Mid-Century Insurance Company v. Windfall, Inc. et al
ORDER denying 30 Motion for Summary Judgment; granting 13 Motion for Summary Judgment; granting 16 Motion for Summary Judgment; denying 27 Motion for Summary Judgment. Signed by Chief Judge Dana L. Christensen on 5/23/2016. (DLE)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
WINDFALL, INC., METTLE, LLC
d/b/a METTLE STRATEGIC
MARKETING SOLUTIONS, JIM
McGOWAN, BROOKE REDPATH,
TARA HALLS, TIA METZGER, and
Before the Court are the parties’ cross-motions for summary judgment in
this declaratory judgment action. On January 13, 2016, Petitioner and CounterDefendant Mid-Century Insurance Co. (“Mid-Century”) filed two motions for
summary judgment—one motion regarding insurance coverage and the second
regarding Respondent and Counter-Plaintiff Tia Metzger’s counterclaims. On
February 3, 2016, Respondents Windfall, Inc., Mettle, LLC, Marketing Solutions,
Jim McGowan, Brooke Redpath, Tara Halls, and Megan Richter filed their crossmotion for summary judgment regarding coverage. On the same day, Metzger
filed her motion for summary judgment on her counterclaims against Mid-Century.
For the reasons explained below, the Court denies Respondents’ and Metzger’s
motions and grants both of Mid-Century’s motions for summary judgment in their
This action presents a dispute among the parties regarding whether MidCentury has a duty to defend the Respondents against litigation pending in state
court. Lee Enterprises, owner of local newspaper The Missoulian, brought charges
against Respondents in the underlying state proceeding, alleging that Respondents
wrongfully used Lee Enterprises’ confidential and proprietary information to
compete with Montana Marketing Group (“MMG”), a marketing and advertising
agency that operates on behalf of The Missoulian. Mid-Century insures Windfall,
Inc. (“Windfall”), which is named as one of the Respondents and which employs
or employed McGowan, Richter, and Metzger. Mid-Century accepted the defense
of Windfall, McGowan, Richter, and Metzger under a reservation of rights.
Metzger has also secured independent counsel.
Five individuals and two business entities are named defendants in the
underlying proceeding; the same seven individuals and entities are the
Respondents in the present action. All of the individual Respondents worked for
The Missoulian and had some connection to the newspaper’s advertising
department. Each resigned from The Missoulian during the spring of 2015. In
2001, McGowan, formerly The Missoulian’s Sales Director, formed Windfall, an
advertising and marketing agency in Missoula, and he worked there while also
employed by The Missoulian. Additionally, McGowan, along with Halls and
Redpath, owns Respondent Mettle, L.L.C. (“Mettle”), a business based in
Missoula that develops marketing strategies for its clients.
In the underlying litigation, Lee Enterprises has brought the following
claims: (1) violation of Montana’s Uniform Trade Secrets Act; (2) injunctive
relief; (3) breach of the implied covenant of good faith and fair dealing; (4)
tortious interference with business relations; (5) civil conspiracy; (6) breach of
duty of loyalty; (7) unfair competition and misappropriation; (8) conversion; (9)
deceit; and (10) constructive fraud. Lee Enterprises seeks injunctive relief and
money damages, including punitive damages. On July 30, 2015, Judge Karen
Townsend of the Montana Fourth Judicial District Court, Missoula County, denied
Lee Enterprises’ motion for a preliminary injunction. The case remains pending
before Judge Townsend in the state court.
STANDARD FOR SUMMARY JUDGMENT
A party is entitled to summary judgment if it demonstrates “that there is no
genuine dispute as to any material fact and [it] is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a). Summary judgment is appropriate where the
evidence produced by the parties permits only one conclusion. Mont. Pub.
Interest Research Group (MontPIRG) v. Johnson, 361 F. Supp. 2d 1222, 1226–27
(D. Mont. 2005) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251
If the moving party shows that the evidence does not permit a conclusion in
favor of the nonmoving party, the burden shifts to the nonmoving party. The party
opposing the motion “may not rest upon the mere allegations or denials of [its]
pleading, but . . . must set forth specific facts showing that there is a genuine issue
for trial.” Anderson, 477 U.S. at 248. The Court looks to “whether the evidence
presents a sufficient disagreement to require submission to a jury, or whether it is
so one-sided that one party must prevail as a matter of law.” MontPIRG, 361 F.
Supp. 2d at 1227 (citing Anderson, 477 U.S. at 251–52).
Mid-Century argues that it is entitled to judgment as a matter of law because
Windfall’s insurance policy does not provide coverage for the allegations against
Respondents in the underlying state proceeding. Respondents agree that summary
judgment is appropriate, but they argue that it should be granted in their favor,
claiming that Mid-Century has a duty to cover their defense in the state court
Additionally, Mid-Century seeks summary judgment on Metzger’s claims
regarding coverage and bad faith. In return, Metzger seeks summary judgment on
her claim that Mid-Century owes her a duty to defend that includes providing her
Mid-Century claims: (1) that Mettle, Halls, and Redpath are not insureds;
(2) that there is no initial grant of coverage; and (3) that, even if the policy would
otherwise provide coverage, two policy exclusions apply— “knowledge of
violation and harm” and “business of advertising.” Because it determines that
there was no initial grant of coverage, the Court does not reach the issue of
Coverage for Mettle, Halls, and Redpath
Mid-Century argues that Mettle, Halls, and Redpath are not insureds under
the policy. Respondents have not addressed this claim in their brief, and
justifiably so—Mid-Century correctly asserts that there is no grant of coverage to
Windfall is the named insured under the Mid-Century policy. Windfall’s
Businessowners’ Liability insurance policy listed the following as insureds under
the policy: Windfall itself; Windfall’s “executive officers and directors . . . , but
only with respect to their duties as [Windfall’s] officers or directors”; Windfall’s
stockholders, “but only with respect to their liability as stockholders”; and
Windfall’s employees and managers, “but only for acts within the scope of their
employment . . . or while performing duties related to the conduct of [Windfall’s]
business.” (Doc. 1-1 at 89.)
Mettle is a separate business entity from Windfall. It is not a partner,
member, or shareholder of Windfall. Halls and Redpath are principals and owners
of Mettle, and they have no established connection to Windfall. The policy does
not apply to Halls, Redpath, or Mettle. Mid-Century owes to these three
Respondents no duty to defend.
The Initial Grant of Coverage
The parties dispute whether Mid-Century’s duty to defend was triggered by
the filing of the complaint in the underlying matter. Metzger joins Respondents in
arguing that the policy extends to the actions alleged in the state court proceeding.
Argument on this issue proceeds along two lines: (1) whether there was “bodily
injury” or “property damage” caused by an “occurrence,” and (2) whether there
was a “personal or advertising injury.” The Court considers each in turn.
“Bodily Injury” or “Property Damage”
Mid-Century argues that there was no initial grant of coverage because Lee
Enterprises did not allege either “bodily injury” or “property damage” in the
underlying litigation. The Court agrees with Mid-Century. There is no coverage
under a theory of “bodily injury” or “property damage.”
The insurance policy applies to “bodily injury and “property damage”
caused by an “occurrence.” (Doc. 1-1 at 81.) “Property damage” requires injury
to or the loss of use of tangible property. (Doc. 1-1 at 81.) An “occurrence” is an
“accident.” (Doc. 1-1 at 93.)
Here, there was neither “bodily injury” nor “property damage” because there
can be no serious argument in favor of coverage under a theory of bodily injury,
and Lee Enterprises has alleged damage only to intellectual and not to tangible
property. The policy defines “property damage” as limited to “physical injury” or
“loss of use” of “tangible property.” (Doc. 1-1 at 94.) Additionally, under
Montana law, there is no “property damage” when only economic damage is
alleged in the underlying complaint. See Graber v. State Farm Fire & Cas. Co.,
797 P.2d 214, 216–217 (Mont. 1990). Accordingly, there was no “property
damage” alleged in the underlying complaint when Lee Enterprises only claimed
damage to and loss of use of intangible property.
Further, even had there been “property damage,” it would not have been
caused by an “occurrence.” Under Montana law, there is no “occurrence” when
the insured acts intentionally and “the consequences of those acts are objectively
intended or expected from the standpoint of the insured . . . .” Employers Mut.
Cas. Co. v. Fisher Builders, Inc. __ P.3d __, 2016 MT 91, ¶ 18 (Mont. 2016). Lee
Enterprises has not claimed that Respondents accidentally took and used
confidential and proprietary information. Nor has it alleged that Respondents
intentionally took its intellectual property but merely accidentally or negligently
solicited its customers. If the allegations contained therein are true, the underlying
complaint gives rise to only one possibility—that Respondents intended both their
actions and the ensuing consequences.
Metzger argues that a factual dispute remains on this issue because Lee
Enterprises did not put Respondents on sufficient notice of the nature of
confidential information or its misuse. Regardless of the truth of this argument, it
is insufficient to show a factual dispute on this issue. There may be a factual
dispute as to the wrongfulness of Respondents’ conduct; however, there can be no
dispute that the same conduct was intentional. This Court does not have the
authority to determine whether Respondents have a valid defense in the underlying
litigation, and it is irrelevant to this proceeding. Regardless of the merits of
Respondents’ defense before the state court, there are no facts suggesting that their
conduct constituted an “occurrence” such that Mid-Century’s duty to defend was
“Personal and Advertising Injury”
Mid-Century also argues that there was no initial grant of coverage because
Lee Enterprises did not allege “personal and advertising injury” in the state
proceeding. Respondents argue that Mid-Century construes the complaint in the
underlying litigation too narrowly and that Lee Enterprises’ claims are sufficient
to trigger coverage. The Court disagrees. The complaint in the underlying
litigation does not allege “personal and advertising injury” as defined by
Windfall’s insurance policy.
The policy defines “personal and advertising injury” as injury arising from
certain specified offenses. The parties dispute whether Lee Enterprises alleged
that its injuries arose from two of the policy’s enumerated offenses: “oral or
written publication of material that violates a person’s right of privacy” and “the
use of another’s advertising idea in your ‘advertisements.’” (Doc. 1-1 at 98.) The
Court, applying Montana law, construes the policy broadly and resolves
ambiguities in favor of coverage. Wendell v. State Farm Mut. Auto. Ins. Co., 974
P.2d 623, 638 (Mont. 1999). The Court considers Respondents’ theories of
offenses giving rise to “personal and advertising injury” in turn.
Right of Privacy
First, the Court considers whether Lee Enterprises alleged an “oral or
written publication of material that violates a person’s right of privacy.” The
parties dispute whether there was a “publication” and whether any publication
“violate[d] a person’s right of privacy.”
In the underlying litigation, Lee Enterprises alleged that there was a
“publication.” This Court has defined “publication” to “include the
dissemination of information to . . . a third party[.]” Am. Econ. Ins. Co. v. Aspen
Way Enter., Inc., No. 14–09–BLG–SPW, 2015 WL 5680134, at *8 (D. Mont.
2015). Lee Enterprises claimed that it “has incurred losses and continues to incur
damages . . . due to the dissemination of the sensitive and confidential business
information that Defendants have misappropriated.” (Doc. 1-3 at 11.) The
complaint in the underlying litigation sufficiently alleges publication.
Lee Enterprises did not, however, allege “violat[ion of] a person’s right of
privacy.” The parties devote significant attention to this issue. Respondents assert
that the Lee Enterprises is a “person” under the policy and that Lee Enterprises
alleged a violation of its right to privacy when it claimed that Respondents stole its
confidential information. The Court disagrees.
The parties dispute whether the term “person,” as used in the policy, is
limited to natural persons or inclusive of organizations such as Lee Enterprises.
The Court need not consider the scope of the meaning of the term “person” as used
throughout the policy. Even if Lee Enterprises were a “person” under the policy,1
it would have no “right of privacy.”
The Montana Supreme Court has not considered the specific question of
whether a right to privacy is violated by a private actor’s use of a corporation’s
confidential information such that insurance coverage is triggered. However, the
plain text of the Montana Constitution and the court’s decisions in other areas of
the law foreclose the possibility that such protection exists.
Article II, Section 10 of the Montana Constitution provides:
The right of individual privacy is essential to the well-being of a free
society and shall not be infringed without the showing of a
compelling state interest.
(Emphasis added.) This provision does not apply to corporations. Great Falls
Trib. v. Mont. Pub. Serv. Comm’n, 82 P.3d 876, 880 (Mont. 2003). Additionally,
it applies only to state and not private action. State v. Long, 700 P.2d 153, 157
(Mont. 1985). Lee Enterprises has no right of privacy under the Montana
The Court notes that the policy elsewhere distinguishes between “persons” and
“organizations,” implying that Lee Enterprises is not, in fact, a “person” under the policy.
Constitution; even if it did, it could not have been violated by Respondents as
There is no statutory or standalone federal constitutional right to privacy.
Thus, if Lee Enterprises had a “right of privacy,” it would have to exist under the
common law. See, e.g., Penzer v. Transp. Ins. Co., 29 So. 3d 1000, 1006 (Fla.
2010) (“[T]he plain meaning of ‘right of privacy’ is the legal claim one may make
for privacy, which is to be gleaned from federal or [state] law, rather than defined
by a dictionary.”)
Under Montana law, a common law cause of action for invasion of privacy
exists when there is a “wrongful intrusion into one’s private activities in such a
manner as to outrage or cause mental suffering, shame or humiliation to a person
of ordinary sensibilities.” Deserly v. Dep’t of Corr., 995 P.2d 972, 977 (Mont.
2000) (citations and internal quotation marks omitted). This definition did not
originate in Montana but in Ohio. Sistok v. Nw. Tel. Sys., Inc., 615 P.2d 176, 182
(Mont. 1980) (citing LaCrone v. Ohio Bell Tel. Co., 182 N.E.2d 15, 16 (Ohio
1961); Housch v. Peth, 133 N.E.2d 340, 341 (Ohio 1956)).
The common law right of privacy is limited to natural persons. Restatement
(Second) of Torts § 652I provides: “Except for the appropriation of one’s name or
likeness, an action for invasion of privacy can be maintained only by a living
individual whose privacy is invaded.” Ohio has cited the section with approval in
construing its right of privacy, which is identical to and the source of Montana’s
common-law right. Rothstein v. Montefiore Home, 689 N.E.2d 108, 110 (Ohio
1996). Additionally, the United States Supreme Court has cited the same section
and suggested that—throughout the nation—the common law right to privacy has
never applied to corporations. FCC v. AT&T, Inc., 562 U.S. 397, 406–07 (2011)
(“Despite its contention that ‘common legal usage’ of the word ‘person’ supports
its reading of the term ‘personal privacy,’ . . . AT&T does not cite a single instance
in which this Court or any other . . . has expressly referred to a corporation’s
‘personal privacy.’ . . . On the contrary, treatises in print around the time that
Congress drafted [the relevant statutes] reflect the understanding that the specific
concept of ‘personal privacy,’ at least as a matter of common law, did not apply to
corporations.”) (citations and brackets omitted).
Lee Enterprises has not alleged a violation of its right of privacy because it
has no violable right of privacy. As a corporation, it cannot bring a claim limited
to natural persons. It is incapable of “mental suffering, shame or humiliation.”
Deserly, 995 P.2d at 977. Further, even if Lee Enterprises could bring a right of
privacy claim, another’s use of its confidential information would not give rise to
the mental and emotional distress associated with infringement of privacy.
Because the allegations in the underlying complaint cannot give rise to a
finding that there was “oral or written publication of material that violates a
person’s right of privacy,” coverage can only be granted under “personal or
advertising injury” if Lee Enterprises alleged “the use of [its] advertising idea in
[Respondents’] ‘advertisements.’” (Doc. 1-1 at 98.) There is no coverage under
Respondents patch together separate pieces of the underlying complaint,
removing them from their contexts. They argue that Lee Enterprises pled facts
sufficient for coverage when it alleged “dissemination” and “use” of confidential
and proprietary information “created by Lee Enterprises,” including “strategic
online plans” and “advertising materials” for the “purposes of promoting
Windfall.” (Doc. 28 at 20 (citing Doc. 1-2 at ¶¶ 23, 26, 37, 29, 31, 32, 34, 37,
59).) The Court disagrees. Lee Enterprises alleged neither that Respondents used
its “advertising idea” nor that Respondents created an “advertisement.”
Both parties cite to an Eighth Circuit case for a definition of “advertising
idea” as “encompass[ing] an idea for calling public attention to a product or
business, especially by proclaiming desirable qualities so as to increase sales or
patronage.” Am. Simmental Ass’n v. Coregis Ins. Co., 282 F.3d 582, 587 (8th Cir.
2002). The underlying complaint does not allow a finding that this definition is
met. Lee Enterprises did not allege that Respondents used its “advertising idea”
but rather that it used proprietary information regarding historical customers in
order to solicit its customers. There is no advertising idea because the allegedly
misappropriated information did not include any “idea calling public attention” to
Lee Enterprises’ products or business. Even if there had been an advertising idea,
however, Respondents would not have used it in an “advertisement.”
The policy defines an “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.” (Doc.
1-1 at 97.) Respondents call for a broad interpretation of “broadcast or
published,” arguing that Lee Enterprises pled sufficient facts when it claimed that
Respondents “disseminated” and “misappropriated” its confidential and
proprietary information. (Doc. 1-2 at ¶¶ 26, 27.) Even if Respondents could
support such a broad interpretation, however, it would be unambiguously limited
by the language immediately following the terms in the policy: “to the general
public or specific market segment.” Again, Lee Enterprises has claimed that
Respondents solicited its customers, not that it co-opted its marketing strategy.
There was neither an “advertising idea” nor an “advertisement.”
There was no initial grant of coverage.2 Summary judgment for MidCentury regarding coverage is appropriate.
DUTY TO DEFEND METZGER
Respondent and Counter-Plaintiff Tia Metzger argues that Mid-Century
acted in bad faith and breached its contractual obligations to her by failing to
provide her additional counsel of her choosing. The Court disagrees. MidCentury is entitled to summary judgment on Metzger’s counterclaims.
Mid-Century argues that summary judgment is appropriate for three
reasons: (1) there was no initial grant of coverage; (2) there was no conflict among
Respondents, and, even if there were, Metzger signed a conflict waiver; and (3)
Metzger has no bad faith claim against Mid-Century. The Court addresses each in
Duty to Defend at the Time the Underlying Complaint Was Filed
As explained above, the Mid-Century policy does not cover Metzger’s
defense in the underlying action. Metzger argues that, regardless of the duty to
defend at this stage of litigation, Mid-Century had a duty to defend her at the
initiation of the underlying action.
Because it finds that there was no initial grant of coverage, the Court does not consider
whether an exclusion precludes coverage. It notes, however, that two exclusions likely apply:
1(a) exempts intentional conduct, and 1(i) certain coverage for insureds in the advertising
“The duty to defend arises when a complaint against an insured alleges
facts, which if proven, would result in coverage.” Farmers Union Mut. Ins. Co. v.
Staples, 90 P.3d 381, 385 (Mont. 2004). As explained above, Mid-Century had no
duty to defend Metzger at the time the underlying complaint was filed because the
allegations in the complaint, if true, did not trigger coverage. For the sake of
argument, however, the Court assumes that such coverage existed in order to reach
the merits of Metzger’s arguments.
Duty to Provide Independent Counsel to Multiple Insureds
Metzger argues that Mid-Century’s duty to her included a duty to provide
independent counsel because of the possibility of a conflict of interest. The Court
Under Montana law, an insurer has a duty to provide independent counsel
due to “inconsistent and yes, antagonistic positions that have developed[.]” St.
Paul Fire & Marine Ins. Co. v. Thompson, 433 P.2d 795, 799 (Mont. 1967). The
Montana Supreme Court has not specifically addressed when a potential conflict is
sufficiently antagonistic to trigger an insurer’s duty to provide independent
Metzger cites to a Ninth Circuit case applying California law for the
proposition that “an insurer must provide individual counsel for the parties where
there is a potential conflict of interest.” St. Paul Fire & Marine Ins. Co. v. Weiner,
606 F.2d 864, 870 (9th Cir. 1979) (citations omitted). However, this quotation is
misleading. There was an actual conflict between the insureds in Weiner. Further,
the standard in California has since been clarified: “[t]he conflict must be
significant, not merely theoretical, actual, not merely potential.” Park Townsend,
LLC v. Clarendon Am. Ins. Co., 916 F. Supp. 2d 1045, 1055 (N.D. Cal. 2013).
Thus, even if California law were instructive here, it would match the standard set
forth in Thompson.
There are no “inconsistent” or “antagonistic” positions between
Respondents in the underlying proceeding such that Mid-Century had a duty to
provide independent counsel to Metzger. There was no actual conflict of interest
between Metzger and her co-defendants; in fact, when she requested independent
counsel, Metzger stated to Mid-Century that “there isn’t currently a conflict
known.” (Doc. 32 at 5.) Mid-Century had no duty to comply with Metzger’s
request when Metzger herself was unaware of the existence of an actual conflict.
Further, even if there had been a conflict, Metzger waived it. She remains
represented by Respondents’ counsel in this matter. She also signed a waiver,
affirming that she gave informed consent to concurrent representation despite the
potential for a future conflict of interest among the insureds. (Doc. 9-1 at 1–2.)
Mid-Century owed no duty to provide independent counsel to Metzger, and
it is entitled to judgment as a matter of law on Metzger’s counterclaim for
Bad Faith and UTPA Counterclaims
Finally, Metzger argues that a factual dispute remains as to whether MidCentury is liable to her for bad faith. Mid-Century argues that her bad faith claim
is preempted by the Montana Unfair Trade Practices Act (“UTPA”), and Metzger
has not advanced an argument in response. Metzger’s bad faith claim is indeed
preempted. Mont. Code Ann. § 33–18–242(3)
Metzger argues that a dispute of fact remains on her claims brought under
the UTPA. Metzger claims that Mid-Century had an obligation to affirmatively
contact her to discuss Lee Enterprises’ allegations against her in the underlying
action. There is no statutory authority for this argument. Further, it fails because
the Montana Supreme Court has “expressly declined to require that insurers seek
out facts beyond the complaint.” Landa v. Assurance Co. of Am., 307 P.3d 284,
291 (Mont. 2013). Given that there is no duty to defend or to provide independent
counsel to Metzger, the Court need not consider Metzger’s remaining claims under
the UTPA. Travelers Cas. & Sur. Co. v. Ribi Immunochem Research, Inc., 108
P.3d 469, 472 (Mont. 2005).
Mid-Century is entitled to summary judgment on Metzger’s counterclaims.
Accordingly, IT IS ORDERED that:
Petitioner and Counterclaim Defendant’s Motion for Summary
Judgment Regarding Insurance Coverage (Doc. 13) is GRANTED.
Petitioner and Counterclaim Defendant’s Motion for Summary
Judgment on Tia Metzger’s Counterclaims (Doc. 16) is GRANTED.
Respondents’ Cross Motion for Summary Judgment (Doc. 27) is
Respondent Tia Metzger’s Motion for Summary Judgment on Duty to
Defend (Doc. 30) is DENIED.
The Clerk of Court shall enter judgment in favor of Petitioner and
shall CLOSE this case.
Dated this 23rd day of May, 2016.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?