Unwired Solutions, Inc. v. Ohio Security Insurance Co.

Filing 35

MEMORANDUM OPINION. Signed by Chief Judge Catherine C. Blake on 3/29/2017. (kw2s, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

UNWIRED SOLUTIONS, INC.

v.

OHIO SECURITY INSURANCE CO.

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Civil No. CCB-16-0405

MEMORANDUM
Now pending are cross motions for summary judgment arising in the context of a dispute
between Unwired Solutions, Inc., dba Linq Services, Inc. (“Linq”) and Ohio Security Insurance
Company (“Ohio Security”). That dispute centers on whether Ohio Security must defend Linq in
an underlying lawsuit, Sprint Solutions, Inc., et al. v. Unwired Solutions, Inc., et al.1 Linq has
moved for partial summary judgment on the issue of whether Ohio Security has a duty to defend
Linq in the Sprint action. Ohio Security and Ohio Casualty Insurance Company (“Ohio
Casualty”) have cross moved for summary judgment, asking the court to find that neither Ohio
Security nor Ohio Casualty has a duty to defend in the Sprint action. Ohio Security and Ohio
Casualty (together, “Liberty Mutual”) also ask this court to find that neither has a duty to
indemnify in the Sprint action. No oral argument is necessary. See Local Rule 105.6 (D. Md.
2016). For the reasons set forth below, the court will deny Linq’s motion for summary judgment
and grant Ohio Security and Ohio Casualty’s motion for summary judgment on the duty to
defend issue. The court will dismiss without prejudice claims related to the duty to indemnify.

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United States District Court, District of Maryland, Case No. 1:15-cv-2964-GLR (“Sprint action”).

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BACKGROUND
The court assumes familiarity with the factual background of this case. In brief, Sprint
Solutions, Inc. and Sprint Communications Company (“Sprint”) filed a complaint for damages
and injunctive relief against Linq and individuals asserted to be Linq agents on September 30,
2015. (Linq Mot. Partial Summ. J. Ex. 2, Sprint Compl. ¶¶ 12–18, ECF No. 16-10). Sprint
alleges that Linq and its agents perpetrated a “Bulk Handset Trafficking Scheme,” (id. ¶ 2), that
took advantage of the fact that Sprint sells phones to its customers for use on the Sprint network
at subsidized rates, (id. ¶ 25). Sprint alleges that Linq, which provides services to Sprint
customers, gained control of Sprint customer accounts in order to acquire subsidized Sprint
phones for itself and sell them at a profit. (Id. ¶¶ 43–44). Linq is liable for, inter alia, tortious
interference with contract and federal trademark infringement, Sprint claims. (Id. ¶¶ 69–214).
Linq and Ohio Security dispute whether Ohio Security has a duty to defend Linq in the
underlying Sprint action. This disagreement centers on three insurance policies that Ohio
Security issued to Linq, which were in effect from September 21, 2013, to September 21, 2016.
(Liberty Mutual Cross Mot. Summ. J. Mem. Law Exs. 2–4, ECF Nos. 32-3, 32-4, 32-5). Those
policies outline a duty to defend and indemnify in identical language and provide that Ohio
Security “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.” The policies
clarify that “personal and advertising injury” includes injury “arising out of” “oral or written
publication, in any manner, of material that slanders or libels a person or organization or
disparages a person’s or organization’s goods, products, or services.” They also state that Ohio
Security “will have the right and duty to defend the insured against any such ‘suit’ seeking those

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damages.” (See, e.g., Linq Mot. Partial Summ. J. Ex. 1, 42, 58, ECF No. 16-9). In addition to the
“primary-level” policies from Ohio Security, Linq obtained three “umbrella-level” policies from
Ohio Casualty. (Liberty Mutual Cross Mot. Summ. J. Mem. Law Exs. 5–7, ECF Nos. 32-6, 32-7,
32-8). The umbrella policies were in effect for the same policy periods as the primary-level
policies and provided coverage for “personal and advertising injury” to the same extent.
On February 12, 2016, Linq filed a complaint against Ohio Security, seeking a
declaration that Ohio Security has a duty to defend Linq in the Sprint action. (Linq Compl., ECF
No. 1). On March 23, 2016, Linq moved for partial summary judgment on its claim that Ohio
Security has a duty to defend. (Linq Mot. Partial Summ. J., ECF No. 16). Ohio Security and
Ohio Casualty filed a cross motion for summary judgment on the duty to defend issue (which
also served as their response to Linq’s motion for partial summary judgment) on January 6,
2017. (Liberty Mutual Cross Mot. Summ. J., ECF No. 31). That cross motion also requested that
the court enter a final declaratory judgment that neither Ohio Security nor Ohio Casualty has a
duty to defend or indemnify Linq in the Sprint action. (Liberty Mutual Cross Mot. Summ. J.
Mem. Law 8, ECF No. 32). Linq filed a consolidated response and reply on January 20, 2017.
(Linq Resp. in Opp’n & Reply, ECF No. 33). Liberty Mutual filed a reply in support of its cross
motion for summary judgment on February 3, 2017. (Liberty Mutual Reply, ECF No. 34).

LEGAL STANDARD
Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted
“if the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a) (emphases added). “A dispute is
genuine if ‘a reasonable jury could return a verdict for the nonmoving party.’” Libertarian Party

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of Va. v. Judd, 718 F.3d 308, 313 (4th Cir. 2013) (quoting Dulaney v. Packaging Corp. of Am.,
673 F.3d 323, 330 (4th Cir. 2012)). “A fact is material if it ‘might affect the outcome of the suit
under the governing law.’” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). Accordingly, “the mere existence of some alleged factual dispute between the parties
will not defeat an otherwise properly supported motion for summary judgment[.]” Anderson, 477
U.S. at 247–48. The court must view the evidence in the light most favorable to the nonmoving
party, Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (per curiam), and draw all reasonable
inferences in that party’s favor, Scott v. Harris, 550 U.S. 372, 378 (2007) (citations omitted); see
also Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568–69 (4th Cir. 2015). At the
same time, the court must “prevent factually unsupported claims and defenses from proceeding
to trial.” Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir. 2003) (quoting
Drewitt v. Pratt, 999 F.2d 774, 778–79 (4th Cir. 1993)).

ANALYSIS
A. Cross Motions for Partial Summary Judgment
The cross motions for partial summary judgment raise issues similar to those already
decided by this court when facing cross motions for partial summary judgment in another case,
Wireless Buybacks, LLC v. Hanover American Ins. Co., 1:16-cv-0328-CCB. As explained in that
case, the first issue is whether the underlying complaint in the Sprint action may trigger a duty to
defend even though Sprint did not specifically identify the tort of product disparagement as a
cause of action. In Maryland, whether a duty to defend exists depends on both the alleged facts
and the causes of action contained in the underlying complaint; the inquiry focuses on substance,
not labels. Here, as in Wireless Buybacks, the relevant inquiry is whether the underlying lawsuit

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alleges or implies that Sprint suffered an injury that arose out of the publication of disparaging
material by Linq – regardless of how Sprint labeled its counts. See Walk v. Hartford Cas. Ins.
Co., 382 Md. 1, 18 (2004); see also Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 641 (1996)
(duty to defend exists if underlying complaint “alleges action” that is potentially covered); All
Class Const., LLC v. Mut. Ben. Ins. Co., 3 F. Supp. 3d 409, 420 (D. Md. 2014) (courts must look
beyond headings for the counts alleged in the underlying suit to determine whether a duty to
defend exists). Accordingly, the court will proceed with its examination of the insurance policies
and the substance of the underlying claims to determine whether those claims allege that Linq
published material that disparaged Sprint’s “goods, products or services.”
In Maryland, an insurance company has a duty to defend its insured “for all claims that
are potentially covered under the policy.” Walk, 382 Md. at 15. That is, “[e]ven if a tort plaintiff
does not allege facts which clearly bring the claim within or without the policy coverage, the
insurer still must defend if there is a potentiality that the claim could be covered by the policy.”
Brohawn v. Transamerica Ins. Co., 276 Md. 396, 408 (1975). When determining if a duty to
defend exists, the court follows a two-part inquiry. First, it examines the coverage and defenses
under the terms and requirements of the insurance policy. Second, it asks whether the allegations
in the underlying suit “potentially bring the . . . claim within the policy’s coverage.” St. Paul Fire
& Mar. Ins. Co. v. Pryseski, 292 Md. 187, 193 (1981). Here, the issue is whether the allegations
in the Sprint suit potentially fall within the scope and limitations of coverage for “personal and
advertising injury.” See Walk, 382 Md. at 13.
As defined by the policies, “personal and advertising injury” includes injury “arising out
of” “oral or written publication, in any manner, of material that slanders or libels a person or

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organization or disparages a person’s or organization’s goods, products, or services.” There is no
allegation in the Sprint action that Linq published material that “disparages” Sprint – even if the
court interprets the verb “disparage” broadly to mean “to speak of or treat slightingly” or “to
depreciate by indirect means.” (See Linq Mot. Partial Summ. J. Mem. Law 26–28, ECF No. 161) (urging court to interpret “disparage” broadly and suggesting various definitions). Despite
Linq’s assertions to the contrary, it is not enough for the Sprint action to claim that 1) Linq
promotes its services on its website, and those services have the effect of damaging Sprint’s
reputation, or 2) Linq perpetrates a scheme that harms Sprint, and Linq co-conspirators made
statements to advance that scheme. (Id. 19, 36–37). A mere allegation of reputational harm does
not establish disparagement. See All Class Const, 3 F. Supp. 3d at 420–21; Hartford Cas. Ins.
Co. v. Swift Distribution, Inc., 326 P.3d 253, 265 (2014).
Linq’s “implicit disparagement” claims are also unconvincing. According to Linq, for
instance, the underlying complaint alleges that Linq falsely portrayed its phones as equivalent to
those sold by Sprint, which implicitly disparaged Sprint. (Linq Mot. Partial Summ. J. Mem. Law
32–33). Some courts have found disparagement based on false equivalence where the insured
allegedly made false or misleading statements claiming its products were equivalent to those of a
competitor. See JAR Labs. LLC v. Great Am. E & S Ins. Co., 945 F. Supp. 2d 937, 943–45 (N.D.
Ill. 2013); see also McNeilab, Inc. v. Am. Home Prods. Corp., 848 F.2d 34, 38 (2d Cir. 1988)
(“A misleading comparison to a specific competing product necessarily diminishes that product’s
value in the minds of the consumer.”). But these cases tend to involve allegations that the insured
explicitly compared its product to that of a competitor – precisely what is absent here. See, e.g.,
JAR Labs., 945 F. Supp. 2d at 943–45.

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Linq also claims the underlying complaint alleges the publication of disparaging material
because Linq phones are cheaper than those sold by Sprint – which will lead Sprint customers to
conclude that Sprint is a price gouger. (Linq Mot. Partial Summ. J. Mem. Law 32–33). But this is
not enough to establish the underlying complaint alleges the publication of disparaging material.
See Swift Distribution, 326 P.3d at 264 (“Reducing the price of goods, without more, cannot
constitute a disparagement”). Finally, the court cannot accept Linq’s assertion that because the
Sprint action alleges reputational harm, that “implies that statements not articulated in the
complaint must have been made that were injurious to Sprint’s reputation.” (Linq. Mot. Partial
Summ. J. Mem. Law 25). Speculation about what the defendant in the underlying suit might
have done does not establish a duty to defend. See Walk, 382 Md. at 24.
In sum, the Sprint action does not allege the publication of disparaging material.
Although Linq also claims a duty to defend exists because the complaint alleges the publication
of defamatory material, (Linq Mot. Partial Summ. J. Mem. Law 39–42), these arguments largely
mirror those offered in the context of disparagement, and they fail for similar reasons. The
complaint does not allege Linq published material that defames Sprint.
B. Request for Final Declaration on Duty to Indemnify
In its cross motion for summary judgment, Ohio Security and Ohio Casualty further ask
the court to find that, because there is no duty to defend in the underlying Sprint action, there is
also no duty to indemnify. (Liberty Mutual Cross Mot. Summ. J. Mem. Law 30–31). This is the
second time this issue has arisen before the court. Originally, Ohio Security and Ohio Casualty
sought a declaratory judgment that neither had a duty to defend or indemnify after Linq moved
for declaratory judgment on the duty to defend issue. (Liberty Mutual Answer & Countercls.,

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ECF No. 11). Linq moved to dismiss the counterclaims for declaratory judgment by Ohio
Security, but not those filed by Ohio Casualty. (Linq Mot. to Dismiss Countercls., ECF No. 22).
With respect to the counterclaim by Ohio Security – the only one to which Linq objected – the
court stayed any decision on the duty to indemnify, finding that it was not necessary to decide
the issue during declaratory judgment proceedings. (Docket Entry No. 28).
The court has now found, through summary judgment briefing, that no duty to defend
exists in this case. That necessarily means that no duty to indemnify may exist, Ohio Security
and Ohio Casualty claim. (Liberty Mutual Reply 11–12). However, the court concludes it would
be premature to make any final ruling on the duty to indemnify issue. As the court has previously
suggested, there may be instances where a duty to indemnify exists absent a duty to defend. See
Westfield Ins. Co. v. Nautilus Ins. Co., 154 F. Supp. 3d 259, 271–72 (M.D.N.C. 2016) (“While
the reasons that may negate an insurer’s duty to defend may also negate an insurer’s duty to
indemnify, the duty to defend does not subsume the duty to indemnify.”). Accordingly, the court
will dismiss without prejudice all claims related to the duty to indemnify. If Linq desires to
pursue the duty to indemnify issue, it may do so once the underlying Sprint action concludes.

CONCLUSION
For the aforementioned reasons, the court will grant Ohio Security and Ohio Casualty’s
motion for partial summary judgment on the duty to defend issue and will deny Linq’s motion
for partial summary judgment on that same issue. The court will deny the request from Ohio

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Security and Ohio Casualty to find no duty to indemnify exists, and will dismiss without
prejudice all claims related to the duty to indemnify. A separate order follows.

March 29, 2017
Date

/S/
Catherine C. Blake
United States District Judge

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