Netscape Communications Corporation et al v. Federal Insurance Company et al

Filing 37

JOINT CASE MANAGEMENT STATEMENT (Updated); [Proposed] Case Management Order filed by St. Paul Mercury Insurance Company. (Thorpe, Sara) (Filed on 6/5/2006)

Netscape Communications Corporation et al v. Federal Insurance Company et al

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Case 5:06-cv-00198-JW

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UPDATED JOINT REPORT AND JOINT CASE MANAGEMENT STATEMENT; [PROPOSED] CASE MANAGEMENT ORDER; CASE NO. C-06-00198 JW (PVT)

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA ­ SAN JOSE DIVISION NETSCAPE COMMUNICATIONS CORPORATION, a Delaware corporation; and AMERICA ONLINE, INC., a Delaware corporation, ) ) ) ) ) Plaintiffs, ) v. ) ) FEDERAL INSURANCE COMPANY, an ) Indiana corporation; ST. PAUL MERCURY ) INSURANCE COMPANY, a Minnesota ) corporation; EXECUTIVE RISK ) SPECIALTY INSURANCE COMPANY; a ) Connecticut corporation, and DOES 1 ) through 50, ) Defendants. ) ) CASE NO. C-06-00198 JW (PVT) UPDATED JOINT REPORT AND JOINT CASE MANAGEMENT STATEMENT; [PROPOSED] CASE MANAGEMENT ORDER Date: June 19, 2006 Time: 9:00 a.m. Judge: Hon. James Ware Courtroom 8 Complaint Filed: December 12, 2005 Amended Complaint Filed: Feb. 22, 2006

The parties to the above-entitled action jointly submit this updated Report, Case Management Statement and [Proposed] Case Management Order to set forth their respective positions on the management of this case in light of : (1) Plaintiffs' settlement with Federal Insurance Company ("Federal") and Executive Risk Specialty Insurance Company ("Executive Risk"), leaving St. Paul Mercury Insurance Company ("St. Paul") as the sole defendant; (2) the Court's denial of St. Paul's motion to dismiss plaintiffs' Seventh

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Cause of Action; and (3) St. Paul's filing of a Counterclaim for Reformation.1 DESCRIPTION OF THE CASE 1. Brief description of the events underlying the action In 2000, Plaintiffs Netscape Communications Corp. ("Netscape") and America Online ("AOL") were sued in four nationwide class actions brought in New York and Washington, D.C. (the "Class Actions"). The Class Actions alleged that through Netscape's "SmartDownLoad" program, AOL and Netscape intercepted private information. The Class Actions alleged claims for violation of the Electronic Communications Privacy Act, 18 U.S.C. sec. 2511 and 2520, and the Computer Fraud and Abuse Act, 18 U.S.C. 1030. In addition, the New York Attorney General initiated an investigation into Netscape's and AOL's practices in this regard ("AG Investigation"). The Class Actions were tendered to defendant St. Paul and several other of AOL's and Netscape's insurance companies. As part of Plaintiffs' insurance program during the April 1, 1999 to April 1, 2000 time period, St. Paul issued a technology commercial general liability policy (the "St. Paul Policy"). On December 13, 2000, St. Paul denied coverage for the Class Actions. AOL and Netscape also tendered to the insurers defense of the AG Investigation. St. Paul also denied coverage for the AG Investigation. The Class Actions were settled in September 2004, and the AG Investigation was resolved. Plaintiffs commenced this action alleging causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and unfair business practices under California Business & Professions Code § 17200 (the "Section 17200 Claim"). By way of recovery, Plaintiffs seek amounts incurred in connection with the Class Actions and AG Investigation, damages for St. Paul's alleged bad faith, and an injunction against St. Paul's alleged unfair business practices. Since instituting this lawsuit, Plaintiffs have settled with two insurers: Federal and Executive Risk.

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Plaintiffs are filing a Motion to Dismiss St. Paul's Counter-Claim for Reformation pursuant to Fed. Rule Civ. Proc. 12(b)(6).

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Principal legal and factual issues which the parties dispute a. · · Factual issues The terms of the St. Paul Policy. Whether there was mutual or unilateral mistake or an intentional misrepresentation such that the St. Paul Policy should be reformed with respect to the Online Activities Exclusion. · · · The nature of Plaintiffs' conduct as alleged in the underlying actions. The timing and adequacy of St. Paul's investigation. Whether, if there was coverage afforded by the St. Paul Policy, St. Paul's claims handling was in breach of the covenant of good faith and fair dealing, in other words unreasonable and without proper cause. · Whether St. Paul engaged in any fraudulent or unfair business practice of automatically denying this and other privacy claims. · Whether St. Paul's conduct vis-à-vis its insureds was oppressive, fraudulent, or malicious. · b. · · · The nature and amount of fees and costs incurred by Plaintiffs. Legal issues Whether California or Virginia law applies to the issues in this case. Whether St. Paul had a duty to defend the Class Actions or AG Investigation. Whether St. Paul is entitled to a credit for settlement amounts paid to Plaintiffs by other insurers. · · · Whether St. Paul's reformation claim is timely. Whether St. Paul properly states a claim for reformation. Whether the St. Paul Policy should be reformed with respect to the Online Activities Exclusion. · · Whether Plaintiffs are entitled to Brandt fees. Whether Plaintiffs have an adequate remedy at law for any possible future denial of coverage of a privacy claim tendered under the St. Paul Policy.

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Whether Plaintiffs are entitled to an injunction.

The other factual issues [e.g. service of process, personal jurisdiction, subject

matter jurisdiction or venue] which remain unresolved for the reason stated below and how the parties propose to resolve those issues. There are no disputes as to service, jurisdiction or venue. The parties which have not been served and the reasons. All parties have been served. The additional parties which the below-specified parties intend to join and the

intended time frame for such joinder. No additional parties are expected to be joined at this time . ALTERNATIVE DISPUTE RESOLUTION The following parties consent to assignment of this case to a United States

Magistrate Judge for [court or jury] trial. The parties do not consent to the assignment of this case to a Magistrate Judge. The parties have already been assigned [or the parties have agreed] to the

following court ADR process [e.g. Nonbinding Arbitration, Early Neutral Evaluation, Mediation, Early Settlement with a Magistrate Judge] [State the expected or scheduled date for the ADR session]. The parties have not been assigned to any ADR process. The ADR process to which the parties jointly request [or a party separately

requests] referral. The parties agree to use private mediation for this ADR process. The parties agree that referral to ADR will be most effective after one or more dispositive motions have been filed and briefed. DISCLOSURES The parties certify that they have made the following disclosures [list

disclosures of persons, documents, damage computations and insurance agreements].
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The parties exchanged Initial Disclosures pursuant to Rule 26(a)(1) on March 17, 2006, and have been exchanging documents relating to Phase One of this case (as proposed below) since that date. 10. Calculation Of Damages. Plaintiffs estimate their damages to be in the range of $4.3 million for attorneys' fees and other expenses incurred in connection with their defense of the Class Actions and AG Investigation. Plaintiffs have not yet calculated their additional damages flowing from St. Paul's alleged bad faith conduct. St. Paul contends it will be entitled to a credit for settlement amounts paid to Plaintiffs by other insurers; Plaintiffs dispute this. DISCOVERY (AND MOTIONS) The parties agree to the following discovery plan [Describe the plan e.g., any

limitation on the number, duration or subject matter for various kinds of discovery, discovery from experts; deadlines for completing discovery]. Beginning on February 27, 2006, and on numerous occasions thereafter, the parties conferred in good faith regarding a discovery plan. The parties propose a "phased" approach to this litigation as the most effective and efficient way to resolve it. a. Phase One Phase One proposes disposition of a threshold issue: Whether St. Paul's policy provides coverage for the Class Actions and AG Investigation under the "personal injury" portion of the policy. Only limited further discovery is needed for Phase One because the questions are based largely on undisputed facts (i.e., the pleadings, the St. Paul Policy). The parties probably can stipulate to some, if not all, of the material facts. The parties propose the following briefing schedule: So as not to burden the Court with unnecessary paper, the parties stipulate to a regimented briefing procedure with the resulting presentations being treated as "cross motions." This will be accomplished as follows: St. Paul will file the initial motion(s) for summary judgment by July 21, 2006;
UPDATED JOINT REPORT AND JOINT CASE MANAGEMENT STATEMENT; [PROPOSED] CASE MANAGEMENT ORDER; CASE NO. C-06-00198 JW (PVT)

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AOL/Netscape will file an opposition by August 11, 2006 which will be treated as their "cross motion" and which will seek affirmative relief; St. Paul file reply to AOL, Netscape's opposition by September 1, 2006; and AOL/Netscape file surreply to St. Paul's reply by September 20, 2006. A hearing date will be scheduled that is convenient for the Court. If the Court grants St. Paul's motion(s), it is St. Paul's position that the case will be over. Plaintiffs claim there still will be a remaining claim (Plaintiffs' Section 17200 claim). If the Court grants Plaintiffs' cross motion, an order will be entered finding a duty to defend subject to determination of Phase Tw o. If the Court denies both motions, then the case would proceed to Phase Two. While the parties have agreed to this phased approach, they have not agreed on the scope of Phase One. · Plaintiffs' position: Plaintiffs believe Phase One motion practice should include all arguments regarding whether there is coverage for the Class Actions and AG Investigation under the terms of the St. Paul Policy. At issue should be the policy's insuring agreement as well as any exclusions St. Paul contends preclude or negate coverage. The point here is to enable the Court to determine, early on, whether St. Paul breached its duty to defend Plaintiffs. To the extent St. Paul believes any endorsements, including its "Online Activities Exclusion," has application here, it should raise those issues in Phase One. Reformation issues (an affirmative defens e and counter-claim) also should be raised here, or reserved for Phase Two. To proceed as St. Paul suggests ­ reserving exclusion and reformation issues to Phase Two ­ forecloses the possibility of a true summary adjudication order, and seeks to waste the Court's time by effectively re-opening, attacking, and unraveling matters determined in Phase One. St. Paul's Position: St. Paul's position is that the question presented in Phase One should be limited to whether the St. Paul Policy potentially covered the
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Class Actions as covered "personal injury," and the AG Investigation as a suit or claim for damages for "personal injury." Whether the Policy's "Online Activity Exclusion," or any other exclusions, preclude coverage would be determined in Phase Two, if St. Paul is not successful in Phase One. The reason is (as is explained further below) application of the "Online Activity Exclusion" in the St. Paul Policy will necessarily require discovery and more facts than are needed for the preliminary, and potentially dispositive, issue of whether the personal injury coverage in the Policy applies. Phase Two St. Paul's Position: Phase Two proposes disposition of the issue of whether the Class Actions and AG Investigation are excluded from coverage by the St. Paul Policy's "Online Activity Exclusion. St. Paul proposes that the "Online Activity Exclusion" be part of a separate phase because it was an exclusion drafted by both parties and, if it does not as worded exclude coverage for personal injury claims involving online activity, it does not reflect the mutual intentions of the parties. Phase Two would require more extensive discovery, as the parties may need to depose a number of individuals. Further written discovery, including subpoenaes to third parties would also be necessary. Fact discovery would be completed within 90 days of commencement of Phase Two. Phase Two will proceed by motion(s) or trial without jury. An appropriate time for mediation may be at the conclusion of discovery and prior to the motion/trial contemplated by this Phase. Phase Two would be concluded within 5 months of its commencement. If the Court grants St. Paul's motion(s) or rules in St. Paul's favor after trial proceedings, the case is over. If the Court denies St. Paul's motion (s), or rules for Plaintiffs, then the case would proceed to Phase Three. A Case Management Conference would be held at this point to set further deadlines and a trial date, if necessary.
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Plaintiffs' Position: Plaintiffs dispute St. Paul's characterization of events giving rise to the policy's "Online Activities Exclusion." There is no dispute that the exclusion is in the Policy. However, to the extent St. Paul wishes to challenge this assertion to undercut coverage, such issues are properly addressed in Phase One, during the determination of whether the St. Paul Policy provides coverage for the Class Actions and Attorney General Investigation. Phase Three

Phase Three would address the contingent issues relating to the causes of action for breach of the covenant of good faith and fair dealing and unfair business practices. Phase Three would include discovery, preparation for trial, and trial on the remaining issues. St. Paul reserves the right to request that discovery and/or trial of the punitive damage request be bifurcated from the rest of the proceedings. Fact discovery would be concluded within 60 days of commencement of this Phase . Expert discovery would be concluded within 30 days thereafter. TRIAL SCHEDULE The Parties Request A Trial Date As Follows: In light of the phased approach outlined above, the parties request that the trial date not be scheduled until the conclusion of Phase Two . 13. The Parties Expect That The Trial Will Last For The Following Number of Days: The parties estimate trial will take approximately 5 to 7 trial days. DATED: June 5, 2006 GORDON & REES LLP

/s/ Sara M. Thorpe Sara M. Thorpe Attorneys for Defendant St. Paul Mercury Insurance Co.

By

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DATED: June 5, 2006

ABELSON HERRON LLP

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/s/ Leslie A. Pereira Michael B. Abelson Leslie A. Pereira Attorneys for Plaintiffs Netscape Communications Corp. and America Online, Inc.

[PROPOSED] ORDER The parties having submitted their proposals, the Court having considered the submissions and arguments of counsel, and good cause appearing, IT IS HEREBY ORDERED THAT 1. 2006. 2. ADR. The parties shall be referred to mediation before a private mediator Joinder of Parties: Any new parties shall be joined no later than June 30,

after the conclusion of discovery and briefing in Phase Two of the case. 3. Initial Disclosures. The parties have been and shall continue to exchange

initial disclosures consistent with Phase One. 4. Discovery and Motions ­ Phasing of Case.

This case shall proceed according to three Phases, as follows: a. [Phase One shall focus on whether the St. Paul Policy's "personal injury" coverage applies to the Class Actions and AG Investigation ­ or - Phase One shall focus on whether there was a duty to defend under the terms of the St. Paul Policy.] b. [(If not included in Phase One pursuant to Plaintiffs' proposal) Phase Two shall focus on whether the Online Activity Exclusion (or any other exclusion) in the St. Paul Policy precludes coverage for the Class Actions and AG Investigation and whether the St. Paul Policy should

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be reformed to reflect the mutual intentions of the parties at the time of contracting.] c. Phase Three will proceed, if necessary, with discovery and trial on the contingent issues relating to the causes of action for breach of the covenant of good faith and fair dealing and unfair business practices. St. Paul reserves the right to request that discovery and/or trial of the punitive damage request be bifurcated from the rest of the proceedings. 5. Phase One. The following deadlines apply to Phase One: July 21, 2006 ­ St. Paul file summary judgment motion(s); August 11, 2006 - AOL/Netscape file opposition; September 1, 2006 ­ St. Paul file reply; and September 20, 2006 - AOL/Netscape file surreply. ____________ - Hearing on motion(s). 6. A further Case Management Conference is scheduled for ____________ at

which time the Court will set deadlines and dates for Phase Two, if necessary.

Dated: ____________________

______________________________ ____ JUDGE, UNITED STATES DISTRICT COURT HON. JAMES WARE

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