John Deere Ins. Co. v. Shamrock Industries, Inc.

• Decision Date: 01 April 1991
• Docket Number: No. 89-5532,89-5532
• Citation: 929 F.2d 413
• Parties: JOHN DEERE INSURANCE COMPANY, Appellant, v. SHAMROCK INDUSTRIES, INC.; Gregory Erlandson; Jack T. Mowry; Metal Craft Machine & Engineering, Inc.; NEOS, Inc.; and Cardinal Packaging, Inc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 413

929 F.2d 413

JOHN DEERE INSURANCE COMPANY, Appellant, v. SHAMROCK INDUSTRIES, INC.; Gregory Erlandson; Jack T.

Mowry; Metal Craft Machine & Engineering, Inc.;

NEOS, Inc.; and Cardinal Packaging,

Inc., Appellees.

No. 89-5532.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 13, 1990.

Decided April 1, 1991.

Richard P. Mahoney, Minneapolis, Minn., for appellant.

James W. Reuter and Jon G. Trangsrud of Lindquist & Vennum, Minneapolis, Minn., for appellees.

Before McMILLIAN and BOWMAN, Circuit Judges, and HENLEY, Senior Circuit Judge.

McMILLIAN, Circuit Judge.

John Deere Insurance Company ("Deere") appeals from a final judgment entered in the United States District Court ¹ for the District of Minnesota, granting partial summary judgment in favor of defendants on the issue of the duty to defend, and awarding defendants attorney's fees, costs and expenses. John Deere Insurance Co. v. Shamrock Industries, Inc., 696 F.Supp. 434 (D.Minn.1988) (John Deere ). Deere brought the action seeking a declaratory judgment that it was not obligated to defend or indemnify defendants under policies ² of insurance issued to Metal Craft Machine & Engineering, Inc. ("Metal Craft"), for claims arising out of an underlying patent infringement action between Shamrock Industries, Inc. ("Shamrock"), Gregory Erlandson, Jack T. Mowry, NEOS, Inc. ("NEOS"), Cardinal Packaging, Inc. ("Cardinal"), and Metal Craft.

For reversal, Deere argues that the district court erred in determining, as a matter of law, that NEOS and Erlandson are insureds under the Deere policies, in awarding costs and attorney's fees in the absence of an established duty to indemnify and in entering final judgment without a disposition of the issue of coverage. Deere also argues that the district court erred in granting summary judgment in favor of NEOS and Erlandson because they failed to give the requisite ten-day notice of their motion. For the reasons discussed below, we affirm the judgment of the district court.

I.

The facts of the underlying action are as follows. Shamrock filed the underlying action on June 25, 1987, alleging patent infringement, misappropriation of trade secrets, unfair competition, and breach of contract. Shamrock is a Minnesota corporation engaged in the business of selling plastic pails that are used by dairies as ice cream containers. Shamrock also installs ice cream pail filling machines and allows its customers to use the machines in conjunction with its ice cream pails. Cardinal is a direct competitor of Shamrock. Mowry is the president and sole owner of Metal Craft, which is a manufacturer of precision machine parts.

In October 1985, while employed by Shamrock, Erlandson invented an improved machine for filling ice cream containers. At that time, Erlandson entered into an agreement with Mowry to build and market this machine. In June 1986, they began assembly of a prototype at a Metal Craft facility. This prototype was completed and ready for testing four months later.

In late 1985 and early 1986, Mowry contacted the president of Cardinal for the purpose of selling him this new machine; and in October 1986, the president of Cardinal witnessed a demonstration of the machine at the Metal Craft shop in Elk River, Minnesota. Mowry and Erlandson incorporated NEOS in January 1987, for the purpose of continuing the development and marketing of the machine. Mowry is the sole owner of the NEOS stock. On April 16, 1987, Erlandson terminated his employment with Shamrock and immediately went to work for NEOS. In that same month, Erlandson and Mowry installed one of their machines in a Cardinal dairy located in Winston-Salem, North Carolina, for testing. As a result of its favorable performance, Cardinal ordered ten NEOS machines and entered into an exclusive distribution agreement with NEOS, which Mowry personally guaranteed.

On May 29, 1987, Shamrock notified everyone concerned that it believed the NEOS machine infringed its patent and, on June 25th, filed suit in the United States District Court for the District of Minnesota. On August 6, 1987, a NEOS machine was installed at Heartland Farms Dairy in Hazelwood, Missouri, which was the first instance of one of these machines being installed in a facility of a former Shamrock customer.

As the district court noted, the essential elements of Shamrock's complaint alleged:

Mowry, Metal Craft, NEOS and/or Erlandson manufactured, used and sold pail filling machines; copied features of [Shamrock's] pail filling machines; have disclosed, disseminated and/or published through direct communication and/or through the sale and distribution of machines, trade secrets and proprietary information of Shamrock, particularly information regarding Shamrock's business practices, design plans and contemplated future improvements for its pail filling machines; and have sold and are continuing to sell and solicit purchase orders for pail filling machines.

John Deere, 696 F.Supp. at 436.

Defendants tendered the defense of the patent infringement suit to Deere in a letter dated November 25, 1987, claiming that the insurance policies purchased by Metal Craft obligated Deere to defend the action. On December 22, 1987, Deere refused the tender of the defense of the suit; and on January 19, 1988, defendants requested it to reconsider this decision. Deere filed the instant declaratory judgment action on February 22, 1988.

In its complaint, Deere claimed that the insurance policies afforded no coverage for the claims made in the underlying suit and that it was not obligated to defend or indemnify any of the parties in that action. Erlandson, Mowry, Metal Craft, and NEOS (hereinafter collectively referred to as "NEOS Defendants") asserted a counterclaim seeking a declaration that Deere was obligated to defend and indemnify them for the underlying claims, and sought disbursements and attorney's fees associated with the defense of both the underlying action and the instant declaratory judgment action. ³

On May 13, 1988, Metal Craft and Mowry filed a motion for summary judgment on their claim that Deere was obligated to defend them in the underlying action under the "advertising liability/advertising injury" coverage ⁴ of the Deere policies. Deere moved for summary judgment against all defendants, including NEOS and Erlandson, and requested that the district court "specify for whom its policy or policies provide coverage and/or who is entitled to a defense." John Deere's Reply Memorandum in Support of Motion for Summary Judgment at 1, in Joint Appendix at 236. A hearing was held on the motions for summary judgment on September 23, 1988, at which time Erlandson and NEOS orally joined in Metal Craft and Mowry's motion for summary judgment.

On October 13, 1988, the district court entered an order granting, in part, the NEOS defendants' motion for summary judgment to the extent it found that Deere was obligated to defend Metal Craft and Mowry under each Special Multi-Peril Policy and each Catastrophe Umbrella Liability Policy, and that Deere was obligated to defend NEOS and Erlandson under each Catastrophe Umbrella Policy. The district court determined that all of the NEOS defendants were "insureds" under the Deere policies, John Deere, 696 F.Supp. at 438-39, and that the underlying claims of misappropriation of trade secrets arguably fell within the "advertising activity" coverage of the policies. Id. at 440. It noted that, "even if part of a cause of action is arguably within the scope of coverage, the insurer must defend." Id. (citing Prahm v. Rupp Construction Co., 277 N.W.2d 389, 390 (Minn.1979)).

The district court also awarded the NEOS defendants attorney's fees and costs incurred in defending both the patent infringement action and the declaratory judgment action, in an amount to be determined at a later evidentiary hearing. At the same time, the district court denied Deere's motion for summary judgment on the issue of the duty to defend, except with respect to two of the Deere policies. ⁵ In addition, the district court denied Deere's motion for summary judgment on the issue of its duty to indemnify any of the NEOS defendants "on the grounds that there are still numerous genuine issues of material fact which cannot be determined until the underlying action is further developed, if not completed." John Deere, 696 F.Supp. at 442.

On February 22, 1989, following an evidentiary hearing, the district court entered an order awarding costs, disbursements and attorney's fees to the NEOS defendants. ⁶ On September 19, 1989, the district court denied Deere's motion for reconsideration and granted the NEOS defendants' motion for entry of judgment on all of the court's orders pursuant to Fed.R.Civ.P. 54(b). The district court also awarded additional attorney's fees, costs and disbursements in favor of the NEOS defendants. This appeal followed. ⁷

II.

This case comes before us following the entry of summary judgment. Summary judgment is appropriate when the district court determines "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). In addition, a motion for summary judgment must be viewed in a light most favorable to the nonmoving party, and that party must receive the benefit of all reasonable inferences to be drawn from the underlying facts. Agristor Leasing v. Farrow, 826 F.2d 732, 734 (8th Cir.1987). We review the district court's conclusions of law, including the granting of summary judgment, under the de novo standard. Salve Regina College v. Russell, --- U.S. ----, ----, 111 S.Ct. 1217, 1219, 113 L.Ed.2d 190 (1991); Burdine v. Dow Chemical Co., 923 F.2d 633, 635 (8th Cir.1991). Finally, we note that the interpretation and construction of insurance policies is a matter of law, and therefore,...