Colony Ins. Co. v. Custom AG Commodities, LLC, Civil Action No. 4:16–CV–83

• Decision Date: 10 July 2017
• Docket Number: Civil Action No. 4:16–CV–83
• Citation: 272 F.Supp.3d 948
• Parties: COLONY INSURANCE COMPANY v. CUSTOM AG COMMODITIES, LLC, Diversified Ingredients, Inc.
• Court: U.S. District Court — Eastern District of Texas

272 F.Supp.3d 948

COLONY INSURANCE COMPANY

v.CUSTOM AG COMMODITIES, LLC, Diversified Ingredients, Inc.

Civil Action No. 4:16–CV–83

United States District Court, E.D. Texas, Sherman Division.

Signed July 10, 2017

Stephen Andrew Melendi, John Charles Tollefson, Tollefson Bradley Mitchell & Melendi LLP, Dallas, TX, for Colony Insurance Company.

Charles William Fillmore, Hartson Dustin Fillmore, III, The Fillmore Law Firm, LLP, Fort Worth, TX, Howard Jay Klatsky, Michael Paul Sharp, Timothy Russell George, Fee Smith Sharp & Vitullo, LLP, Dallas, TX, for Custom Ag Commodities, LLC, Diversified Ingredients, Inc.

MEMORANDUM ADOPTING REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Came on for consideration the reports of the United States Magistrate Judge in this action, this matter having been heretofore referred to the Magistrate Judge pursuant to 28 U.S.C. § 636. On June 15, 2017, the report of the Magistrate Judge (Dkt. # 44) was entered containing proposed findings of fact and recommendations that Plaintiff Colony Insurance Company's Motion for Summary Judgment (Dkt. # 32) be granted, and that Defendant Diversified Ingredients, Inc.'s Cross Motion for Summary Judgment (Dkt. # 34) and Defendant Custom Ag Commodities, LLC's Cross Motion for Summary Judgment (Dkt. # 36) each be denied.

Having received the reports of the Magistrate Judge, and no objections thereto having been timely filed, the Court is of the opinion that the findings and conclusions of the Magistrate Judge are correct and adopts the Magistrate Judge's report as the findings and conclusions of the Court.

It is, therefore, ORDERED that Defendant Diversified Ingredients, Inc.'s Cross Motion for Summary Judgment (Dkt. # 34) and Defendant Custom Ag Commodities, LLC's Cross Motion for Summary Judgment (Dkt. # 36) each are DENIED .

It is further ORDERED that Plaintiff Colony Insurance Company's Motion for Summary Judgment (Dkt. # 32) is GRANTED .

IT IS SO ORDERED .

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Christine A. Nowak, UNITED STATES MAGISTRATE JUDGE

Pending before the Court are Plaintiff Colony Insurance Company's Motion for Summary Judgment and Brief in Support ("Colony Motion for Summary Judgment") [Dkt. 32], Defendant Diversified Ingredients, Inc.'s Cross Motion for Summary Judgment ("Diversified Motion for Summary Judgment") [Dkt. 34], and Defendant Custom Ag Commodities, LLC's Cross Motion for Summary Judgment ("Custom Ag Motion for Summary Judgment") [Dkt. 36]. After reviewing the Motions, Responses [Dkts. 37–38; 41], Replies [Dkts. 42–43], and all other relevant filings,¹ the Court recommends that Colony's Motion for Summary Judgment be GRANTED , and the cross-motions filed by Diversified and Custom Ag be DENIED.

BACKGROUND

The above-captioned lawsuit arises from an insurance coverage dispute. In May of 2014, Nestle Purina PetCare Company ("Purina") filed a false advertising lawsuit against The Blue Buffalo Company Ltd. ("Blue Buffalo") in the United States District Court for the Eastern District of Missouri, 4:14–CV–00859–RWS. Purina's complaint alleges that, directly contrary to the "True Blue Promise" touted in Blue Buffalo's advertising, Blue Buffalo products contain substantial proportions of chicken/poultry by-product meal, along with corn and artificial preservatives. Purina alleges Blue Buffalo's use of by-product meal dates back to at least 2009 and is directly contrary to Blue Buffalo's product labels; Purina also asserts that Blue Buffalo's advertising campaign related to such products dates back to 2013 [Dkt. 34–1 at pg. 9].² Purina alleges "Blue Buffalo heaped praise upon its own products because they did not contain any chicken/poultry by-product meal—in contrast to ‘big name’ pet foods," but these commercials were false, deceptive, wholly unsubstantiated and fully intended to injure Purina's reputation [Dkt. 34–1 at pg. 6, 16]. Purina's complaint demands recovery for false advertising and commercial disparagement under the Lanham Act, 15 U.S.C. § 1125(a), along with state statutory and common law claims for deceptive trade practices, injurious falsehood, unfair competition, and unjust enrichment [Dkt. 34–1 at pg. 42–49].

In addition to the Purina lawsuit, Blue Buffalo faces class action litigation filed by consumers in the United States District Court for the Eastern District of Missouri, 14–MD–02562–RWS. For the purposes of the insurance coverage action filed in this forum, the consumer class action litigation raises essentially the same false advertising allegations as the lawsuit filed by Purina [Dkt. 34–2].

Blue Buffalo filed a third-party complaint against Wilbur–Ellis Company ("Wilbur–Ellis") and Diversified [Dkt. 41–1]. Diversified was Blue Buffalo's ingredient broker for product supplies, and Wilbur–Ellis owned a plant, the Rosser facility, from which Diversified purchased chicken meal for Blue Buffalo's products [Dkt. 32–2 at 4; 32–3 at 4]. Blue Buffalo's third-party complaint alleges Wilbur–Ellis and Diversified provided written guarantees to Blue Buffalo that the chicken and turkey meal that they were providing "exclu[ded] ... feathers, heads, feet, and entrails," except in unavoidable trace amounts, but that they violated these contracts many times over the course of several years and concealed such violations from Blue Buffalo [Dkt. 41–1 at 3]. Blue Buffalo alleges damages arising from paying for a superior product while receiving an inferior one. Blue Buffalo also alleges the conduct of Wilbur–Ellis and Diversified harmed Blue Buffalo's reputation and caused Blue Buffalo to incur significant attorney fees and expenses in the litigation brought by Purina, as well as the consumer class. Finally, Blue Buffalo seeks indemnification and contribution, arguing Wilbur–Ellis and Diversified should be ordered to pay all (or their pro rata share of any) amounts Blue Buffalo must pay Purina or the consumer class in the Missouri lawsuits [Dkt.41–1 at 4].

Diversified filed a crossclaim against Wilbur–Ellis and a third-party claim against Custom Ag in both of the Missouri lawsuits [Dkt. 32–2; 32–3]. Diversified alleges it contracted with Wilbur–Ellis and Custom Ag to supply chicken meal, unadulterated with feathers or beaks, but that Wilbur–Ellis and Custom Ag supplied chicken by-product instead and without Diversified's knowledge [Dkt. 32–2 at 4; 32–3 at 4]. Diversified alleges that from 2011 through mid–2014, Custom Ag and Wilbur–Ellis sold "Adulterated Meal" to Diversified [Dkts. 32–3 at 4; 34–4 at pg. 11]; that Wilbur–Ellis and Custom Ag labeled the product sold "as ‘chicken meal’ or ‘chicken meal blend,’ " but that it actually "contained no ‘chicken meal’ at all. Instead, the goods were comprised entirely of by-product meal, feather meal, and other products" [Dkts. 32–2 at 5; 34–3 at pg. 29]. Diversified specifically alleges:

Defendants sold to Diversified the Adulterated Meal as high-quality and single ingredient chicken meal or turkey meal for four years in knowing violation of agreed-upon product specifications and labeling laws. Defendants never disclosed to Diversified all the actual ingredients in the goods Diversified purchased from Defendants until May 2014.

[Dkt. 32–2 at 13]. Diversified seeks contribution from Custom Ag for all or a proportional part of any damages owed to Blue Buffalo that were caused by Custom Ag's alleged wrongful conduct [Dkts. 32–2 at 14; 32–3 at 5; 34–3 at pg. 57–58; 34–4 at pg. 14–15].

As to the claims alleged in the Missouri lawsuits, Custom Ag has demanded representation and coverage from Colony, its commercial liability insurer. Colony issued a Commercial General Liability policy to Custom Ag beginning on April 20, 2012, with the policy renewed annually each of the next three years. The initial and three renewal policies provide identical coverage, with such coverage ending on April 20, 2016 [Dkt. 32–1]. Relevant herein, Coverage B of the policy provides "Personal and Advertising Injury Liability" coverage subject to several exclusions.³ Coverage B states:

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages.

....

b. This insurance applies to "personal and advertising injury" caused by an offense arising out of your business but only if the offense was committed in the "coverage territory" during the policy period.

[Dkt. 32–1 at 7]. As used in the Policy, "Personal and advertising injury" is defined as "injury, including consequential "bodily injury", arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;

d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

e. Oral or written publication, in any manner, of material that violates a person's right of privacy;

f. The use of another's advertising idea in your "advertisement"; or

g. Infringing upon another's copyright, trade dress or slogan in your "advertisement."

[Dkt. 32–1 at 12].

Colony further argues that, even assuming the claims against Custom Ag could be construed as "personal and advertising injury," Custom Ag is not entitled to coverage under the following policy exclusions:

a. Knowing Violation Of Rights Of Another

"Personal and advertising injury" caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury".

c. Material Published Prior To Policy Period

...