Citizens Insurance Company of America v. Uncommon, LLC et al

Filing 55

MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 8/31/2011.Mailed notice.(jlj)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CITIZENS INSURANCE COMPANY OF AMERICA,
Plaintiff,
vs.
UNCOMMON, LLC; SG VENTURES, LLC; JOHN
HONG d/b/a SG VENTURES, LLC; and S.G.
VENTURES, INC.,
Defendants.

)
)
)
)
)
)
)
)
)
)
)

10 C 7764
Judge Feinerman

MEMORANDUM OPINION AND ORDER
Citizens Insurance Company of America filed this diversity action against three entities
and an individual, referred to here collectively as “Uncommon,” seeking a declaration that it has
no duty to defend or indemnify Uncommon against counterclaims brought by UncommonGoods,
LLC, in Uncommon, LLC v. UncommonGoods, LLC, No. 10 C 4818 (N.D. Ill.). Uncommon
counterclaimed, seeking a declaration that two insurance policies issued by Citizens obligated it
to defend and indemnify Uncommon, damages for breach of contract, and statutory remedies
under 215 ILCS 5/155 for Citizens’ alleged bad faith refusal to provide a defense. Uncommon
moved for summary judgment, and Citizens moved for judgment on the pleadings. Citizens’
motion is granted and Uncommon’s motion is denied.
Background
Uncommon operates a website, www.getuncommon.com, through which it sells highend, customizable design cases for cellular phones. In the underlying lawsuit, Uncommon
sought a declaration that it did not infringe UncommonGoods’ trademarks; that it had not
engaged in unfair competition, false designation of origin, or unfair competition; and that there
-1-

was no likelihood of confusion between Uncommon’s products and those of UncommonGoods.
Doc. 24-3 at 2-14. Uncommon filed that suit after receiving letters and notices from
UncommonGoods charging that Uncommon’s use of the name “Uncommon” infringed
UncommonGoods’ trademarks. Id. at 10-11. UncommonGoods answered and filed
counterclaims against Uncommon alleging: (1) trademark infringement under the Lanham Act,
15 U.S.C. § 1114; (2) common law trademark infringement; (3) unfair competition under the
Lanham Act, 15 U.S.C. § 1125(a); (4) common law unfair competition; (5) deceptive trade
practices under the Illinois Uniform Deceptive Trade Practices Act, 815 ILCS 510/1 et seq.; (6)
tortious interference with business practices; (7) fraud on the Patent and Trademark Office
(“PTO”); and (8) unjust enrichment. Id. at 17-34. The claims and counterclaims in the
underlying action have been settled and dismissed with prejudice. See Uncommon, LLC v.
UncommonGoods, LLC, No. 10 C 4818, Stipulated Order of Dismissal (N.D. Ill. Aug. 30, 2011).
The factual allegations upon which UncommonGoods’ counterclaims rested may be
summarized as follows. UncommonGoods operates a website, www.uncommongoods.com, and
publishes a catalog offering a variety of merchandise, including “furniture and furniture-related
goods, jewelry, apparel and apparel accessories, carrying cases and bags designed for storage
and transportation of consumer electronics, cellular phone cases, media players, and laptop
computers.” Id. at 19 (¶ 14). UncommonGoods owns valid U.S. trademarks for
“UNCOMMONGIFTS,” “UNCOMMON GIFTS,” “UNCOMMON GOODS,” and
“UNCOMMONGOODS” for use in the online, mail-order, and gift store markets. Id. at 19-20
(¶¶ 15-19). The counterclaims alleged that Uncommon’s “use of the UNCOMMON trademark
suggests association, affiliation, or sponsorship with [UncommonGoods] and is without the
authorization, approval, and permission of [UncommonGoods], so as to cause, or be likely to
-2-

cause, confusion or mistake, or to deceive consumers as to the origin of [Uncommon’s] goods
and/or services.” Id. at 26 (¶ 48). Uncommon’s unauthorized use of the UNCOMMON
trademarks, the counterclaims added, interferes with UncommonGoods’ “reasonable expectation
of a future business relationship with its customers and future customers … [and its] reasonable
expectation of exclusive use of its UNCOMMON trademarks,” and has resulted in Uncommon
“unjustly retain[ing] the benefit of [UncommonGoods’] trademarks and services.” Id. at 27, 31
(¶¶ 55–56, 73).
Uncommon holds two insurance policies issued by Citizens, which are materially
identical and thus for ease of reference will be treated as one. The policy provides Uncommon
with coverage for “bodily injury,” “property damage,” and “personal and advertising injury.”
Doc. 24-8 at 14-23. Coverage for “personal and advertising injury” is subject to the following
exclusion, referred to here as the “IP exclusion”:
This insurance does not apply to:
a. “Personal and advertising injury”:
*
(9)

*

*

Infringement of Copyright, Patent, Trademark or Trade
Secret
Arising out the infringement of copyright, patent, trademark,
trade secret or other intellectual property rights. Under this
exclusion, such other intellectual property rights do not
include the use of another’s advertising idea in your
“advertisement”.
However, this exclusion does not apply to infringement, in
your “advertisement”, of copyright, trade dress, or slogan.

Id. at 19.

-3-

Upon filing the underlying lawsuit against UncommonGoods, Uncommon notified
Citizens, and Citizens denied coverage. Doc. 26-1. After UncommonGoods counterclaimed in
the underlying action, Uncommon again notified Citizens, and Citizens again denied coverage.
Doc. 26-2. Citizens commenced this coverage litigation two months later, after an exchange of
correspondence between the parties’ attorneys. Docs. 26-3, 26-4.
Discussion
The parties agree that Illinois law governs the policies. The Seventh Circuit recently
summarized Illinois law as it pertains to the interpretation of insurance policies:
In Illinois, insurance policies are contracts; the general rules governing the
interpretation and construction of contracts govern the interpretation and
construction of insurance policies. Illinois courts aim to ascertain and give
effect to the intention of the parties, as expressed in the policy language, so
long as doing so does not contravene public policy. In doing so, they read
the policy as a whole and consider the type of insurance purchased, the risks
involved, and the overall purpose of the contract. If the policy language is
unambiguous, courts apply it as written. Policy terms that limit an insurer’s
liability are liberally construed in favor of coverage, but only when they are
ambiguous, or susceptible to more than one reasonable interpretation.
Clarendon Nat’l Inc. Co. v. Medina, 645 F.3d 928, 933 (7th Cir. 2011) (citations omitted).
Although ambiguities are construed in the insured’s favor, “a court will not search for ambiguity
where there is none.” Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 314 (Ill.
2006); see also Native Am. Arts, Inc. v. Hartford Cas. Ins. Co., 435 F.3d 729, 732 (7th Cir.
2006).
“To determine whether an insurer has a duty to defend its insured, [the court] compare[s]
the factual allegations of the underlying complaint (or in this case, counterclaim) to the language
of the insurance policy. If the facts alleged in the underlying complaint fall within, or potentially
within, the policy’s coverage, the insurer’s duty to defend arises.” Amerisure Mut. Ins. Co. v.
-4-

Microplastics, Inc., 622 F.3d 806, 810 (7th Cir. 2010) (citations and internal quotation marks
omitted). An insurer may decline to defend a lawsuit only where “it is clear from the face of the
underlying complaint that the allegations set forth … fail to state facts that bring the case within,
or potentially within, the coverage of the policy.” Valley Forge, 860 N.E.2d at 315; see also
Lyerla v. AMCO Ins. Co., 536 F.3d 684, 688 (7th Cir. 2008). That is, “an insurer has no duty to
defend unless the underlying claim contains explicit factual allegations that potentially fall
within policy coverage.” Amerisure, 622 F.3d at 810. “Both the policy terms and the allegations
in the underlying complaint are liberally construed in favor of the insured, and any doubts and
ambiguities are resolved against the insurer.” Ibid. (internal quotation marks omitted). “Insurers
have the burden of proving that an exclusion applies. Insureds, in turn, have the burden to prove
that an exception to an exclusion restores coverage.” Santa’s Best Craft, LLC v. St. Paul Fire &
Marine Ins. Co., 611 F.3d 339, 347 (7th Cir. 2010). The insurer has a duty to defend “even if
only one of several theories of recovery alleged in the complaint falls within the potential
coverage,” and even if some or all of the allegations in the underlying complaint are “groundless,
false, or fraudulent.” Valley Forge, 860 N.E.2d at 315.
The parties agree that UncommonGoods’ counterclaims in the underlying suit did not
implicate coverage for “bodily injury” or “property damage.” Doc. 35 at 5; Doc. 43 at 1-2; Doc.
47. They further agree that UncommonGoods’ trademark infringement and fraud on the PTO
counterclaims, standing alone, did not prompt Citizens’ duty to defend. Doc. 35 at 5 & n.1; Doc.
43 at 1; Doc. 47. The parties’ disagreement concerns whether UncommonGoods’ unfair
competition, deceptive trade practices, tortious interference with business practices, and unjust
enrichment counterclaims alleged “personal and advertising injury” and, if so, whether the IP
exclusion precludes coverage. There is no need to decide whether those counterclaims alleged
-5-

“personal and advertising injury” within the meaning of the policy because, even if they did, the
IP exclusion unambiguously precludes coverage and thus relieved Citizens of any duty to defend
(and thus to indemnify) Uncommon in the underlying litigation.
As noted above, the IP exclusion precludes coverage for claims “[a]rising out of the
infringement of copyright, patent, trademark, trade secret or other intellectual property rights.”
Citizens maintains that the exclusion bars coverage for UncommonGoods’ counterclaims
because each depends on the allegation that Uncommon infringed UncommonGoods’
trademarks. Uncommon responds that the exclusion does not bar coverage for the unfair
competition, deceptive trade practices, tortious interference, and unjust enrichment
counterclaims because each can proceed without an allegation of trademark infringement. The
proper resolution of this dispute turns on three questions.
The first question is whether the IP exclusion can be avoided by the mere fact that unfair
competition, deceptive trade practices, tortious interference, and unjust enrichment claims, as a
general matter, can and usually do arise from conduct having nothing to do with trademark
infringement. The answer is no. Under Illinois law, “[t]he insured’s coverage and right to a
defense depend not on the legal theories stated by the claimant in the underlying dispute, but on
the factual allegations.” Amerisure, 622 F.3d at 815. “[T]he suggestion … that the [underlying]
complaint must explicitly identify the claim that is within the [policy] coverage represents an
unduly narrow reading of Illinois law, and the court should not simply look to the particular legal
theory pursued by the claimant, but must focus on the allegedly tortious conduct on which the
lawsuit is based.” Id. at 815-16 (second set of brackets added, internal quotation marks and
citations omitted). Accordingly, UncommonGoods’ decision to bring certain of its
counterclaims under non-trademark (or non-copyright, non-patent, or non-trade secret) legal
-6-

theories does not determine whether the IP exclusion applies. Application of the exclusion
depends, rather, on the factual allegations underpinning those counterclaims. See Health Care
Indus. Liab. Ins. Program v. Momence Meadows Nursing Ctr., Inc., 566 F.3d 689, 696 n.9 (7th
Cir. 2009) (“While an insurer certainly has a duty to defend its insured against any complaint
that leaves open the possibility of coverage, that duty is premised on the facts the parties to the
underlying complaint actually alleged in their complaint.”). Indeed, there is no other way to
faithfully interpret the actual text of the exclusion, which refers not to copyright, patent,
trademark, and trade secret claims, but rather to claims “[a]rising out of the infringement of
copyright, patent, trademark, trade secret or other intellectual property rights” (emphasis added).
This leads to the second question, which is how to distinguish unfair competition,
deceptive trade practices, tortious interference, and unjust enrichment claims that are covered by
the IP exclusion from those that are not. The answer is that a claim brought under a nontrademark legal theory is covered by the exclusion if the claim “would not have arisen but for the
[trademark] claim (or necessarily arises out of the [trademark] claim).” Santa’s Best Craft, 611
F.3d at 348; see also Nautilus Ins. Co. v. 1452-4 N. Milwaukee Ave., LLC, 562 F.3d 818, 821-23
(7th Cir. 2009) (contractor-subcontractor policy exclusion, which excludes from coverage all
property damage claims “arising out of operations performed for you by contractors or
subcontractors you hire or your acts or omissions in connection with your general supervision of
such operations,” covers all “intertwined claims” that provide “an alternative theory of relief”
based on the same factual allegations). That is, the IP exclusion applies if the underlying claim,
regardless of the legal theory under which it is styled, could not proceed independently of an
allegation of trademark infringement. See Marvin J. Perry, Inc. v. Hartford Cas. Ins. Co., 412
Fed. Appx. 607, 614 (4th Cir. 2011) (Maryland law) (IP exclusion applies where “the gravamen”
-7-

of the underlying unfair competition claim “is based upon [the insured’s] use of its trade name,
trademark, logo, and website … in violation of [the underlying plaintiff’s] registration and
ownership of that name and mark”); Superformance Int’l, Inc. v. Hartford Cas. Ins. Co., 332
F.3d 215, 223 (4th Cir. 2003) (Virginia law) (IP exclusion applies where “[a]ll of the claims
made in the [underlying] complaints,” including those for unfair competition and violation of
import statutes, “are varieties of trademark claims protected by the Lanham Act and State
analogues.”); Parameter Driven Software, Inc. v. Mass. Bay Ins. Co., 25 F.3d 332, 337 (6th Cir.
1994) (Michigan law) (IP exclusion applies where “[a]ll four counts of [the] complaint,”
including those for false designation of origin and unfair competition, “were based upon [the
insured’s] use of the trademark”); Indus. Indem. Co. v. Citizens Computers, Inc., 79 Cal. App.
4th 817, 832-33 (1999) (IP exclusion applies to breach of contract claim “because all the facts
indicated that any such claims arose solely from conduct by [the insured] amounting to
trademark infringement”).
This, in turn, leads to the third question, which is whether UncommonGoods’ unfair
competition, deceptive trade practices, tortious interference, and unjust enrichment
counterclaims would not have arisen but for UncommonGoods’ allegation that Uncommon
infringed its trademarks. The answer is yes, as each counterclaim necessarily arose from the
trademark infringement allegations. The Lanham Act and common law unfair competition
counterclaims turned on “[Uncommon’s] use of [UncommonGoods’] registered trademarks.”
Doc. 24-3 at ¶¶ 44, 47–48. The deceptive trade practices counterclaim depended on the
allegation that “[Uncommon’s] use of [UncommonGoods’] trademarks … constitutes a passing
off by [Uncommon] of their goods and/or services as those of [UncommonGoods].” Id. ¶ 51.
The tortious interference counterclaim (Count VI) turned on the allegations that Uncommon
-8-

interfered with UncommonGoods’ “reasonable expectation of exclusive use of its UNCOMMON
trademarks for branding, promotion, marketing, and advertising,” that such trademarks “were
critical or significant in its present and future business relationships,” and that Uncommon
“purposefully interfered with” UncommonGoods’ expectations regarding the marks. Id.
¶¶ 55–58. And the unjust enrichment counterclaim (Count VIII) depended on the allegation that
Uncommon was unjustly enriched and retained benefits of the use of UncommonGoods’
“trademarks and services.” Id. ¶ 73. Each counterclaim was predicated on, and none could have
stood independently of, allegations that Uncommon infringed UncommonGoods’ trademarks.
Consequently, Citizens has met its burden of demonstrating that UncommonGoods’
counterclaims, including those styled under non-trademark legal theories, “[arose] out of the
infringement of … trademark” within the meaning of the IP exclusion.
Uncommon contends that even if this is so, the policy’s express exception to the IP
exclusion applies, rendering the exclusion inapplicable. The exception provides, in pertinent
part, that the IP exclusion “does not apply to infringement, in your ‘advertisement’, of …
slogan.” Doc. 24-8 at 19. Unlike some insurance policies, see Santa’s Best Craft, 611 F.3d at
346, the Citizens policy does not define the term “slogan.” Left without explicit guidance in the
policy, Uncommon cites Hugo Boss Fashions, Inc. v. Federal Insurance Co., 252 F.3d 608 (2d
Cir. 2001), for the proposition that a “slogan” is a “catch word or catch phrase.” Doc. 35 at 1112. From this premise, Uncommon argues that the term “uncommon” is a slogan, and that
because UncommonGoods’ counterclaims focused on Uncommon’s use of that term, the
counterclaims alleged infringement of a “slogan” within the meaning of the IP exclusion.
Uncommon is right that an accepted meaning of “slogan” is “catch word or phrase.” See
Cincinnati Ins. Co. v. Zen Design Grp., Ltd., 329 F.3d 546, 556 (6th Cir. 2003) (“Slogan is
-9-

defined in the dictionary as a ‘distinctive cry, phrase, or motto of any party, group, manufacturer,
or person; catchword or catch phrase.’”) (quoting Random House Unabridged Dictionary 1800
(2d ed.1993)). But Uncommon is wrong to conclude that the term “uncommon” is a slogan, at
least in the context of this case, where the term is the central component of UncommonGoods’
company name and brand. As the Second Circuit squarely held in Hugo Boss, “the trademarked
name of a brand, product, or company” is not itself a “slogan”:
Thus, the Seventh Circuit, in Blau Plumbing, Inc. v. S.O.S. Fix-It, Inc., 781
F.2d 604 (7th Cir.1986), implicitly, though unambiguously, acknowledged
the distinction between trademarked house or product names, on the one
hand, and slogans or other kinds of trademarks, on the other. That court
described a trademarked “slogan,” together with a trademarked
“combination of words and symbols[,] ornamental feature, [or] a distinctive
shape,” as “something ... intended to remind the consumer of the brand.”
Id. at 609; accord Advanced Res. Int’l, Inc. v. Tri–Star Petroleum Co., 4
F.3d 327, 334 (4th Cir.1993) (same). It would be odd indeed to say that the
trademarked name of a brand, product, or company constitutes a
“trademarked slogan” merely because it “remind[s] the consumer of the
brand.” For under this definition, all house, product, or brand names would
qualify as slogans. Thus, it seems clear that a “slogan” must be something,
other than the house mark or product mark itself, that provides such a
reminder.
252 F.3d at 619. Applying this principle, the court held that a lawsuit brought by Boss
Manufacturing Group for infringement of the “BOSS” trademark did not allege “slogan”
infringement within the meaning of an insurance policy materially identical to the Citizens
policy here. Id. at 619-20. Likewise, because UncommonGoods’ counterclaims all turned on
Uncommon’s alleged infringement of trademarks that do nothing more than reflect
UncommonGoods’ company and brand, the counterclaims did not allege infringement of a
“slogan.” See Interstate Bakeries Corp. v. OneBeacon Ins. Co., 773 F. Supp. 2d 799, 816 (W.D.
Mo. 2011) (underlying suit alleging that insured “infringed on the product mark ‘Nature’s Own’
cannot be read as alleging infringement of a slogan”).
-10-

Uncommon maintains in one of its briefs that the Citizens policy’s failure to expressly
define “slogan” renders ambiguous the IP exclusion, requiring that it be strictly construed
against Citizens. Doc. 40 at 8. The contention is difficult to reconcile with Uncommon’s
submission, set forth in a different brief and addressed above, that “slogan” means a “catch word
or catch phrase.” Doc. 35 at 11. The contention is meritless in any event. Under Illinois law, “a
policy term may be considered unambiguous where it has acquired an established legal
meaning.” Ace Am. Ins. Co. v. RC2 Corp., Inc., 600 F.3d 763, 766 (7th Cir. 2010). As the
Second Circuit exhaustively demonstrated in Hugo Boss, the term “slogan” has acquired a
settled legal meaning that excludes the trademarked name of a company, brand, or product. 252
F.3d at 618-20. The Sixth Circuit agreed with this assessment in Zen Design Group, holding that
“because slogan is easily defined by resort to common tools, such as dictionaries, it will be
considered unambiguous.” 329 F.3d at 556. If the term “slogan” had acquired an unambiguous
meaning as early as 2001, when the Second Circuit decided Hugo Boss, and 2003, when the
Sixth Circuit decided Zen Design Group, it certainly was unambiguous in 2009, when
Uncommon purchased the policy from Citizens. Doc. 24 at ¶ 14. Uncommon offers no
authority for the proposition that the term “slogan” in an insurance contract can encompass the
trademarked name of a company, brand, or product.
Finally, Uncommon contends that Citizens, as the plaintiff in this case, cannot seek
judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Uncommon’s
contention cannot be reconciled with the text of Rule 12(c), which clearly provides that any
party, and not just the defendant, may obtain judgment on the pleadings. See Fed. R. Civ. P.
12(c) (“After the pleadings are closed—but early enough not to delay trial—a party may move
for judgment on the pleadings.”) (emphasis added). Precedent confirms that a plaintiff may
-11-

obtain judgment under Rule 12(c). See Housing Auth. Risk Retention Grp., Inc. v. Chicago
Housing Auth., 378 F.3d 596, 600 (7th Cir. 2004). Because the pleadings and their
attachments—in particular, the insurance policy and the UncommonGoods’ counterclaims in the
underlying lawsuit—show that Citizens is entitled to judgment, judgment on the pleadings in
Citizens’ favor is the appropriate disposition.
Conclusion
For the foregoing reasons, Citizens had no duty to defend Uncommon against
UncommonGoods’ counterclaims in the underlying lawsuit. And because Citizens had no duty
to defend, it also has no duty to indemnify. See Nat’l Cas. Co. v. McFatridge, 604 F.3d 335, 338
(7th Cir. 2010) (“If an insurer has no duty to defend, it has no duty to indemnify.”).
Accordingly, Citizens’ motion for judgment on the pleadings is granted, and Uncommon’s
motion for summary judgment is denied. In light of this disposition, Citizens’ motion to strike
two paragraphs from Uncommon’s Rule 56.1 statement is denied as moot.

August 31, 2011
United States District Judge

-12-