of Washington law, but Aspen Way agreed to an injunction against installing software similar PC Rental Agent and Detective Mode. (Id. at 5-7)....