Burlington Ins. Co. v. Eden Cryogenics LLC

126 F.Supp.3d 947

The Burlington Insurance Co., Plaintiff,

v.Eden Cryogenics LLC, et al., Defendants.

Case No. 2:14-cv-00066

United States District Court, S.D. Ohio, Eastern Division.

Signed September 1, 2015

Gregory Alan Harrison, Dinsmore & Shohl, Cincinnati, OH, Charles E. Spevacek, Michael P. McNamee, Jr., Meagher & Geer, PLLP, Minneapolis, MN, for Plaintiff.

H. Ritchey Hollenbaugh, Matthew Steven Brown, Carlile Patchen & Murphy LLP, Columbus, OH, for Defendants.

OPINION AND ORDER

EDMUND A. SARGUS, JR., UNITED STATES DISTRICT CHIEF JUDGE

This matter is before the Court for consideration of the parties' cross-motions for summary judgment (ECF Nos. 19, 20). Plaintiff, The Burlington Insurance Co., ("Burlington") is an insurance company that issued a series of commercial general liability ("CGL") policies (the "TBIC Policies") to Defendant Eden Cryogenics, LLC f/k/a Brehon Cryogenics, LLC ("Eden"). Defendant Eden and its employees, Defendants Steven L. Hensley ("Hensley") and Jim Mitchell ("Mitchell") (collectively, "Defendants") seek to recover defense costs and indemnification from Burlington for claims asserted against them in an underlying lawsuit, captioned Kendall Holdings, Ltd. d/b/a PHPK Technologies v. Eden Cryogenics, LLC et. al. , Case No. 08-cv-390 (S.D. Ohio 2008) (the "PHPK Lawsuit").

Burlington now moves for summary judgment, asserting that the TBIC Policies do not provide coverage based on a plain reading of their contractual terms (ECF No. 19). Defendants filed a cross-motion for partial summary judgment seeking various declarations from the Court amounting to Burlington's liability for coverage of: (1) costs incurred in defending the PHPK Lawsuit; (2) future costs of defending the PHPK Lawsuit until final adjudication; and (3) indemnification up to the policy limit for compensatory damages awarded against Defendants in the PHPK Lawsuit (ECF No. 20). Both motions are now fully briefed and ripe for review.

For the reasons that follow, Burlington's Motion for Summary Judgment (ECF No. 19) is GRANTED in PART and DENIED in PART . Defendants' Motion for Partial Summary Judgment (ECF No. 20) is likewise GRANTED in PART and DENIED in PART .

I. BACKGROUND

A. The Underlying Lawsuit

On April 24, 2008, Kendall Holdings, Ltd. d/b/a PHPK Technologies ("PHPK") brought suit against Eden and several of its employees for misappropriation of trade secrets, copyright infringement, unfair competition, tortious interference, unjust enrichment, conversion and civil conspiracy. (PHPK Lawsuit Initial Complaint ¶¶ 16-21; ECF No. 19-2). Both companies deal in the cryogenics industry. Cryogenics companies manufacture and supply items such as valves, bayonets,¹ and vacuum-insulated piping. The industry refers to the valves and bayonets as "standard products." In order to construct these product lines, companies in the industry utilize professionally drafted design and engineering drawings, known as "shop drawings." PHPK alleged that the Defendants used the shop drawings to develop a product line identical to PHPK's. (Id. ¶ 4.) PHPK further alleged that its advertising ideas, reflected in the confidential information and trade secrets, were used in Eden's marketing materials, including Eden's product catalogue. (Id. ¶¶ 5, 7, 24.) PHPK also alleged that Eden misappropriated PHPK's pricing information and customer lists. (Id. ¶ 83.) Specifically, PHPK alleged that its customers began purchasing products from Eden's catalogue in late 2007 and 2008. (Id. ¶¶ 29-33.)

On or about July 7, 2008, Defendants made a coverage claim to Burlington and received a letter denying coverage dated July 11, 2008. (ECF No. 19-4.) In the letter, Burlington asserted, among other defenses, that the Intellectual Property Exclusion ("IP Exclusion") precluded coverage. (Id. )

PHPK filed an Amended Complaint (the "PHPK Lawsuit Complaint") on October 20, 2011. (PHPK Lawsuit Complaint; ECF No. 19-6.) The PHPK Lawsuit Complaint alleged copyright infringement, violation of the Ohio Deceptive Trade Practices Act, misappropriation of trade secrets, breach of implied contract of confidentiality, common law unfair competition, tortious interference, conversion, breach of fiduciary duty/duty of loyalty, and civil conspiracy. (Id. , pp. 14-24.)

This case was tried to a jury from October 8-22, 2013 on the then-sole remaining claim of misappropriation of trade secrets. The jury returned a verdict in favor of PHPK against all of the Defendants, finding that Eden and Hensley willfully and maliciously misappropriated PHPK's trade secrets and Mitchell misappropriated the same. The jury awarded compensatory damages against Eden in the amount of $887,000; Hensley in the amount of $150,000; and Mitchell in the amount of $10,000.

On November 12, 2013, Eden sent a letter to Burlington seeking payment of defense costs associated with the PHPK Lawsuit in the amount of $2,292,224.00 and indemnification for Defendants against the jury verdict in the amount of the $1,000,000 policy limit. (ECF No. 19-8.)

Post-trial, PHPK moved for punitive damages, which the Court granted, against Eden in the amount of $250,000; and Hensley in the amount of $75,000 (Doc. 270). Eden and Hensley subsequently moved for judgment in their favor as a matter of law, or alternatively, for a new trial, pursuant to Federal Rules of Civil Procedure 50 and 59 (ECF Nos. 278, 284). On April 17, 2015, the Court denied both motions with prejudice (ECF No. 302).

B. The TBIC Policies

Burlington issued a CGL policy to Eden's predecessor on September 29, 2006 (the "Policy"). (McNamee Aff. Ex. I; ECF No. 19-10.) The Policy was renewed annually through September 29, 2012. (McNamee Aff. Exs. J-N; ECF Nos. 19-11-15.) It contains three coverage sections. Coverage A includes "Body Injury and Property Damage Liability," Coverage B includes "Personal and Advertising Injury Liability," and Coverage C includes "Medical Payments." (ECF No. 19-10, Form CG 00 01 10 01, pp. 1, 5, 7.) Several exclusions and endorsements modify the coverage sections. It is undisputed that the claims brought by PHPK against Eden would fall under Coverage B, if applicable. The contract provides:

COMMERCIAL GENERAL LIABILITY COVERAGE FORM

* * *

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 and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply. We may, at our discretion, investigate any offense and settle any claim or "suit" that may result. ...

* * *

SECTION V—DEFINITIONS

1. "Advertisement" means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.

* * *

14. "Personal and advertising injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses:

* * *

f. The use of another's advertising idea in your "advertisement"; or

g. Infringing upon another's copyright, trade dress or slogan in your "advertisement."

(ECF No. 19-10, Form CG 00 01 10 01, pp. 5, 12, 14.)

The Policy also contains the following exclusions to Coverage B:

2. Exclusions

This insurance does not apply to:

a. Knowing Violation Of Rights Of Another

"Personal and advertising injury" caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury".

* * *

i. Infringement Of Copyright, Patent, Trade Mark Or Trade Secret

"Personal and advertising injury" arising out of the infringement of copyright, patent, trade-mark, trade secret or other intellectual property rights. However, this exclusion does not apply to infringement, in your "advertisement", of copyright, trade dress or slogan.

(ECF No. 19-10, Form CG 00 01 10 01, p. 6.)

Finally, the Policy contains an Endorsement (the "IP Endorsement"), which reads as follows:

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

EXCLUSION—INTELLECTUAL PROPERTY

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART

PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART

This insurance does not apply to injury or damage that results from the actual or alleged infringement, or violation of any intellectual property rights or laws, including but not limited to:

1. Copyright;

2. Patent;

3. Trade dress;

4. Trade name;

5. Trade secret; or

6. Trademark.

(ECF No. 19-10, Form CSG-G-021 04 00.)

C. Procedural History

Burlington initiated this lawsuit by filing a Complaint against Defendants for declaratory relief on January 17, 2014. Burlington filed an Amended Complaint (the "Complaint" or "Compl.") later on the same day (ECF No. 3). The Complaint alleges, based on a variety of reasons, that the TBIC Policies do not cover the defense or judgment costs incurred by Defendants in the PHPK Lawsuit and seeks a declaration that Burlington has no duty to defend or indemnify the Defendants for the same. (Compl. ¶ 46, p. 14.)

On February 25, 2015, the parties filed cross-motions for summary judgment (ECF Nos. 19, 20). These motions have been fully briefed and are now ripe for review. The Court addresses each in turn below.

II. APPLICABLE LEGAL STANDARDS

A. Summary Judgment

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The movant has the burden of establishing that there are no genuine issues of material fact, which may be accomplished by demonstrating that the nonmoving party lacks evidence to support an essential element of its case. Celotex Corp....