Hurricane Electric, LLC v. National Fire Insurance Company of Hartford

Filing 37

ORDER by Judge Charles R. Breyer granting 15 Motion for Judgment on the Pleadings; denying 21 Motion for Summary Judgment. (crblc2, COURT STAFF) (Filed on 11/17/2020)

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1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 HURRICANE ELECTRIC, LLC, Plaintiff, 9 v. 10 11 United States District Court Northern District of California Case No. 20-cv-05840-CRB NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, 12 ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS AND DENYING MOTION FOR PARTIAL SUMMARY JUDGMENT Defendant. 13 Internet service providers use Plaintiff Hurricane Electric (“Hurricane”)’s business 14 15 to business Internet-related services to provide Internet access to individual customers. 16 Hurricane argues that Defendant National Fire Insurance Company (“National Fire”) is 17 contractually obligated to reimburse Hurricane for costs associated with Hurricane’s 18 attempts to secure declaratory relief in a copyright dispute. Hurricane requests declaratory 19 relief here as well, and has moved for summary judgment. National Fire has moved for 20 judgment on the pleadings. The Court DENIES Hurricane’s motion for summary 21 judgment and GRANTS National Fire’s motion for judgment on the pleadings. 22 I. BACKGROUND 23 A. 24 On March 19, 2020, Hurricane received a Cease and Desist Letter (“the C&D 25 Letter”) from a law firm representing owners of copyright-protected motion pictures. 26 C&D Letter (dkt. 1-3). The C&D Letter alleged that Hurricane failed to act in response to 27 over 290 infringement notices that were previously sent to Hurricane. Id. at 2. The notices 28 had asked Hurricane to terminate Hurricane subscribers that had repeatedly infringed upon Copyright Infringement Allegations 1 copyrighted motion pictures, and had alleged that the subscribers were “induced” to 2 infringe by “promotional language” on Hurricane’s webpage. Id. at 3–9. The C&D Letter 3 alleged that Hurricane was “liable” for copyright infringement because it had “not 4 terminated” these accounts. Id. at 3. The alleged copyright infringement happened 5 between February 2018 and March 2020. C&D Letter at 2–3. The C&D Letter requested 6 that Hurricane: 1) terminate service to subscribers that allegedly infringed; 2) terminate 7 accounts in response to all further copyright notifications; and 3) pay a portion of the 8 damages. Id. at 2–3. In subsequent email correspondence with Hurricane, the copyright 9 owners alleged that Hurricane itself had infringed by “rout[ing] the data packets of the infringing material from its account holders to destinations.” May 20 Email (dkt. 1-15) at 11 United States District Court Northern District of California 10 3. They further alleged that Hurricane “encourages or materially contributes to the account 12 holders’ direct infringements by providing the facilities and means for the account holders’ 13 to continue their infringements.” Id. 14 B. 15 The language relevant to this dispute is located in the Commercial General Liability 16 Coverage Form (“CGL Coverage Form”) in Hurricane and National Fire’s 2015 insurance 17 agreement (“Agreement”). Rider Dec., Ex. A. at 86–101; Agreement at 86–101.1 There, 18 the Agreement states: 19 [National Fire] will pay those sums that [Hurricane] becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies. [National Fire] will have the right and duty to defend [Hurricane] against any “suit” seeking those damages. However, [National Fire] will have no duty to defend [Hurricane] against any “suit” seeking damages for “personal and advertising injury” to which this insurance does not apply. [National Fire] may, at [its] discretion, investigate any offense and settle any claim or “suit” that may result. 20 21 22 23 24 The Agreement Agreement at 91. The Agreement defines “personal and advertising injury” as “Infringing 25 26 27 28 1 Hurricane cites this language from the CGL Coverage Form but did not include the form when it attached the Agreement as an exhibit. See Comply., Ex. 6 (dkt. 1-6). The CGL Coverage Form is attached to National Fire’s Motion for Judgment on the Pleadings, see Rider Dec., Ex. A (dkt. 161) at 86, and its Opposition to Hurricane’s Motion for Partial Summary Judgment, see Agreement (dkt. 29-2) at 86. 2 1 upon another’s copyright, trade dress or slogan in your ‘advertisement.’” Agreement at 2 100. The Agreement defines “suit” as: a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes: 3 4 5 a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or 6 7 b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent. 8 9 Agreement at 101. National Fire’s Denial of Coverage C. 11 United States District Court Northern District of California 10 Hurricane notified National Fire of the alleged copyright claims on May 27, 2020. 12 Compl. (dkt. 1) ¶ 47. At that time, “no lawsuit” had “yet been filed.” May 27 Letter (dkt. 13 1-7) at 1. On July 1, 2020, National Fire denied coverage for the copyright claims on the 14 grounds that the proceedings between Hurricane and the copyright claimants did not 15 constitute a “suit” and there was no “advertising injury” under the Agreement. July 1 16 Letter (dkt. 1-9) at 3–11. On July 24, 2020, Hurricane invited National Fire to attend a 17 mediation between Hurricane and the copyright claimants. July Email (dkt. 1-10) at 2. On 18 July 28, 2020, National Fire declined to attend the mediation, stating the same reasons for 19 which it initially denied coverage. Id. at 1. Hurricane’s Declaratory Relief Actions 20 D. 21 In two related cases, Hurricane seeks declaratory judgments that it has not infringed 22 any copyrighted materials, or in the alternative, that it is shielded from liability. Compl. ¶¶ 23 1–2, 26, 35; see generally Complaint, Hurricane Electric, LLC, v. Millennium Funding, 24 Inc., et al., Case No. 2:20-cv-01034 (D. Nev. June 10, 2020), ECF No. 1; Complaint, 25 Hurricane Electric, LLC, v. Dallas Buyers Club, LLC, et al., Case No. 4:20-cv-03813 26 (N.D. Cal. Aug. 19, 2020), ECF No. 1. Hurricane now seeks a declaratory judgment that 27 National Fire has a duty to pay policy benefits to Hurricane, i.e., to reimburse Hurricane 28 for its expenses in these actions. Compl. ¶¶ 1, 27. Hurricane contends that National Fire’s 3 1 duty to reimburse arises from Hurricane’s advertising of services—between January 24, 2 2015 and January 24, 2016, when Hurricane was insured by National Fire’s “2015 3 Policy”—that allegedly facilitated copyright infringement. Id. ¶ 36, 41–42. 4 E. 5 National Fire has moved for judgment on the pleadings and argues that the policy The Pending Motions 6 bars coverage for expenses associated with Hurricane’s declaratory relief actions. See 7 generally MJP (dkt. 15). Hurricane opposes National Fire’s motion and has moved for 8 partial summary judgment as to National Fire’s duty to defend. See generally Opp. to MJP 9 (dkt. 31); MSJ (dkt. 21). 10 II. LEGAL STANDARD United States District Court Northern District of California 11 A. Declaratory Judgment 12 “In a case of actual controversy within its jurisdiction . . . any court of the United 13 States . . . may declare the rights . . . of any interested party seeking such declaration, 14 whether or not further relief is or could be sought. Any such declaration shall have the 15 force and effect of a final judgment or decree and shall be reviewable as such.” 28 U.S.C. 16 § 2201(a). 17 B. 18 A motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of Judgment on the Pleadings 19 Civil Procedure is proper “when the moving party clearly establishes on the face of the 20 pleadings that no material issue of fact remains to be resolved and that it is entitled to 21 judgment as a matter of law.” Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 22 F.2d 1542, 1550 (9th Cir. 1990) (citation omitted). As with a motion to dismiss for failure 23 to state a claim under Rule 12(b)(6), “a court must determine whether the facts alleged in 24 the complaint, taken as true, entitle the plaintiff to a legal remedy.” Chavez v. United 25 States, 683 F.3d 1102, 1108 (9th Cir. 2012) (citation omitted). “A dismissal on the 26 pleadings for failure to state a claim is proper only if ‘the movant clearly establishes that 27 no material issue of fact remains to be resolved[.]’” McGlinchy v. Shell Chem. Co., 845 28 F.2d 802, 810 (9th Cir. 1988) (quoting Doleman v. Meiji Mut. Life Ins. Co., 727 F.2d 4 1 1480, 1482 (9th Cir. 1984)). A court “must presume all factual allegations of the 2 complaint to be true and draw all reasonable inferences in favor of the nonmoving party.” 3 Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). 4 C. 5 Summary judgment is proper when “the movant shows that there is no genuine Summary Judgment 6 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 7 Fed. R. Civ. P. 56(a). An issue is “genuine” only if there is a sufficient evidentiary basis 8 on which a reasonable fact finder could find for the nonmoving party, and a dispute is 9 “material” only if it could affect the outcome of the suit under governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248–49 (1986). The party moving for 11 United States District Court Northern District of California 10 summary judgment bears the initial burden of identifying those portions of the evidence 12 that demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. 13 Catrett, 477 U.S. 317, 323 (1986). “Where the record taken as a whole could not lead a 14 rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.’” 15 Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986). 16 III. 17 DISCUSSION A liability insurer owes a duty to defend when a suit brought against its insured 18 seeks damages that potentially fall within the coverage of the policy. Waller v. Truck Ins. 19 Exch., Inc., 11 Cal. 4th 1, 19 (1995). “Where there is no possibility of coverage, there is 20 no duty to defend.” Id. (internal quotation marks omitted). “To prevail, the insured must 21 prove the existence of a potential for coverage, while the insurer must establish the 22 absence of any such potential.” Montrose Chem. Corp. of Cal. v. Super. Ct., 6 Cal. 4th 23 287, 300 (1993) (emphasis in original). To determine whether an insurer owes a duty to 24 defend, a court must “compar[e] the allegations of the complaint with the terms of the 25 policy.” Id. at 295. Because California is the forum state in this diversity action, 26 California law governs the Court’s interpretation of the Agreement. See Encompass Ins. 27 Co. v. Coast Nat’l Ins. Co., 764 F.3d 981, 984 (9th Cir. 2014); Bell Lavalin, Inc. v. Simcoe 28 5 1 & Erie Gen. Ins. Co., 61 F.3d 742, 745 (9th Cir. 1995).2 Under California law, 2 “[i]nterpretation of an insurance policy is a question of law and follows the general rules of 3 contract interpretation.” MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 647 (2003), as 4 modified on denial of reh’g (Sept. 17, 2003). Hurricane argues that National Fire owes a duty to defend under the Agreement 5 6 because: 1) there is a suit; and 2) the injury arises out of alleged infringement in 7 Hurricane’s advertisements. Compl. ¶¶ 52–67.3 The Court disagrees and denies 8 declaratory relief because: 1) there is no suit within the meaning of the Agreement; and 2) 9 the related declaratory judgment actions do not involve alleged copyright infringement in 10 Hurricane’s advertisements. Absence of a “Suit” United States District Court Northern District of California 11 A. 12 National Fire argues that it has no duty to defend Hurricane because there is no 13 “suit” to trigger coverage. According to the Agreement, National Fire has “the right and 14 duty to defend the insured against any ‘suit’ seeking [personal and advertising] damages.” 15 Agreement at 91. As discussed above, the Agreement defines the term “suit” as: a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes: 16 17 18 a) An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or b) Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent. 19 20 21 22 Id. at 101. Hurricane has failed to show the existence of such a “suit.” First, the C&D Letter does not constitute a “suit.” “While insurance contracts have 23 24 special features, they are still contracts to which the ordinary rules of contractual 25 26 2 The parties agree. See Compl. ¶ 20; See generally MJP at 8–9; MSJ. The parties also dispute whether the “Insureds in Media and Internet Type Businesses” exclusion bars coverage. See MSJ at 26; Opp. to MSJ at 25–26. The Court need not address these arguments. 3 27 28 6 1 interpretation apply.” Palmer v. Truck Ins. Exch., 21 Cal. 4th 1109, 1115 (1999). When 2 insurance policies expressly define a term, that definition governs. See Rosen v. State 3 Farm General Ins. Co., 30 Cal. 4th 1070, 1074 (2003). The Agreement defines the word 4 “suit” as “a civil proceeding,” “arbitration proceeding,” or “[a]ny other alternative dispute 5 resolution proceeding” in which damages are alleged. Agreement at 101. The C&D letter 6 alone is plainly not an arbitration or alternative dispute resolution proceeding. And civil 7 proceedings are initiated when a party files a complaint in court. See Foster-Gardner, Inc. 8 v. National Union Fire Ins. Co., 18 Cal. 4th 857, 878-79 (1998). Civil proceedings differ 9 from claims, which “can be any number of things, none of which rise to the formal level of a suit.” Id. (quoting Fireman’s Fund Ins. Co. v. Super. Ct., 65 Cal. App. 4th 1205, 1216 11 United States District Court Northern District of California 10 (1997) (noting that a written demand for payment is an example of a claim). Because the 12 C&D Letter does not amount to any covered “proceeding,” it is at most a “claim” rather 13 than a “suit.”4 Thus, National Fire has no duty arising from the C&D Letter. Alternatively, Hurricane argues that even if the C&D Letter does not fall within the 14 15 Agreement’s definition of “suit,” its mediation with the copyright claimants does. See 16 MSJ at 10–11; Reply to MSJ at 22–24. Hurricane cites to the following language: 17 “Suit” includes . . . 18 b) 19 20 Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent. Agreement at 101. 21 22 23 24 25 26 27 28 The Agreement does not impose a duty upon National Fire to defend Hurricane against “claims.” The Agreement states: 4 We will have the right and duty to defend the insured 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. We may, at our discretion, investigate any offense and settle any claim or “suit” that may result. Agreement at 91 (emphasis added). 7 Hurricane’s argument fails. Subsection (b) applies when two conditions are 1 2 satisfied. Id. First, the party seeking coverage must show “any other alternative dispute 3 resolution proceeding in which such damages are claimed.” Id. Second, the party seeking 4 coverage must show that the insured submitted to the alternative dispute resolution 5 proceeding with National Fire’s “consent.” Id. In its complaint, Hurricane misleadingly 6 reproduced the definition of “suit” while omitting the phrase “with our consent” from 7 subsection (b). See Compl. ¶ 46. Although Hurricane’s mediation is an “alternative 8 dispute resolution proceeding” (and assuming that it qualifies as a proceeding in which 9 damages are claimed), Hurricane fails to satisfy the second condition of subsection (b) because National Fire did not consent to the mediation between Hurricane and the 11 United States District Court Northern District of California 10 claimants. See Compl. ¶ 50; Answer ¶ 50. As Hurricane acknowledges, when Hurricane 12 notified National Fire of the C&D Letter and the mediation, National Fire denied coverage, 13 explicitly declined to participate in the mediation, and said nothing to state or imply 14 consent. See Compl. ¶ 50; Answer ¶ 50; July Email at 1. Indeed, Hurricane has not indicated that it sought National Fire’s consent before 15 16 submitting to mediation. Hurricane’s counsel emailed a National Fire claims 17 representative to inform her that Hurricane was participating in a scheduled mediation with 18 the copyright claimants and that she was “invited to attend” the mediation. See July Email 19 at 2. In response, National Fire, through its claims representative, informed Hurricane that 20 she would not attend the mediation “as coverage has been disclaimed under the policies as 21 outlined in its July 1, 2020 coverage disclaimer.” Id. at 1. Because this email merely 22 reiterates National Fire’s denial of coverage, it cannot be construed as National Fire’s 23 consent to the proceeding.5 24 25 26 27 28 5 Hurricane relies on two cases that do not support a different conclusion. See Reply to MSJ at 21–22. Wiseman-Hughes Enters. v. Harleysville Lake States Ins. Co., a Northern District of Illinois case, addressed a scenario where the insurance company did not respond to “repeated requests to participate or advise regarding the mediations.” No. 07 C-0336, 2009 WL 972857, at *3–4 (N.D. Ill. Apr. 8, 2009). At most, Wiseman-Hughes stands for the proposition that whether such silence can constitute consent is a question “for the trier of fact.” Id. at *4. Here, National Fire not only responded but also explained why it refused to participate in the mediation. See July Email at 1. And in Melssen v. Auto-Owners Ins. Co., a Colorado case, the insurance company 8 1 The mediation between Hurricane and the copyright claimants was not an 2 alternative dispute resolution proceeding to which National Fire consented, so the 3 mediation does not constitute a “suit” under subsection (b). Hurricane has thus failed to 4 show the existence of a “suit” under the Agreement. 5 B. 6 Hurricane is ineligible for reimbursement for another, independent reason: its 7 declaratory relief actions are not related to any “Personal and Advertising Injury” covered 8 under the Agreement. The Court agrees with National Fire that the alleged copyright 9 infringement is not a covered “Personal and Advertising Injury” because there is no Personal and Advertising Injury alleged copyright infringement in Hurricane’s advertisements. Opp. to MSJ at 22–25.6 11 United States District Court Northern District of California 10 The “Personal and Advertising Injury” section states that National Fire will pay 12 damages for “‘personal and advertising injury’ to which this insurance applies.” 13 Agreement at 91. But the Agreement excludes from coverage “‘personal and advertising 14 injury’ arising out of the infringement of copyright . . . rights.” Id. at 92. An exception to 15 that exclusion reads: “this exclusion does not apply to infringement, in your 16 ‘advertisement,’ of copyright . . . .” Id. (emphasis added). Hurricane argues that this 17 exception covers the infringement alleged in the C&D Letter. Compl. ¶¶ 36, 107–10; MSJ 18 at 12–19. 19 That is wrong. Hurricane incorrectly argues that the C&D Letter asserts that 20 contributory or vicarious copyright infringement “occurred within [Hurricane’s 2015] 21 advertisements.” Compl. ¶ 36 (emphasis added). The C&D Letter, and the subsequent 22 email correspondence between Hurricane and the claimants’ lawyer, do not allege 23 24 25 26 27 28 forfeited any argument “restricting the jury’s finding on the element of consent to express consent” by failing to either (1) object to the policyholder’s implied consent argument, or (2) request a jury instruction to that effect. 285 P.3d 328, 335 (Colo. 2012). 6 National Fire argues that the PAI Endorsement, which it attaches as an exhibit to its motion, bars coverage. See MJP at 9; Agreement at 117. Hurricane disputes both the authenticity of the PAI Endorsement and the enforceability of the endorsement. Opp. to MJP at 4–9; MSJ at 20–26. Because the Court concludes that the alleged copyright infringement is not covered as a “Personal and Advertising Injury,” the Court need not determine whether the PAI Endorsement separately precludes coverage. 9 1 infringement in Hurricane’s advertisements, or even mention advertisements. See 2 generally C&D Letter; May 1 Letter (dkt. 1-5); June 15 Letter (dkt. 1-14); May 20 Email. 3 The C&D letter states that Hurricane’s subscribers directly infringed, while Hurricane is 4 liable because it “encourage[d] or materially contribute[d] to the account holders’ direct 5 infringements by providing the facilities and means for the account holders’ to continue 6 their infringements – namely the Internet service.” May 20 Email at 3 (emphasis added). 7 But even if certain advertisements might have led customers to services that enabled 8 infringement, there is no allegation of infringement in the advertisements themselves.7 9 Hurricane argues that various cases establish that “enticing” customers to use a product is copyright infringement because there is a connection between the advertisement 11 United States District Court Northern District of California 10 and the alleged infringement. Reply to MSJ at 24–28. But in each case, there was 12 infringement in “advertisements,” or the underlying complaint directly alleged “advertising 13 injury.” See Street Surfing, LLC v. Great American E&S Ins. Co., 776 F.3d 603 (9th Cir. 14 2014); Lexington Ins. Co. v. MGA Entm’t, Inc., 961 F. Supp. 2d 536 (S.D.N.Y. 2013); 15 Acuity v. Bagadia, 750 N.W.2d 817 (Wis. 2008); R.C. Bigelow v. Liberty Mutual Ins. Co., 16 287 F.3d 242 (2d. Cir. 2002); AMCO Ins. Co. v. Lauren-Spencer, Inc., 500 F.Supp.2d 721 17 (S.D. Ohio 2007); Interface, Inc. v. Standard Fire Is. Co., 2000 U.S. Dist. LEXIS 14019 18 (N.D. Ga., Aug. 15, 2000); Mid-Continental Casualty Co. v. Kipp Flores Architects, LLC, 19 602 F. App’x 985 (5th Cir. 2015); King v. Cont’l Western Ins. Co., 123 S.W.3d 259 (Mo. 20 App. 2003). In sum, even if there were a “suit,” the Agreement would not entitle 21 Hurricane to reimbursement for its defense against this sort of copyright infringement 22 claim. 23 24 25 26 27 28 7 Language in two of the previous copyright notices sent to Hurricane, attached to the C&D Letter as exhibits, stated that Hurricane “induced” copyright infringement with “promotional language” on listed webpages. C&D Letter at 5, 8. The notices, sent in July 2019, do not indicate that this promotional language constituted advertising, and do not reference when the promotional language existed or caused any infringement. Id. Without knowing the dates of the promotional language, it is impossible to determine whether this alleged induced infringement is covered by the Agreement’s policy period of January 24, 2015 to January 24, 2016. Agreement at 11. Hurricane claims that it ran two advertisements in 2015, Compl. ¶ 36–40, but nothing indicates that the copyright claimants based any allegations on those advertisements. 10

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