Dogloo, Inc. v. Northern Ins. Co. of New York

• Decision Date: 01 December 1995
• Docket Number: No. CV95-3591 ABC (CTx).,CV95-3591 ABC (CTx).
• Citation: 907 F. Supp. 1383
• Court: U.S. District Court — Central District of California
• Parties: DOGLOO, INC., a California corporation, Plaintiff, v. NORTHERN INSURANCE COMPANY OF NEW YORK, a New York corporation, and Cigna Property and Casualty Co., a Connecticut corporation, Defendants.

907 F. Supp. 1383

DOGLOO, INC., a California corporation, Plaintiff, v. NORTHERN INSURANCE COMPANY OF NEW YORK, a New York corporation, and Cigna Property and Casualty Co., a Connecticut corporation, Defendants.

No. CV95-3591 ABC (CTx).

United States District Court, C.D. California.

December 1, 1995.

David A. Gauntlett, Gauntlett & Associates, Irvine, CA, for plaintiff.

James C. Nielsen, Glendale, CA, Thomas H. Nienow, San Francisco, CA, John D. Ott, Wright, Robinson, McCammon, Osthimer & Tatum, Los Angeles, CA, for defendants.

COURT'S SECOND ORDER RE: DEFENDANT NORTHERN INSURANCE COMPANY OF NEW YORK'S MOTION TO DISMISS PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6)

COLLINS, District Judge.

Defendant Northern Insurance Company of New York's Federal Rule of Civil Procedure 12(b)(6) motion to dismiss came on regularly for hearing before this Court on December 1, 1995. After reviewing the materials submitted by the parties, argument of counsel, and the case file, it is hereby ORDERED that Defendant Northern Insurance Company of New York's motion to dismiss is DENIED.

I. Procedural Background

Plaintiff DOGLOO, INC. ("Dogloo") filed a Complaint against Defendants NORTHERN INSURANCE COMPANY OF NEW YORK ("Northern") and CIGNA PROPERTY AND CASUALTY CO. ("Cigna") on May 30, 1995. Dogloo filed a First Amended Complaint ("FAC") on September 27, 1995, and a Second Amended Complaint ("SAC") on November 9, 1995. In its SAC, Dogloo joined INSURANCE COMPANY OF NORTH AMERICA ("INA") as a Defendant. Dogloo's SAC alleges that Defendants breached their insurance contracts by contending that their "agreements to defend do not trigger Dogloo's right to retain independent counsel at Defendants' expense." SAC at ¶¶ 34 and 41. In addition, Dogloo seeks declaratory relief.

Defendant Northern moves to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).

II. Plaintiff's Allegations

Dogloo's SAC alleges, in pertinent part, as follows:

—INA/Cigna issued Dogloo a Commercial General Liability Policy No. D29470662 (the "INA Policy") for the period July 1, 1993 to July 1, 1994.

—Northern issued Dogloo a Commercial General Liability Policy No. EPA225975 (the "Northern Policy") for the period July 1, 1994 to July 1, 1995.

—Both the Northern Policy and the INA Policy (collectively, the "Policies") provide coverage for "advertising injury" and "personal injury." The Policies also provide that the respective insurers will defend any "suit" seeking covered damages.

—The Policies define "advertising injury" as an injury arising out of one or more of the following offenses.

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

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

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

d. Infringement of copyright, title or slogan.

SAC at ¶ 10.

—The Policies define "personal injury" as an injury, other than "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 by or on behalf of its owner, landlord or lessor;

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

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

Id.

—Dogloo filed suit alleging trademark and trade dress infringement against Doskocil Manufacturing, Inc. ("Doskocil"). Doskocil counterclaimed against Dogloo for misappropriation of trade secrets (alleging that Dogloo misappropriated Doskocil's cycle time, mold weight, and doghouse design), tortious interference with business relationships, tortious interference with contract, attempt to monopolize, unfair competition (arising under Section 43(a) of the Lanham Act), and trademark cancellation. "Doskocil's Counterclaim charges Dogloo with various theories of recovery premised upon its improper advertising materials which demonstrate the functional benefits of the pet shelter configuration. It further claims that based on such advertising materials, Dogloo is estopped from asserting that the configuration of its pet shelter is non-functional or that it may sue on trademark or trade dress protection claims." SAC at ¶ 16.

—On or about March 8, 1995, Dogloo notified Northern of Doskocil's Counterclaim.

—On June 19, 1995, Northern agreed to defend Dogloo in the Doskocil Counterclaim, subject to a reservation of rights. Specifically, Northern contended that

Northern's reservations of rights refer only to issues extrinsic to the issue of Dogloo's alleged liability and defense counsel and would have no ability to affect coverage inasmuch as Northern contends that no coverage exists as a matter of law. Therefore, no conflict of interest exists between Northern and Dogloo that would require retention of independent defense counsel pursuant to California Civil Code § 2860. Accordingly, Northern will refer this matter to the firm of Bronson, Bronson & McKinnon.... Of course, current counsel may continue to represent Dogloo with respect to its action against Doskocil, and I will instruct the Bronson firm to cooperate fully with them in that regard.

SAC at ¶ 23.

—Northern refused to agree that its reservation of rights triggered a conflict of interest so that Section 2860 of the California Civil Code would apply to allow Dogloo to retain independent counsel to defend against Doskocil's Counterclaims.

—On May 24, 1995, Dogloo notified INA and Cigna of Doskocil's Counterclaim.

—On July 27, 1995, INA and Cigna agreed that Dogloo was owed a duty of defense but subject to a reservation of rights. INA/Cigna contended that California Civil Code Section 2860 applied to the payment of attorney's fees with respect to Dogloo's defense.

—Doskocil abandoned its Counterclaim on July 17, 1995. Thus, Dogloo has incurred no covered defense costs since such time.

— Both Northern and INA/Cigna have breached their contracts with Dogloo by contending that the Policies do not require the insurers to reimburse Dogloo for the costs incurred by independent counsel in defending against Doskocil's Counterclaim.

Dogloo prays for declaratory relief as well as reimbursement for defense costs incurred in defending against the Doskocil Counterclaim.

III. Discussion

A. Standard

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. Rule 12(b)(6) must be read in conjunction with Rule 8(a) which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356 (1990). Therefore, a court must not dismiss a complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Moore v. City of Costa Mesa, 886 F.2d 260, 262 (9th Cir.1989) (quoting Conley v. Gibson), cert. denied, 496 U.S. 906, 110 S.Ct. 2588, 110 L.Ed.2d 269 (1990); see Haddock v. Board of Dental Examiners of California, 777 F.2d 462, 464 (9th Cir. 1985) (complaint should not be dismissed if it states a claim under any legal theory, even if the plaintiff erroneously relies on a different legal theory).

A court must accept as true all material allegations in the complaint, as well as reasonable inferences to be drawn from them. NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986); see also Russell v. Landrieu, 621 F.2d 1037, 1039 (9th Cir. 1980) (finding that the complaint must be read in the light most favorable to the plaintiff). However, a court need not accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. Western Min. Council v. Watt, 643 F.2d 618, 624 (9th Cir.), cert. denied, 454 U.S. 1031, 102 S.Ct. 567, 70 L.Ed.2d 474 (1981).

Furthermore, unless a court converts a Rule 12(b)(6) motion into a motion for summary judgment, a court cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits, or discovery materials). Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1483 (9th Cir.1991). A court may, however, consider exhibits submitted with the complaint and matters that may be judicially noticed pursuant to Federal Rule of Evidence 201. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir.1989); Mack v. South Bay Beer Distributors, Inc., 798 F.2d 1279 (9th Cir. 1986).

For all of these reasons, it is only under extraordinary circumstances that dismissal is proper under Rule 12(b)(6). United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir.1981).

B. Analysis

1. Northern's Duty to Defend

Northern argues that Dogloo's allegations against Northern must be dismissed because Northern was under no obligation to defend Dogloo against Doskocil's Counterclaim. Under California law,¹ an insurance carrier "must defend a suit which potentially seeks damages within the coverage of the policy." Gray v. Zurich Ins. Co., 65 Cal.2d 263, 275, 54 Cal.Rptr. 104, 419 P.2d 168 (1966) (emphasis in original). "Hence, the duty to defend `may exist even where coverage is in doubt and ultimately does not develop.'" Montrose Chemical Corp. of Calif. v. Superior Court, 6 Cal.4th 287, 295, 24 Cal. Rptr.2d 467, 861 P.2d 1153 (1993) (quoting Saylin v. California Ins. Guarantee Ass'n, 179 Cal.App.3d 256, 263, 224 Cal.Rptr. 493 (1986)).

Moreover, "once the defense duty attaches, the insurer is...