Platinum Technology, Inc. v. Federal Ins. Co.
| Decision Date | 07 March 2002 |
| Docket Number | No. 01-2503.,01-2503. |
| Citation | 282 F.3d 927 |
| Court | U.S. Court of Appeals — Seventh Circuit |
| Parties | PLATINUM TECHNOLOGY, INC., Plaintiff-Appellee, v. FEDERAL INSURANCE CO., Defendant-Appellant. |
John F. Zabriskie (argued), Foley & Lardner, Chicago, IL, for Plaintiff-Appellee.
Fred A. Smith, III, Sedgwick, Detert, Moran & Arnold, Chicago, IL, Kirk C. Jenkins (argued), Sedgwick, Detert, Moran & Arnold, San Francisco, CA, for Defendant-Appellant.
Before BAUER, COFFEY and EVANS, Circuit Judges.
Federal Insurance Company appeals from a judgment in favor of Platinum Technology Incorporated on an Illinois law claim for breach of an insurer's duty to defend. For the reasons that follow, we reverse the judgment and remand the matter to the district court for further proceedings not inconsistent with this opinion.
Platinum Technology Incorporated (PTI) sued Federal Insurance Company for failure to defend PTI in a trademarking infringement suit against Platinum Software Corporation (PSC). PTI settled with PSC and then sought to recover the settlement amount from Federal. Count I sought a declaration that Federal breached its duty to defend and indemnify. Count II sought money damages for Federal's breach of the duty to defend, and Count III sought money damages for Federal's breach of the duty to indemnify. Count IV sought additional penalties because the breach was "vexatious and unreasonable" under Section 155 of the Illinois Insurance Code.
In a June 27, 2000 ruling, the district court granted judgment on the pleadings in favor of PTI on Count I. Both parties then filed cross-motions for summary judgment on the remaining counts. Federal claimed that the settlement was neither in anticipation of litigation nor reasonable, thus the settlement was not covered by the policy. Rather, Federal contended, PTI paid the settlement to purchase the "Platinum" trademarks from PSC. The district court granted Federal's motion in part and denied it in part as to Counts II and III, finding that issues of material fact existed as to the valuation of the settlement amount. The district court held that PTI must establish the settlement was made in "anticipation of litigation" and that the amount of the settlement was "reasonable," including whether the claims settled were insurable. The district court also granted PTI's motion in part, finding that the settlement was made "in anticipation of litigation." Finally, the district court granted Federal's motion on Count IV, the section 155 claim, finding Federal's conduct was not vexatious or unreasonable.
A bench trial was held on the issues that remained. The district court found for PTI and judgment was entered on April 9, 2001, in the amount of $9,422,356.00 (which included prejudgment interest, attorney's fees, and the settlement amount of approximately $4 million in cash paid to PSC and the $6 million in Original Equipment Manufacturer (OEM) product credits available for future use, valued at $4.6 million in cash).
The issues in this case actually stem from earlier events involving PTI and PSC and the "Platinum" trademark. PSC registered the trademark in 1988, and prior to that used it in connection with its software business. It turned out that PTI was also using a similar, if not the exact same, trademark. After PSC became aware of this fact in 1989, it sought to have PTI stop using the trademark. PTI responded, stating that market confusion between the two companies was unlikely because they were in unrelated sectors of the software business. PTI sold mainframe computer software, while PSC sold software for personal computers. Despite this assertion, PTI began negotiating with PSC over the trademark usage and reached a settlement agreement in 1993. The settlement agreement provided that neither company would use the "Platinum" trademark in areas of the market in which the other's goods and services competed. PTI later expanded its business into new markets, some of which may or may not have been reserved to PSC. According to PTI, changes in its own business, PSC's business, and the computer software market caused some product overlap between the two companies.
In 1996, PSC sought to change its image and corporate name, to "re-brand" itself. PSC approached PTI to see if PTI was interested in buying the "Platinum" trademark. PSC planned to use the sale to defray the costs of re-branding. PTI offered $100,000, and PSC countered with $1 million demand. PTI's offer went up another $150,000, but PSC held firm at $1 million and discussions broke down.
Then in July 1997, PSC sued PTI for, among other things, trademark infringement. PSC once again claimed that its "Platinum" trademark was being infringed upon by PTI, and that PTI's use of the "Platinum" mark was causing confusion in the marketplace. PSC sought compensatory damages, treble damages, and injunctive relief. PTI informed Federal of the suit and tendered its defense pursuant to the insurance policy. Federal refused to defend or indemnify PTI. As a result, PTI, without Federal, opened settlement negotiations with PSC. PSC's settlement demands were based on its own calculations of what it would cost to-rebrand the company, and were in excess of $20 million. PTI's offers were initially less than ten percent of that figure, and later roughly doubled, based on PTI's own estimate that re-branding would cost no more than $7 million. PTI and PSC eventually agreed on a $10 million package, including $4 million in cash and $6 million in OEM software credits, which would allow PSC to acquire PTI software at no cost and potentially resell it for a profit. Pursuant to the settlement agreement, PSC released and dismissed all of its claims against PTI and assigned all of its "Platinum" related trademarks to PTI.
After the settlement was entered into, a PTI employee recorded the "Platinum" trademark as a new "asset" with a value of $4 million and PTI began depreciating this asset. After the settlement in 1999, PSC changed its name to Epicor Software Corporation. Epicor has not used any of the OEM credits and offered to take a one-time cash payment of between $2.5 and $3 million in lieu of the OEM credits.
The parties dispute the proper standard of review in this case. We review a district court's factual conclusions under the familiar clear error standard. See, e.g., Brunswick Leasing Corp. v. Wisconsin Central, Ltd., 136 F.3d 521, 526 (7th Cir.1998). "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948). In contract interpretation cases, we review a district court's interpretation of an unambiguous contract de novo. Central States, Southeast and Southwest Areas Pension Fund v. Kroger Co., 226 F.3d 903, 910 (7th Cir.2000), as corrected by, 241 F.3d 842 (7th Cir.2001). If the contract is ambiguous, a more deferential standard of review is applied to the interpretation of the terms and factual findings. Id. In cases of mixed questions of law and fact the standard is oftentimes clear error (or abuse of discretion), though plenary review may be used when certain factors indicate it is warranted or needed. See Cook v. City of Chicago, 192 F.3d 693, 696-97 (7th Cir.1999). This case turns on the factual issue of whether the settlement was a purchase of trademark assets or a release of legal liability, therefore we review for clear error. Even though this is a deferential review, it is by no means a rubber stamp.
The district court granted PTI's motion for judgment on the pleadings finding Federal breached its duty to defend, and under Illinois law Federal is thereby estopped from relying on certain "policy defenses." Ins. Co. of the State of Pa. v. Protective Ins. Co., 227 Ill.App.3d 360, 169 Ill.Dec. 630, 592 N.E.2d 117, 121 (1992). Several of Federal's arguments, including the "known loss doctrine" barring plaintiff's recovery, are also defenses to the breach of the duty to defend. As Federal did not preserve these issues for review, we need not address them. See Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1209-11 (1992) ().
Federal argues that the settlement amount was not reasonable because PTI purchased the "Platinum" trademark, an asset, thus the settlement was more than merely a release of legal liability. PTI's counters, stating that Federal's argument constitutes a "policy defense" and is barred. Though policy defenses are barred at this stage, other considerations and defenses arise where a settlement is involved because there is "the additional concern that the settlement was entered into in order to obtain insurance coverage for an otherwise uninsurable claim." United States Gypsum Co. v. Admiral Ins. Co., 268 Ill.App.3d 598, 205 Ill.Dec. 619, 643 N.E.2d 1226, 1241-46 (1994). In order to alleviate this concern, the insured is required to show that, among other things, the "amount of the settlement was reasonable." Id. 205 Ill.Dec. 619, 643 N.E.2d at 1249-51; Caterpillar, Inc. v. Great Am. Ins. Co., 62 F.3d 955, 966-67 (7th Cir.1995); Illinois Tool Works Inc. v. The Home Indem. Co., 24 F.Supp.2d 851, 854 (N.D.Ill.1998); WestAm. Mortgage Co. v. Tri-County Reports, Inc., 670 F.Supp. 819, 821 (N.D.Ill.1987); see also Fid. & Cas. Co. of New York v. Mobay Chem. Corp., 252 Ill.App.3d 992, 192 Ill.Dec. 191, 625 N.E.2d 151, 159 (1992); St. Michael's Orthodox Catholic Church v. Preferred Risk Mut. Ins. Co., 146 Ill.App.3d 107, 100 Ill. Dec. 111, 496 N.E.2d 1176, 1178-79 (1986)....
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