DESABATO et al v. PUSATERI et al
Filing
41
OPINION resolving 20 and 34 the parties' cross motions for summary judgment. Signed by Judge David S. Cercone on 9/30/16. (mwm)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
PAUL G. DESABATO, ANTHONY
DESIMONE, BENJAMIN M.
PUSATERI, SR., and BELLA CAPELLI
ACADEMY, LLC,
)
)
)
)
)
Plaintiffs,
)
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v.
)
)
ASSURANCE COMPANY OF
)
AMERICA, NORTHERN INSURANCE )
COMPANY OF NEW YORK, and
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MARYLAND CASUALTY COMPANY, )
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Defendants.
)
2:15cv484
Electronic Filing
OPINION
I.
INTRODUCTION
Paul DeSabato, Anthony Desimone, Benjamin Pusateri, Sr., and Bella Capelli Academy,
LLC (“BCA”) (collectively “plaintiffs”) commenced this diversity action against Assurance
Company of America, Northern Insurance Company of New York, and Maryland Casualty
Company (“defendants”) on April 10, 2015. Plaintiffs seek monetary damages and declaratory
relief, alleging defendants breached their duty to defend plaintiffs in an action filed against them
in state court. Defendants counter that their duty to defend never arose. Presently pending are
the parties’ cross-motions for summary judgment. For the reasons set forth below, defendants’
motion will be granted and plaintiffs’ will be denied.
II.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 56 provides that “[t]he court shall grant summary
judgment 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). Rule 56 “‘mandates
the entry of summary judgment, after adequate time for discovery and upon motion, against a
party who fails to make a showing sufficient to establish the existence of an element essential to
that party's case, and on which that party will bear the burden of proof at trial.’” Marten v.
Godwin, 499 F.3d 290, 295 (3d Cir. 2007) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322–
23 (1986)). Deciding a summary-judgment motion requires the court to view the facts, draw all
reasonable inferences, and resolve all doubts in favor of the nonmoving party. Doe v. Cnty. of
Centre, Pa., 242 F.3d 437, 446 (3d Cir. 2001).
The moving party bears the initial burden of identifying evidence that demonstrates the
absence of a genuine issue of material fact. When the movant does not bear the burden of proof
on the claim, the movant=s initial burden may be met by demonstrating the lack of record
evidence to support the opponent=s claim. Nat'l State Bank v. Fed. Reserve Bank of New York,
979 F.2d 1579, 1581–82 (3d Cir. 1992). Once that burden has been met, the non-moving party
must set forth “specific facts showing that there is a genuine issue for trial,” or the factual record
will be taken as presented by the moving party and judgment will be entered as a matter of law.
Matsushita Elec. Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed. R.
Civ. P. 56(e)) (emphasis in Matsushita). An issue is genuine only if the evidence is such that a
reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).
In meeting its burden of proof, the “opponent must do more than simply show that there
is some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586. The
non-moving party “must present affirmative evidence in order to defeat a properly supported
motion” . . . “and cannot simply reassert factually unsupported allegations.” Williams v.
Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989). Nor can the opponent “merely
2
rely upon conclusory allegations in [its] pleadings or in memoranda and briefs.” Harter v.
GAF Corp., 967 F.2d 846, 852 (3d Cir. 1992); Sec. & Exch. Comm'n v. Bonastia, 614 F.2d
908, 914 (3d Cir. 1980) (“[L]egal conclusions, unsupported by documentation of specific facts,
are insufficient to create issues of material fact that would preclude summary judgment.”).
Likewise, mere conjecture or speculation by the party resisting summary judgment will not
provide a basis upon which to deny the motion. Robertson v. Allied Signal, Inc., 914 F.2d 360,
382–83 n.12 (3d Cir.1990). Summary judgment may be granted if the non-moving party's
evidence is merely colorable or lacks sufficient probative force. Anderson, 477 U.S. at 249–
50; see also Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir.
1992), cert. denied, 507 U.S. 912 (1993) (although the court is not permitted to weigh facts or
competing inferences, it is no longer required to “turn a blind eye” to the weight of the
evidence).
The record as read in the light most favorable to plaintiffs establishes the background
set forth below.
III.
FACTUAL BACKGROUND
Anthony Vargo (“Vargo”), in 2002, decided to start a school focused on professions in
which he had experience: hair styling, cosmetology, and similar services. (Docket No. 28,
Ex. A, ¶ 9). To start the school, BCA, Vargo sought and received capital from DeSabato,
Desimone, and Pusateri in exchange for equity in BCA.1 (Docket No. 28, Ex. A., ¶¶ 10–11).
Vargo procured the licenses required by the State Board of Cosmetology and ran BCA as its
managing member. (Docket No. 28, Ex. A, ¶¶ 15–16). Vargo was an owner and employee of
BCA; his designation was “Education Leader.” (Docket No. 28, Ex. A, ¶ 16).
1
Two other individuals, Nicholas D’Amico and Eugene Sciulli, also contributed capital to BCA
(Docket No.28, Ex. A, ¶ 7). But they are not parties to this action.
3
On March 9, 2009, Vargo attended a meeting with his fellow BCA members. (Docket
No. 28, Ex. A, ¶ 17). There, the other members terminated Vargo’s BCA employment and
ownership interests without warning. (Docket No. 28, Ex. A, ¶ 17). The purported reason was
Vargo’s “gross misconduct.” (Docket No. 28, Ex. A, ¶ 17). A letter handed to Vargo at the
meeting stated that he “entered into at least one agreement on behalf of BCA that [he was] not
permitted to enter into under the BCA Operating Agreement.” (Docket No. 28, Ex. A, ¶ 17).
Vargo had executed a residential lease for a Monroeville apartment on October 10, 2008;
he told the landlord during the application process that he was a BCA part owner. (Docket
No. 28, Ex. A, ¶ 18). The landlord mistakenly designated BCA as the lessee, rather than Vargo,
but Vargo did not notice the mistake when he signed the lease. (Docket No. 28, Ex. A, ¶ 19).
Nevertheless, Vargo personally paid all lease-related expenses without using any BCA funds.
(Docket No. 28, Ex. A, ¶ 19).
Running out of cash, Vargo, in his personal capacity, terminated the lease early. (Docket
No. 28, Ex. A, ¶ 19). Vargo’s landlord sent an invoice to BCA’s offices requesting payment for
Vargo terminating the lease early. (Docket No. 28, Ex. A, ¶ 20). Upon seeing that Vargo
purportedly entered into a residential lease on BCA’s behalf with an aggregate value over
$5,000, the other BCA members determined that Vargo violated section 5.2(j) of the BCA
Operating Agreement. (Docket No. 28, Ex. A, ¶ 21; Docket No. 28, Ex. 1 (attached to Ex. A),
Sec. 5.2(j)). Even though Vargo told his fellow BCA members that BCA’s designation as the
lessee was a mistake and that he paid all lease-related expenses from his personal funds, they
terminated Vargo’s interests in BCA anyway. (Docket No. 28, Ex. A, ¶ 22). BCA’s remaining
members continued to operate the company using the licenses issued in Vargo’s name. (Docket
No. 28, Ex. A, ¶ 23).
4
Vargo, as an individual and on BCA’s behalf, filed an action against BCA and its
remaining members on July 29, 2010, in the Court of Common Pleas of Allegheny County (the
“Vargo action”). (Docket Nos. 1; 33, p. 6). Vargo pled several counts including: declaratory
judgment, breach of fiduciary duty, conversion, breach of contract, breach of the duty of fair
dealing, violations of the Consolidated Omnibus Budget Reconciliation Act of 1986 and the
Employee Retirement Income Security Act of 1974, and requested an accounting. (Docket No.
33, pp. 6–7). The Vargo action entered arbitration; the arbitrator awarded Vargo $213,973.54.
(Docket No. 33, pp. 6–7).
Defendants insured BCA2 when the Vargo complaint was filed. (Docket No. 22, p. 1;
Docket Nos. 5–6). Defendants refused to defend plaintiffs in the Vargo action. (Docket No. 1,
¶ 24). As a result, plaintiffs incurred legal fees and expenses “of not less than $100,103.70.”
(Docket No. 1, ¶ 25). Plaintiffs then initiated this action, averring defendants breached their duty
to defend. (Docket No. 1).
Through their submissions on summary judgment, the parties narrowed their arguments
regarding the duty to defend to the coverage for Personal and Advertising Injury Liability in the
applicable Maryland Casualty Company insurance policy (the “Policy”). (Docket No. 27, pp. 1–
2). The Policy’s relevant sections provide:
COVERAGE B. PERSONAL AND ADVERTISING INJURY
LIABILITY
1.
Insuring Agreement
a.
We 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. We
2
Defendant Maryland Casualty Company is the parent corporation of wholly owned subsidiaries
Assurance Company of America and Northern Insurance Company of New York. (Docket Nos.
5–6).
5
will have the right and duty to defend the insured against
any “suit” seeking those damages. However, we will have
no duty to defend the insured against any “suit” seeking
damages for “personal and advertising injury” to which this
insurance does not apply. We may, at our discretion,
investigate any offense and settle any claim or “suit” that
may result. . . .
2.
Exclusions
This insurance does not apply to:
a.
“Personal and advertising injury”:
(1)
Caused by or at the direction of the insured
with the knowledge that the act would violate the rights of
another and would inflict “personal and advertising injury”;
(2)
Arising out of oral or written publication of
material, if done by or at the direction of the insured with
knowledge of its falsity; . . .
(6) Arising out of a breach of contract, except an
implied contract to use another’s advertising idea in your
“advertisement”; . . .
SECTION II – WHO IS AN INSURED
1.
If you are designated in the Declarations as . . .
c.
A limited liability company, you are an insured.
Your members are also insureds, but only with respect to
the conduct of your business. Your managers are insureds,
but only with respect to their duties as your managers.
SECTION V – DEFINITIONS
1.
”Advertisement” means 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. . . .
3.
“Bodily injury” means bodily injury, sickness or disease
sustained by a person. This includes mental anguish,
mental injury, shock, fright or death resulting from bodily
injury, sickness or disease. . . .
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14.
“Personal and advertising injury” means injury, including
consequential “bodily injury,” arising out of one or more of
the following offenses: . . .
d.
Oral or written publication of material that slanders
or libels a person or organization or disparages a person’s
or organization’s goods, products or services; . . .
f.
Misappropriation of advertising ideas or style of
doing business; . . .
(Docket No. 12, Ex. 1).
In a later endorsement, Maryland Casualty Company altered the definition of “Personal
and advertising injury” in the following manner:
PERSONAL AND ADVERTISING INJURY REDEFINED
This endorsement modifies provisions in the following:
COMMERCIAL GENERAL LIABILITY COVERAGE
FORM
1.
Paragraph f. of the definition of personal and advertising
injury in SECTION V – DEFINITIONS is deleted and replaced
by the following:
f.
The use of another’s advertising idea in your
“advertisement.”
(Docket No. 12, Ex. 1).
After evaluating the parties’ submissions on summary judgment, it is clear that a pure
issue of law dictates the outcome in this case. That issue is whether the Vargo action’s
complaint alleged facts within its four corners sufficient to raise potential claims within the
coverage afforded by the Policy and trigger defendants’ duty to defend.
Plaintiffs contend the facts alleged in the Vargo complaint are sufficient to trigger
defendants’ duty to defend. They argue that the complaint shows that a false statement—that
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Vargo entered into a residential lease on BCA’s behalf—was made in a March 9, 2009, letter
from the BCA members to Vargo. (Docket No. 37, p. 7). Plaintiffs contend that, in reality, the
landlord mistakenly substituted BCA’s name for Vargo’s as the lessee. (Docket No. 37, p. 7).
Plaintiffs believe this allegation is enough to show that Vargo could have advanced a defamation
claim against BCA and his former co-members. (Docket No. 12, Ex. 1).
Plaintiffs additionally state that the Vargo complaint raises a potential claim that BCA
used Vargo’s advertising ideas after BCA terminated Vargo. The argument is that when BCA,
which was Vargo’s brainchild, expelled Vargo, BCA pilfered all of Vargo’s BCA concepts by
operating BCA without Vargo. (Docket No. 37, p. 9).
Plaintiffs further posit that some of
Vargo’s ideas included advertising ideas falling under the Policy. (Docket No. 37, p. 9).
Plaintiffs then argue that the definition of advertising in the Policy is ambiguous, requiring that
the definition be liberally construed in Plaintiffs’ favor. (Docket No. 37, p. 9). Plaintiffs
therefore believe that the facts averred in the Vargo complaint match closely enough with the
Policy’s language to state a potential covered claim, even though the Vargo complaint does not
contain or purport to state any defamation or misappropriation-like counts.
Defendants contend that the facts averred in the Vargo complaint do not raise any
potential claims within the Policy’s four corners and therefore the duty to defend was not
triggered. (Docket No. 33, p. 13). From their perspective, the Vargo complaint could not be
construed to state a defamation claim because it does not allege that the March 9, 2009, letter
was published to anyone outside BCA’s members. (Docket No. 33, pp. 9–10). Furthermore, the
Vargo complaint assertedly contains no allegation that any of Vargo’s advertising ideas were
used in BCA’s advertisements. (Docket No. 33, p. 11). And the Policy’s advertising definition
is not ambiguous, precluding the court’s ability to liberally construe it in plaintiffs’ favor.
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(Docket No. 39, p. 14). Finally, defendants contend that even if the court were to find that the
Vargo complaint’s allegations are sufficient to trigger the duty to defend, the court must still rule
in their favor because the Policy excludes coverage of the specific harms alleged by plaintiffs.
(Docket No. 33, pp. 10, 12).
IV.
DISCUSSION
The duty to defend is separate and distinct from the duty to indemnify under
Pennsylvania law. Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363, 1368 (Pa. 1987)
(“[t]he duty to defend is a distinct obligation, separate and apart from the insurer’s duty to
provide coverage.”). An insurer’s obligation to defend is fixed solely by the allegations in the
underlying complaint(s). Etna Cas. and Sur. Co., v. Roe, 650 A.2d 94, 98 (Pa. Super. 1994);
Stidham v. Millvale Sportsman’s Club, 618 A.2d 945, 953–54 (Pa. Super. 1993). An insurer has
a duty to defend whenever the allegations in a complaint against its insured, when taken as true
and construed in favor of the insured, set forth a claim which potentially falls within the
coverage provided by the policy. Lucker Mfg. Inc., v. The Home Ins. Co., 23 F.3d 808, 821 (3d
Cir. 1994); Cadwallader v. New Amsterdam Cas. Co., 152 A.2d 484, 488 (Pa. 1959).
The duty to defend is triggered even if the allegations against the insured are groundless,
false or fraudulent. D’Auria v. Zurich Ins. Co., 507 A.2d 857, 859 (Pa. Super. 1986). It likewise
arises when the potential for a covered claim exists and the determination of coverage depends
upon the existence or non-existence of undetermined or disputed facts raised against the insured.
Germantown Ins. Co., v. Martin, 595 A.2d 1172, 1174 (Pa. Super. 1991). Where a complaint
raises a claim potentially within the scope of coverage, the duty to defend remains with the
insurer until the claim is narrowed to one patently outside the policy coverage. Id. (“[a]s long as
the complaint comprehends an injury which may be within the scope of the policy, Germantown
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must defend Martin’s estate until the claim is confined to a recovery the policy does not cover.”)
(citing United Servs. Auto. Ass’n. v. Elitzky, 519 A.2d 982 (Pa. Super. 1986), alloc. denied, 528
A.2d 957 (Pa. 1987)); Stidham, 618 A.2d at 953–54.
“It is not the actual details of the injury, but the nature of the claim which determines
whether the insurer is required to defend.” Etna Cas. and Sur. Co., 650 A.2d at 98 (quoting
D’Auria, 507 A.2d at 859). The particular causes of action in the complaint also are “not
determinative of whether coverage has been triggered. Instead, it is necessary to look at the
factual allegations contained in the complaint.” Mut. Benefit Ins. Co. v. Haver, 725 A.2d 743,
745 (Pa. 1999).
Moreover, the potential scope of coverage under an insurance policy must be examined
before it can be determined whether a complaint potentially is covered by the policy. Lucker
Mfg., Inc., 23 F.3d at 813. The inquiry into coverage is antecedent to ascertaining whether the
duty to defend exists. Id. at 813–14 (citing Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d
1363, 1368 (Pa. 1987)).
“Traditional principles of insurance policy interpretation control the inquiry into
coverage.” Lucker Mfg., Inc., 23 F.3d at 814. If the language of an insurance policy is clear and
unambiguous, it must be given its ordinary meaning. Imperial Cas. and Indm. Co., v. High
Concrete Structures, Inc., 858 F.2d 128, 131 (3d Cir. 1988). If a provision of the policy is
ambiguous, the ambiguity is to be construed to afford coverage. Lucker Mfg., Inc., 23 F.3d
at 814. A provision is ambiguous if, after considering it in the context of the entire policy,
reasonable minds could differ as to its meaning. Imperial Cas. and Indm. Co., 858 F.2d at 131.
However, strange or contrived readings of policy language are not to be undertaken to create an
ambiguity where none exists, nor should a court attempt to rewrite policy language in a manner
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that conflicts with the plain meaning of the words employed. Lucker Mfg., Inc., 23 F.3d at 814;
Elitzky, 517 A.2d at 986.
A.
Scope of Coverage
The first step in determining if defendants had a duty to defend is to examine what the
Policy covered. The parties focus on two potential forms of injury that are covered: defamation
and the use of one’s advertising ideas in another’s advertisement. (Docket No. 33, p. 8). As to
these forms of injury, the Policy provides:
d.
Oral or written publication of material that slanders or
libels a person or organization or disparages a person’s or
organization’s goods, products or services;
f.
The use of another’s advertising idea in your
“advertisement.”
(Docket No. 12, Ex. 1).
The above grants of coverage provide the backdrop needed to determine if the Vargo
complaint’s averments triggered defendants’ duty to defend.
B.
Duty-to-Defend Analysis
A review of the Vargo complaint and the Policy’s relevant provisions clearly reveals that
defendants’ duty to defend was not triggered. “The question of whether a claim against an
insured is potentially covered is answered by comparing the four corners of the insurance
contract to the four corners of the complaint.” Am. and Foreign Ins. Co. v. Jerry’s Sport Ctr.,
Inc., 2 A.3d 526, 541 (Pa. 2010). Only when “it is clear from an examination of the allegations
in the complaint and the language of the policy that the claim does not potentially come within
the coverage of the policy” may the insurer “refuse to defend a claim against its insured.” Id.
No allegations in the Vargo complaint provided a basis for defendants to recognize or infer a
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potential defamation or misappropriation-of-advertising-idea claim. Therefore, defendants were
not required to defend plaintiffs in the Vargo action.
1.
Defamation
Plaintiffs’ contention that an incorrect statement in a letter handed to Vargo on March 9,
2009, properly notifies defendants of a potential defamation claim is unavailing. The Vargo
complaint states “[Vargo] was handed a letter identifying his “gross misconduct” as “entering
into at least one agreement on behalf of BCA that [Vargo was] not permitted to enter into under
the BCA Operating Agreement.” (Docket No. 28, Ex. A, ¶ 17). Plaintiffs conclude that the
letter contained a false statement because it states that Vargo entered BCA into an agreement
(Vargo’s residential lease), even though Vargo alleged that his landlord mistakenly identified
BCA as the lessee. (Docket No. 28, Ex. A, ¶¶ 17–22).
Even if the March 9, 2009, letter contained a false statement about Vargo, this statement
does not obligate defendants to defend. The Policy covers damages caused by “[o]ral or written
publication of material that slanders or libels.” (Docket No. 12, Ex. 1). Thus, the Policy does
cover defamation claims.
The duty to defend in Pennsylvania is triggered “if the nature of the allegations and
claims raised in the underlying complaint . . . arise out of the torts enumerated in the policy.”
Roman Mosaic & Tile Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665, 669 (Pa. Super. 1997). A
plaintiff successfully proving a defamation claim in Pennsylvania must show:
“(1) the defamatory character of the communication; (2) its
publication by the defendant; (3) its application to the plaintiff; (4)
the understanding by the recipient of its defamatory meaning; (5)
the understanding by the recipient of it as intended to be applied to
the plaintiff; (6) special harm resulting to the plaintiff from its
publication; and (7) abuse of a conditionally privileged occasion.”
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Elia v. Erie Ins. Exch., 634 A.2d 657, 659–60 (Pa. Super. 1993) (quoting 42 Pa.C.S.A. § 8343(a)
(emphasis removed)).
Both the Policy and Pennsylvania defamation law require a defendant to “publish” an
alleged defamatory statement before there can be liability. The specific grant of coverage in the
Policy extends only to “[o]ral or written publication of material that slanders or libels.” (Docket
No. 12, Ex. 1). It is appropriate to use a dictionary when construing words of common usage
such as “publish.” See Am. Auto Ins. Co. v. Murray, 658 F.3d 311, 320 (3d Cir. 2011)
(explaining how courts should evaluate the plain meaning of terms within insurance contracts
under Pennsylvania law). Examining dictionary definitions of “publish” just eight years ago,
Judge Nora Barry Fischer found that it means “made generally known, announced publically,
disseminated to the public, or released for distribution.” Whole Enchilada, Inc. v. Travelers
Prop. Cas. Co. of Am., 581 F. Supp.2d 677, 697 (W.D. Pa. 2008) (determining the definition of
“publish” in a commercial general liability insurance policy’s personal-and-advertising-injury
section). This definition of “publish” is applicable here as well.
The Vargo complaint does not allege that BCA or any of its members “published” the
March 9, 2009, letter. It failed to set forth allegations that suggest or provide circumstances from
which to infer that a publication occurred. At the very least, communications “must be
expressed to a third party” to be published. Davis v. Res. For Human Dev., 770 A.2d 353, 358
(Pa. Super. 2001); see Gaetano v. Sharon Herald Co., 231 A.2d 753, 755 (Pa. 1967) (defining
“publication” as communicating a defamatory matter “intentionally or by a negligent act to one
other than the person defamed.”). Nor is there any allegation that any third party saw or learned
of the letter’s contents. Thus, the Vargo complaint lacks any reference to or basis from which to
infer publication, a necessary element for defamation claims under both the Policy and
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Pennsylvania law. Since the Policy only covers published material that “slanders or libels”
(Docket No. 12, Ex. 1), the Vargo complaint did not trigger defendants’ duty to defend with
regard to a potential defamation claim.
Of course, an insurer’s duty to defend a defamation claim does not necessarily require the
underlying complaint to allege that someone published a slanderous or libelous statement.
“Courts must analyze coverage on a case-by-case basis.” CAT Internet Sys., Inc. v. Providence
Washington Ins. Co., 153 F. Supp.2d 755, 761 (W.D. Pa. 2001) aff’d sub nom 333 F.3d 138 (3d
Cir. 2003). It is sufficient here to determine that the Vargo action did not present a purported
basis from which to infer that the litigation would progress to include a defamation claim or that
one already was subsumed within the claims presented. Therefore, the court need not venture
into unknown territory by declaring the specific number of elements of an unsubstantiated tort
that an underlying complaint must contain in order to trigger an insurer’s duty to defend.
2.
Misappropriation of Advertising Ideas
The Vargo complaint likewise failed to contain factual allegations regarding the use of
advertising ideas. The Policy covers damages from “[t]he use of another’s advertising idea in
your ‘advertisement.’” (Docket No. 12, Ex. 1). 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.” (Docket
No. 12, Ex. 1). Pennsylvania courts describe an “‘advertising idea’ as an idea for advertising that
is ‘novel and new,’ and ‘definite and concrete,’ such that it is capable of being identified as
having been created by one party and stolen or appropriated by another.” Sorbee Int’l Ltd. v.
Chubb Custom Ins. Co., 735 A.2d 712, 714 (Pa. Super. 1999) (quoting Thomas v. R.J. Reynolds
Tobacco Co., 38 A.2d 61, 62–63 (Pa. 1944)). The Third Circuit has opined that an “advertising
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idea” is a “method[] for gaining customers.” Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193
F.3d 742, 748 (3d Cir. 1999) (differentiating between misappropriating advertising ideas and
trade secrets in examining the scope of coverage under a standard commercial general liability
policy). Allegations in the Vargo complaint must at least give rise to the contention that BCA
used one of Vargo’s advertising ideas in its advertisements without his permission. They do not.
The Vargo complaint similarly fails to allege facts corresponding to any forms of covered
advertising damages in the Policy. The cause of action best corresponding to using “another’s
advertising idea in your ‘advertisement’” (Docket No. 12, Ex. 1), is the common-law tort of
misappropriation. Pennsylvania courts recognize this tort, which consists of three elements:
(1) the plaintiff has made a substantial investment of time, effort
and money into creating the thing misappropriated such that the
court can characterize that thing as a kind of property right, (2) the
defendant has appropriated the thing at little or no cost, such that
the court can characterize defendant’s actions as reaping [what] it
has not sown, and (3) the defendant has injured plaintiff by the
misappropriation.
Sorbee, 735 A.2d at 716 (internal quotation marks omitted).
The Vargo complaint does not allege any misappropriation elements. It fails to contain
any allegation about a particular advertising idea Vargo created, let alone one that BCA
appropriated in a manner injuring Vargo. Thus, it lacks any reasonable basis to even infer that
such a claim might surface in the underlying litigation.
In their attempt to show that Vargo alleged his advertising ideas were snatched and used
in BCA’s advertisements, plaintiffs make a multi-step argument. They zero in on the Vargo
complaint’s allegations that Vargo: created the concept of “starting and operating a school for
hair styling, cosmetology and related services”; used his “best efforts, skills and knowledge” to
build BCA’s business; procured the required licenses to open BCA’s two schools; and was
15
excluded from BCA beginning on March 9, 2009, which continued “to operate under licenses
held in [Vargo’s] name.” (Docket No. 28, pp. 6–8, ¶¶ 9, 15, 23). Plaintiffs then make three
assumptions. First, they assert that “[s]ome communication to the outside public reasonably
must [have occurred] to sell BCA.” (Docket No. 37, p. 6). Second, plaintiffs add that “BCA, its
licensure and all other things that constitute the outward appearance of BCA to the public
allegedly belonged to or were created by Vargo.” (Docket No. 37, p. 6). Third, Plaintiffs posit
that “[Vargo’s] concepts are outward manifestations of BCA—otherwise an advertisement.”
(Docket No. 37, p. 6). None of these assertions are made or even alluded to in the Vargo
complaint.
Of course, materials outside the Vargo complaint are not to be considered when
determining whether defendants had a duty to defend. The Pennsylvania Supreme Court’s
“well-established precedent . . . requir[es] that an insurer’s duty to defend . . . be determined
solely from the language of the complaint against the insured.” Kvaerner Metals Div. of
Kvaerner U.S., Inc. v. Comm. Union Ins. Co., 908 A.2d 888, 896 (reversing the Pennsylvania
Superior Court for “looking beyond the allegations raised” in the underlying complaint in
determining whether the duty to defend was triggered). Plaintiffs’ assumptions regarding BCA
improperly using Vargo’s advertising ideas are beyond any reasonable reading of Vargo’s
complaint. (See Docket No. 37, p. 6). Because the advertising-idea assertions by plaintiffs are
not in Vargo’s complaint, they must be disregarded in the duty-to-defend context.
Plaintiffs characterize defendants as “demand[ing] that the [underlying] [c]omplaint
contain magic language that fits squarely within” their interpretation of the policy language.
(Docket No. 40, p. 3). But no talismanic formulas are needed. The factual allegations within the
complaint must be sufficient to perceive a potentially coverable claim. See Am. and Foreign Ins.
16
Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 541 (Pa. 2010); Cadwallader v. New Amsterdam Cas.
Co., 152 A.2d 484, 488 (Pa. 1959). The Vargo complaint does not present such a scenario.
Defendants, therefore, had no duty to defend based on the coverage afforded for advertising
injury.
V.
CONCLUSION
For the foregoing reasons, the complaint’s allegations are insufficient to trigger
defendants’ duty to defend. It follows that defendants’ motion for summary judgment must be
granted and plaintiffs’ motion for summary judgment must be denied. Appropriate orders will
follow.
Date: September 30, 2016
s/David Stewart Cercone
David Stewart Cercone
United States District Judge
cc:
Julian E. Neiser, Esquire
Brigid Q. Alford, Esquire
(Via CM/ECF Electronic Mail)
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