Great American E & S Ins. v. Theos Medical Systems, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 1, 2020
• Docket: 19-15351
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 1 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

GREAT AMERICAN E & S INSURANCE No. 19-15351 COMPANY, D.C. No. 5:17-cv-05660-LHK Plaintiff-Appellee,

v. MEMORANDUM*

THEOS MEDICAL SYSTEMS, INC.,

Defendant-Appellant,

SAKET BHATIA,

Counter-claimant-Appellant.

Appeal from the United States District Court for the Northern District of California Lucy H. Koh, District Judge, Presiding

Submitted March 25, 2020** San Francisco, California

Before: GOULD, CHRISTEN, and BRESS, Circuit Judges.

Theos Medical Systems, Inc. and Saket Bhatia (collectively, “Theos”) appeal

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). the district court’s order granting summary judgment to Great American E&S

Insurance Company on (1) Great American’s request for declaratory judgment that

it had no duty to defend or indemnify Theos in a civil contempt proceeding; and (2)

Theos’ counterclaim for breach of the implied covenant of good faith and fair

dealing. We assume the parties’ familiarity with the facts and procedural history.

We have jurisdiction under 28 U.S.C. § 1291 and now affirm.

The parties agree that California law applies to this insurance coverage action.

Under California law, “[a] liability insurer owes a broad duty to defend its insured

against claims that create a potential for indemnity.” Montrose Chem. Corp. v.

Superior Court, 861 P.2d 1153, 1157 (Cal. 1993) (quotations omitted). But the duty

to defend “is not unlimited.” Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 628

(Cal. 1995). “[W]here there is no possibility of coverage, there is no duty to

defend . . . .” Id. at 627 (quotations omitted). This court “review[s] the district

court’s grant or denial of summary judgment” and “its interpretation of state law and

the insurance policies de novo.” Westport Ins. Corp. v. Cal. Cas. Mgmt. Co., 916

F.3d 769, 773 (9th Cir. 2019).

Consistent with precedent, the district court appropriately analyzed the

policies’ coverage provisions before turning to their exclusions. See, e.g., Sony

Comput. Entm’t Am. Inc. v. Am. Home Assurance Co., 532 F.3d 1007, 1017 (9th Cir.

2008). We may affirm on any ground, Stevens v. Jiffy Lube Int’l, Inc., 911 F.3d

2 1249, 1252 (9th Cir. 2018), and agree with the district court that the exclusions

clearly apply to the civil contempt proceeding, such that Great American had no duty

to defend or indemnify Theos in that proceeding.

As relevant here, the policies exclude from coverage any “suit” that alleges

claims “arising out of” any “violation . . . of any intellectual property right” or any

“violation of any statutes, common law, or other laws or regulations concerning

unfair competition.” Under the policies, a “suit” is defined as “a civil proceeding”

in which specified damages are alleged. The parties do not dispute that the

underlying action in which the civil contempt proceeding arose (the so-called

Malem Action) constitutes a “suit” that alleges claims for intellectual property

infringement and unfair competition. Accordingly, the Malem Action is excluded

from coverage.

It follows that the contempt proceeding, which arose in the Malem Action, is

excluded as well. Courts have long held that contempt proceedings are considered

part of the suit in which they arise. See, e.g., Leman v. Krentler-Arnold Hinge Last

Co., 284 U.S. 448, 452 (1932) (“The question of the relation of such a [civil

contempt] proceeding to the main suit was fully considered in the case of Gompers

v. Buck[‘s] Stove & Range [Co.], 221 U.S. 418 [(1911)], and it was determined that

the proceeding was not to be regarded as an independent one, but as a part of the

original cause.”); Donovan v. Sureway Cleaners, 656 F.2d 1368, 1373 (9th Cir.

3 1981) (“[T]he filing of a civil contempt petition is not the commencement of an

independent cause of action . . . but rather is a part of the original cause of action.”);

see also Ahearn ex rel. NLRB v. Int’l Longshore & Warehouse Union, Locals 21 &

4, 721 F.3d 1122, 1131 (9th Cir. 2013).

Theos argues that the policies’ intellectual property and unfair competition

exclusions violate public policy under California law. This argument lacks merit

because California courts have regularly applied exclusions for various intellectual

property claims. See, e.g., S.B.C.C., Inc. v. St. Paul Fire & Marine Ins. Co., 112

Cal. Rptr. 3d 40, 51 (Cal. Ct. App. 2010); Aloha Pac., Inc. v. Cal. Ins. Guar. Ass’n,

93 Cal. Rptr. 2d 148, 164–65 (Cal. Ct. App. 2000); Indus. Indem. Co. v. Apple

Comput., Inc., 95 Cal. Rptr. 2d 528, 538 (Cal. Ct. App. 1999).

Because Theos was not entitled to coverage, the district court also correctly

granted Great American summary judgment on Theos’ counterclaim for breach of

the covenant of good faith and fair dealing. See, e.g., Benavides v. State Farm Gen.

Ins. Co., 39 Cal. Rptr. 3d 650, 656 (Cal. Ct. App. 2006).1

AFFIRMED.

1 Theos’ motion to strike Great American’s supplemental excerpts of record is denied. See 9th Cir. R. 30-1.5.