Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit
7-6-2004
Houbigant Inc v. Fed Ins Co Precedential or Non-Precedential: Precedential
Docket No. 03-1286
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Recommended Citation "Houbigant Inc v. Fed Ins Co" (2004). 2004 Decisions. Paper 445. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/445
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova University School of Law Digital Repository. It has been accepted for inclusion in 2004 Decisions by an authorized administrator of Villanova University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu. PRECEDENTIAL GERARD H. HANSON MARILYN S. SILVIA UNITED STATES COURT OF (argued) APPEALS Hill Wallack FOR THE THIRD CIRCUIT 202 Carnegie Center Princeton, N.J. 08543 No: 03-1286 Attorney for Federal Insurance Company, Appellee HOUBIGANT, INC.; ESTABLISSEMENT HOUBIGANT, ALFRED C. CONSTANTS, III Caron, Constants & Wilson Appellants 201 Route 17 North Rutherford, N.J. 07070 v. Attorney for Fireman’s Fund Insurance Companies, Appellee FEDERAL INSURANCE COM PANY; FIREMAN’S FUND INSURANCE COMPANIES OPINION OF THE COURT
Appeal from the United McKEE, Circuit Judge. States District Court Houbigant, Inc. and Establissment for the District of New Jersey Houbigant (collectively, “Houbigant”) (Civil Action No. 01-cv-05993) appeal the district court’s order granting District Judge: Hon. Mary L. Cooper Federal Insurance Company’s (“Federal”) motion for summary judgment and Argued: November 7, 2003 denying Houbigant’s cross motion for summary judgment.1 For the reasons Before: McKEE, SMITH, and discussed below, we will reverse the GREENBERG, Circuit Judges. judgment of the district court and remand for further proceedings consistent with this (Opinion Filed July 6, 2004) opinion. JOHN W. SCHRYBER (argued) Patton and Boggs 2550 M Street, N.W. 1 Houbigant also appealed the district Washington, D.C. 20037 court’s grant of summary judgment in favor of Fireman’s Fund Insurance ROBERT D. CHESLER Companies, an excess insurer. However, Lowenstein Sandler the parties have indicated that the dispute 65 Livingston Avenue between Houbigant and Fireman’s Fund Roseland, N.J. 07068 has been settled. Thus, that appeal is Attorneys for Appellants moot. I. BACKGROUND indicating that the Chantilly fragrance was produced by the Insureds. R. at 728-48. Houbigant has been in the business Houbigant claimed tort damages in excess of creating and manufacturing fragrances of $99 million3 and a separate claim for for more than 200 years. Between 1994 contractual damages in excess of $105 and 1996 Houbigant entered into a series million resulting from the Insured’s of licensing agreements with Dana conduct. R. at 744-54. The Insureds Perfumes Corporation and Houbigant notified their insurer, Federal, of the (1995) Ltee. Ltd. (“Insureds”). R. at 734; pending claim. see also R. at 815-57. Under the agreement, the Insureds were granted a At that time, the Insureds were license to manufacture and sell certain covered by two policies issued by Federal: Houbigant fragrances and use the (1) the Commercial General Liability trademarks associated with them. R. at policy (“CGL policy”); and (2) the 818-19. However, the Insureds were Commercial Excess Umbrella policy required to manufacture, package, and (“Umbrella policy”). The CGL policy label Houbigant products in accordance provides coverage for “advertising injury,” with particular specifications in order to R. at 499, which is defined, in relevant ensure authenticity and quality. R. at 824. part, as “injury . . . arising solely out of . . . infringement of trademarked or service marked titles or slogans,” where such The Insureds eventually filed for infringement is “committed in the course Chapter 11 bankruptcy. Shortly thereafter, of advertising of [the insured’s] goods, Houbigant filed a bankruptcy claim against products or services . . . .” R. at 512. the Insureds alleging that they had directly However, the policy excludes coverage of or contributorily infringed Houbigant’s any advertising injury “arising out of “trademarked titles” and breached breach of contract,” R. at 505, or “an Houbigant’s contractual obligations by: (1) infringement, violation or defense of any . selling a “watered-down” version of . . trademark or service mark or Houbigant’s “Chantilly” fragrance; (2) certification mark or collective mark or selling the “know-how” and physical trade name, other than trademarked or components required to make Chantilly service marked titles or slogans.” R. at and three other fragrances to unlicensed 507. fragrance producers who sold the products worldwide;2 (3) using the Houbigant name to sell non-Houbigant products; and (4) 3 Houbigant also sought treble damages, attorneys fees, and prejudgment interest under §1117(b). In 2 The other fragrances involved were total, Houbigant alleged that the Insureds “Lutece,” “Rafinee,” and “Demi-Jour.” tort liability was in excess of $320 R. at 739. million.
-2- The Umbrella policy contains two Houbigant subsequently initiated separate coverage provisions. Coverage this diversity action against Federal A, entitled “Excess Follow Form Liability seeking indem nification under the Insurance,” covers “that part of the loss . . implicated policies pursuant to the . in excess of the total applicable limits of assignment it received as part of the [the] underlying insurance [policy] . . .” settlement with the Insureds. The court under the same terms as said policy. R. at ruled that there was no coverage under 278. Coverage B of the Umbrella policy, either policy, and that Federal was not entitled “Umbrella Liability Insurance,” bound by the settlement approved by the covers “damages the insured becomes bankruptcy court. This appeal followed.4 legally obligated to pay by reason of II. A. Policy Coverage liability imposed by law or assumed under an insured contract because of . . . Although we find that both policies advertising injury . . . .” R. at 279. This cover the conduct of the Insureds, the story includes injury “arising solely out of . . . takes some telling. Thus, we will address infringement of copyrighted titles, slogans each policy in turn. or other advertising materials,” where such 1. CGL Policy infringement is “committed in the course of advertising . . . .” R. at 288-89. a. Trademarked Titles Coverage B also excludes breach of As stated above, Houbigant contract claims. R. at 285. alleged that the Insureds: (1) sold a Federal denied coverage under both “watered-down” version of Houbigant’s policies. Nonetheless, Houbigant and the “Chantilly” fragrance; (2) sold the Insureds agreed to settle the tort claims for “know-how” and physical components an unsecured $50 million. Under the terms required to make Chantilly and three of the agreement, Houbigant obtained the other fragrances to unlicensed fragrance right to “prosecute any cause of action producers who sold the products against [Federal], at Houbigant’s sole worldwide; (3) used the Houbigant name expense, arising from any failure by to sell non-Houbigant products; and (4) [Federal] to indemnify the [Insureds] indicated that the Chantilly fragrance liability to Houbigant with respect to [the tort claims].” R. at 760. The parties also 4 agreed that Houbigant’s recovery would be We have jurisdiction to consider this limited to indemnification under the appeal under 28 U.S.C. § 1291. We implicated Federal insurance policies. The review the district court’s grant of bankruptcy court approved the settlement, summary judgment de novo, applying the finding that it was “fair, reasonable, . . . same standard as the district court. Penn. and entered into following good faith, Coal Ass’n. v. Babbitt, 63 F.3d 231, 236 arms length negotiations . . . .” R. at 813. (3d Cir. 1995).
-3- was produced by the Insureds. R. at 728- collective mark or trade name, other than 48. There is no question that these trademarked or service marked titles or allegations, if true, constitute trademark slogans.” R. at 507 (emphasis added). infringement in violation 15 U.S.C. § Based on the wording of this exclusion, 1125(a)(1)5 and that Houbigant would be it is clear that a trademarked title is entitled to damages pursuant to § 1117. regarded as a subset or type of trademark. However, the policy does not However, the CGL policy “does offer any further explanation or not apply to . . . advertising injury . . . definition of the term. Thus, we must arising out of . . . infringement, violation first determine whether Houbigant’s or defense of any . . . trademark or marks constitute “trademarked titles.” service mark or certification mark or The insurance contracts in question were entered into in New 5 Section 1125(a)(1) provides: Jersey, and we are thus bound by the controlling law of that state.6 However, Any person who, on or in connection the New Jersey Supreme Court has yet to with any goods or services, or any define the term “trademarked title.” container for goods, uses in commerce Therefore, “we must consider relevant any word, term, name, symbol, or device, state precedents, analogous decisions, or any combination thereof, or any false considered dicta, scholarly works, and designation of origin, false or misleading any other reliable data tending description of fact, or false or misleading convincingly to show how the highest representation of fact, which– court in the state would decide the issue (A) is likely to cause confusion, or to at hand.” Packard v. Provident Nat. cause mistake, or to deceive as to the Bank, 994 F.2d 1039, 1046 (3d affiliation, connection, or association of such person with another person, or 6 as to the origin, sponsorship, or approval We must apply the forum state’s of his or her goods, services, or choice of law rule. General Star Nat. commercial activities by another person, Ins. Co. v. Liberty Mut. Ins. Co., 960 or F.2d 377, 379 (3d Cir. 1992) (citation (B) in commercial advertising or omitted). With respect to insurance promotion, misrepresents the nature, disputes such as this, the New Jersey characteristics, qualities, or geographic Supreme Court has held that “the law of origin of his or her or another person’s the place of the contract will govern the goods, services, or commercial activities, determination of the rights and liabilities shall be liable in a civil action by any of the parties under the insurance person who believes that he or she is or policy.” State Farm Mut. Auto. Ins. Co. is likely to be damaged by such act. v. Simmons’ Estate, 84 N.J. 28, 37 (1980).
-4- Cir.1993). (citing Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 1255, 1259 (N.J. Sup. Ct. We begin our analysis with Villa 1992)). The Villa court then considered Enters. Mgmt., Ltd. v. Fed. Ins. Co., 821 the term, “trademarked title.” Inasmuch A.2d 1174 (N.J. Super. Ct. Law Div. as that New Jersey court’s analysis is so 2002), a New Jersey trial court decision germane to our inquiry, we will quote its that addresses the very issue before us.7 analysis at length: In fact, not only does Villa address the same issue, it actually involves the same In this policy, coverage is insurer, Federal. In Villa, Federal not extended for titles and refused to defend or indemnify the slogans generally but only insured against damages stemming from for trademarked and an alleged advertising injury arising out service-marked titles and of the insured’s use of the term “VILLA slogans. The ordinary PIZZA,” a trademark and service mark insurance consumer faced owned by another company. with Federal’s language of coverage and exclusion The court in Villa began its would not begin with the analysis with a review of the law assumption that governing interpretation of insurance ‘trademarks, service marks, policies in New Jersey. See id. at 1182- certification marks, 83. The court found two principles collective marks and trade particularly helpful. First, “the words of names’ are a subset of an insurance policy should be given their ‘trademarked or service- ordinary meaning.” Id. at 1182 (quoting marked titles or slogans,’ Longobardi v. Chubb Ins. Co. of New but rather would begin with Jersey, 582 A.2d 1257, 1260 (N.J. Sup. the converse assumption. Ct. 2002) (internal quotation marks The question thus omitted)). Second, “any ambiguity must becomes: How are be resolved in the insured’s favor.” Id. trademarked or service- marked titles or slogans different from all other 7 It is important to note that the Villa trademarks and service decision, although decided prior to the marks? district court’s decision in this case, was not published until several months after the district court ruled on the parties’ Trademarks and service cross motions for summary judgment. marks are devices used in Thus, the district court did not have the connection with the sale or benefit of the reasoning in Villa when it advertisement of products adjudicated this dispute.
-5- or services of particular (Corel ® WordPerfect ®) merchants to distinguish or slogans (Ponds’ ‘The them from similar products Skin You Love to Feel’), or services of others and they may also be symbols identify the source of the or emblems (McDonalds’ trademarked products or golden arches M ®). service-marked services. Indeed, a color The Lanham Act states that configuration is a ‘device’ the term ‘trademark’ for the purposes of the includes ‘any word, name, Lanham Act definition. symbol, or device, or any Shakespeare Co. v. Silstar combination thereof, Corp. of America Inc., 802 adopted and used by a F.Supp. 1386 (D.S.C. manufacturer or merchant 1992), rev’d on other to identify his goods and grounds, 9 F.3d 1091 (4th distinguish them from Cir. 1993). Purely audible those manufactured or sold marks may be registered, 3 by others.’ 3 Callmann on Callmann, supra, at n. 4, Unfair Competition, and so too may a fragrance Trademarks and be registered as a mark. Monopolies, § 17:1 (Louis See In re Clark, 17 Altman ed., 4th ed. 2002). U.S.P.Q.2d 1238 (TTAB According to Callmann, an 1990). even broader definition was proposed for Article 6 of the Paris Convention Viewed in this fashion, no and that was ‘any mark or tortured examination of medium that can be various definitions of ‘title’ conceived by the senses, need be made. Under the that is capable of Federal policy before us, distinguishing advertising injuries arising merchandise, products or from a claim of services of a ... person infringement of a from those of another.’ trademarked or service- marked title (i.e., any trademarked or service- Although trademarks and marked name) is entitled to service marks certainly defense and may be trademarked or indemnification whereas service-marked titles advertising injuries arising
-6- from a claim of New Jersey law.8 Nevertheless, the infringement of other Palmer court came to a different trademarked or service- conclusion than the Villa court. The marked words, symbols or Palmer court first noted that the devices are not covered, “definition of ‘title’ cannot subsume the nor claims of infringement definition[] of trademark . . . . based on certification Otherwise, all or part of the exclusion marks, collective marks clause becomes meaningless.” Id. at and unregistered trade 574. The court concluded that “defining names. This analysis is ‘title’ to mean ‘any name’ would consistent with the plain abrogate the policy language excluding meaning of the clauses in coverage for trade name infringement ordinary language using the because trade names . . . are the subset of broadest definition of ‘title’ names used by a person to identify his or recognized by all cited her business or vocation.” Id. (citation authorities, legal and and internal quotation marks omitted). linguistic, and follows the In order to avoid this result, the Palmer mandate of Longobardi to court limited the meaning of “title” to give insurance policy “the name of a literary or artistic work.” language its plain meaning. Id. We are not required to follow Villa, see C.I.R. v. Bosch’s Estate, 387 Id. at 1185-87 (footnotes omitted). U.S. 456, 465 (1967), 9 and we are Ultimately, the Villa court found that a reasonable insured would believe the term “title” includes “any name, . . . 8 appellation, . . . epithet, [or] . . . word by Under California law: (1) “[the which a product or service is known.” court] must give [policy] terms their Id. at 1187. ordinary and popular sense”; and (2) “ambiguities are generally construed However, Federal argues that the against the party who caused the California Supreme Court’s decision in uncertainty to exist (i.e., the insurer) . . . Palmer v. Truck Ins. Exchange, 988 P.2d .” Palmer, 988 P.2d at 572-73 (internal 568 (Cal. 1999) offers a more persuasive citations and quotations marks omitted). basis for distinguishing trademarked 9 titles from other types of trademarks. In C.I.R., the Supreme Court held The applicable California insurance law that the ruling of a “lower state court[]” is essentially the same as the relevant is “not controlling . . . where the highest court of the State has not spoken on the point.” 387 U.S. at 465 (citation and internal quotation marks omitted).
-7- certainly not bound by Palmer. 111 (N.J. 1983) (internal quotation marks However, the court’s reasoning in Villa omitted)). Thus, the only basis for persuades us that the New Jersey Palmer’s more narrow interpretation of Supreme Court would agree with that trademarked title was its concern that trial court’s analysis if faced with this defining “title” broadly to include any issue. As an initial matter, there can be name would conflict with the policy’s no dispute that “title” has several exclusion of coverage of advertising meanings, including: (1) “[a]n injury arising out of trade name identifying name given to a book, play, infringement. However, this concern film, musical composition or work of ignores the statutory distinction between art”; (2) “[a] general or descriptive “trademarks” and “trade names.” The heading, as of a book chapter . . .”; and Lanham Act defines a “trademark,” in (3) “[a] descriptive appellation: relevant part, as “any word, name, EPITHET . . . .” Villa, 821 A.2d at 1181 symbol, or device, or any combination (quoting Webster’s II New College thereof . . . used by a person . . . to Dictionary at 1157). Under New Jersey identify and distinguish his or her goods law, “[w]here the policy language . . . from those manufactured or sold by supports two meanings, one favorable to others and to indicate the source of the the insurer and the other to the insured, goods . . . .” 15 U.S.C. §1127 (emphasis the interpretation favoring coverage added). In contrast, “trade name” is should be applied.” Id. at 181 (quoting defined as “any name used by a person to Lundy v. Aetna Casualty, 458 A.2d 106, identify his or her business or vocation.” Id. (emphasis added). Thus, the statutory definition of trademark limits the scope of the term trademarked title and However, “an intermediate appellate distinguishes it from trade names. state court [decision] . . . is a datum for ascertaining state law which is not to be Another more fundamental disregarded by a federal court unless it is problem with the analysis in Palmer is convinced by other persuasive data that that it ignores the purpose of a the highest court of the state would commercial insurance policy. As the decide otherwise.” Id. (citation and Villa court points out, “[w]ho, reading internal quotation marks omitted). the policy at issue, would think for a Because Villa is only a trial court second that it would cover infringement decision, it is not necessarily entitled to of Catcher in the Rye Bread ® but not such deference. Nonetheless, we Wonder Bread ®?” 821 A.2d at 1187. consider the Villa decision to the extent An insured would not reasonably assume that the quality of its analysis convinces that a commercial insurance policy only us that the New Jersey Supreme Court covers literary or artistic titles and not would decide the issue similarly. ordinary product titles. Moreover, Packard, 994 F.2d at 1046.
-8- limiting trademarked titles to literary or b. Advertising Injury artistic works would “create an In order for the advertising injury ambiguity rather than resolve one . . . .” provision of the CGL policy to apply, the id. Not only would it “send insureds on a conduct in question must have been quixotic quest for literary works the title “committed in the course of adverting of of which coincidently mirrored the [the insured’s] goods, products or registered title alleged to have been services.” R. at 512. In Tradesoft infringed,” Id., it would create endless Technologies, Inc. v. Franklin Mut. Ins. litigation over what constitutes literary or Co., Inc., 746 A.2d 1078 (N.J. Super. Ct. artistic work. As Justice Blackmun has App. Div. 2000), the court also addressed so aptly noted, “[r]easonable people the same policy language at issue here. certainly may differ as to what There, the insured was sued for patent constitutes literary or artistic merit.” and trademark infringement as well as Pope v. Illinois, 481 U.S. 497, 506 several common law causes of action. (1987) (Blackmun, J., concurring in part Id. at 140.11 The court held that “in order and dissenting in part). for there to be coverage [under the Thus, we accept the more policy] there must be a causal connection straightforward definition of “title” set between the advertising and the injury . . forth in Villa, and define trademarked . .” Id. at 152 (citing Frog, Switch & title as any name, appellation, epithet, or Mfg. v. Travelers Ins. Co., 193 F.3d 742, word used to identify and distinguish the 751 n.8 (3d Cir. 1999)). In other words, trademark holder’s goods from those “the advertising activities must cause the manufactured or sold by others. injury–not merely expose it.” Id. at 152 Houbigant’s house mark and product (citation and internal quotation marks mark (e.g., “Chantilly”) falls within this omitted). The court held that the patent definition. See Hugo Boss Fashions, Inc. infringement claim, which simply v. Fed. Ins. Co., 252 F.3d 608, 619 n.7 consisted of an alleged offer to sell the (“The term ‘house mark’ refers to a patented product, was not covered by the company name or line of products, while advertising injury provision of the policy the term ‘product mark’ refers to the name of a particular product. Thus, ‘Ford’ is a house mark and ‘Mustang’ is Boss involved “trademarked slogans,” a product mark.”) (citing McCarthy on and offers no insight into the meaning of Trademarks and Unfair Competition § trademarked title. 7:5 (4th ed.)). 10 11 The additional causes of action were misappropriation of trade secrets, 10 Federal also relies on the decision breach of contract, tortious interference in Hugo Boss in support of its definition with a contractual relationship, and of trademarked title. However, Hugo unfair competition.
-9- because such conduct was “not within allegations that an insured was trading on the commonly understood meaning of the recognizable name, mark, or products ‘advertising ideas’ or ‘style of doing configuration (trade dress) of the business.’” Id. at 150. On the other underlying plaintiff.” Id. hand, the court noted that the trademark In contrast, the underlying infringement claim was “obviously plaintiff in Frog, Switch simply alleged covered by the policy . . . .” Id. 151 n.1 that the insured “took the [product] (emphasis added). design and lied about the design’s As stated above, Tradesoft relied, origin.” Id. We therefore held that the in part, on our opinion in Frog, Switch. advertising injury provision of the policy There, a competitor of the insured filed a was not implicated by the complaint. As complaint alleging that the insured we later noted in Green Mach. Corp. v. entered the particular product market by Zurich-American Ins., 313 F.3d 837, 840 using the competitor’s proprietary trade (3d Cir. 2002), “[a]dvertising injury is secrets, confidential business not . . . the same thing as advertising per information, and technology se. Rather, “[a]dvertising injury is the misappropriated by a former employee. misappropriation of another’s advertising Frog, Switch, 193 F.3d at 745. The idea or concept.” Id. Similarly, in Green competitor also alleged that the insured Machine, a competitor filed a complaint “falsely represented that it had developed against the insured, alleging infringement a new and ‘revolutionary’ design for [the of a patented method of cutting concrete. product], and falsely depicted [the The only connection to advertising was product] with [its own] logo.” However, an allegation that the insured advertised “[t]he parts and components sold in the method to others. See id. In other commerce by [the insured] as its own word, the only advertising idea in were really [the competitors’s] products question was the very idea to advertise, made by use of stolen drawings . . . .” Id. nothing more. As in Tradesoft, this was In considering whether this was an insufficient to implicate the advertising advertising injury, we observed: “to be injury provision of the policy. See id. covered by the policy, allegations of Thus, in order to invoke the unfair competition or misappropriation advertising injury provision, the injury in have to involve an advertising idea, not question must have been caused by the just a nonadvertising idea that is made advertising activity itself. The insured the subject of advertising.” Id. at 748. must have misappropriated an We then considered several district court advertising idea, not just an idea that cases where a “passing off” claim was later became the subject of an advertising held to have caused an advertising injury. campaign. Here, the injury in question See id. at 749 (citations omitted). We was the result of alleged trademark noted that each of those cases “involved infringement. In Frog, Switch, we
-10- discussed the close relationship between matter at hand. trademarks and advertising: “[a] Federal also cites Advance Watch trademark can be seen as an ‘advertising Co., Ltd. v. Kemper Nat. Ins. Co., 99 idea’ [because] [i]t is a way of marking F.3d 795 (6th Cir. 1996). In Advance goods so that they will be identified with Watch, a competitor of the insured filed a a particular source.” Id. (citing Northam complaint alleging, inter alia, that Warren Corp. v. Universal Cosmetic, writing instruments sold by the insured Co., 18 F.2d 774, 774 (7th Cir. 1927) diluted the distinctiveness of the (“[a] trademark is but a species of competitor’s mark and thereby infringed advertising, its purpose is to fix the the competitor’s trademark. In finding identity of the article and the name of the no coverage under the policy, the Court producer in the minds of the people who of Appeals for the Sixth Circuit see the advertisement . . . .”)). reasoned: Trademarks, therefore, have the same purpose as advertising. In the present action, we conclude that the Federal cites several cases from reasonable expectation of other circuits that it argues more these parties as to coverage narrowly proscribe the scope of rests on the fact that “advertising.” However, we are not ‘misappropriation of persuaded. For example, Federal cites advertising ideas or style of EKCO Group, Inc. v. Travelers Indem. doing business’ refers to a Co. of Ill., 273 F.3d 409 (1st Cir. 2001). grouping of actionable There, the Court of Appeals for the First conduct fairly well Circuit found that “a real teapot intended delimited by case law, and for sale as a kitchen utensil” was not an does not refer to another, advertising idea. Id. at 413. The court distinct grouping of held that there was a “distinction actionable conduct which between producing and selling the goods has come to be commonly on the one hand and ‘advertising’ them referred to in case law and on the other . . . .” Id. at 414. The same in legal treatises as distinction exists here. That is to say, ‘trademark and trade dress there is a distinction between the infringement.’ Houbigant’s trademarks (i.e., the advertising), and the production and sale of its perfumes (i.e., the goods). In fact, Id. at 804. Thus, Advance Watch is at without the use of Houbigant’s marks, odds with Tradesoft as well as our there would be no claim against the decision in Frog, Switch, both of which Insureds in the first instance. Therefore, hold that trademark infringement is an EKCO is clearly distinguishable from the advertising injury. However, Advance
-11- Watch has been “sharply criticized for include injury “originating from,” ignoring the real contours of intellectual “having its origins in,” “growing out of,” property litigation . . . .” Frog, Switch, or “flowing from” the contractual 193 F.3d at 747. Therefore, we are not relationship. Callas Enters., Inc. v. persuaded by the reasoning in Advance Travelers Indem. Co. of Am., 193 F.3d Watch. Instead, we hold that the injury 952, 955-56 (8th Cir. 1999) (citing caused by the Insureds’ infringement of Assoc. Indep. Dealers, Inc. v. Mutual Houbigant’s trademarks is an advertising Service Ins. Co., 229 N.W.2d 516 (Minn. injury. 12 1975)). Other courts have employed a “but for” test; in other words, the injury c. Contract Exclusion is only considered to have arisen out of Federal’s CGL policy expressly the contractual breach if the injury would excludes coverage for “advertising injury not have occurred but for the breach of arising out of breach of contract.” R. at contract. Hugo Boss, 252 F.3d at 623 505 (emphasis added). Although their n.15 (citing Mount Vernon Fire Ins. Co. bankruptcy claim against the Insureds v. Creative Hous. Ltd., 668 N.E. 2d 404 contains both breach of contract and tort (N.Y. 1996)). allegations, R. at 728-48, Houbigant only While the New Jersey Supreme seeks to enforce the underlying insurance Court has not endorsed either test, at policy insofar as it relates to the latter. least one New Jersey appellate decision We must therefore determine if the applied a “but for” analysis under similar alleged torts are excluded from coverage circumstances. The policy in Tradesoft by the “arising out of” contract also contained a breach of contract exclusion. exclusion, and the injury there At least one state court has undoubtedly flowed from the contractual construed such language broadly to relationship between the parties.13 Yet, in determining if the exclusion applied, the court considered whether any of the 12 Following argument in this matter, tort claims constituted an advertising Federal submitted two additional cases injury. Moreover it did this without pursuant to Federal Rule of Appellate further reference to the contract Procedure 28(j), Information Spectrum, exclusion. Tradesoft, 746 A.2d 1085- Inc. v. Hartford, 834 A.2d 451 (N.J. Super. Ct. App. Div. 2003) and Westport 13 Reinsurance Mgmt., LLC v. St. Paul Fire The insured–a company formed by & Marine Ins. Co., 80 Fed. Appx. 277 two former employees of the underlying (2003). However, we do not need to plaintiff–was only able to engage in the discuss these cases because they simply alleged torts because of information follow the causation analysis set forth in those employees obtained while under Tradesoft and Frog, Switch. contract with the plaintiff.
-12- 1087. 2. Umbrella Policy Our situation is analogous. Federal also issued an Umbrella Although the relationship between policy, which contains two separate Houbigant and the Insureds is coverage provisions, Coverage A and contractual, the actions of the Insureds Coverage B. We must also examine each were independently tortious.14 The of these provisions. contractual relationship was not endemic a. Coverage A to the Insureds infringing of Houbigant’s trademarks. Therefore, the contract Coverage A of the Umbrella exclusion does not apply to Houbigant’s policy is entitled “Excess Follow Form tort claims. Liability Insurance” and covers “that part of the loss . . . in excess of the total applicable limits of [the] underlying insurance [policy] . . . .” R. at 278. This 14 Federal also argues that under New is known as a “follow form” policy. Jersey law we must look at the gravamen Under such a policy, “the parties agree of Houbigant’s complaint, which it that the coverage issues presented turn contends lies in contract. In support of solely on the interpretation of the this proposition, Federal relies primarily underlying polic[y].” Piper Jeffray Co., on Harleysville Ins. Cos. v. Garitta, 785 Inc. v. Nat’l Union Fire Ins. Co., 967 A.2d 913 (N.J. 2001). In Harleysville, F.Supp. 1148, 1151 (D. M inn. 1997). the New Jersey Supreme Court looked at Here, the underlying policy is the CGL the gravamen of a wrongful death action policy. Thus, based upon the foregoing to determine the applicability of a policy discussion, we conclude that Houbigant’s exclusion barring coverage for bodily claim is covered by Coverage A of the injury that was “expected or intended” by Umbrella policy. the insured. However, Harleysville is not b. Coverage B inconsistent with Tradesoft; the two cases simply address different questions. Coverage B of the Umbrella In Harleysville, the court was forced to policy is entitled “Umbrella Liability make a decision about the focus of a Insurance” and covers “damages the single claim (i.e., whether the injury was insured becomes legally obligated to pay expected or intended). On the other by reason of liability imposed by law or hand, in Tradesoft, there were two types assumed under contract because of . . . of claims (tort and contract), which the advertising injury . . . .” R. at 279. court considered separately. Thus, the Under Coverage B “advertising injury” decision in Harleysville has no bearing includes “injury . . . arising solely out of . on the matter at hand, which, like . . infringement of copyrighted titles, Tradesoft, deals with two independently slogans or other advertising materials” actionable types of claims. and “committed in the course of
-13- advertising.” Id. at 288-89 (emphasis was not an ‘advertising added). Basic rules of grammar suggest material’ as defined by the that “copyrighted” modifies “titles,” umbrella policy and never “slogan,” and “other advertising mentioned that the material.” However, in Platinum Tech., ‘advertising material’ Inc. v. Fed. Ins. Co., 2000 WL 875881 needed to be copyrighted. (N.D. Ill., June 28, 2000) (“Platinum I”), (Complaint, Ex. H, at 11). the Northern District of Illinois More importantly, the considered the same policy language and umbrella policy states the found that “the term ‘copyrighted’ did ‘umbrella liability adds a not modify ‘other advertising materials.’” broadening measure of Id. at *4 (emphasis added). 15 The court coverage against many of reasoned: the gaps in and between the underlying coverages’ of A reading of the plain the primary policy. language of the umbrella (Complaint, Ex. F, at policy does not support a Introduction). The primary requirement that policy covers only ‘advertising material’ be infringement of copyrighted. Moreover, copyrighted advertising Federal’s prior materials as an advertising interpretation of the injury. (Complaint, Ex. E, umbrella policy only at 19). Thus, based on the further supports this court’s fact that the umbrella finding. Federal policy broadens the specifically denied coverage, it is consistent coverage because it found with this court’s finding that the PSC’s trademark that advertising materials need not be "copyrighted" 15 in order to be covered The Northern District of Illinois under the umbrella policy. issued a subsequent decision granting in part and denying in part cross motions for summary judgment. 2001 WL Id. 109814 (N.D. Ill., Feb. 2, 2001). This Even though we disagree with decision was later reversed and much of the court’s reasoning, we will remanded by the Seventh Circuit Court look to New Jersey’s collateral estoppel of Appeals on issues unrelated to the rules to determine if the Platinum I meaning and scope of the policy decision estops Federal from re-litigating provision at issue here. 282 F.3d 927 the same issue here. Semtek Intern. Inc. (7th Cir. 2002).
-14- v. Lockheed Martin Corp., 531 U.S. 497, mentioned that the ‘advertising material’ 508-09 (2001). Under new Jersey law, needed to be copyrighted . . . .” Platinum I, 2000 WL 875881, at *4 [c]ollateral estoppel may (emphasis added). The court’s decision apply if the party asserting was therefore based, at least in part, on the bar demonstrates that: an argument that was specific to the facts (1) the issue to be of that case. Here, however, Federal precluded is identical to the denied coverage based on the entire issue decided in the first advertising injury provision in Coverage proceeding; (2) the issue B, quoting the clause in its entirety in its was actually litigated in the denial letter. R. at 716, 721. Given the prior action, that is, there different circumstances, we conclude that was a full and fair Federal is not estopped from re-litigating opportunity to litigate the the scope of the term “other advertising issue in the prior material.” Moreover, based on the plain proceeding; (3) a final meaning of the statute and the clarity of judgment on the merits was Federal’s denial letter, we find that issued in the prior “copyrighted” does modify “other proceeding; (4) advertising material.” Thus, Coverage B determination of the issue is inapplicable since none of the was essential to the prior trademarks at issue are copyrighted. judgment; and (5) the party However, given our conclusion that the against whom issue Insureds satisfy the requirements of the preclusion is asserted was a CGL policy and Coverage A, the absence party to or in privity with a of Coverage B is of little import. party to the prior proceeding. B. Settlement Agreement Having addressed all of the issues related to policy coverage, the only Pace v. Kuchinsky, 789 A.2d 162, 171 question remaining is whether the (N.J. Super. Ct. App. Div. 2002). There settlement of the bankruptcy claim was is no question that the latter four “reasonable in amount and entered into in requirements are met in this case. good faith.” Griggs v. Bertram, 443 A.2d However, we are not as certain about the 163, 173 (N.J. 1982). This, of course, is a first requirement. The Platinum I court question of fact, which we cannot resolve relied on the fact that “Federal in the first instance. However, Houbigant specifically denied coverage because it argues that Federal is bound by the found that the [the insured’s] trademark bankruptcy court’s finding that the was not an ‘advertising material’ as settlement agreement was fair, reasonable, defined by the umbrella policy and never and entered into in good faith. R. at 813.
-15- We disagree. 813. This is insufficient to support a finding of reasonableness under state law, In a diversity action, we apply the nor does it afford us a basis of review. preclusion rules of the forum state, unless The same would be true even assuming they are incompatible with federal that the Insureds’ motion in support of the interests. Semtek, 531 U.S. at 508-09. settlement is incorporated by reference Under New Jersey law, a court must into the bankruptcy court’s decision. The clearly state its rationale for finding that a Insureds’ motion, like the bankruptcy settlement agree men t is fair and court’s order, fails to address the merits of reasonable. See Jefferson Ins. Co. v. the tort claim; rather, it simply states that Health Care Ins. Exch., 588 A.2d 1275 litigating the tort claims would be 247 (N.J. Super. Ct. App. Div. 1991) “complex and expensive.” R. at 775. We (remanding, in part, because the record did therefore conclude that the bankruptcy not indicate the reasoning behind the trial court’s settlement is not binding on judge’s finding that a settlement was fair Federal. and reasonable). As we noted in Vargas v. Hudson County Bd. of Elections, 949 F.2d IV. 665, 674 (3d Cir. 1991), “[i]n deciding Based on the foregoing analysis, we whether a settlement is prudent and will reverse the judgment of the district reasonable, a court must consider the risk court and remand the case for a plenary to the settling parties. It is the extent of hearing to determine whether the the defendants’ exposure to liability and bankruptcy settlement was reasonable and not mere allegations in the plaintiffs’ entered into in good faith.17 complaint that govern the appraisal of reasonableness.” 16 Here, the bankruptcy court merely voiced the words “fair” and “reasonable,” but failed to state any specific basis for such a finding. The court only noted that it had considered the “statements of all parties and any objections thereto,” as well as the “pleadings and proofs of claim.” R. at
16 There is no evidence that these 17 rules are inconsistent with federal law. Our ruling does not suggest that the In fact, we have held that a bankruptcy district court would be unjustified in court must consider, inter alia, “the finding the settlement fair and reasonable probability of success in litigation. . . .” on remand if it reaches that conclusion before approving a settlement. In re after a proper analysis and articulates that Martin, 91 F.3d 389, 393 (3d Cir. 1996). analysis on the record.
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