Hattenhauer Distributing Co. v. Nationwide Agribusiness Insurance Company

Filing 28

OPINION & ORDER: Defendant's Motion for Summary Judgment 18 is Granted. Plaintiff's Motion for Partial Summary Judgment 19 is Denied. The parties are to file a report within two weeks on the status of the Underlying Action and the effect, if any, on Plaintiff's duty to indemnify claim. Signed on 6/29/17 by Magistrate Judge Paul Papak. (gm)

THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DNISION

HATTENHAUER DISTRIBUTING CO.,
No. 3:16-cv-1703-PK
Plaintiff,

v.

OPINION AND ORDER

NATIONWIDE AGRIBUSINESS
INSURANCE CO.,
Defendant.

PAP AK, J.
Plaintiff Hattenhauer Distributing Co. brings this action against Defendant Nationwide
Agribusiness Insurance Co., claiming that Defendant breached its duties under a liability policy
when it refused to defend Plaintiff in a lawsuit brought by Noble Roman's, Inc. (Noble Roman's)
against Plaintiff. Noble Roman's, Inc. v. Hattenhauer Distributing Co., No. 1: 14-cv-01734WTL-DML (S.D. Ind.) (filed Oct. 23, 2014) (the Underlying Action). In the Underlying Action,
Noble Roman's claims that Plaintiff breached a franchise agreement by under-reporting revenue
from sales of Noble Roman's products and by selling inferior pizza under the Noble Roman's

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OPINION AND ORDER

name.
The patiies now file cross-motions for pmiial summary judgment 1 on Plaintiffs duty to
defend claim. For the following reasons, I grant Defendant's motion for pmiial summary
judgment and deny Plaintiffs motion.

BACKGROUND
The following facts are from Noble Roman's complaint (the Complaint) in the
Underlying Action. Stip. Facts, Ex. 3, 1-9, ECF No. 17-3. Plaintiff operates a combination
convenience store and gas station in Goldendale, Washington, and a similar business in Wasco,
Oregon. Complaint

if 5.

In 2005, Plaintiff signed a five-year franchise agreement with Noble

Roman's to sell Noble Roman's pizza at Plaintiffs Oregon store. The pmiies renewed the
franchise agreement in 2011. In 2006, Plaintiff executed a ten-year franchise agreement to sell
Noble Roman's pizza at Plaintiffs Washington store. Noble Roman's franchise agreements
required that Plaintiff use only approved ingredients for pizza, including a proprietary cheese
blend. Complaint

if 18.

Noble Roman's filed the Underlying Action in October 2014, alleging that "from Janumy
2011 until ve1y recently, [Plaintiffs] Oregon location had not been buying or using Noble
Roman's proprietmy blend of cheese for its Noble Roman's pizzas, and instead has been buying
and using a different cheese that did not conform to Noble Roman's standards and specifications
as required under the Franchise Agreements." Complaint if 25. Noble Roman's alleged that "by
selling inferior-quality pizza containing cheese that was not Noble Roman's proprietmy pizza
cheese to the public purp01iedly under the Noble Roman's name, [Plaintiff] has damaged Noble

1

Defendant notes that although it titled its motion "Motion for Summaiy Judgment," the motion
should be treated as for partial summaiy judgment because it addresses only the duty to defend and not
the duty to indemnify. Def.'s Resp. 2 n.2, ECF No. 24.

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OPINION AND ORDER

Roman's reputation and goodwill, engaged in unfair competition, and breached the Franchise
Agreements." Complaint

~

26. Noble Roman's asserted that Plaintiff"trade[d] unfairly upon

Noble Roman's well-established goodwill and reputation by confusing the public as to the origin
of its menu items, including the sale of non-confo1ming items at the Oregon location since
January 2011 while holding itself out to the public as a vendor ofNoble Roman's products."
Comp!.~ 28. Noble Roman's alleged that Plaintiff''has profited from its acts of unfair

competition by purchasing an inferior and cheaper pizza cheese instead of the Noble Roman's
proprietary blend of cheese." Comp!. ~ 29. 2
I note that the district court in the Underlying Action recently granted Plaintiffs motion
for summary judgment as to Noble Roman's federal unfair competition claim, concluding that
the claim was barred by !aches. Noble Roman's, Inc. v. Hattenhauer Distrib. Co., 2017 WL
747536, at *3-*4 (S.D. Ind. Feb. 27, 2017) (Noble Roman's). The district court entered judgment
after declining to exercise supplemental jurisdiction over the parties' remaining state law claims
and counterclaims. Id. at *4; Underlying Action, ECF No. 211 (judgment entered Feb. 27, 2017).

LEGAL STANDARDS
I. Motions for Summary Judgment

The court must grant summary judgment when there are no genuine issues of material
fact and the moving party is entitled to judgment as a matter oflaw. Fed. R. Civ. P. 56(c). If the
moving party shows that there are no genuine issues of material fact, the nonmoving party must
go beyond the pleadings and designate facts showing an issue for trial. Celotex Corp. v. Catrett,

2

According to the district court in the Underlying Action, Noble Roman's proprietary cheese
was "a blend of mozzarella and Muenster cheese and dry oregano," and Plaintiff substituted "Golden
California brand mozzarella cheese" at its Oregon store, while continuing to use the proprietary cheese at
its Washington store. Noble Roman's, Inc. v. Hattenhauer Distrib. Co., 2017 WL 747536, at *l (S.D.
Ind. Feb. 27, 2017).

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OPINION AND ORDER

477 U.S. 317, 322-23 (1986). The substantive law goveming a claim or defense detennines
which facts are material. See 1'vloreland v. Las Vegas 1vletro. Police Dep 't, 159 F.3d 365, 369
(9th Cir. 1998).

II. The Duty to Defend
The interpretation of an insurance policy is a question of law for the court. St. Paul Fire
& iViarine Ins. Co. v. iVJcCormick & Baxter Creosoting Co., 324 Or. 184, 192, 923 P.2d 1200,

1205 (1996). The insured has the initial burden of showing coverage exists, and the insurer has
the burden of showing the policy excludes coverage. Employers Ins. of Wausau v. Tektronix,
Inc., 211 Or. App. 485, 509, 156 P.3d 105, 119 (2007).

An insurer has a duty to defend an action "if the complaint filed against the insured
'could, without amendment, impose liability for conduct covered by the policy."' US. Fid. &
Guar. Co. v. Star Techs., Inc., 935 F. Supp. 1110, 1113 (D. Or. 1996) (quoting Ledford v.
Gutoski, 319 Or. 397, 399-400, 877 P.2d 80, 82 (1994)). The comi, considering only the

allegations in the complaint, determines whether any of the allegations could support a covered
claim against the insured. Id. "If the complaint is unclear or ambiguous and may be reasonably
interpreted to include an incident within the coverage of the policy, the insurer has a duty to
defend." Id. (citing Oakridge Cmty. Ambulance Serv., Inc. v. United States Fid. & Guar. Co.,
278 Or. 21, 24, 563 P.2d 164, 166 (1977)). The insurer must defend ifthe claims "fall both
within and outside coverage of the policy." Id. (citing Ferguson v. Birmingham Fire Ins. Co.,
254 Or. 496, 507, 460 P.2d 342, 347 (1969)). "[l]n case of doubt, the insurer has a duty to
defend; otherwise the insured would lose the benefit of his or her bargain." West Hills Dev. Co.
v. Chartis Claims, Inc., 360 Or. 650, 664, 385 P.3d 1053, 1061 (2016).

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OPINION AND ORDER

DISCUSSION
I. Coverage of" Advertising Injury"
Under Coverage B of the Policy', Defendant agreed to "pay those sums the insured
becomes legally obligated to pay as damages because of 'personal and advertising injmy' to
which this insurance applies." Stip. Facts, Ex. 1, at 7 (Policy). As relevant here, "personal and
advertising injuiy" includes "[i]nfringing upon another's copyright, trade dress or slogan in your
'advertisement."' Policy at 16. The parties agree that to establish coverage under this Policy
provision, Plaintiff must show Noble Roman's allegations in the Underlying Action could
support (1) a claim for trade dress infringement under the Lanham Act, 15 U.S.C. §1125; (2) a
showing that the trade dress infringement occuned in an advertisement; and (3) a causal
connection between the alleged trade dress infringement and the adve1tising injury. See Def. 's
Resp. 2, ECFNo. 24; Pl.'sMot. Summ. J. 15, ECFNo. 19.

A. Elements of a Claim for Trade Dress Infringement
"Trade dress refers generally to the total image, design, and appearance of a product and
may include features such as size, shape, color, color combinations, texture or graphics." Clicks

Billiards v. Sixshooters, Inc., 251 F.3d 1252, 1257 (9th Cir. 2001) (citation and internal quotation
marks omitted). "To state a claim for trade dress infringement, a plaintiff must show that its
trade dress ( 1) is nonfunctional; (2) is either inherently distinctive or has acquired a secondaiy
meaning; and (3) is likely to be confused with [the competing trade dress) by members of the
consuming public." One Indus., LLC v. Jim O'Neal Distrib., Inc., 578 F.3d 1154, 1166 (9th Cir.
2009) (citation and internal quotation marks omitted).

3

Defendant issued five commercial general liability policies to Plaintiff each year from July 15,
2010 to July 1, 2015. The parties agree that the relevant provisions of the polices are effectively
identical. Stip. Facts 2-3.
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Here, Noble Roman's Complaint contains no allegations relevant to the first two elements
of a claim for trade dress infringement: the protected matter is nonfunctional, and the protected
matter is either inherently distinctive or has acquired a secondary meaning. The omission of
these two elements shows that the Complaint does not state a claim for trade dress infringement.
As to the third element of a claim for trade dress infringement, likelihood of confusion,
the Complaint's most relevant allegation states that Plaintiff"trade[d] unfairly upon Noble
Roman's well-established goodwill and reputation by confusing the public as to the origin of its
menu items, including the sale of non-conforming items at the Oregon location since January
2011 while holding itself out to the public as a vendor of Noble Roman's products."

Comp!.~

28. The Complaint also alleges that Plaintiff sold "inferior-quality pizza containing pizza cheese
that was not Noble Roman's proprietary pizza cheese in trade dress and packaging bearing the
Noble Roman's trademark." Comp!.~ 35.4 I agree with Defendant that "[t]he only infringement
Noble Roman's alleges pertains to the quality of the pizza inside the packaging, rather than the
appearance of the packaging itself." Def.'s Resp. 9. I conclude that Plaintiff has failed to show
the allegations in the Noble Roman's Complaint could state a claim for trade dress infringement.
See Treat, Inc. v. Dessert Beauty, No. 05-cv-923-PK, 2006 WL 2812770, at *14 (D. Or. May 5,

2006) (granting motion to dismiss claim for trade dress infringement because the plaintiff failed
to "specifically define the list of elements that comprise the trade dress").
In concluding that the Complaint does not allege a claim for trade dress infringement, I
note that although the cou1i construes ambiguous allegations in favor of coverage, the court may
not supply missing allegations. "In evaluating whether an insurer has a duty to defend, the court

4

Paragraph 35 is pmi of Noble Roman's breach of contract claim and not the federal unfair
competition claim, but I consider it in evaluating whether there is a duty to defend.

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OPINION AND ORDER

looks only at the facts alleged in the complaint to determine whether they provide a basis for
recove1y that could be covered by the policy." Ledford, 319 Or. at 400, 877 P.2d at 82. This is
because "[aJn insurer should be able to determine from the face of the complaint whether to
accept or reject the tender of the defense of the action." Id. '"If the facts alleged in the
complaint against the insured do not fall within the coverage of the policy, the insurer should not
have the obligation to defend. If a contrmy rule were adopted, requiring the insurer to take note
of facts other than those alleged, the insurer frequently would be required to speculate upon
whether the facts alleged could be proved."' Id (quoting Isenhart v. General Cas. Co., 233 Or.
49, 54, 377 P.2d 26, 28-29 1962)).
B, Trade Dress Infringement in an Advertisement

Even if the Complaint alleged the elements of a claim for trade dress infringement,
Plaintiff must also show that the Complaint alleges that the trade dress infringement occurred in
an advertisement. The Policy 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." Policy 12. Interpreting a substantially identical
policy, this court determined that "advertisement" means "an announcement (e.g., sign or
placard) that communicates and/or disseminates information about goods or products to the
general public or the specific market segment." Crum & Forster Specialty Ins. Co. v. Willowood

USA, LLC, No. 6:13-cv-01923-MC, 2014 WL 5473816, at *9 (D. Or. Oct. 27, 2014).
Here, Plaintiff argues the Complaint's allegation that Plaintiff sold "inferior pizzas in
distinctive Noble Roman's packaging" shows that the alleged trade dress infringement occurred
in an "advertisement" because "use of Noble Roman's trade dress (the distinctive packaging)
constituted a notice which was broadcast to the general public for the purpose of attracting

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OPINION AND ORDER

customers." Pl. 's Resp. 5. However, the Complaint does not allege that the pizza packaging was
broadcast or published to the general public, only that Plaintiff sold pizza in packagillg bearing
Noble Roman's trademark.
This court has rejected Plaintiffs broad construction of "adve1iisement," finding that "the
mere sale of a product bearing another's mark does not reasonably constitute an 'adve1iisement'
under the policy." Crum & Forster Specialty Ins., at *9 (original emphasis). As this court has
noted, "a sale is not advertising activity; it is merely the desired result of advertising activity."
US. Fid. & Guar. Co. v. Star Techs., Inc., 935 F. Supp. 1110, 1116 (D. Or. 1996) (citation and

internal quotation marks omitted)).
Plaintiff cites Acuity v. Ross Glove Co., 817 N.W.2d 455 (Wis. Ct. App. 2012), but there
the complaint at issue "expressly identifie[d] [the insured's] product packaging as a source of
infringing activity." Id. at 462. The Complaint at issue here does not allege that the pizza
packaging was used to attract customers. Noble Roman's unfair competition claim is based on
Plaintiffs sales of allegedly inferior pizza, not on any adve1iising by Plaintiff. I conclude that the
Complaint does not allege that the trade dress infringement occurred in "advertising" as defined
by the Policy.
C. Causal Connection Between Trade Dress Infringement and Advertising Injury

Plaintiff also must show that the Complaint alleges a causal connection between the trade
dress infringement and the adve1iising inju1y. "An injury has no 'causal connection' if 'it could
have occuned independent and hTespective of any advertising."' Crum & Forster Specialty Ins.,
at *IO (quoting Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219, 1222 (9th Cir.
1996)). Unless there is a causal connection, '"advertising injury coverage, alone, would
encompass most claims related to the insured's business' because 'virtually eve1y business that

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OPINION AND ORDER

sells a product or service adve1iises, if only in the sense of making representations to potential
customers."' Id. (quoting Bank of the West v. Superior Court, 833 P.2d 545, 560 (Cal. 1992)
(internal quotation marks omitted)). "[A] causal connection is necessary to confine the scope of
coverage to the reasonable expectation of the pmiies." Id.
Here, the injury to Noble Roman's was caused by Plaintiffs alleged use of inferior
cheese, not by its use ofNoble Roman's packaging. As the Ninth Circuit explained in
interpreting a similar policy, "the advertising activities must cause the injmy--not merely expose
it." Simply Fresh Fruit, 94 F.3d at 1223 (original emphasis). I conclude that Plaintiff has failed
to show coverage under Defendant's Policy for an adve1iising injmy.
II. Policy Exclusions
Even ifthe Complaint alleges an adve1iising injury as defined by the Policy, the Policy's
exclusions bar coverage because Noble Roman's federal unfair competition claim (1) arises from
a breach of contract, and (2) is based on statements of quality or performance.
A. Exclusion for Breach of Contract
The Policy excludes coverage for "Breach of Contract," providing that there is no
coverage for "'Personal and adve1iising injmy' arising out of a breach of contract, except for an
implied contract to use another's advertising idea in your 'advertisement."' Policy, at 8. Here,
Noble Roman's Complaint alleges injuries that arise out of Plaintiffs alleged breach of the
franchise agreement provision requiring the use of proprietary cheese. The breach of contract
exclusion applies here to bar coverage.
B. Exclusion for Quality or Performance of Goods

The Policy excludes coverage for "Quality or Performance of Goods -- Failure to
Conform to Standards," providing that there is no coverage for "Personal and adve1iising injmy'

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OPINION AND ORDER

arising out of the failure of goods, products or services to conform with any statement of the
quality or performance made in your 'advertisement."' Policy, at 8. Here, Noble Roman's
alleged injuries arose from Plaintiffs alleged sale of inferior pizza in packaging bearing Noble
Roman's brand. In essence, Noble Roman's alleges injury based on Plaintiffs sale of pizza as
Noble Roman's pizza while failing to meet the requirements ofNoble Roman's ingredients. The
claim is thus precluded by the exclusion for quality or perfo1mance of goods.

CONCLUSION
Defendant's Motion for Summmy Judgment, ECF No. 18, is GRANTED. Plaintiffs
Motion for Partial Summmy Judgment, ECF No. 19, is DENIED. The parties are to file a report
within two weeks on the status of the Underlying Action and the effect, if any, on Plaintiffs duty
to indemnify claim.
IT IS SO ORDERED.

Jm"d lhi' 29th illy~':)"
1
\

U!LL

Honorable Paul Papak
United States Magistrate Judge

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