Ratchford v. Watford Specialty Ins. Co.

659 F.Supp.3d 1032

Abigail RATCHFORD, et al., Plaintiffs, v. WATFORD SPECIALTY INSURANCE COMPANY, Defendant.

No. CV-22-01629-PHX-SMM

United States District Court, D. Arizona

Signed March 6, 2023

Amy Wilkins Hoffman, Hoffman Legal LLC, Phoenix, AZ, John V. Golaszewski, Pro Hac Vice, Casas Law Firm PC, New York, NY, for Plaintiffs.

Steven Daniel Crocchi, Gordon Rees Scully Mansukhani LLP, Phoenix, AZ, for Defendant.

ORDER

Stephen M. McNamee, Senior United States District Judge

Pending before the Court is Defendant's Motion to Dismiss. (Doc. 14). For the following reasons, the Court grants the Motion.

I. BACKGROUND

This case stems out of two earlier cases, in which Plaintiffs—thirteen professional models—sued two strip clubs for misappropriating their images and likenesses and using them in advertisements. (Doc. 1 at 2). The Dalton Plaintiffs sued Dalton Corporation ("Dalton"), which owns Chicas Cabaret in Phoenix, Arizona, in the U.S. District Court for the District of Arizona. (Id. at 3); Ratchford v. Dalton Corp., Case No. 19-cv-1421-PHX-SRB. They secured a $565,000 consent judgment. (Doc. 1 at 3); (Doc. 1-2 at 4). The 4Play Plaintiffs sued 4Play Gentlemen's Lounge, LLC ("4Play") in Florida state court and secured a $675,000 consent judgment. (Doc. 1 at 3, 12); Gray v. 4Play Gentlemens Lounge LLC, Case No. 20-004534-CI (Fla. Cir. Ct.).

Both strip clubs were insured at the time by commercial general liability insurance policies ("the Policies") issued by Defendant Watford Specialty Insurance Company ("Watford"). (Doc. 1 at 3).¹ The Dalton Policy covered a period between February 12, 2017 and February 12, 2018. (Doc. 1 at 6). The 4Play Policy² covered a period between August 4, 2016 and August 4, 2018. (Id. at 9).

The Policies contain a section pertaining to "personal and advertising injury liability." (Doc. 14-2 at 41-44). Section 1 states that Watford 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 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." (Id. at 41).

"Personal and advertising injury" is defined as "injury . . . arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises . . . ;

d. Oral or written publication, in any manner, of material that slanders of libels a person of organization of disparages a person's or organization's goods, products, or services;

e. Oral or written publication, in any manner, of material that violates a person's right of privacy;

f. Oral or written publication, in any manner, of another's images, photographs, likenesses or personal attributes."

(Id. at 47).

The section pertaining to "personal and advertising injury liability" contains a number of exclusions. (Id. at 41-44). The section begins by stating, "This insurance does not apply to:" before providing a list of exclusions. Each exclusion contains a heading in bold with every word capitalized and then non-bold and uncapitalized statements underneath the heading.

One such exclusion pertains to "Material Published Prior To Policy Period. 'Personal and advertising injury' arising out of oral or written publication, in any manner, of material whose first publication took place before the beginning of the policy period." (Id. at 41).

Another such exclusion is headed "Infringement of Copyright, Patent, Trademark Or Trade Secret." (Id. at 42). This exclusion contains two subsections: (i)(1) and (i)(2). (Id.) Subsection (i)(1) states: " 'Personal and advertising injury' arising out of the actual or alleged infringement of copyright, patent, trademark, trade secret or other intellectual property rights." (Id.) Subsection (i)(2) states: " 'Personal and advertising injury' arising out of the actual or alleged use of another's images, photographs, likenesses or personal attributes whether altered or unaltered." (Id.)

During litigation in the two earlier cases, Watford denied the strip clubs' request for defense and coverage. (Id.) On September 23, 2022, Plaintiffs filed a Complaint in this Court, bringing a breach of contract action against Watford. (Doc. 1). Plaintiffs argue that Watford was obligated under the terms of the Policies to defend and cover the strip clubs. (Id. at 12). They do so as assignees of the two strip clubs, who each assigned all of their claims against Watford and rights under the Policies to Plaintiffs. (Id. at 3, 9, 12). Plaintiffs seek compensation for the costs and expenses incurred in the underlying cases, a defense and indemnity under the operative insurance policies, the full amount of the Dalton and 4Play judgments, costs and disbursements, and all accruing interest. (Id. at 3-4).

On December 19, 2022, pursuant to Rule 12(b)(6), Watford filed a Motion to Dismiss for Failure to State a Claim. (Doc. 14). The Motion is fully briefed. (Docs. 17, 20).

II. LEGAL STANDARD

A motion to dismiss pursuant to Rule 12(b)(6) challenges the legal sufficiency of a complaint. Cook v. Brewer, 637 F.3d 1002, 1004 (9th Cir. 2011) (citation omitted). Rule 12(b)(6) must be read in conjunction with Rule 8, which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2); see also Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003). A complaint need not provide detailed factual allegations but must provide more than "labels and conclusions." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). It must contain factual allegations sufficient to raise a right to relief above the speculative level and to "state a claim that is plausible on its face." Id. at 555, 570, 127 S.Ct. 1955. "A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). A court may dismiss a claim either because it lacks "a cognizable legal theory" or because it fails to allege sufficient facts to support a cognizable legal claim. See SmileCare Dental Group v. Delta Dental Plan of Cal., Inc., 88 F.3d 780, 783 (9th Cir. 1996).

When a court is deciding a motion to dismiss, "[a]ll allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party." Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996) (citing Everest & Jennings, Inc. v. American Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir. 1994)). However, legal conclusions couched as factual allegations are not given a presumption of truthfulness, and "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998).

Ordinarily, a court may not consider evidence outside the pleadings in ruling on a Rule 12(b)(6) motion to dismiss. See United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). However, courts may consider matters of judicial notice. (Id. at 908). "A court may take judicial notice of matters of public record," Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018). As such, judgments and other court documents are proper subjects of judicial notice. See, e.g., United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007). A Court is permitted to take judicial notice sua sponte. See, e.g., Callan v. N.Y. Cmty. Bank, 643 Fed. Appx. 666, 666 (9th Cir. 2016).

Further, the "incorporation by reference" doctrine allows a court deciding a Rule 12(b)(6) motion to consider documents incorporated by reference, but not physically attached to the complaint if such documents are central to the plaintiff's claim and their authenticity is undisputed. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (citation omitted).

III. DISCUSSION

At the center of this dispute is a disagreement as to the correct interpretation of an exclusionary provision contained in each of the Policies. In its Motion to Dismiss, Watford points to the Policies' exclusion of coverage for " '[p]ersonal and advertising injury' arising out of the actual or alleged use of another's images, photographs, likenesses, or personal attributes whether altered or unaltered." (Doc. 14 at 7). This exclusion, Watford argues, is unambiguous and Plaintiffs' claims against 4Play and Dalton "fall squarely within" it. (Id.)

Plaintiffs deny that this exclusion applies to their claims. (Doc. 17 at 4). They also argue that in the alternative, if the exclusion does apply, then it is void because it renders illusory the protections it supposedly offers. (Id. at 9). Before addressing these arguments, the Court will first establish some basic tenets of insurance policy interpretation.

The "interpretation of an insurance contract is a question of law . . . ." Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127, 1132 (1982). An insurance policy is "read as a whole, so as to give a reasonable and harmonious effect to all of its provisions." Charbonneau v. Blue Cross of Wash. & Alaska, 130 Ariz. 160, 634 P.2d 972, 975 (App. 1981). Courts should attempt to give effect to all provisions so that none are "rendered meaningless." Am. Fam. Mut. Ins. Co. v. White, 204 Ariz. 500, 65 P.3d 449, 453 (App. 2003). "Provisions of insurance policies are to be construed in a manner according to their plain and ordinary meaning." Sparks, 647 P.2d at 1132. "[W]here the provisions of the contract are plain and unambiguous upon their face, they must be applied as written, and the court...