Milbank Ins. Co. v. Rushmore Photo & Gifts, Inc.

• Decision Date: 04 September 2018
• Docket Number: CIV. 17-5066-JLV
• Citation: Milbank Ins. Co. v. Rushmore Photo & Gifts, Inc., CIV. 17-5066-JLV (D. S.D. Sep 04, 2018)
• Parties: MILBANK INSURANCE COMPANY, Plaintiff, v. RUSHMORE PHOTO & GIFTS, INC., a South Dakota Corporation, JRE, INC., a South Dakota Corporation, CAROL NIEMANN, PAUL A. NIEMANN, and BRIAN M. NIEMANN, Defendants.
• Court: U.S. District Court — District of South Dakota

MILBANK INSURANCE COMPANY, Plaintiff, v. RUSHMORE PHOTO & GIFTS, INC., a South Dakota Corporation, JRE, INC.,a South Dakota Corporation, CAROL NIEMANN, PAUL A. NIEMANN, and BRIAN M. NIEMANN, Defendants.

CIV. 17-5066-JLV

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH DAKOTA WESTERN DIVISION

September 4, 2018

ORDER

INTRODUCTION

Defendants Rushmore Photo & Gift, Inc., JRE, Inc., Carol Niemann, Paul A. Niemann and Brian M. Niemann (jointly the "RPG Defendants") filed a motion to dismiss count I, count II and paragraphs 68(a), (b), (c), (d), (e), (g) and (k) of count III of plaintiff's complaint pursuant to Federal Rules of Civil Procedure 12(b)(5) and (6). (Docket 7). Plaintiff resists defendants' motion. (Docket 19). For the reasons stated below, defendants' motion is granted.

ANALYSIS

For purposes of resolving the RPG Defendants' motion, the facts alleged in the complaint are accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) ("To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' ") (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

Plaintiff Milbank Insurance Company ("Milbank") filed a complaint against the RPG Defendants on August 22, 2017. (Docket 1). The complaint asserts the court has diversity of citizenship jurisdiction pursuant to 28 U.S.C. § 1332(a).¹ Id. ¶ 18. The complaint seeks a "declaratory judgment, brought pursuant to 28 U.S.C. §§ 2201 & 2202, for the purpose of determining the rights and legal obligations under insurance policies issued by Milbank to the RPG Defendants." (Docket 1 ¶ 1). Plaintiff alleges "[t]he Milbank Policies do not apply to claims for trademark infringement, intentional violations of the known rights of another, and injunctive relief." Id. ¶ 2. Milbank states that "[o]n June 22, 2011, Sturgis Motorcycle Rally, Inc. ("SMRI"), filed suit against the RPG Defendants alleging trademark infringement relating to the Sturgis Motorcycle Rally in Sturgis, South Dakota." Id. ¶ 3. See Sturgis Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., et al., Civ. 11-5042 (D.S.D. 2011) (the "SMRI Lawsuit"). The complaint alleges that "Milbank agreed to defend the RPG Defendants, subject to a reservation of rights that the Milbank Policies do not provide coverage for trademark violations, intentional violations of the known rights of another, or claims for injunctive relief." (Docket 1 ¶ 4).

"On April 24, 2012, SMRI filed an Amended Complaint alleging the same causes of action as its original Complaint, but adding Wal-Mart as a defendant." (Docket 1 ¶ 40) (referencing Civ. 11-5052, Docket 52). "Without consulting Milbank, Rushmore agreed to defend and indemnify Wal-Mart relative to the [SMRI] Lawsuit." Id. ¶ 43. "Until its decision to amicably withdraw[ ] from the RPG Defendants' defense, Milbank was also paying for [RPG Defendants' attorneys] defense of Wal-Mart subject to a reservation of rights." Id. ¶ 45. "Milbank now seeks a ruling that Milbank has no duty to defend the RPG Defendants in the [SMRI] [L]awsuit." Id. ¶ 10.

Count I seeks a declaratory judgment that "the Trademark Exclusion bars coverage for the [SMRI] Lawsuit in its entirety." Id. ¶ 60. Count II seeks a declaratory judgment that "the Intentional and/or Willful Conduct Exclusion bars coverage for the [SMRI] Lawsuit in its entirety." Id. ¶ 66. Count III seeks a declaratory judgment "that Milbank has no duty to provide coverage, or is entitled to recover certain amounts spent in connection with the [SMRI] Lawsuit, based on [certain] grounds . . . ." Id. ¶ 68. Relevant to the RPG Defendants' motion, the complaint alleged that Milbank had no duty to:

1. defend claims for "personal and advertising injury" where such injury arises from publications or distributions of infringing material that occurred prior to the inception of any Milbank Policy. Id. ¶ 68(a).

2. defend claims for any liability or potential liability which the RPG Defendants knew of, and did not disclose to Milbank, prior to the inception of any Milbank Policy. Id. ¶ 68(b).3. defend claims for "personal and advertising injury" arising out of oral or written publication of material, if done by or at the direction of the RPG Defendants with knowledge of its falsity. Id. ¶ 68(c).

4. defend claims for "personal and advertising injury" arising out of the failure of goods, products or services to conform with any statement of quality or performance made in the RPG Defendants' "advertisement." Id. ¶ 68(d).

5. defend claims that do not seek damages, or claims that . . . seek solely injunctive or equitable relief. Id. ¶ 68(e).

6. pay defense costs that are not reasonable and necessary, or are otherwise unrelated to a covered claim. Id. ¶ 68(g).

7. defend the RPG Defendants to the extent that coverage is precluded by the terms, conditions, and exclusions of the Milbank Policies. Id. ¶ 68(k).

The RPG Defendants seek dismissal of count I, count II and the above referenced subsections of count III pursuant to Fed. R. Civ. P. 12(b)(6) as being time-barred by the applicable South Dakota statute of limitations. (Docket 8 at p. 7). Defendants identify SDCL § 15-2-13 as the applicable statute of limitations. Id. In relevant part, that statute provides "the following civil actions . . . can be commenced only within six years after the cause of action shall have accrued . . . [a]n action upon a contract, obligation, or liability, express or implied . . . ." SDCL § 15-2-13(1).

The RPG Defendants argue that because Milbank's claim "accrued no later than June 22, 2011," when the SMRI Lawsuit complaint was filed and Milbank's complaint was not filed until "August 22, 2017, and served onAugust 31, 2017,² . . . the statute of limitations had run on all claims related to Milbank's duty to defend under the contract of insurance." (Docket 8 at pp. 6-7). For these reasons, the RPG Defendants assert the identified Milbank claims "should be dismissed with prejudice." Id. at p. 7.

Milbank resists defendants' motion on several grounds. First, "[t]he operative pleading in the [SMRI] Lawsuit is the First Amended Complaint filed April 24, 2012." (Docket 19 at p. 2) (referencing Civ. 11-5052, Docket 52). "[T]o the extent that a six-year statute of limitations applies and a cause of action for declaratory relief can accrue upon the filing of an underlying complaint, the applicable statute of limitations for this matter began to toll on April 24, 2012." Id. at p. 3. Milbank argues "the allegations contained in [the amended complaint] . . . will be used to determine Milbank's defense obligations, if any, to the RPG Defendants." Id. Milbank submits that "[u]nder well-established South Dakota and federal law, the First Amended Complaint superseded the original complaint and rendered the original complaint without legal effect." Id. at p. 5 (referencing In re Atlas Van Lines, Inc., 209 F.3d 1064, 1067 (8th Cir. 2000) ("It is well-established that an amended complaint supercedes an original complaint and renders the original complaint without legal effect.") (other references omitted). Based on this argument, Milbank contends "even if a six-year statute of limitations applies,and a claim for declaratory judgment accrues upon the filing of an underlying complaint, Milbank's claims are still timely because the six-year statute of limitations would begin to run on April 24, 2012." Id. at p. 6.

Second, Milbank argues the SMRI Lawsuit verdict on October 30, 2015, finding "the RPG Defendants intentionally infringed on one or more of SMRI's trademarks . . . . made clear that the [SMRI] Lawsuit is a trademark dispute that is unequivocally excluded from coverage under the Milbank policy." Id. at p. 2. Milbank submits that "[o]nly then did Milbank raise the possibility of withdrawing its defense, and only then was there an actual controversy between the parties." Id. at p. 4. Milbank argues its "cause of action for declaratory judgment accrued no earlier than the jury's finding that the RPG Defendants were liable for intentional trademark infringement on October 30, 2015." Id. at p. 9. Plaintiff submits it "defended the RPG Defendants in good faith for over four years without dispute and faithfully paid the invoices of the RPG Defendants self-selected counsel through trial. Now, the RPG Defendants seek to punish Milbank's decision to provide a good faith defense by arguing that Milbank is now barred from pursuing declaratory judgment." Id. at p. 10. Milbank submits "there was no actual controversy (i.e. clearly antagonistic positions indicating imminent and inevitable litigation) until, at earliest, the jury in the [SMRI] Lawsuit confirmed that there were no covered claims against the RPG Defendants." Id. Milbank concludes "[g]iven the significance of the jury award in determining the parties' obligations, it is illogical for the RPGDefendants to argue that Milbank's cause of action for declaratory judgment accrued before that [verdict] existed." Id.

Third, "[b]ecause there is no South Dakota statute specifically addressing limitations for declaratory judgment actions, the ten year 'catch all' statute of limitations under SDCL § 15-2-8 applies." Id. at p. 4; see also id. at p. 8. For this reason, Milbank argues its "declaratory judgment action was filed well within the applicable statute of limitations." Id. at p. 8.

Fourth, "Milbank made repeated attempts to reach mutually agreeable terms with the RPG Defendants regarding Milbank's withdrawal from the defense. . . . Specifically, Milbank reached out [to] the RPG Defendants on February 2, February 14, February 22, March 2, March 3, March 10, March 16, April 4, April 7, . . . June 12, 2017, and July 10, 2017." Id. at p. 2. While those discussions "raised the possibility of recouping past defense costs . . . . Milbank is no longer seeking recoupment of costs it incurred in defending the RPG Defendants through trial, it is only disputing...