Nationwide General Insurance Company v. Lennon

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Nationwide General Insurance Company and No. CV-23-02231-PHX-KML Nationwide Mutual Insurance Company, 10 ORDER Plaintiffs, [11] v. [12] Heather Lennon and Atkins & Lennon 13 Libations LLC, 14 Defendants. [15] 16 Plaintiffs Nationwide General Insurance Company and Nationwide Mutual 17 Insurance Company (“Nationwide”) issued insurance policies for defendants Atkins & 18 Lennon Libations (“ALL”) and Heather Lennon (collectively, “defendants”) for their 19 operation of the event venue Warehouse 215. The registrant of the Warehouse 215 trade 20 name, Bentley Projects, LLC, sued defendants in state court alleging the right to use the 21 name was not conveyed when defendants purchased the venue. Nationwide seeks a 22 declaratory judgment that it has no duty to defend or indemnify defendants in their state23 court suit with Bentley and moved for summary judgment on that question. 24 I. Background 25 Warehouse 215 is an event venue located at 215 East Grant Avenue in Phoenix, 26 Arizona. David J. Calverley and the Bentley Dillard Family Trust (the “Trust”) registered 27 the trade name “Warehouse 215” with the Arizona Secretary of State through their LLC 28 Bentley Projects. (Doc. 22-1 at 3.) Before November 2021, Calverley and the Trust owned |} and managed Warehouse 215 through two other LLCs, 215 East Grant LLC and BDDC || Investments, LLC. (Doc. 22-1 at 4.) 3 On November 16, 2021, defendants purchased the venue along with certain 4|| intangible property, such as the website warehouse215.com and goodwill from 215 East 5 || Grant LLC and BDDC Investments. (Doc. 29-1 at 3, 76.) Bentley alleges it also offered to 6|| sell the rights to use the Warehouse 215 trade name but defendants declined to buy them. □□ (Doc. 22-1 at 4.) 8 After the purchase, defendants used the name Warehouse 215 in conducting their 9|| business at the venue, including when applying for liquor licenses and identifying the || venue to media outlets. (Doc. 22-1 at 5.) Bentley alleges these uses are unauthorized and 11 || accordingly filed a complaint against defendants in Maricopa County Superior Court for 12 || unauthorized use of trade name under Arizona law, unfair competition and false 13 || designation of origin under the Lanham Act, and common-law trademark infringement and 14|| unfair competition. (Doc. 22-1 at 5-8.) 15 At all relevant times, defendants were insured through Nationwide. Various policies 16 || covered defendants’ operations at the event venue. (Doc. 22 at 1.) These policies provided 17 || coverage up to specified limits for personal or advertising injury. (Docs. 22-2—22-7.) But 18 || each policy excluded coverage for certain personal and advertising injuries, including _ those: 20 i. Infringement Of Copyright, Patent, Trademark Or Trade Secret 21 Arising out of the infringement of 9 copyright, patent, trademark, trade secret or other intellectual property nights. Under 23 this exclusion, such other intellectual property rights do not include the use of 24 another's advertising idea in your “advertisement.” 25 HOWEVER, this exclusion does not apply 26 to infringement, in your “advertisement, of copyright, trade dress or slogan. [27] 28 || (Docs. 22-2—22-7.) Believing coverage existed, defendants demanded Nationwide defend _2- 1 and indemnify them in Bentley’s state-court lawsuit. (Doc. 1 at 9.) Nationwide undertook 2 the defense subject to a reservation of rights but also filed a complaint in this court seeking 3 declaratory judgment that it has no obligation to defend or indemnify defendants for 4 Bentley’s claims. (Doc. 21.) The parties agreed no discovery was needed before 5 Nationwide filed for summary judgment. (Doc. 18 at 4–5.) 6 II. Standard 7 A court must grant summary judgment “if the movant shows that there is no genuine 8 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 9 Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317 , 322–23 (1986). The 10 movants bear the burden of presenting the basis for their motion and identifying evidence 11 they believe demonstrates the absence of a genuine issue of material fact. Id. at 323 . A 12 genuine dispute exists if “the evidence is such that a reasonable jury could return a verdict 13 for the nonmoving party,” and material facts are those “that might affect the outcome of 14 the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242 , 248 15 (1986). 16 III. Discussion 17 The motion for summary judgment requires interpretation of the insurance contract. 18 Under Arizona law, “[t]he interpretation of an insurance contract is a question of law to be 19 determined by the Court.” Sparks v. Republic Nat’l Life Ins. Co., 647 P.2d 1127 , 1132 20 (Ariz. 1982). Defendants bear the burden of showing insurance coverage. Keggi v. 21 Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785, 788 (Ariz. Ct. App. 2000). If they meet 22 that burden, Nationwide must then show an applicable policy exclusion. Id. The burden 23 then shifts back to defendants to prove an exception to an exclusion. Hudnell v. Allstate 24 Ins. Co., 945 P.2d 363, 365 (Ariz. Ct. App. 1997). 25 a. Coverage Exclusions 26 The relevant portion of the policies provide coverage for “damages because of 27 ‘personal and advertising injury’” that “the insured becomes legally obligated to pay.” 28 (Doc. 22-2 at 18.) Nationwide argues it is exempted from defending or indemnifying 1 defendants because the policies exclude coverage for advertising offenses “arising out of” 2 infringement of copyright, patent, trademark, trade secret or other intellectual property 3 rights. (Doc. 21 at 7.) Arizona law construes the phrase “arising out of” broadly and does 4 not require traditional proximate cause. Regal Homes, Inc. v. CNA Ins., 171 P.3d 610 , 6145 15 (Ariz. Ct. App. 2007). 6 Here, Bentley alleges in state court that defendants have held the event venue out as 7 “Warehouse 215” so frequently that the public has confused its business with defendants’. 8 It claims this constitutes unauthorized use of a trade name under Arizona law, unfair 9 competition and false designation of origin under the Lanham Act, and common law 10 trademark infringement and unfair competition.” (Doc. 22-1 at 6–8.) In support of these 11 claims, Bentley cites press coverage from a political event identifying the venue as 12 “Warehouse 215”; a Warehouse 215 entry with the Better Business Bureau of Phoenix 13 identifying the company as doing business at 215 East Grant; its erroneous receipt of 14 communications from the Phoenix Fire Department, a liquor vendor, Nationwide, and US 15 Card Solutions AZ intended for defendants; and defendants’ application for liquor licenses 16 under the “Business Name” of “Warehouse 215.” (Doc. 22-1 at 5–6.) 17 Bentley’s claims allege intellectual property infringements based on defendants’ use 18 of its registered trade name. See, e.g., Fortune Dynamic, Inc. v. Victoria’s Secret Stores 19 Brand Mgmt., Inc., 618 F.3d 1025, 1030 (9th Cir. 2010); PH4 Corp. v. Sun City Real Est., 20 LLC, No. CV 08-0501-PHX-SMM, 2008 WL 5101340 , at *3 (D. Ariz. Dec. 1, 2008); see 21 also Accuride Intern., Inc. v. Accuride Corp., 871 F.2d 1531 , 1534–35 (9th Cir. 1989) 22 (collecting cases and noting “the same broad standards of protection apply to trademarks 23 and trade names”). Construing the “arising out of” language broadly as Arizona law 24 requires, Bentley’s claims are at a minimum “related” to an alleged intellectual property 25 infringement and therefore satisfy the nexus test. Regal Homes, at 171 P.3d at 615 . 26 Defendants argue the policy exclusion for infringement of copyright, patent, 27 trademark, trade secret or other intellectual property rights does not apply because the 28 exclusion carves out “the use of another’s advertising idea in your ‘advertisement’” from 1 “other intellectual property rights.” (Doc. 28 at 8.) But defendants do not explain how their 2 alleged uses of “Warehouse 215” constituted “advertising ideas” or “advertisements.” They 3 characterize Bentley’s allegations in the underlying litigation as “using the name 4 ‘Warehouse 215’ in advertisements and promotions for events” but do not point to any 5 specific advertisements. (See Doc. 28 at 7.) The court also has found none: Bentley alleges 6 instances of consumer and media confusion around the identity of “Warehouse 215,” but 7 discusses no advertisements. (See Doc. 22-1 at 4.) Accordingly, defendants have not met 8 their burden of showing the “advertising idea” exception to the exclusion applies. 9 Defendants also argue the intellectual property/trademark exclusion does not apply 10 because Bentley mischaracterized its trade name as a trademark in the underlying litigation. 11 (Doc. 28 at 11.) But even if the claims asserted against defendants are for trade name 12 violations, claims arising from an alleged infringement of “other intellectual property 13 rights” are still excluded from coverage. (Doc. 22 at 5–7.) The policies do not define “other 14 intellectual property rights” but courts regularly construe this term to include trade name. 15 See, e.g., Keating Dental Arts, Inc. v. Hartford Cas. Ins. Co., 627 F. App’x 671, 671 (9th 16 Cir. 2015); In re Garno, No. 07-BK-02480-SSC, 2010 WL 1254919 , at *4 (Bankr. D. Ariz. 17 Mar. 24 , 2010). And defendants do not argue trade name is not another “intellectual 18 property right,” only that it is distinct from trademark. (Doc. 28 at 11.) 19 Defendants alternatively attempt to invoke the exception to the policies’ breach-of20 contract exclusion. This, too, is inapplicable. The breach-of-contract exclusion exempts 21 coverage for personal and advertising injury arising out of a breach of contract except “an 22 implied contract to use another’s advertising idea in your ‘advertisement.’” (Doc. 22-2 23 at 18.) Defendants argue the exception to the exclusion could be applicable because they 24 plan to argue in state court Bentley “impliedly contracted with Defendants to allow the use 25 of Warehouse 215” and breached that implied contract. (Docs. 28 at 8; 29-1 at 106–108.) 26 But the exception to the exclusion only covers “sums . . . that the insured”—not a third 27 party—“becomes legally obligated to pay . . . because of ‘personal and advertising 28 injuries’” arising from breach of an implied contract (Doc. 22-2 at 18.) See Keggi, 13 P.3d 1 at 788 (Courts “construe provisions in insurance contracts according to their plain and 2 ordinary meaning.”).) Thus, although there may be an exception to the coverage exclusion 3 for personal and advertising injuries arising from defendants’ breach of an implied contract, 4 there is no coverage for such injuries arising from Bentley’s alleged breach. 5 Because Nationwide has established the intellectual property coverage exclusion 6 applies and defendants have not shown an exception to the exclusion, Nationwide is not 7 required to defend or indemnify defendants in the underlying litigation. 8 b. Timing 9 Finally, defendants argue an insurer’s duty to indemnify is not ripe until an actual 10 finding is made against the insured. (Doc. 28 at 16.) Because Nationwide is covering 11 Lennon and ALL’s ongoing defense in state court, the question of the scope of 12 Nationwide’s obligations to defendants is not premature. Am. States Ins. Co. v. Kearns, 15 13 F.3d 142 , 144 (9th Cir. 1994) (holding that a “case or controversy” existed where insurer 14 sought declaratory judgment addressing its indemnity obligations in pending state court 15 suit against insured). 16 Arizona law does not require the resolution of an underlying suit before determining 17 indemnity obligations on a motion for summary judgment. See Twin City Fire Ins. Co. v. 18 DanceIt! Studio LLC, 714 F. Supp. 3d 1143 , 1151–52 (D. Ariz. 2024) (finding language of 19 insurance policy excluded insurer’s duty to indemnify on summary judgment). And 20 applicability of an insurance coverage exclusion is a matter of law, not a matter of fact as 21 defendants argue. See P.F. Chang’s China Bistro, Inc. v. Fed. Ins. Co., No. CV-15-0132222 PHX-SMM, 2016 WL 3055111 , at *6 (D. Ariz. May 31, 2016) (resolving summary 23 judgment motion on applicability of insurance policy clause as a “matter of law”); Am. 24 Fam. Mut. Ins. Co. v. Verdugo, No. CV-14-02585-TUC-CKJ, 2016 WL 9458582 , at *5 25 (D. Ariz. Mar. 21, 2016), aff’d, 691 F. App’x 387 (9th Cir. 2017) (same). 26 There are no remaining questions of fact because Bentley’s claims necessarily “arise 27 from” alleged violations of intellectual property rights excluded from the policies and the 28 exclusions that apply to the duty to defend also apply to the duty to indemnify. (Doc. 22-2 at 18 (‘This insurance, including any duty we have to defend ‘suits,’ does not apply to 2 || personal and advertising injury . . . [a]rising out of the infringement of . . . other intellectual 3 || property rights.”’).) 4 Accordingly, 5 IT IS ORDERED the Motion for Summary Judgment (Doc. 21) is GRANTED. 6 IT IS FURTHER ORDERED within seven days of this order defendant shall file a proposed form of judgment consistent with this order. That judgment must include 8 || language identifying each policy at issue. 9 Dated this 14th day of March, 2025. [10] Honorable Krissa M. Lanham 13 United States District Judge [28] -7-