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Date: 11-15-2015

Case Style: USF&G v. Ashley Reed

Case Number: 11 Civ. 4782

Judge: Richard M. Berman

Court: UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Plaintiff's Attorney: Robert Jeremiah Tracy, Stefanie Robin Munsky

Defendant's Attorney: Michele A. Daitz, Lawrence Figowe Morrison, Richard L. Mattiaccio

Description: On July 12,2011, Plaintiff United States Fidelity and Guaranty Company ("USF&G")
filed a complaint against Defendants Ashley Reed Inc. ("Ashley Reed"), Scott Ressler, James
Ressler (collectively, the "Ashley Reed Defendants"), Fendi Adele, S.r.l., Fendi S.r.l, and Fendi
North America, Inc. (collectively, "Fendi"), seeking a declaratory judgment that three liability
insurance policies issued by USF&G to Ashley Reed between 2003 and 2006 (the "Insurance
Policies" or "Policies") do not obligate USF&G to indemnify the Ashley Reed Defendants for
the judgment entered by this Court against them on April26, 2013 in the action entitled Fendi
Adele. S.r.l.. eta!. v. Ashley Reed Trading Inc., et al. No. 06-CV -0243 (the "Fendi Action").
(See Compl., dated July 12, 2011.) 1 The Court assumes familiarity with the Fendi Action.
On September 28,2011, and October 20, 2011, respectively, the Ashley Reed Defendants
(and Fendi) filed counterclaims seeking indemnification under the Policies for the judgment in
the F endi Action. (See Answer and Counterclaims, dated September 28, 20 II (Dkt. # 17);
Amended Answer and Counterclaims, dated October 20,2011 (Dkt. # 28).) Defendant James
Ressler also asserted a counterclaim seeking damages for USF&G's alleged bad faith refusal to
settle the Fendi Action. (See Amended Answer and Counterclaims, dated July 23, 2013 (Dkt. #
84).) On May 10,2013, the Court permitted Burlington Coat Factory Warehouse Corp. and
Cohoes Fashions, Inc. (collectively, "BCF', and, together with the Ashley Reed Defendants and
Fendi, "Defendants") to intervene in this action as defendants and counterclaimants. (See Order,
dated May 10,2013 (Dkt. # 69.)) On May 17,2013, BCF filed a counterclaim against USF&G
seeking indemnification under the Policies for a judgment entered by United States District
Judge Leonard B. Sand against the Ashley Reed Defendants on April 5, 2012 in an action
entitled Fendi S.R.L. v. Burlington Coat Factorv Warehouse Com., No. 06-CV-0085
(LBS)(MHD) (the "BCF Action").2
On January 16, 2014, Defendants moved for summary judgment pursuant to Federal Rule
of Civil Procedure 56, arguing, among other things, that: (I) the Insurance Policies should
provide coverage for the judgments in the Fendi and BCF Actions because the Ashley Reed
Defendants' acts oftrademark infringement "clearly constitute 'advertising' as defined in the
Policies," and "[t]he award of a trademark infringer's profits is an award of 'damages"'; and (2)
"[n]either the [Policies'] Knowledge of Falsity Exclusion nor the First Publication Exclusion
2 The Court assumes familiarity with the BCF Action.
2
excludes 'advertising injury' coverage under subparagraph (c) [of the Policies]." (Joint Mem. of
Law in Supp. ofDefs.' and Intervening Defs.' Mot. for Summ. J., dated Jan. 9, 2014 ("Defs.
Mem."), at 9-10,23, 24-25.)
On February 10,2014, USF&G filed an opposition and cross-motion for summary
judgment, arguing, among other things, that: (1) the Insurance Policies' coverage for
"advertising injury" does not apply to the judgments in the Fendi and BCF Actions because "no
sums were awarded based on any Fendi injury arising from the [Ashley Reed] Defendants'
advertising of the infringing goods" and because "the disgorgement of profits and the trebling
thereof awarded in the [Fendi] Action does not constitute an award of 'damages' under the
USF&G Policies"; (2) the Policies' "known falsity" and "prior publication" exclusions apply
"since it is undisputed that the [Ashley Reed] Defendants were willfully counterfeiting Fendi
branded goods" and were doing so "for years before the first USF&G Policy commenced"; and
(3) Defendant James Ressler's counterclaim against USF&G should be dismissed because
"nowhere in the record is there any suggestion that USF&G controlled how the [Fendi] Action
was to be defended, chose what defenses to assert, or whether the [Ashley Reed] Defendants
could settle the [A]ction," and because, "[u]nder New York law, it has been recognized that bad
faith cannot be established when the insurer has an arguable basis for denying coverage." (Pl.'s
Opp'n to Defs.' Mot. for Summ. J. and in support of Pl.'s Cross-Mot. for Summ. J., dated Feb. 4,
2014 ("Pl. Opp'n"), at 5, 9, 20,31-32 (quotations omitted).)
On February 27,2014, Defendants filed a reply. (See Joint Reply Mem. of Law in Supp.
ofDefs.' and Intervening Defs.' Mot for Summ. J. and in Opposition to Pl.'s Cross-Mot., dated
Feb. 21,2014. ("Defs. Reply").) On March 12,2014, USF&G filed a reply. (See Pl.'s Reply
3
Mem. of Law in Supp. of Pl.'s Cross-Mot. for Summ. J., dated March 7, 2014 ("Pl. Reply").)
Oral argument was held on July 30,2014. (See Hr'g Tr., dated July 30, 2014.)
For the reasons set forth below, the Court denies Defendants' joint motion for
summary judgment, and grants USF&G's cross-motion for summary judgment.3
II. Background
The following facts are undisputed except as otherwise noted.
Plaintiff USF &G is an insurance company engaged in providing commercial, property
and liability insurance products and services. Defendant Ashley Reed is a New York company
engaged in the purchase and sale of off-price branded handbags and other luxury goods in New
York and elsewhere. Defendants Scott Ressler and James Ressler are the President and Vice
President, respectively, of Ashley Reed. Defendant Fendi is a manufacturer ofluxury handbags,
shoulder bags, purses, wallets and other items, and is the owner of federally-registered
trademarks associated with its products. Defendant BCF is a corporation engaged in the sale of
apparel. (Defs.' Statement Pursuant to Local Rule 56.1, dated Jan. 9, 2014 ("Defs. 56.1"), ,,
34--41; Pl.'s Resp. to Defs.' Local Rule 56.1 Statement, dated Feb. 4, 2014 ("Pl. 56.1 Resp."), ,,
34--41.)
3 Any issues raised by the parties not specifically addressed herein were considered by the Court on the merits and rejected.
The parties agree that New York law controls the disposition of their claims. See Fed. Ins. Co. v. Am. Home Assurance Co., 639 F.3d 557, 566 (2d Cir. 2011).
4
The Fendi Action
On January 12, 2006, Fendi filed a complaint against the Ashley Reed Defendants (the
"Fendi Complaint") alleging trademark infringement in violation of the Lanham Act, 15 U.S.C.
1114 & 1125, based upon the Ashley Reed Defendants' "sale and offering for sale of goods of
counterfeits ofFendi's registered trademarks." (See Compl. dated Jan. II, 2006 (Ex. I to Dec!.
of Victor Genecin, dated Jan. 9, 2014 ("Genecin Dec!.")), '1['1[47, 60, 76.) Fendi sought damages
and an accounting of the Ashley Reed Defendants' profits pursuant to 25 U.S.C. 1117(a), and
trebling pursuant to 25 U.S.C. 1117(b ), on the grounds that Ashley Reed Defendants
intentionally used the F endi trademarks "with knowledge that such marks were counterfeit
marks." (Id. '1['1[59-60.)
On February 16,2010, the Court granted summary judgment in favor ofFendi, finding
that "Defendants sold counterfeit merchandise bearing one or more of the Fendi Marks," in
violation of the Lanham Act. (Decision and Order, dated Feb. 16,2010 (Ex. 16 to Genecin
Dec!.) ("February 16 Decision"), at 13; See Defs. 56.1, '1[14.) On January 4, 2013, the United
States Court of Appeals for the Second Circuit affirmed the Court's holding that the Ashley Reed
Defendants were liable for trademark infringement "for the entire 2001 to 2006 period." Fendi
Adele S.r.l. v. Ashley Reed Trading, Inc., 507 F. App'x. 26, 30 (2d Cir. 2013). "[T]he district
court correctly concluded that Ashley Reed's infringement was willful as a matter oflaw." Id. at
31-32.
On April22, 2013, the Court issued an Order awarding Fendi $29,855,043, which was
three times the amount of the Ashley Reed Defendants' (counterfeit) sales from 2001 through
2006, pursuant to 25 U.S.C. 1117(a) and (b). (Corrected Order, dated April22, 2013 (Ex. 15 to
5
Genecin Dec!.).) The Court entered judgment for this amount on April26, 2013. (Judgment
#13,0819, dated April26, 2013 (Ex. 2 to Genecin Dec!.).)
The BCF Action
On January 5, 2006, Fendi filed a lawsuit in the Southern District ofNew York against
BCF alleging trademark infringement based upon BCF's sale of counterfeit Fendi products. (See
Amended Complaint, dated Jan. 20,2006 (Ex. 7 to Genecin Dec!.); Pl.'s Statement Pursuant to
Local Rule 56.1, dated Feb. 21,2014 ("Pl. 56.1"), ~51.) In a Memorandum and Order, dated
February 8, 2010, District Judge Leonard B. Sand granted Fendi's motion for summary judgment
on the issue ofliability, finding BCF liable for the "sale of counterfeit [Fendi] goods," in
violation of the Lanham Act, 15 U.S.C. 1114 & 1125. (Memorandum and Order, dated Feb.
8, 2010 (Ex. 9 to Genecin Dec!.), at 11-16, 20.) The Court also found that Ashley Reed, which
had sold the counterfeit Fendi products to BCF in the first instance, was required to indemnify
BCF because it had "made a promise as to the authenticity of the goods," and BCF "would not
be subject to the instant trademark infringement ... actions but for [Ashley Reed's] breach of
this warranty." (!4, at 26.) Fendi and BCF subsequently settled as to the amount owed by BCF.
On AprilS, 2012, the Court entered a judgment requiring Ashley Reed to indemnify BCF in the
amount of $248,257.14. (Judgment #12,0550, dated April 5, 2012 (Ex. 10 to Genecin Dec!.).) 4
4 This amount reflected BCF's profits from the sale of counterfeit goods that it had purchased from Ashley Reed, as well as Fendi's costs and attorneys' fees, BCF's costs and attorneys' fees, and prejudgment interest. See Fendi Adele S.R.L. v. Burlington Coat Factory Warehouse Com., 867 F. Supp. 2d 427, 438 (S.D.N.Y. 2012).
6
The Insurance Policies
As noted, Defendants seek a declaratory judgment requiring USF&G to indemnify the
Ashley Reed Defendants under liability insurance policies covering the period February 8, 2003
to February 8, 2004 (the "2003 Policy"); the period February 8, 2004 to February 8, 2005 (the
"2004 Policy"); and the period February 8, 2005 to February 8, 2006 (the "2005 Policy"). (Defs.
56.1, '1['1[7-10.) 5 Defendants seek coverage for the awards in the Fendi and BCF Actions under
the Policies' provisions relating to "advertising injury." (Id. '1['1[18, 66-67, 91.)
The Policies state, in relevant part, the following:
We [USF&G] will pay those sums that the insured becomes legally obligated to pay as damages because of ... "advertising injury" to which this insurance applies.
(Ex. 12 to Genecin Dec!. ("2003 Policy"), at P00091; Ex. 13 to Genecin Dec!. ("2004 Policy") at
P00669 .) "Advertising Injury" is defined as "injury arising out of one or more of the following
offenses":
a. Oral or written publication of material that slanders or libels a person's or organization's goods, products or services;
b. Oral or written publication of material that violates a person's right of privacy;
c. The use of another's advertising idea in your "advertising";
d. Infringement of another's copyright, trade dress or slogan in your "advertising."
5 Although the 2005 Policy contained coverage language different from the language contained in the 2003 and 2004 Policies, the parties have stipulated that the 2004 Policy's terms and conditions remained in effect for the 2005 Policy Year. (Defs. 56.1, '1[1 0.)
7
(2003 Policy at POOI08; 2004 Policy at P00686.) 6
The Insurance Policies also contain exclusions, as follows:
(I) [Advertising injury] [a]rising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;
(2) [Advertising injury] [ a]rising out of oral or written publication of material whose first publication took place before the beginning ofthe policy period.
(2003 Policy at P00097; 2004 Policy at P00675.)
III. Legal Standard
Summary judgment should be granted where "there is no genuine issue as to any material
fact and the movant is entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56( a); see Bridge
Metal Indus., LLC v. Travelers Indem. Co., 559 F. App'x. IS, 17 (2d Cir. 2014). A court must
"construe the facts in the light most favorable to the non-moving party and must resolve all
ambiguities and draw all reasonable inferences against the movant." Brod v. Omya, Inc., 653
F.3d 156, 164 (2d Cir. 2011) (internal quotation marks omitted). When considering cross
motions for summary judgment, the Court "must evaluate each party's motion on its own merits,
taking care in each instance to draw all reasonable inferences against the party whose motion is
under consideration." Hotel Employees & Rest. Employees Union, Local 100 ofN.Y. v. City of
N.Y. Dep't of Parks & Recreation, 311 F.3d 534, 543 (2d Cir. 2002) (citation omitted).
An insurer's duty to indemnify arises "only if the claim for which the insured has been
judged liable lies within the policy's coverage." Allianz Ins. Co. v. Lerner, 416 F.3d 109, 115
6 The Insurance Policies define the term "advertising" as "attracting the attention of others by any means for the purpose of seeking customers or supporters or increasing sales or business." (2003 Policy at P00108; 2004 Policy at P00686.)
8
(2d Cir. 2005) (citing Frontier Insulation Contractors. Inc. v. Merchs. Mut. Ins. Co., 91 N.Y.2d
169, 178 (1997)). While "[t]he duty to defend is measured against the allegations of pleadings
... the duty to pay is determined by the actual basis for the insured's liability to a third person."
Servidone Const. Com. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419,424 (1985); see Atl. Mut.
Ins. Co. v. Terk Techs. Com., 309 A.D.2d 22,28 (1st Dep't 2003).
"The burden to establish coverage and a duty to indemnify lies with the insured." Stout
v. 1 E. 66th Street Com., 935 N.Y.S.2d 49, 55 (2d Dep't 2011). The burden to prove the
applicability of a policy's exclusion lies with the insurer. Consol. Edison Co. ofN.Y. v Allstate
Ins. Co., 98 N.Y.2d 208, 218 (2002).
IV. Analysis
(I) Meaning of" Advertising Injury"
Defendants argue that the awards in the Fendi and BCF Actions fall under the Insurance
Policies' coverage for "damages because of ... 'advertising injury."' (Defs. 56.1, '\['\[ 67, 91; see
Defs. Mem. at 3-14, 24 -25). USF&G counters (persuasively) that coverage for "advertising
injury" does not apply because no sums were awarded which were "based on any Fendi injury
arising from the [Ashley Reed] Defendants' advertising of the infringing goods." (Pl. Opp'n. at
9, 20.) USF&G points out correctly that the awards came about as a result of the Ashley Reed
Defendants (and BCF's) willful sale of counterfeit Fendi products. USF&G also contends that
"the disgorgement of profits and the trebling thereof awarded in the [Fendi] Action does not
constitute an award of' damages' under the USF &G Policies." (Id. at 9.)
"Under New York law, insurance policies are interpreted according to general rules of
contract." Olin Com. v. Am. Home Assurance Co., 704 F.3d 89, 98 (2d Cir. 2012). The
9
Insurance Policies' "unambiguous provision[s] must be given [their] plain and ordinary
meaning," Allianz Ins. Co., 416 F.3d at 116 (quoting State ofNew York v. Am. Mfrs. Mut. Ins.
Co., 593 N.Y.S.2d 885, 886 (3d Dep't 1993)), and the Policies "should be construed so as to give
full meaning and effect to all of [their] provisions." LaSalle Bank Nat'! Ass'n v. Nomura Asset
Capital Corn., 424 F.3d 195, 206 (2d Cir. 2005) (internal punctuation omitted). Any
interpretation of an insurance policy that "has the effect of rendering at least one clause
superfluous or meaningless ... is not preferred and will be avoided if possible." Olin Corn., 704
F.3d at 99 (citation omitted) (ellipses in original).
The Policies provide coverage for "those sums that the insured becomes legally obligated
to pay as damages because of ... 'advertising injury."' (2003 Policy at P00097.) "Advertising
injury" refers to four enumerated categories of offenses, only one of which is applicable to
Defendants' indemnification claim, namely "[t]he use of another's advertising idea in your
'advertising."' (Defs. 56.1, 'lj91.f Accordingly, in order to prevail in their claim for
indemnification, Defendants would have to establish that the Ashley Reed Defendants' use of the
Fendi trademarks occurred in their advertising, i.e., in the Ashley Reed Defendants' efforts to
"attract[] the attention of others." See Bridge Metal Indus., 559 F. App'x. at 19 ("[T]he claimed
[advertising] injury must both arise out of an offense occurring in the course of the insured's
7 The other three categories are: ( 1) "Oral or written publication of material that slanders or libels a person's or organization's goods, products, or services"; (2) "Oral or written publication of material that violates a person's right of privacy"; and (3) "Infringement of another's copyright, trade dress or slogan in your 'advertising."' (2003 Policy at P00108.)
10
'advertising activities' and constitute one of the enumerated offenses." (quoting A. Meyers &
Sons Com. v. Zurich Am. Ins. Gm., 74 N.Y.2d 298, 303 (1989)).8
Defendants have failed to meet their burden of demonstrating coverage under the Policies
because the Ashley Reed Defendants' liability in the Fendi (and BCF) Actions was not based
upon the "advertising" of counterfeit Fendi products. Rather, their liability was premised upon
their "offering for sale and selling certain [counterfeit] fashion accessories." (Defs. 56.1, '1[14.)
As the Second Circuit has held, "[a] complaint does not claim an advertising injury if it alleges
only the manufacture, importation, and sale of infringing goods without claiming harm arising
from advertising." Bridge Metal Industries, 559 F. App'x. at 19; see Jerrv Madison Enters., Inc.
v. Grasant Mfg. Co., No. 89 CIV. 2346 (MBM), 1990 WL 13290, at *4 (S.D.N.Y. Feb. 14, 1990)
(where "Plaintiff directs its copyright infringement claim solely against defendant's sale and
manufacture of the jewelry"); Elite Brands, Inc. v. Penn. Gen. Ins., No. 02-CV-5623, 2004 WL
1945732, at * 5 (S.D.N.Y. Sept. 2, 2004) (where "the claims, evidence and proposed findings
relate to importation and sales of allegedly infringing merchandise") aff d, 164 F. App 'x. 60 (2d
Cir. 2006). The Second Circuit has also distinguished between the sale of infringing products
and the advertisement of such products in the context of trademark infringement. See Century
21, Inc. v. Diamond State Ins. Co., 442 F.3d 79, 83 (2d Cir. 2006).
In this case, the basis for the insured's liability was the sale--not the advertising--of
counterfeit Fendi products, and there are no grounds for indemnification under the Policies.
Allianz Ins. Co., 416 F.3d at 115. The Ashley Reed Defendants' liability in the Fendi Action
was based upon their "offering for sale and selling certain fashion accessories." (Defs. 56.1, '1[
8 USF &G does not dispute that a trademark constitutes an "advertising idea" under the Policies. (See Defs. Mem. at 5.)
11
14.) And, Defendants concede that "the factual basis underpinning [BCF's] judgment against
Ashley Reed rests on the same core set offacts ... underpinning Fendi's claims." (Defs. Mem.
at 24.)9 Neither the Fendi Complaint nor the complaint in the BCF Action alleged any activity
relating to advertising; the allegations related solely to "the sale and offering for sale of goods of
counterfeits ofFendi's registered trademarks." (Fendi Compl. ~~ 47, 60, 76; see Amended
Complaint, dated Jan. 20,2006 (Ex. 7 to Genecin Dec!.), at~~ 37-44.) And, Defendants do not
dispute that the monetary amount of the awards in the Fendi and BCF Actions was based upon
profits obtained from the sale of counterfeit goods-not from any advertising activity. (See
Defs. 56.1, ~~ 15-17; Defs. Mem. at 2.)
Defendants argue unpersuasively that "a trademark infringement claim under the
Lanham Act inherently and necessarily implicates advertising" (Defs. Mem. at 6), and they cite
to district court cases for the broad proposition that "it is not possible to allege a claim for
trademark, servicemark or trade name infringement without the infringing mark being used to
identify the goods or services to the public." (Id. at 5-6 (quoting J.A. Brundage Plumbing &
Roto-Rooter, Inc. v. Mass. Bay Ins. Co., 818 F. Supp. 553 (W.D.N.Y. 1993).) "[T]his use
qualifies as advertising" (id.), and a "consumer product whose design incorporates its maker's
trademark ... is an advertisement for itself." (Id. at 9.)
Defendants miss the mark. For one thing, the idea that trademark infringement
"necessarily implicates advertising" is negated by the Lanham Act's definition of infringement,
9 In resolving the liability of the Ashley Reed Defendants in the Fendi and BCF Actions, the Court was not presented with evidence regarding the Ashley Reed Defendants' attempts to market the products at issue or otherwise attract customers to those goods. (See Mem. of Law in Supp. ofBCF's Mot. for Summ. J., dated Feb. 27, 2009 (Ex. 8 to Genecin Dec!.); Mem. of Law in Supp. ofFendi's Mot. for Summ. J., dated Feb. 27,2009 (Dkt. # 88).)
12
which distinguishes between the "use in commerce [of] any reproduction, counterfeit, copy, or
colorable imitation of a registered mark in connection with the sale, offering for sale,
distribution, or advertising of any goods or services." 15 U.S.C. 1114(1)(a) (emphasis added);
see 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400,406-07 (2d Cir. 2005) ("In order to
prevail on a trademark infringement claim for registered trademarks ... a plaintiff must establish
that (1) it has a valid mark that is entitled to protection under the Lanham Act; and that (2) the
defendant used the mark, (3) in commerce, ( 4) in connection with the sale ... or advertising of
goods or services ... (5), without the plaintiff's consent." (emphasis added)).
Second, Defendants' theory conflicts with the plain language of the Insurance Policies,
which, as noted, define advertising injury as "[t]he use of another's advertising idea in your
'advertising."' If Defendants were correct that any use of a trademark constitutes advertising,
the phrase "in your advertising" would be meaningless. Olin Com., 704 F.3d at 99 ("Any
interpretation of a contract that has the effect of rendering at least one clause superfluous or
meaningless ... is not preferred and will be avoided if possible." (internal quotation marks
omitted)). The Policies' language clearly contemplates that the unauthorized use of a trademark,
without more, does not constitute "advertising injury," i.e., in the absence of a separate and
distinct act of advertising.
Third, the district court cases cited by Defendants are inapposite because the insurance
policies in those cases defined "advertising injury" as the "[m]isappropriation of advertising
ideas or style of doing business." g,g,, J.A. Brundage, 818 F. Supp. at 556. This definition is
significantly broader than the definition of advertising injury contained in the Insurance Policies,
i.e., "[t]he use of another's advertising idea in your 'advertising."'
13
In sum, because the Ashley Reed Defendants' liability in the Fendi and BCF Actions
was based upon the sale of counterfeit Fendi products, and not upon any "advertising injury," the
Court concludes that USF&G is not required to indemnify the Ashley Reed Defendants for the
awards issued in those Actions.1 0
(2) Exclusion for "Prior Publication"
Even assuming, arguendo, that the awards in the Fendi and BCF Actions could be
construed as "damages because of ... advertising injury," the Court would likely find against
Defendants based upon the Policies' exclusion for "[a]dvertising [i]injury ... arising out of oral
or written publication of material whose first publication took place before the beginning of the
policy period." (2003 Policy at P00097; 2004 Policy at P00675.). It is undisputed that the
counterfeit sales at issue in the BCF and Fendi Actions took place before the coverage period of
the 2003 Policy, i.e., prior to February 8, 2003. (Defs.' Resp. to Pl.'s Local Rule 56.1 Statement,
dated Feb. 21, 2014 ("Defs. 56.1 Resp."), ~ 62.) Fendi Adele S.r.l. v. Ashley Reed Trading, Inc.,
507 F. App'x. at 30 ("The district court did not err in resolving Ashley Reed's liability for the
entire 2001 to 2006 period on summary judgment."). And, assuming arguendo that the Court
were to find that such sales constituted "advertising," i.e., "attracting the attention of others," it
would likely also find that such acts of advertising constituted "publication." See Fed. Ins. Co.
v. Learning Group Int'l. Inc., No. 93-56615, 1995 WL 309047, at *2 (9th Cir. May 19, 1995)
("An advertising injury will by definition be predicated on an offending publication.").
10 Because the Court concludes that there was no "advertising injury" under the Policies, the Court need not decide the second coverage issue raised by USF&G, i.e., whether the disgorgement of a trademark infringer's profits constitutes "damages" under the Insurance Policies. (Pl. Opp'n. at 9-13.) The Court also need not decide whether the disgorgement of an infringer's profits is uninsurable as a matter of New York public policy. (Id. at 5.)
14
Defendants argue that the Policies' prior publication exclusion applies only to the (two)
categories of advertising injury which incorporate the phrase "oral or written publication," i.e.,
"[ o ]raJ or written publication of material that slanders or libels a person's or organization's
goods, products, or services" and"[ o ]raJ or written publication of material that violates a
person's right of privacy." (Defs. Mem. at 21-22.) "The trademark infringement that
constituted the 'advertising injury' caused by [the Ashley Reed Defendants] clearly did not arise
from publication of material that was libelous, slanderous, disparaging or that violated anyone's
right to privacy." (ld. at 22.) Plaintiffs respond that Defendants "ignore ... the plain language
of the USF&G Policies which explicitly state that the exclusion applies to 'advertising injury,'
which is expressly defined as including one or more of four listed offenses." (Pl. Opp'n. at 25.)
The Court finds that there is no basis for limiting the Policies' prior publication exclusion
to two of the four "advertising injury" offenses. The prior publication exclusion unambiguously
applies to "advertising injury" and encompasses "oral or written publication of material" without
regard to whether such published material was libelous, slanderous, disparaging, or violative of
the right to privacy. Defendants' argument is contrary to the exclusion's plain meaning, and
conflicts with case law within and outside this Circuit. See Hugo Boss Fashions, Inc. v. Fed. Ins.
Co., No. 98 CIV. 6454 (HB), 1999 WL 1072819, at *1 (S.D.N.Y. Nov. 29, 1999) ("[T]he
plaintiffs' argument that the 'prior acts' exclusion here applies only to slander, libel and invasion
of privacy is meritless."); Learning Group Int'l. Inc., 1995 WL 309047, at *2 ("The language of
the [prior acts] exclusion logically applies to any and all advertising injuries, regardless of how
those injuries are specifically described under the policy.").
15
(3) Alleged Refusal to Settle Claim
USF&G argues that James Ressler's counterclaim for bad faith refusal to settle the Fendi
Action should be dismissed because "nowhere in the record is there any suggestion that USF&G
controlled how the [Fendi] Action was to be defended, chose what defenses to assert, or whether
the [Ashley Reed] Defendants could settle the Action," and because, "[u]nder New York law ...
bad faith cannot be established when the insurer has an arguable basis for denying coverage."
(Pl. Opp'n. at 31-32.) In response, Defendants argue that "USF&G did not set forth an arguable
basis for denial [of coverage] at the time it reserved its rights in 2007" and "the record is replete
... with evidence that USF&G controlled the defense, actively supervising even the minutiae of
the litigation." (Defs. Reply at I 0-11.)
The Court concludes that summary judgment should be granted in favor ofUSF&G with
respect to Defendant Ressler's counterclaim. For one thing, because the Policies unambiguously
preclude coverage for the award in the Fendi Action (see Section IV. (i) and (ii), above),
Defendant Ressler cannot establish that USF &G acted in bad faith by refusing to settle that
dispute. Zurich Ins. Co. v Texasgulf. Inc., 649 N.Y.S.2d 153, 180 (1st Dep't 1996) ("[A] claim
of bad faith [refusal to settle] must be predicated on the existence of coverage of the loss in
question."). Second, there is no evidence that USF&G exercised "exclusive control" over the
(potential) settlement of the Fendi Action, as is required to prove a claim for bad faith refusal to
settle. See CblPath Inc. v. Lexington Ins. Co., 73 A.D.3d 829, 830 (2d Dep't 2010). In fact, it is
undisputed that, in the Fendi Action, Defendant James Ressler selected his own counsel and that
"[a]t no time did USF&G ever tell any of the [Ashley Reed Defendants] that they could not settle
the claim with their own funds."

Outcome: For the foregoing reasons, Defendants' motion for summary judgment [#98] is denied, and USF&G's cross-motion for summary judgment [#108] is granted.

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
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