Caveo, LLC et al v. Citizens Insurance Company of America, Inc.
Filing
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MEMORANDUM OPINION AND ORDER Signed by the Honorable Robert M. Dow, Jr. on 6/21/2017. Mailed notice(cdh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CAVEO, LLC,
Plaintiff,
v.
CITIZENS INSURANCE COMPANY
OF AMERICA, INC. and HANOVER
INSURANCE COMPANY,
Defendants.
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Case No. 15-cv-6200
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
In this insurance coverage dispute, Plaintiff Caveo LLC seeks to impose a duty to defend
on Defendants Citizens Insurance Company of America and Hanover Insurance Company with
respect to a lawsuit filed against Plaintiff in state court. On September 29, 2016, the Court
granted Plaintiff’s motion for summary judgment [21] and denied Defendants’ motion for
summary judgment [23] solely with respect to the threshold issue of whether Defendants are
estopped from asserting policy defenses. Currently before the Court is Defendants’ motion for
reconsideration of the Court’s September 29, 2016 opinion [59]. For the reasons set forth below,
the Court denies Defendants’ motion for reconsideration [59]. This case is set for further status
hearing on July 6, 2017 at 9:45 a.m.
I.
Background
The Court takes the undisputed facts from the applicable policy provisions and the
relevant admissions by the parties. In this insurance coverage dispute, Plaintiff seeks to impose a
duty to defend on Defendants with respect to a state court lawsuit filed against Plaintiff by
Abreon that has since settled. Plaintiff, a consulting company and competitor of Abreon, was
sued for a range of torts and civil statutory violations stemming from the alleged theft of
copyrighted material and other confidential information by a former Abreon employee who later
worked for Plaintiff. Defendants declined coverage, concluding that their policies either did not
provide or expressly excluded coverage for the events at issue in the underlying Abreon lawsuit.
In 2013, Plaintiff renewed its Avenues Business Owners Policy (“the Policy”) with
Defendants. The Policy was effective from June 20, 2013 through June 20, 2014. Section
II.A.1.a of the Policy provides that Defendants “will pay those sums that the insured becomes
legally obligated to pay as damages because of * * * ‘personal and advertising injury,’ to which
this insurance applies,” and that Defendants “will have the right and duty to defend the insured
against any ‘suit’ seeking those damages.” [1, at ¶ 17.] The Policy defines “personal and
advertising injury” as “injury, including consequential ‘bodily injury,’ arising out of one or more
of the following offenses: * * * (g) Infringing upon another’s copyright, trade dress, or slogan in
your ‘advertisement.’” [Id., at ¶ 18.] In Section II.F.1, the Policy defines “advertisement” as “a
notice that is broadcast or published to the general public or specific market segment about your
goods, products or services for the purpose of attracting customers or supporters,” providing that
“[n]otices that are published include material placed on the internet or a similar electronic means
of communication.” [1, at ¶ 19.]
The Policy also contains a professional services exclusion, which states in relevant part
that the Policy does not apply to “‘personal and advertising injury’ arising out of the rendering of
or failure to render any professional service * * * regardless of whether or not such service,
advice or instruction is ordinary to any insured’s profession. This includes but is not limited to
* * * Management, Human Resources, Technology, Testing, Media or Public Relations
consulting services[.]” [1-3, at 82.]
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Abreon filed the underlying lawsuit against Plaintiff on May 22, 2014. In its complaint,
Abreon alleged that Plaintiff and Abreon are direct competitors in the consulting industry,
including in training for enterprise resource planning software that an organization can use to
collect, store, manage and interpret data. [1-1, at ¶¶ 2, 9–13.] Abreon alleged that Plaintiff had
“engaged in a scheme and conspired with the Former Abreon Employees to have them work for
[Plaintiff] and use Abreon’s confidential, proprietary, trade secret and copyrighted material to
compete with Abreon, interfere with its customer relationships and grow [Plaintiff’s] competing
business by capturing Abreon’s business.” [Id.]
Following the May 22, 2014 filing beginning the underlying litigation, Plaintiff tendered
the litigation to Defendants on June 10, 2014. In a June 27, 2014 letter, Defendants denied
coverage for Plaintiff in connection with the Abreon Litigation. Defendants did not provide a
defense to Plaintiff under a reservation of rights or seek declaratory judgment that there was no
coverage. [15, at ¶ 1.] On July 15, 2015, Plaintiff filed this suit, seeking a declaratory judgment
(Count I), and alleging breach of contract (Count II) and a violation of 215 ILCS 5/155 (Count
III). [1.] Both parties moved for summary judgment, [21, 23], and this Court granted summary
judgment for Plaintiff, solely with respect to the threshold issue of whether Defendants are
estopped from asserting policy defenses. [56.] Defendants now move for reconsideration. [59.]
II.
Legal Standard
There has not yet been a final judgment in this case, thus Rule 54(b) governs Defendants’
motion for reconsideration. Under Rule 54(b), “any order or other decision [ ] that adjudicates
fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the
action as to any of the claims or parties and may be revised at any time before the entry of a
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judgment adjudicating all the claims and all the parties’ rights and liabilities.”1 Fed. R. Civ. P.
54(b); see also Rothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246, 251 (7th Cir.), opinion
amended on denial of reh’g, 835 F.2d 710 (7th Cir. 1987) (affirming district court’s denial of
motion to reconsider under Rule 54(b)).
Revisions under Rule 54(b) are discouraged and should be reserved for circumstances in
which the initial decision was “clearly erroneous and would work a manifest injustice.” See
Ghashiyah v. Frank, 2008 WL 680203, at *3 (E.D. Wis. Mar. 10, 2008) (quoting Christianson v.
Colt Indus. Operating Corp., 486 U.S. 800, 817 (1988)) (internal quotation marks omitted). In
general, “litigants must fight an uphill battle in order to prevail on a motion for reconsideration.”
Id. (citation and internal quotation marks omitted).
Motions to reconsider under Rule 54(b) “are judged by largely the same standards as
motions to alter or amend a judgment under Rule 59(e).” Ghashiyah, 2008 WL 680203, at *3.
The Court may a grant Rule 59(e) motion to alter or amend the judgment if the movant presents
newly discovered evidence that was not available at the time of trial, points to evidence in the
record that clearly establishes a manifest error of law or fact, or if the Court previously
misunderstood a party’s arguments. Miller v. Safeco Ins. Co. of Am., 683 F.3d 805, 813 (7th Cir.
2012); United States v. Ligas, 549 F.3d 497, 501 (7th Cir. 2008). Rule 59(e) “enables the court
to correct its own errors and thus avoid unnecessary appellate procedures.” Miller, 683 F.3d at
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Rule 54(b) states:
When an action presents more than one claim for relief * * * or when multiple parties are
involved, the court may direct entry of a final judgment as to one or more, but fewer than
all, claims or parties only if the court expressly determines that there is no just reason for
delay. Otherwise, any order or other decision, however designated, that adjudicates fewer
than all the claims or the rights and liabilities of fewer than all the parties does not end
the action as to any of the claims or parties and may be revised at any time before the
entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.
Fed. R. Civ. P. 54(b).
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813 (citation and internal quotation marks omitted). Rule 59(e) motions are “not appropriately
used to advance arguments or theories that could and should have been made before the district
court rendered a judgment, or to present evidence that was available earlier.” Id. (citation and
internal quotation marks omitted). Additionally, “‘manifest error’ is not demonstrated by the
disappointment of the losing party. It is the ‘wholesale disregard, misapplication, or failure to
recognize controlling precedent.’” Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000)
(quoting Sedrak v. Callahan, 987 F.Supp. 1063, 1069 (N.D. Ill. 1997)).
III.
Analysis
In its summary judgment opinion, this Court concluded that Defendants had a duty to
defend because (1) the alleged copyright infringement in Plaintiff’s webinar took place in an
“advertisement,” and thus was covered as a “personal and advertising injury; and (2) the
professional services exclusion does not apply because Plaintiff’s solicitation of potential
customers to purchase consulting services and its co-presenter’s software did not constitute the
provision of a professional service. [56, at 6–8.] Defendants seek reconsideration solely with
respect to the application of the professional services exclusion, arguing that “the Court has
misapprehended critical facts and law” in determining that this exclusion does not apply.
First, Defendants argues that the Court erred in not acknowledging the decision in
Landmark Am. Ins. Co. v. NIP Group, Inc., 962 N.E.2d 562 (Ill. App. Ct. 2011), and argues that
the holding of Landmark contradicts this Court’s conclusion that the professional services
exclusion does not apply to the case at hand. This argument fails for several reasons. First,
Defendants already raised this Landmark argument in their summary judgment briefing. [See 46
(Defendants’ Response Brief), at 8 (citing Landmark, Inc., 962 N.E.2d 573–76 for the
proposition that an advertisement for insurance products can also be a professional service); 49
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(Defendants’ Reply Brief), at 4 (citing Landmark, 962 N.E.2d 574 to support Defendants
argument that an advertisement can constitute a professional service under certain
circumstances).] The Court previously rejected this professional services argument, stating “Nor
is the Court persuaded by Defendants’ arguments that the professional services exclusion in the
Policy precludes coverage.” [56, at 7]; see also Caisse Nationale de Credit Agricole v. CBI
Indus., Inc., 90 F.3d 1264, 1270 (7th Cir. 1996) (“Reconsideration is not an appropriate forum
for rehashing previously rejected arguments or arguing matters that could have been heard
during the pendency of the previous motion.”). Although the Court did not explicitly address the
Landmark decision, there is no requirement that the Court must discuss every case cited by the
parties. See Johnson v. Strasser, 449 F. App’x 523, 524 (7th Cir. 2011) (“judges need not
discuss in their decisions every case a party cites”); Schiffner v. Motorola, Inc., 297 Ill. App. 3d
1099, 1106, 697 N.E.2d 868, 874 (1998) (“This court is not aware of any requirement that its
decisions must include or discuss each and every case cited as authority by a party[.]”).
Additionally, even if this were a proper argument for a reconsideration motion, it would
fail on the merits, as Landmark is readily distinguishable from the case at hand. In Landmark,
the policy at issue was a “miscellaneous professional liability” insurance policy that provided
coverage for claims “arising out of * * * Advertising Liability * * * in the rendering or failure to
render professional services[.]” 932 N.E.2d at 573. The underlying lawsuit was based on the
insured’s alleged practice of sending unsolicited advertisements for its insurance services and
products in violation of privacy rights. Id. The trial court held that the insured’s practice of
advertising its products could never be construed as a professional service triggering coverage
under the policy because such advertising is not an activity inherent to the insured’s business. Id.
at 573–74. The Illinois Appellate Court disagreed with this broad interpretation and held that the
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policy “at least potentially covers the allegations contained in [the] underlying complaint,” and
thus the insurer had a duty to defend. Id. at 576.
In contrast, the case at hand involves a professional services exclusion, as opposed to the
scope of coverage under a professional liability insurance policy, which alters the lens through
which the Court must read the policy and the underlying complaint. The Court “must read the
underlying complaint liberally and in favor of the insured.” Hurst-Rosche Engineers, Inc. v.
Comm. Union Ins. Co., 51 F.3d 1336, 1342 (7th Cir. 1995) (citation and internal quotation marks
omitted); see also U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930 (Ill.
1991). “The burden of proving that a claim falls within an exclusion rests squarely on the
insurer, because (1) the insured’s intent in purchasing an insurance policy is to obtain coverage,
therefore any ambiguity jeopardizing such coverage should be construed consistent with the
insured’s intent, and (2) the insurer is the drafter of the policy and could have drafted the
ambiguous provision to be clear and specific.” Hurst-Rosche Engineers, 51 F.3d at 1342; see
also Econ. Fire & Cas. Co. v. Kubik By & Through Kubik, 492 N.E.2d 504, 507 (Ill. App. Ct.
1986). “Where an insurer denies a duty to defend based on an exclusionary clause within a
policy, its application must be clear and free from doubt.” Hurst-Rosche Engineers, 51 F.3d at
1342 (citation and internal quotation marks omitted); see also Ins. Co. of Illinois v.
Markogiannakis, 544 N.E.2d 1082, 1094 (Ill. App. Ct. 1989). “Any ambiguities within the
policy must be construed in favor of the insured.” Hurst-Rosche Engineers, 51 F.3d at 1342; see
also Wilkin Insulation Co., 578 N.E.2d at 930.
Thus, the Landmark Court construed the professional liability insurance policy in favor
of the insured and concluded that the advertisement at was at least potentially a professional
service such that the insurer had a duty to defend. 932 N.E.2d at 576. Here, construing the
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complaint and policy in favor of the insured Plaintiff, as required, the Court concludes that
Defendants have not carried their burden in proving that the professional services exclusion
applies “clear and free from doubt.” See Standard Mutual Insurance Co. v. Lay, 2 N.E.3d 1253,
1259 (Ill. App. Ct. 2014) (holding that the professional services exclusion did not apply to
underlying lawsuit based on insured’s “blast fax” advertising his real estate business); see also
Margulis v. BCS Ins. Co., 23 N.E.3d 472, 480 (Ill. App. Ct. 2014) (professional liability
insurance policy did not cover claims based on insured’s unauthorized telephone solicitations);
Westport Ins. Corp. v. Jackson Nat. Life Ins. Co., 900 N.E.2d 377, 381 (Ill. App. Ct. 2008)
(professional liability insurance policy did not cover claims based on insured’s unsolicited faxed
advertisements).
Defendants’ second argument is that the policy language “directly contradicts the
assertion that ‘advertisements’ can never be ‘professional services.’” [59, at 4.] There are
multiple problems with this argument as well. First of all, the Court did not hold in its summary
judgment opinion that advertisements can never be professional services; rather, the Court held
that the professional services exclusion at issue did not apply in view of the specific facts of this
case. Defendants focus on the policy language stating that the professional services exclusion
applies “regardless of whether or not such service, advice or instruction is ordinary to any
insured’s profession.” [59, at 4, (quoting 1-3, at 82) (emphasis added).] Defendants argue that
even if webinars are not “ordinary” to Plaintiff’s profession, webinars can constitute a
professional service as long as they involve specialized knowledge.
Although Defendants
quoted this policy language in their summary judgment briefing, [see 46, at 6], Defendants did
not previously advance an argument based specifically on the “ordinary to” language, and “a
motion for reconsideration is an improper vehicle to * * * tender new legal theories.” Bally Exp.
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Corp. v. Balicar, Ltd., 804 F.2d 398, 404 (7th Cir. 1986). Further, the Court did not reject the
application of the professional services exclusion on the ground that the webinar was a
professional service that Plaintiff did not ordinarily provide; rather the Court concluded that the
webinar was a “solicitation of potential customers to purchase consulting services * * * and
therefore did not constitute the provision of a professional service.” [56, at 8.]
Additionally, Defendants criticize the Court’s summary judgment opinion for not
addressing the policy language stating that professional services include but are not limited to
“Management, Human Resources, Technology, Testing, Media or Public Relations consulting
services[.]” [59, at 4, (quoting 1-3, at 82).]
Defendants argue that the webinar provided
instructions to clients and potential clients regarding employee training programs, and thus
provided a human resources consulting service. This argument also misses the mark, and in fact
advances a slight variation on an argument that the Court previously rejected. Specifically,
Defendants argued in their summary judgment briefing that “[t]he Abreon Protected Information
allegedly misappropriated by [Plaintiff] was described in [Abreon’s] Motion for Preliminary
Injunction as relating to Abreon’s specialty in ‘organizational, process, technology change, and
education aimed at helping improve the experience that drives employee behavior.’
Such
activities clearly constitute ‘Human Resource’ services[.]” [46, at 7; see also 24, at 6 (“The
Caveo Webinar was clearly the rendering of a professional service and related to human
resources technology, i.e., consulting clients and potential clients on “ERP training.”).]
In
concluding that Plaintiff did not perform consulting services during the webinar, the Court
rejected this line of argument.
Next, Defendants argue that the professional services exclusion applies to “personal and
advertising injury” and that the definition of “personal and advertising injury” includes two
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offenses that take place in an advertisement: “the use of another’s advertising idea in your
‘advertisement’” and “infringing upon another’s copyright, trade dress or slogan in your
‘advertisement.’” [1-3, at 92.] Defendants argue that “the Court’s interpretation would mean
that the professional services exclusion could never apply to two out of the seven offenses
enumerated in the definition of “personal and advertising injury.” Defendants not raise this
argument in their summary judgment briefing, and “a motion for reconsideration is an improper
vehicle to * * * tender new legal theories.” Bally Exp. Corp., 804 F.2d at 404. Again, however,
if the Court were to consider this argument, it would fail on the merits because, as explained
above, the Court did not hold that advertisements can never be professional services. Further,
Defendants do not even attempt to explain why the professional services exclusion must be
applicable to each and every one of the seven offenses enumerated in the definition of “personal
and advertising injury.”
In their motion for reconsideration, Defendants continue to insist that the presentation of
the webinar required specialized knowledge and was not simply a sales pitch for potential
clients. Defendants argue that the webinar was an attempt to teach clients and potential clients
specialized and technical means of incorporating ERP training into a business. According to
Defendants, the webinar was not merely a description of the general features of Plaintiff’s
products and services, but rather employed specific expertise to help clients and potential clients
incorporate strategic learning and performance solutions in their businesses.
However,
Defendants already advanced this argument at the summary judgment stage. [See 24, at 6–7
(“An examination of the Caveo Webinar reveals that the topics in the Caveo Webinar clearly
involved the discussion of technical and specialized topics, involved specialized knowledge,
labor and skill, and was predominantly mental or intellectual in nature.”); 46, at 6 (“The slides of
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the Caveo Webinar demonstrate highly technical concepts related to ERP training that require
specialized knowledge, labor, and skill.”); 49, at 4 (“[T]he Caveo Webinar was not ‘merely an
overture to potential customers,’ but was a teaching activity that required specialized knowledge
and skill.”).] Again, “[r]econsideration is not an appropriate forum for rehashing previously
rejected arguments[.]” Caisse Nationale de Credit, 90 F.3d at 1270.
In any event, although some specialized knowledge may have been required for Plaintiff
to create the webinar, this is not enough to invoke the professional services exclusion.
Professional service providers will generally use their knowledge of their businesses to create
advertisements. To the extent that the webinar was offering advice to clients and potential
clients, providing free advice in this general manner to a general audience does not constitute
providing professional services. See Margulis, 23 N.E.3d at 480 (rejecting defendant’s argument
that unsolicited telephone calls were a professional service because they provided information
that would be useful to insurance clients, and holding that the insured was not rendering
professional services where there was no “established business relationship” between the insured
and the call recipients, who were “not insurance clients” of the insured); Lipscomb Ins. Grp. v.
Hartford Lloyds Ins. Co., 2010 WL 11475236, at *7 (N.D. Tex. Nov. 29, 2010) (explaining that
“[w]hile ‘advising’ constitutes a professional activity under the Policy, that does not necessarily
mean that advice sent in a general manner to non-clients and prospective customers constitutes
the rendering of a service,” and noting that “no court has held the [professional services]
exclusion applicable to activities directed at non-customer, non-client third-parties”); Atlantic
Lloyd’s Ins. Co. of Texas v. Susman Godrey, LLP, 982 S.W.2d 472, 477 (Tex. App. 1998)
(concluding that a law firm’s solicitation letter did not provide professional services where the
letter “offered no legal opinion with respect to the patient’s particular case”). Thus, Defendants
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have not met their burden in proving that the professional services exclusion applies here, “clear
and free from doubt.” Hurst-Rosche Engineers, 51 F.3d at 1342. At most, it is ambiguous, in
which case the Court must construe the policy in favor of the insured (here, Plaintiff). Id.
Finally, Defendants again attempt to distinguish Lay, 2 N.E.3d at 1253, Margulis, 23
N.E.3d at 472, and Westport, 900 N.E.2d at 377, arguing that Plaintiff’s webinar involved
specialized knowledge, whereas the advertisements at issue in Lay, Margulis, and Westport did
not. However, Defendants made this same argument in their summary judgment briefing. [See
49, at 3–5 (arguing that “every decision cited by [Plaintiff] involved the transmission of an
unsolicited facsimile advertisement or an unsolicited marketing telephone call” and attempting to
distinguish Westport, Lay, and Margulis).] Thus, the Court already rejected this argument, and it
is inappropriate for Defendants to advance the same argument in a motion for reconsideration.
See Caraker v. Sandoz Pharm. Corp., 172 F. Supp. 2d 1018, 1027 (S.D. Ill. 2001) (explaining
that simply rehashing a previously rejected argument “is exactly what not to do in a motion to
reconsider”); Fisher v. Samuels, 691 F. Supp. 63, 74 (N.D. Ill. 1988) (explaining that it is
inappropriate to use a motion for reconsideration to advance an argument that the court has
already rejected).2
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Defendants also argue that the Court noted in its summary judgment opinion that the webinar was
“advertised on Caveo’s website.” Defendants contend that the Court “presumably considered this
advertisement in evaluating the professional services exclusion.” [59, at 9.] This argument is a nonstarter
because Defendants’ take this quote out of context. The Court was not discussing the professional
services exclusion when noting that the webinar was “advertised on Caveo’s website and open to the
public;” rather, the Court was explaining why it was rejecting Defendants’ argument that the webinar
cannot be considered an advertisement because it was not widely disseminated. [See 56, at 6.]
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IV.
Conclusion
For the foregoing reasons, the Court denies Defendants’ motion for reconsideration [59].
This case is set for further status hearing on July 6, 2017 at 9:45 .am.
Dated: June 21, 2017
__________________________________
Robert M. Dow, Jr.
United States District Judge
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