Highland Holdings, Inc. et al v. Mid-Continent Casualty Company

Filing 79

ORDER denying 42 --motion by Highland Holdings for summary judgment; granting 43 --motion by Mid-Continent for summary judgment; directing the clerk to ENTER A JUDGMENT for Mid-Continent and against Highland Holdings in Counts I and II of the complaint and for Mid-Continent and against Highland Holdings in the counterclaim, to TERMINATE any pending motion, and to CLOSE the case. Signed by Judge Steven D. Merryday on 6/23/2016. (BK)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
HIGHLAND HOLDINGS, INC., et al.,
Plaintiffs,
v.

CASE NO. 8:14-cv-1334-T-23TBM

MID-CONTINENT CASUALTY
COMPANY,
Defendant.
_____________________________________/

FOREWORD
Mid-Continent’s response (Doc. 50) to Highland Holdings’ motion for summary
judgment is disguised as a paper that conforms both to Local Rule 1.05(a), which
requires each “paper[] tendered by counsel for filing [to] be typewritten, double-spaced,
[and] in at least twelve-point type,” and to Local Rule 3.01(b), which limits the length
of a response to “not more than twenty (20) pages.” Although neither rule explicitly
proscribes manipulative letterspacing,1 the Local Rules assume that counsel engages in
no manipulation to evade the effect of the rules and assume counsel’s use of the
standard space between consecutive letters. Quite transparently, Mid-Continent’s
response manipulates the space between consecutive characters in the response and
adds approximately two words to each line. Tactics such as Mid-Continent’s

1

“Letterspacing (also known as character spacing or tracking) is the adjustment of the horizontal
white space between the letters in a block of text.” Matthew Butterick, Typography for Lawyers 92
(2d ed. 2015).

letterspacing contribute to a burgeoning set of Local Rules, a phenomenon caused not
by persnickety judges but by parties’ relentless efforts to gain an advantage by subverting
a set of rules designed to ensure parity. Counsel is admonished; an attempt to subvert
the Local Rules exposes the offending counsel to sanction.

ORDER RESOLVING THE MOTIONS FOR SUMMARY JUDGMENT
Home Design Services, Inc., sued Highland Holdings, Inc., for copyright
infringement. Highland Holdings sues (Doc. 1) the insurer Mid-Continent Casualty
Company for a declaration that Mid-Continent must reimburse any damages (or
settlement money) that might result from the underlying action. Although the initial
complaint (Doc. 1) in this action asks only for a declaration (Count I), after settling the
underlying action for $650,000 Highland Holdings amends (Doc. 25) the complaint to
add a claim for breach of the insurance agreement and for reimbursement of the
settlement money (Count II). Mid-Continent counterclaims for a declaration that
Mid-Continent need not reimburse any portion of the settlement money.2 Each party
moves (Docs. 42, 43) for summary judgment on each claim.

2

Mid-Continent asserts seven counterclaims (Doc. 32) against Highland Holdings.
However, each purported counterclaim is an argument in support of a claim for a declaration
that Mid-Continent “does not owe a duty to indemnify Highland Homes for the $650,000
settlement amount.” (Doc. 32 at 15) Under Rule 8(c)(2), Federal Rules of Civil Procedure, “[i]f
a party mistakenly designates a defense as a counterclaim . . . the court must, if justice requires,
treat the pleading as though it were correctly designated, and may impose terms for doing so.”
Mid-Continent’s seven counterclaims are construed as arguments in support of one counterclaim for
a declaration that Mid-Continent “does not owe a duty to indemnify Highland Homes for the
$650,000 settlement amount.” (Doc. 32 at 15)

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DISCUSSION
Highland Holdings constructs homes based on select designs and advertises these
designs on a website. Home Design sued Highland Holdings for copyright infringement
and alleged that Highland Holdings advertised copyrighted designs on Highland
Holdings’ website, created schematic plans based on copyrighted designs, and
constructed homes based on copyrighted designs. At the time Highland Holdings
advertised the contested designs, Mid-Continent insured Highland Holdings against
“advertising injury liability.” The insurance agreement states:
We will pay those sums that the insured becomes legally obligated to
pay as damages because of . . . [“]advertising injury” to which this
insurance applies. 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 . . .
[“]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.

(Doc. 32-2 at 15) The agreement includes in the definition of “advertising injury” an
injury “arising out of . . . [i]nfringing upon another’s copyright . . . in your
advertisement.” (Doc. 32-2 at 23–24) The agreement defines “advertisement” as “a
notice that is broadcast or published to the general public or specific market segments
about your goods, products or services for the purpose of attracting customers or
supporters.” (Doc. 32-2 at 22)

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Highland Holdings argues (1) that Mid-Continent must reimburse the entire
amount that Highland Holdings paid to settle the underlying action; (2) that, even if
Highland Holdings cannot recover the entire amount, Highland Holdings can recover at
least a portion of the amount; (3) that Highland Holdings paid a “reasonable” amount
to settle the claims covered by the insurance agreement; (4) that Mid-Continent is not
entitled to a setoff; and (5) that Highland Holdings justifiably rejected Mid-Continent’s
help in defending against the underlying action. Mid-Continent disputes each
argument.
1. The insurance agreement covers only a portion of the settled claims.
Highland Holdings argues that Mid-Continent must reimburse the entire amount
that Highland Holdings paid to settle the underlying action.3 However, Highland
Holdings fails to meet the burden “on the insured to prove that the insurance
[agreement] covers” each settled claim. See East Florida Hauling, Inc. v. Lexington Ins. Co.,
913 So. 2d 673, 678 (Fla. 3d DCA 2005) (Cortinas, J.). Although the insurance
agreement covers only those claims of “advertising injury,” the settlement agreement
settles “all claims” asserted by Home Design in the underlying action (Doc. 42-4 at 1),
including both the claim accusing Highland Holdings of creating a schematic plan based
on a copyrighted design and the claim accusing Highland Holdings of constructing a

3

Although the insurance agreement requires Mid-Continent to pay the “damages” “that the
insured becomes legally obligated to pay” (Doc. 32-2 at 15), neither party disputes that “damages”
includes settlement money.

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home based on a copyrighted design. See Arthur Rutenberg Homes, Inc. v. Maloney,
891 F. Supp. 1560, 1567 (M.D. Fla. 1995) (finding that the defendant infringed
copyright of an architectural work by engaging in acts other than advertising — creating
“floorplans” and constructing homes based on the “floorplans”). Further, “all claims”
in the underlying action (Doc. 42-4 at 1) includes the claim accusing Highland Holdings
of advertising a copyrighted design after Highland Holdings received a cease-and-desist
letter. The insurance agreement excludes claims for “advertising injury . . . caused by or
at the direction of the insured with the knowledge that the act would violate the rights of
another and would inflict . . . advertising injury.”4 (Doc. 32-2 at 15) Because Highland
Holdings settled more than the covered claims, Highland Holdings cannot recover the
entire settlement amount.
Arguing for reimbursement of the entire settlement amount, Highland Holdings
attempts to expand the definition of “advertisement.” Highland Holdings’ motion for
summary judgment recites the testimony of Neal L. O’Toole, one of Highland
Holdings’ counsel, who states, “[B]ecause we do not build homes until we have people
who have signed the contract to buy them . . . it almost verges on idiotic that we would
have to somehow prove that a person who bought the home looked at the layout before

4

Highland Holdings argues only that Highland Holdings first advertised the copyrighted
designs before receipt of the cease-and-desist letter and fails to justify the decision to continue
advertising the designs after receipt of the letter.

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they bought it.”5 (Doc. 35 at 78; Doc. 45 at 17) However, Highland Holdings
erroneously assumes that a “layout”— i.e., a schematic plan — is an advertisement.6
Although an advertisement might feature a schematic plan and although a prudent
purchaser of a home would review a schematic plan before authorizing construction, a
schematic plan is not necessarily “broadcast or published . . . for the purpose of
attracting customers or supporters” and is not an advertisement. (See Doc. 32-2 at 22)
See State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226, 1230 (11th Cir. 2004) (“Florida
courts start with the plain language of the policy, as bargained for by the parties.”).
Arguing for reimbursement of the entire settlement amount, Highland Holdings
attempts to expand the definition of “advertising injury,” which the insurance
agreement defines as an injury “arising out of . . . infringing upon another’s
copyright . . . in your advertisement.” (Doc. 32-2 at 24–25) “Arising out of ”
necessitates a show of causation between the advertisement and the injury.7
See Steinberg, 393 F.3d at 1231 (requiring based on a similar insurance provision “some

5

Also, Highland Holdings argues, “Customers never buy houses sight unseen; the
homebuyer always sees the advertising design before deciding to make a purchase.” (Doc. 42 at 9)
6

Also, Highland Holdings’ motion for summary judgment conflates “advertisement” and
“floor plan.” (Doc. 45 at 18)
7

Arguing that Highland Holdings must establish causation between the advertisement and
the injury, Mid-Continent highlights the phrase “because of ” in the sentence “We will pay those
sums that the insured becomes legally obligated to pay as damages because of . . . [‘]advertising
injury[’] to which this insurance applies.” (Doc. 32-2 at 15) However, “because of ” necessitates a
show of causation between the injury and the “damages” (or settlement money), not a show of
causation between the advertisement and the injury.

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causal connection between the advertising injury and the advertising activity”). By
arguing that an advertisement featured a copyrighted design before a purchaser hired
Highland Holdings to construct a home based on that design, Highland Holdings
attempts to establish that the advertisement caused the purchaser to hire Highland
Holdings. However, inferring causation from temporal sequence is fundamentally
fallacious reasoning and is wholly insufficient to establish that each claim in the
underlying action “arises out of ” Highland Holdings’ advertisement of a copyrighted
design.8 Arguing that a purchaser must examine an advertisement before authorizing
construction of a home overlooks the many other methods available to a prudent
purchaser to view the “layout” of a home, methods such as consulting Highland
Holdings in person or visiting a model home. Highland Holdings fails even to
acknowledge the existence of these alternatives. Highland Holdings fails to meet the
burden “on the insured to prove that the insurance [agreement] covers” each settled
claim. See East Florida Hauling, 913 So. 2d at 678.

8

See United States v. Valencia, 600 F.3d 389, 425 (5th Cir. 2010) (per curiam) (“Evidence of
mere correlation, even a strong correlation, is often spurious and misleading when masqueraded as
causal evidence, because it does not adequately account for other contributory variables.”); Norris v.
Baxter Healthcare Corp., 397 F.3d 878, 885 (10th Cir. 2005) (McKay, J.) (“A correlation does not
equal causation.”).

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2. Highland Holdings cannot recover the money paid to settle claims covered by the
insurance agreement.
Highland Holdings argues that, even if Highland Holdings cannot recover the
entire settlement amount, Highland Holdings can recover at least a portion of the
amount. However, “Florida law clearly requires the party seeking recovery . . . to
allocate any settlement amount between covered and noncovered claims,” Bradfield v.
Mid-Continent Cas. Co., 2015 WL 6956543, at *24 (M.D. Fla. Nov. 10, 2015)
(Hodges, J.), and Highland Holdings fails to establish what portion of the $650,000
settles claims covered by the insurance agreement. Failure to establish how much the
insured paid to settle covered claims “precludes recovery.” Trovillion Const. & Dev., Inc.
v. Mid-Continent Cas. Co., 2014 WL 201678, at *8 (M.D. Fla. Jan. 17, 2014) (Dalton, J.).
Disputing the existence of a burden on the insured to establish the amount paid
to settle covered claims, Highland Holdings distinguishes Bradfield, 2015 WL 6956543,
at *24, one of many cases establishing the burden. The crux of Highland Holdings’
argument is that Bradfield involved a “Coblentz agreement,” under which an insured,
such as Highland Holdings, settles an action against the insured and assigns to the
plaintiff the claim for indemnification from the insurer. Bradfield, 2015 WL 6956543,
at *24 (citing Coblentz v. Am. Sur. Co. of New York, 416 F.2d 1059, 1062 (5th Cir. 1969)).
In exchange for the assignment, the plaintiff releases the insured from liability under the
settlement. Highland Holdings argues that, because the insured entering into a Coblentz
agreement never has to pay the settlement money to the assignee, the insured has less
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incentive to negotiate a “realistic” settlement amount. (Doc. 45 at 13 (citing Steil v.
Florida Physicians’ Ins. Reciprocal, 448 So. 2d 589, 592 (Fla. 2d DCA 1984) (Grimes, J.)).
Although the need to confirm the veracity of a settlement amount is greater for a
settlement by the assignee of a Coblentz agreement, the burden on a plaintiff to establish
the amount paid to settle a covered claim is not limited to an assignee of a Coblentz
agreement. Several state and federal cases exemplify the existence of the burden on a
plaintiff who is not a party to a Coblentz agreement. See, e.g., Metro. Dade Cty. v. Florida
Aviation Fueling Co., 578 So. 2d 296, 298 (Fla. 3d DCA 1991) (per curiam); Guarantee
Ins. Co. v. Gulf Ins. Co., 628 F. Supp. 867, 870 (S.D. Fla. 1986) (Hastings, J.); Keller
Indus., Inc. v. Employers Mut. Liab. Ins. Co. of Wisconsin, 429 So. 2d 779, 780 (Fla. 3d
DCA 1983) (Hendry, J.); cf. Am. Cas. Co. of Reading Pennsylvania v. Health Care Indem.,
Inc., 613 F. Supp. 2d 1310, 1321 (M.D. Fla. 2009) (Covington, J.) (faulting an insured
for failing to “request a special verdict” specifying what “portion of the judgment” is
covered under an insurance agreement). In fact, in support of this burden, Bradfield cites
Jones v. Holiday Inns, Inc., 407 So. 2d 1032, 1034 (Fla. 1st DCA 1981) (Shivers, J.); and
Universal Underwriters Ins. Corp. v. Reynolds, 129 So. 2d 689, 691 (Fla. 2d DCA 1961)
(Shannon, J.), neither of which involves a Coblentz agreement.

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Highland Holdings admits that the settlement agreement contains no distinction
between covered and “uncovered” claims. (Doc. 45 at 3) The settlement agreement
lists only a lump sum ($650,000) that Highland Holdings must pay to settle “all claims
[that were] raised or that could have been raised” in the underlying action. (Doc. 42-4
at 1) The settlement agreement contains neither a schedule of amounts allocated to
settling each claim nor any other indication of how Highland Holdings and Home
Design chose $650,000. However, Highland Holdings argues (correctly) that “[t]here is
no requirement that such burden must be carried out within the settlement agreement
itself.” (Doc 42 at 19) See Bradfield, 143 F. Supp. 3d at 1215; Trovillion, 2014 WL
201678, at *8; Florida Aviation, 578 So. 2d at 298.
Attempting to calculate the percentage of $650,000 that settles covered claims,
Highland Holdings divides the number of homes constructed based on a copyrighted
design advertised during the insurance policy period by the number of homes
constructed based on a copyrighted design (regardless of whether the design was
advertised within the claims period of the insurance policy). This simplistic calculation
assumes that the settling parties assigned the same value to each home. An attachment
(Doc. 42-4 at 8–19) to the settlement agreement lists the array of closing prices of the
homes and readily rebuts this assumption. Further, the calculation fails to account for
the many acts, other than advertising and such as creating a schematic plan based on a
copyrighted design and constructing a home based on a copyrighted design, that
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allegedly infringed Home Design’s copyrights. Finally, the calculation fails to subtract
from the covered claims the claims that after receipt of a cease-and-desist letter
Highland Holdings advertised a copyrighted design.9 Highland Holdings not only failed
to specify in the settlement agreement the amount paid to settle the covered claims but
fails to offer a feasible strategy to discern the amount.
3. Highland Holdings’ inability to establish the amount paid to settle the covered
claims eviscerates Highland Holdings’ remaining arguments.
Highland Holdings argues that Highland Holdings paid a “reasonable” amount
to settle the covered claims. However, Highland Holdings fails to establish how much
Highland Holdings paid to settle the covered claims, and a jury cannot determine
whether an undetermined amount is “reasonable.”
Highland Holdings’ argument that Mid-Continent is not entitled to a setoff is
likewise eviscerated by Highland Holdings’ inability to establish the amount paid to
settle the covered claims.
Finally, Highland Holdings argues that Highland Holdings justifiably rejected
Mid-Continent’s help in defending against the underlying action. Rather than stating
the legal significance of the rejection, the parties quarrel about the “real reason” behind
Highland Holdings’ rejection. Whether an insured justifiably rejected an insurer’s help
is significant if either the insurer uses the rejection to prevent recovery under the
9

As the first section discusses, the insurance agreement excludes claims for “advertising
injury . . . caused by or at the direction of the insured with the knowledge that the act would violate
the rights of another and would inflict . . . advertising injury.” (Doc. 32-2 at 15)

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insurance agreement, see Mid-Continent Cas. Co. v. Am. Pride Bldg. Co., LLC, 601 F.3d
1143, 1149 (11th Cir. 2010), or the insured seeks reimbursement of litigation costs.
See Continental Cas. Co. v. City of Jacksonville, 283 Fed. Appx. 686, 689–90 (11th Cir.
2008) (per curiam). Mid-Continent’s motion for summary judgment contains no
argument that Highland Homes “improperly rejected the defense.”10 (Doc. 43 at 2)
Further, Highland Holdings sues for reimbursement of the settlement money, not for
the costs of litigating the underlying action.

CONCLUSION
Highland Holdings’ motion (Doc. 42) for summary judgment is DENIED, and
Mid-Continent’s motion (Doc. 43) for summary judgment is GRANTED. The clerk is
directed (1) to enter a judgment for Mid-Continent and against Highland Holdings in
Counts I and II of the complaint and in the counterclaim, (2) to terminate any pending
motion, and (3) to close the case.
ORDERED in Tampa, Florida, on June 23, 2016.

10

The motions states only that “[a]ny arguments herein are not intended to waive
[Mid-Continent]’s argument that Highland Homes improperly rejected the defense.” (Doc. 43
at 2 n.1)

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