Matagorda Ventures v. Travelers Lloyds Ins. Co.

• Decision Date: 07 December 2000
• Docket Number: No. Civ.A. H-98-4213.,Civ.A. H-98-4213.
• Citation: 203 F.Supp.2d 704
• Parties: MATAGORDA VENTURES, INC., et al., Plaintiffs, v. TRAVELERS LLOYDS INSURANCE COMPANY and Farmington Casualty Company, Defendants.
• Court: U.S. District Court — Southern District of Texas

203 F.Supp.2d 704

MATAGORDA VENTURES, INC., et al., Plaintiffs, v. TRAVELERS LLOYDS INSURANCE COMPANY and Farmington Casualty Company, Defendants.

No. Civ.A. H-98-4213.

United States District Court, S.D. Texas, Houston Division.

December 7, 2000.

Order Denying Reconsideration March 7, 2001.

COPYRIGHT MATERIAL OMITTED

MEMORANDUM AND ORDER

ROSENTHAL, District Judge.

In November 1998, Matagorda Ventures, Inc. and James Dale Birdsong, Jr. sued Travelers Lloyds Insurance Company ("Travelers"), seeking declaratory judgment and alleging breach of contract. The declaratory judgment sought is that Travelers owed a duty to defend Matagorda Ventures and Birdsong in connection with an ongoing trademark and copyright infringement lawsuit filed in the United States District Court for the Southern District of New York, by Movado Group, Inc. The contract claim is that Travelers breached its contractual obligation to provide plaintiffs a defense to the infringement suit.

Both sides have moved for summary judgment and have submitted responses and replies to the cross-motions. While those motions were pending, plaintiffs moved for leave to file a third and then a fourth amended complaint and requested judicial notice of materials submitted in support of their opposition to Travelers' motion for summary judgment.

After a careful review of the parties' pleadings, the cross-motions, responses, replies, and submissions, and the applicable law, this court GRANTS Matagorda Ventures' and Birdsong's request for judicial notice of materials in support of their opposition to Travelers' motion for summary judgment; DENIES Matagorda Ventures' and Birdsong's motion for summary judgment; GRANTS Travelers' motion for summary judgment; DENIES Matagorda Ventures' and Birdsong's motion for leave to file a third amended complaint; and DENIES their motion for leave to file a fourth amended complaint.

The reasons are stated below.

I. Background

Matagorda Ventures is a Texas corporation that advertises and sells wristwatches over the Internet. It operates under the trade name "wristwatch.com"; its web site bears the domain name "www.wristwatch.com." (Docket Entry No. 31, Ex. A, p. 2). Visitors to the wristwatch.com web site can view information about watches made by a variety of manufacturers and can purchase watches on-line.

Birdsong is the vice-president of Matagorda Ventures and owns a one-half interest in the company. (Docket Entry No. 15, Ex. J, Birdsong affidavit, ¶ 3; Docket Entry No. 48, Ex. 4). Birdsong has been in the business of selling wristwatches on the wristwatch.com web site since 1996. (Docket No. 31, Ex. N, deposition of Birdsong, pp. 31, 64). From 1996 to approximately September 1997, the web site was administered by Megasaurus, Inc., a company Birdsong owned. (Docket Entry No. 15, Ex. J, Birdsong affidavit, ¶¶ 1, 3; Docket Entry No. 48, Ex. 4). In June 1997, Birdsong began negotiations with Ronald Doohaluk of Watch Wholesalers, Inc., to explore the possibility of joint ownership of Birdsong's Internet business. On an unspecified date in mid-1997, Birdsong and Doohaluk reached an agreement to form a new, jointly-owned corporation, Matagorda Ventures, to operate the wristwatch.com web site.

The handwritten agreement between Birdsong and Doohaluk reads as follows:

Jim and Ron agree that Megasaurus, Inc. (Jim's company) will continue and own the domain name and registration for ww.com and that [sic] wristwatch.com. For $1.00 per year our new corporation Matagorda Ventures, Inc. (half-owned by each of us) will be the exclusive operators of wristwatch.com. Everything you or I do related to watches and watch-related products on the Internet will be done through Matagorda Ventures, Inc. This agreement will also include any other domain names registered by Megasaurus.

(Docket Entry No. 31, Ex. P). Matagorda Ventures incorporated on August 7, 1997, and "began operating the wristwatch.com web site and business in September 1997." (Docket Entry No. 48, Ex. 4).

On July 2, 1997, before Matagorda Ventures was incorporated, but after Birdsong had begun negotiations with Doohaluk, Birdsong received a letter from Mark Englemann, an attorney representing Movado Group, Inc. (Docket Entry No. 48, Ex. 4; Docket Entry No. 31, Ex. H). Movado Group manufactures and sells wristwatches under the trademark names of Movado, Vizio, and Concord, among others. (Docket Entry No. 31, Ex. G, p. 4). Englemann's letter accused Birdsong of infringing Movado Group's trademarks and copyrights through the wristwatch.com web site. In the letter, Englemann stated that "the wristwatch.com Web site falsely associates itself, its products and its services with Movado Group, Inc. and its affiliated companies," and that this "constitutes false advertising under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)." The letter demanded that Birdsong and Megasaurus:

(1) immediately cease advertising, selling, importing and distributing any MOVADO, MOVADO MUSEUM, MOVADO VIZIO, or, ESQ. watches or any other watches manufactured and/or sold by our client, (2) immediately cease any further use of any of the trademarks and other indicia of origin associated with MOVADO, MOVADO MUSEUM, MOVADO VIZIO, or ESQ. watches or any other watches manufactured and/or sold by our client, (3) delete all infringing copyrighted materials from your Web site, and (4) provide us with a full accounting of the number of watches sold and orders received to date, and a list of your remaining inventory.

(Docket Entry No. 31, Ex. H).

In July 1997, Birdsong showed this letter to his attorney, Stewart Feldman, and to Doohaluk. (Docket Entry No. 31, Ex. Q, deposition of Doohaluk, p. 47; Ex. S, deposition of Feldman, p. 9). On July 25, 1997, Feldman telephoned Englemann to discuss the letter. Feldman understood himself to be speaking in his capacity as attorney for "Jim Birdsong, Ron Doohaluk, and their various business interests." (Docket Entry No. 31, Ex. Q, deposition of Feldman, p. 23). Feldman testified that he and Englemann "had a long substantive conversation" in which they discussed ways of addressing Movado Group's concerns. (Id. at 26, 36).

Following his conversation with Englemann, Feldman recommended to Birdsong and Doohaluk that they make several changes to the wristwatch.com web site. Feldman testified that Birdsong and Doohaluk did so. Feldman called Englemann again on August 15, 1997. Feldman did not recall in his deposition whether he actually spoke to Englemann on this occasion, or whether he simply left "an extended voice mail message." (Id. at 28). Feldman testified that he told Englemann that his clients had "made substantive or significant ... changes to the web site," which he hoped "addressed all or most of [Englemann's] bona fide concerns." Feldman ended his communication to Englemann by saying, "[i]f there is anything else that is of any great concern to you, let me know." (Id. at 28). The record does not reveal whether, or how, Englemann responded. Feldman testified that there was no written communication between himself and Englemann: "[i]t's not as if we reached agreements on all of the issues and it was resolved. There were discussions going on the way, so to spend my client's time and money writing a letter saying while I recognize there are a lot of issues outstanding, the ball is in your court to tell me how we stand thus far, I didn't think that was a productive use of my time." (Id. at 50).

The dates of the insurance policies at issue are important to this case. Farmington Casualty Company, a wholly owned subsidiary of Travelers Lloyds Insurance Company, issued a commercial general liability insurance policy, No. 071-BQ-0025888758-TWF, to Doohaluk's company, Watch Wholesalers, Inc., with effective dates of March 1, 1997 to March 1, 1998 (the "Farmington Policy"). (Docket Entry No. 31, Ex. I, p. 483). On August 19, 1997, shortly after Matagorda Ventures was incorporated, the Farmington CGL Policy was amended, by endorsement, to add "Matagorda Ventures, Inc.," "Megasaurus, Inc.," and "www.wristwatch.com (internet)" to the list of named insureds. (Docket Entry No. 31, Ex. I, p. 555).

On January 28, 1998, Travelers issued to Watch Wholesalers a commercial general liability policy, No. IL-PACP-389P294-1-TLC-98, with effective dates of March 1, 1998, to March 1, 1999. (Docket Entry No. 31, Ex. J). Attached to this policy was an endorsement form adding "Matagorda Ventures, Inc.," "Megasaurus, Inc.," "Watch Wholesalers," "Liberty Time," and "wristwatch.com (internet)" to the named insureds. (Docket Entry No. 31, Ex. J, p. 565). The two CGL policies, referred to collectively in the motions as "the Travelers Policies," had identical provisions.

The Travelers Policies insured the holders against losses resulting from claims for damages caused by "personal injury" or "advertising injury." The Policies provided, in pertinent part, as follows:

Coverage B. Personal and Advertising Injury Liability

1. Insuring agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which the insurance applies....

b. This insurance applies to:

(1) "Personal injury" caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you;

(2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services....

(Docket Entry No. 31, Ex. I, p. 517). The Travelers Policies contained several specific exclusions:

2. Exclusions

This insurance does not apply to:

a. "Personal injury" or "advertising injury"

(1) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;

(2) Arising out of the oral or written publication of material whose first publication took place before the beginning of the policy period;

....

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