Court Opinion

ID: 215730
Source: CourtListenerOpinion
Date Created: 2011-04-29 16:26:05+00
Date Added: 2024-06-11T17:28:25.490636
License: Public Domain

FILED
                                                            United States Court of Appeals
                                                                    Tenth Circuit

                                                                    April 29, 2011
                      UNITED STATES COURT OF APPEALS
                                                   Elisabeth A. Shumaker
                                                                    Clerk of Court
                                   TENTH CIRCUIT

 NOVELL, INC., a Delaware
 corporation,

          Plaintiff - Appellant,                        No. 10-4102
                                                (D.C. No. 2:09-CV-00496-TS)
 v.                                                       (D. Utah)

 VIGILANT INSURANCE
 COMPANY, a New York corporation,

          Defendant - Appellee.

                              ORDER AND JUDGMENT *

Before KELLY, McKAY, and MATHESON, Circuit Judges.

      Plaintiff-Appellant Novell, Inc. (“Novell”) appeals from the district court’s

grant of summary judgment in favor of Defendant-Appellee Vigilant Insurance

Company (“Vigilant”). Exercising jurisdiction under 28 U.S.C. § 1291, we

affirm.

      *
        This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
                                     Background

      On January 20, 2004, SCO Group (“SCO”) sued Novell in state court in

Utah, alleging a single cause of action—slander of title. Aplt. App. at 332-42.

Novell removed that action to federal court. Id. at 14. SCO filed an amended

complaint on July 9, 2004, and a second amended complaint on February 3, 2006,

adding additional claims. Id. at 334; Aplee. Supp. App. at 508. Both amended

complaints contained the claim for slander of title. In its complaints, SCO

alleged that it had acquired from Novell all right, title, and interest in and to the

UNIX and UnixWare (collectively, “Unix”) business, operating system, source

code, and all copyrights on September 19, 1995, pursuant to an Asset Purchase

Agreement (“Agreement”), and that Novell attempted to interfere with SCO’s

rights to Unix technologies by filing for copyright protection in its own name and

by claiming publically that it, and not SCO, owned the Unix copyrights. Aplt.

App. at 333.

      Specifically, in its original complaint, SCO alleged the following:

•     “Novell has made such statements with the intent to cause customers and

      potential customers of SCO to not do business with SCO and to slander and

      impugn the ownership rights of SCO in [Unix], and to attempt, in bad faith,

      to block SCO’s ability to enforce its copyrights therein.” Id. at 334.

•     “Novell’s false and misleading representations that it owns the [Unix]

      copyrights has caused and is continuing to cause SCO to incur significant

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      irreparable harm to its valuable [Unix] copyrights, to its business, and its

      reputation.” Id.

•     “Novell, with full knowledge of SCO’s exclusive ownership of the

      copyrights related to [UNIX], has embarked on a malicious campaign to

      damage SCO’s ability to protect its valuable copyrights in [UNIX].” Id. at

      336.

•     “Novell has slandered SCO’s title and rights to its [Unix] copyrights and

      damaged SCO’s business reputation and relationships with potential

      customers by making false oaths of ownership to public officials, and by

      repeatedly representing both to the public in general and directly to several

      of SCO’s customers and potential customers that Novell, and not SCO,

      owns the [Unix] copyrights.” Id. at 340.

•     “Novell’s conduct as alleged herein was intentionally and maliciously

      designed to destroy SCO’s valuable rights to the [UNIX] copyrights and

      further destroy SCO’s business livelihood.” Id. at 341.

      SCO alleged that Novell made several public statements concerning the

Unix copyrights, including, “SCO is not the owner of the Unix copyrights,”

SCO’s claims of ownership were “absurd” and “insubstantial,” and Novell

“retains all or substantially all of the ownership of the copyrights in Unix.” Id. at

337-39.

      Novell requested that Vigilant defend Novell in the SCO action pursuant to

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a general liability insurance contract (“Policy”) between the two parties. See id.

at 357. The relevant portion of the Policy required Vigilant to pay for any

“personal injury” under the Policy that Novell became legally obligated to pay.

Id. at 208. “Personal injury” included, among other things, “electronic, oral,

written or other publication of material that libels or slanders a person or

organization (which does not include disparagement of goods, products, property

or services).” Id. at 235. The Policy also contained an “Intellectual Property

Laws or Rights” exclusion (“IP Exclusion”) and an “Expected or Intended Injury”

exclusion. Id. at 219, 222.

      Vigilant denied a defense on February 11, 2004, informing Novell via letter

that it did not have a duty to defend because the allegations in SCO’s complaint

would not constitute personal injury. Id. at 357-58. The letter also cited the IP

Exclusion and Expected or Intended Injury Exclusion as reasons for denying

coverage. Id. at 361, 368-69.

      Novell filed this diversity action against Vigilant on May 29, 2009, seeking

declaratory relief that Vigilant had a duty to defend against SCO’s claims. Id. at

9-20. Both parties sought summary judgment. Id. at 29-64, 74-112. The district

court granted summary judgment in favor of Vigilant, concluding that SCO’s

complaint did not allege any conduct that would come within the definition of

personal injury under the Policy. Novell, Inc. v. Vigilant Ins. Co., No. 2:09-CV-

496 TS, 2010 WL 1734771, at *8 (D. Utah Apr. 27, 2010). The court explained

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that the allegations showed a business dispute concerning copyright ownership

but that the complaint did not allege facts that would potentially support a claim

for libel or slander; thus, Vigilant did not have a duty to defend. Id. Because of

this holding, the court did not address whether either of the exclusions in the

Policy applied. Id. Novell appeals, arguing that SCO alleged facts that would

potentially support a claim for defamation and that no exclusion in the policy bars

coverage. Aplt. Br. at 7.

                                     Discussion

      We review the district court’s grant of summary judgment de novo,

applying the same standard as the district court. Thomas v. Metro. Life Ins. Co.,

631 F.3d 1153, 1160 (10th Cir. 2011) (citation omitted). We view the evidence

and its reasonable inferences in the light most favorable to the non-movant. Id.

Summary judgment is appropriate 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).

      “When exercising diversity jurisdiction, we apply state law with the

objective of obtaining the result that would be reached in state court.” Butt v.

Bank of America, NA, 477 F.3d 1171, 1179 (10th Cir. 2007) (citation omitted).

Under Utah law, “[t]he duty to defend is broader than the duty to indemnify, but

the insurer’s obligation is not unlimited.” Deseret Fed. Savs. & Loan Ass’n v.

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U.S. Fid. & Guar. Co., 714 P.2d 1143, 1146 (Utah 1986). “[T]he duty to defend

is measured by the nature and kinds of risks covered by the policy and arises

whenever the insurer ascertains facts which give rise to the potential of liability

under the policy.” Id. (citation omitted). “The question is whether the

allegations, if proved, could result in liability under the policy. . . . Where there

is no potential liability, there is no duty to defend.” Id. at 1147 (citations

omitted). As a general rule, Utah courts “determine the scope of an insurer’s duty

to defend by comparing the language of the insurance policy with the allegations

of the complaint.” Emp’rs Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153,

1171 (10th Cir. 2010) (internal quotation marks and citation omitted).

       Both parties agree that Vigilant does not have a duty to defend SCO’s

claim for slander of title because defense of slander of title claims is expressly

excluded under the policy. Novell contends, however, that SCO alleged facts that

implicitly assert a claim for defamation, which is covered under the Policy. Aplt.

Br. at 20-31. Specifically, Novell argues that the alleged statements about

ownership of the UNIX copyrights could give rise to a potential cause of action

for defamation because they called into question SCO’s honesty and significantly

harmed SCO’s business reputation. Id. at 2, 8-9.

      Under Utah law, both libel and slander are types of defamation. Libel is “a

malicious defamation, expressed either by printing or by signs or pictures or the

like, tending to . . . impeach the honesty, integrity, virtue or reputation, or publish

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the natural defects of one who is alive, and thereby to expose him to public

hatred, contempt or ridicule.” Utah Code Ann. § 45-2-2(1). Slander is “libel

communicated by spoken words.” Id. § 45-2-2(2). Slander of title, however, is

distinct from these categories falling within the definition of defamation.

      The Utah Supreme Court has explained that slander of title and defamation

are different torts that “protect separate and unrelated interests.” Bass v. Planned

Mgmt. Servs., Inc., 761 P.2d 566, 568 (Utah 1988). Specifically, “slander of title

and the related tort of disparagement of property are based on an intentional

interference with economic relations. They are not personal torts; unlike slander

of the person, they do not protect a person’s reputation. Slander of title actions

are based only on palpable economic injury . . . .” Id.

       After reviewing SCO’s allegations, we agree with the district court that the

SCO complaint does not allege facts that would potentially support a claim for

defamation. SCO did not allege that Novell made any statements impeaching

SCO’s honesty, integrity, virtue, or reputation, thereby exposing SCO to public

hatred, contempt, or ridicule. Novell’s contention that the allegations in the

complaint can be read to imply that Novell called SCO a liar (or dishonest) is just

too great a stretch. See Aplt. Br. at 2 (citing Aplt. App. at 337, 339); Aplt. Reply

Br. at 1-2. The SCO complaint does not allege that Novell called SCO a liar or

dishonest; rather it alleges statements surrounding the ownership dispute over the

Unix copyrights. Aplt. App. at 337-338. The fact that the complaint alleges

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injury to SCO’s business reputation, in the absence of allegations that Novell

made defamatory statements about SCO, does not change our ruling. As the

district court noted, any injury alleged by SCO to its business reputation was

caused by the disagreement over the ownership of the Unix copyrights and any

cloud placed upon the title of those copyrights—which prevented SCO from being

able to fully exploit the resources it claimed to own. See Novell, Inc., 2010 WL
1734771, at *6. SCO did not allege, however, that the injury to its reputation was

caused by any defamatory statement made by Novell.

      The cases cited by Novell are distinguishable. In Nvidia Corporation v.

Federal Insurance Company, No. 04 C 7178, 2005 WL 2230190 (N.D. Ill. Sept. 6,

2005), the underlying complaint alleged that Nvidia falsely communicated to

clients that another company was “selling pirated or unlicensed goods” and that

Nvidia “engaged in a campaign to publicly sabotage, disparage and destroy [the

other company],” which caused “irreparable damage to [the company’s]

reputation and ability to conduct business.” Id. at *8. The court concluded that

these allegations contained a potential claim for defamation and thus triggered the

duty to defend. Id. at *8. Unlike the complaint in Nvidia, however, the

allegations in SCO’s slander of title claim do not include allegations of

infringement. See id. at *12. In addition, the SCO complaint alleges that Novell

“embarked on a malicious campaign to damage SCO’s ability to protect its

valuable copyrights in [Unix],” not a campaign to destroy SCO itself. Aplt. App.

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at 336. Though we are not bound by Nvidia and express no opinion on it, the

allegations therein clearly went beyond merely an ownership dispute concerning

copyrights. Similarly, Aurafin-Oroamerica, LLC v. Federal Insurance Company,

188 F. App’x 589 (9th Cir. 2007) (unpublished) and Amerisure Insurance

Company v. Laserage Technology Corporation, 2 F. Supp. 2d 296 (W.D.N.Y.

1998), concerned defamation coverage triggered by complaints alleging patent

infringement.

      In Lime Tree Village Community Club Association, Inc. v. State Farm

General Insurance Co., 980 F.2d 1402, 1406 (11th Cir. 1993), the underlying

complaint alleged that the insured slandered or disparaged title to property by

declaring to third parties that the underlying plaintiffs had no right to sell or lease

their properties to certain individuals. The court concluded that there was a duty

to defend because the allegations claimed damages for personal injury due to the

publication of a slander. Id. at 1406-07, 1406 n.3. The court did not, however,

explain whether the allegations supported a claim of defamation or slander of

title—both of which were covered under the policy—and thus, the case is not

dispositive here. In addition, in Winokur, Winokur, Serkey & Rosenberg, PC v.

Commerce Insurance Company, No. 0100300, 2004 WL 1588259 (Mass. Super.

May 21, 2004) (unpublished), there was no discussion of whether the statements

triggering the duty to defend supported a claim of defamation or disparagement,

both of which were covered in that case.

                                         -9-
      Other cases cited by Novell address whether an insurer has a duty to defend

against an implied claim of product disparagement—a separate claim from

defamation—where the insurance policy expressly covers the tort of

disparagement. See, e.g., Bankwest v. Fid. & Deposit Co. of Md., 63 F.3d 974,

980-81 (10 th Cir. 1995). Novell’s reliance on Atlantic Mutual Insurance

Company v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1035 n.13 (2002), is also

misplaced, as the court expressly stated that “[b]ecause we find that the alleged

statements by the [insured] constituted disparagement, we need not consider or

discuss their possible defamatory character.”

      Novell’s remaining arguments are not persuasive. It argues that the district

court’s references to “allegedly slanderous statements” in two orders in the

underlying action implicitly acknowledge potential coverage for defamation.

Aplt. Br. at 3-4. The district court’s reference to “slanderous statements” in the

underlying orders, however, referred to slanderous statements in the context of its

“slander of title” analysis and did not consider whether the slanderous statements

were defamatory. SCO Group, Inc. v. Novell, Inc., No. 2:04-CV-139, 2010 WL
1170509 (D. Utah Mar. 25, 2010); SCO Group, Inc. v. Novell, Inc., No.

2:04-CV-139, 2010 WL 1290814 (D. Utah Mar. 26, 2010). “A slanderous

statement [in the slander of title context] is one that is derogatory or injurious to

the legal validity of an owner’s title or to his or her right to sell or hypothecate

the property” and is distinct from a defamatory slanderous statement. Bass, 761

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P.2d at 567.

      In addition, Novell’s argument that the district court applied a Fed. R. Civ.

P. 12(b)(6) plausibility standard instead of a potentiality standard is without

merit. Aplt. Br. at 19-20, 43-44. The district court never discussed plausibility;

rather it looked to SCO’s complaint and concluded that it did not allege any facts

that would potentially support a claim for defamation.

      Because we hold that the slander of title claims in the SCO complaints did

not raise a potential cause of action for defamation, we need not address whether

either of the exclusions in the Policy apply.

      AFFIRMED.

                                        Entered for the Court

                                        Paul J. Kelly, Jr.
                                        Circuit Judge

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