Prod. Source Int'l, LLC v. Foremost Signature Ins. Co.

234 F.Supp.3d 619

PRODUCT SOURCE INTERNATIONAL, LLC, Plaintiff,

v.FOREMOST SIGNATURE INSURANCE COMPANY, Maryland Casualty Company, and Farmer's Insurance Company, Defendants.

Civil Action No. 15–8704 (JBS/JS)

United States District Court, D. New Jersey.

Signed February 14, 2017

Filed February 15, 2017

Anthony J. Dimarino, III, A.J. Dimarino, III, PC, Emmett Stephan Collazo, A.J. Dimarino, P.C., Haddonfield, NJ, Todd Jason Leon, Princeton, NJ, for Plaintiff.

Claudia Daniela Condruz, Traub Lieberman Straus & Shrewsberry LLP, Kevin P. Sullivan, Traub Lieberman Straus & Shrewsberry, Red Bank, NJ, for Defendants.

MEMORANDUM OPINION

SIMANDLE, Chief Judge:

Before the Court is Defendants Foremost Signature Insurance Company, Maryland Casualty Company, and Farmer's Insurance Company's motion to dismiss Plaintiff Product Source International, LLC's Amended Complaint. For the reasons that follow, the Court will deny the motion to dismiss.

1. Background . The facts of this case were summarized in this Court's Opinion¹ on Defendants' first motion to dismiss the Complaint and will be recounted only as necessary to decide the present motion.

The Amended Complaint differs from the original Complaint in only two respects: first, PSI included a new footnote clarifying that because "PSI settled the underlying litigation," its declaratory judgment claims "now comprise claims for duties to reimburse" (Amended Complaint [Docket Item 35] at n. 1); and second, Plaintiff alleges new factual matter underlying Count III, insurers' bad faith. (Id. at ¶¶ 58–83.)

2. Plaintiff Product Source International, LLC ("PSI") holds an insurance policy with Defendants Foremost Signature Insurance Company, Maryland Casualty Company, and Farmer's Insurance Company (collectively, "the Insurers") that provides "general commercial liability ... subject to certain conditions and exclusions." (Id. ¶ 24.) Those exclusions do not apply to "claims sounding in infringement of trade dress or slogan." (Id. ¶ 43.) Plaintiff alleges that its insurance policies cover "personal and advertising injuries" (id. ¶ 41), including "injury arising out of the use of another's advertising idea in an advertisement, or infringing upon another's trade dress or slogan in an advertisement." (Id. ¶ 42.)

3. Plaintiff has been in litigation with Leonid Nahshin, a non-party to this case, for nearly three years over Plaintiff's use of the phrase "NIC OUT" on the products PSI sells. On June 21, 2013, the Trademark Trial Appeal Board granted Nahshin's petition to cancel Plaintiff's registration for the NIC OUT mark. (Id. ¶ 20.) Plaintiff appealed the Trademark Trial Appeal Board's ruling to the United States District Court for the Eastern District of Virginia (the "Nahshin Action"). (Id. ¶ 21.) Nahshin brought counterclaims against Plaintiff in that case, including a "false designation of origin" claim under the Lanham Act. (Id. ¶¶ 22, 45.)

4. Shortly thereafter, Plaintiff tendered a demand for defense to the counterclaims in the Nahshin Action to the Insurers. (Id. ¶ 23.) The gravamen of Plaintiff's Amended Complaint is that the Insurers independently investigated PSI's insurance claim and acknowledged their duty to defend and indemnify PSI in the Nahshin Action, but, to date, have failed to provide PSI any funds to cover litigation costs or the settlement reached with Nahshin in December 2015. (See id. at ¶¶ 24–49, 58–84.) According to PSI, it was forced to settle the Nahshin Action while cross-appeals to the Fourth Circuit Court of Appeals were pending because it could not afford to continue litigation without financial assistance from the Insurers. (Id. at ¶¶ 62–63, 73–74.) The Insurers have since indicated that they believe that "only a fraction" of the legal defense costs, "if any at all" were "potentially" covered by the policies (id. ¶ 35; see also Exhibit 5 to Def. Mot. to Dismiss), despite numerous letters sent from PSI's counsel to the Insurers explaining that "under well-established, cited New Jersey case law PSI was entitled to a duty to defend and a duty to indemnify." (Id. ¶ 82.)

5. Plaintiff filed this action in the Superior Court of New Jersey, Camden County, on October 27, 2015, bringing claims against the Insurers for declaratory judgments as to the Insurers' duty to defend and indemnify Plaintiff in the Nahshin Action, and for insurance bad faith in denial of coverage for the Nahshin Action. [Docket Item 1.] Defendants timely removed this case to the United States District Court and filed a motion to dismiss [Docket Item 8] on the basis that Plaintiff's request for declaratory judgment are moot and that it failed to state a claim for relief for insurers' bad faith. This Court granted in part and denied in part Defendants' motion to dismiss, finding that Plaintiff had set forth a justiciable controversy over Defendants' duties to defend and indemnify Plaintiff in the Nahshin Action, but had not stated a plausible bad faith claim. Product Source Int'l, LLC v. Foremost Signature Ins. Co. , 195 F. Supp. 3d 660, 2016 WL 3625544, at *4, *5, 195 F.Supp.3d 660 (D.N.J. July 6, 2016). The Court granted Plaintiff leave to amend only its bad faith claim, which it timely did. [Docket Item 35.] This motion to dismiss the Amended Complaint followed. [Docket Item 39.]

6. Standard of Review . Federal Rule of Civil Procedure 12(b)(1) enables a party to move to dismiss a complaint for lack of subject matter jurisdiction. Because federal courts are courts of limited jurisdiction, the party seeking to invoke the court's jurisdiction bears the burden of proving the existence of subject matter jurisdiction. See Kokkonen v. Guardian Life Ins. Co. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994).

7. Article III of the United States Constitution requires that "an actual controversy must be extant at all stages of [the Court's] review, not merely at the time the complaint is filed." Camesi v. Univ. of Pittsburgh Med. Ctr. , 729 F.3d 239, 247 (3d Cir. 2013) (quoting Genesis Healthcare Corp. v. Symczyk , 569 U.S. 66, 133 S.Ct. 1523, 1528, 185 L.Ed.2d 636 (2013) ). With respect to actions for declaratory judgment, litigants present a justiciable controversy only where "the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." MedImmune, Inc. v. Genentech, Inc. , 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007) (citing Maryland Casualty Co. v. Pacific Coal & Oil Co. , 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941) ). One corollary to the requirement for a live controversy is the doctrines of mootness. "An action is rendered moot when an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit at any point during the litigation." Id. A case becomes constitutionally moot "only when it is impossible for a court to grant any effectual relief whatever to the prevailing party." In re ICL Holding Co., Inc. , 802 F.3d 547, 553 (3d Cir. 2015) (citing Chafin v. Chafin , 568 U.S. 165, 133 S.Ct. 1017, 1023, 185 L.Ed.2d 1 (2013) ). "As long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot." Campbell–Ewald Co. v. Gomez , –––U.S. ––––, 136 S.Ct. 663, 669, 193 L.Ed.2d 571 (2016).

8. Pursuant to Rule 8(a)(2), Fed. R. Civ. P., a complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Specific facts are not required, and "the statement need only ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’ " Erickson v. Pardus , 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (citations omitted). While a complaint is not required to contain detailed factual allegations, the plaintiff must provide the "grounds" of his "entitle[ment] to relief", which requires more than mere labels and conclusions. Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

9. A motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P., may be granted only if, accepting all well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the plaintiff, a court concludes that the plaintiff failed to set forth fair notice of what the claim is and the grounds upon which it rests. Id. A complaint will survive a motion to dismiss if it contains sufficient factual matter to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Although a court must accept as true all factual allegations in a complaint, that tenet is "inapplicable to legal conclusions," and "[a] pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do." Id. at 678, 129 S.Ct. 1937.

10. Discussion . The Insurers argue again, as in their first motion to dismiss, that Plaintiff's declaratory judgment claims should be dismissed as moot, or in the alternative, because Plaintiff made voluntary payments to Nahshin, and that its bad faith claim should be dismissed for failure to state a claim. Plaintiff argues that the Insurers' arguments on the declaratory judgment claims seek, in effect, improper reconsideration of this Court's earlier Opinion, and that its developed allegations underlying the bad faith claim are sufficient.

11. Consistent with the undersigned's July 6 Order on the Insurers' first motion to dismiss, Counts I and II of the Amended Complaint continue to present justiciable, non-moot claims for relief seeking a declaration that the Insurers have a duty to defend and indemnify PSI in the Nahshin Action by, inter alia, reimbursing PSI for the cost of counsel and settlement. As this Court already found, with full knowledge that PSI had settled the Nahshin Action, Plaintiff's request...