Court Opinion

ID: 3035079
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:52:03.295434+00
Date Added: 2024-06-11T11:48:34.064348
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

THOM HAYWARD,                             
                 Plaintiff-Appellant,
                 and
ANDRESEN COLOR OF SAN FRANCISCO                  No. 03-17378
INC., a corporation,
                            Plaintiff,            D.C. No.
                                               CV-02-02858-WHA
                  v.                               OPINION
CENTENNIAL INSURANCE COMPANY, a
corporation,
                Defendant-Appellee.
                                          
         Appeal from the United States District Court
           for the Northern District of California
         William H. Alsup, District Judge, Presiding

                   Argued and Submitted
         October 19, 2005—San Francisco, California

                     Filed December 5, 2005

Before: Robert R. Beezer and Alex Kozinski, Circuit Judges,
          and Cormac J. Carney,* District Judge.

                    Opinion by Judge Beezer

  *The Honorable Cormac J. Carney, United States District Judge for the
Central District of California, sitting by designation.

                                15719
           HAYWARD v. CENTENNIAL INSURANCE CO.       15721

                       COUNSEL

James L. Dawson and Brad C. Brereton, San Jose, California,
for the plaintiff-appellant.

Gary R. Selvin and Jill S. Picone, Selvin Wraith Halman,
LLP, Oakland, California, for the defendant-appellee.

                         OPINION

BEEZER, Circuit Judge:

   This case concerns the duty of an insurer to defend the
insured against claims under a policy covering advertising
15722       HAYWARD v. CENTENNIAL INSURANCE CO.
injury. While this case was before the district court, the Cali-
fornia Supreme Court decided Hameid v. National Fire Insur-
ance of Hartford, 71 P.3d 761 (Cal. 2003), which defines the
term “advertising injury.” As a result, the district court
granted summary judgment in favor of the insurer. Hayward
appeals.

   We have jurisdiction under 28 U.S.C. § 1291 and affirm on
the basis of California law.

                               I

   The relevant facts are undisputed. From 1996-1999, Hay-
ward was employed by In Sync Media—San Francisco Cor-
poration (“In Sync”), a provider of pre-press services to
advertising agencies. In 1999, Hayward joined In Sync’s com-
petitor Andresen Color of San Francisco, Inc. (“Andresen”).
In 2000, In Sync filed a complaint alleging breach of contract
and breach of fiduciary duty against Hayward and alleging
misappropriation of trade secrets and violation of the Califor-
nia Business and Professions Code against Hayward,
Andresen and others. Andresen and Hayward tendered
defense of the action to their insurance carrier, Centennial
Insurance Co. (“Centennial”). Centennial denied it had a duty
to defend or indemnify because the complaint alleged breach
of the shareholder agreement and disclosure of confidential
information, neither of which fell within either the personal
injury or advertising injury definitions in the policy.

   Hayward and Andresen sued Centennial for breach of
insurance contract, breach of covenant of good faith and fair
dealing and declaratory relief. The case was removed to fed-
eral court on diversity grounds. The district court entered
summary judgment in favor of Hayward and Andresen on the
breach of contract claim, holding that the policy exclusion for
infringement or violation of trade secrets did “not necessarily
comprehend all confidential business information, such as
marketing ideas.” At the request of Centennial, a stay was
             HAYWARD v. CENTENNIAL INSURANCE CO.           15723
entered pending the California Supreme Court’s decision in
Hameid.

   Hameid defines advertising as widespread promotion to the
public at large; therefore the court held that the complaint
underlying that case, which alleged only solicitation, did not
trigger a duty to defend. Hameid, 71 P.3d at 762. Here, the
district court modified its earlier order and held that under
Hameid Centennial had no duty to defend and was entitled to
declaratory relief. All other issues were disposed of in a stipu-
lated judgment. Hayward appeals the district court’s modified
order.

  We review a district court’s grant of summary judgment de
novo. Universal Health Servs., Inc. v. Thompson, 363 F.3d
1013, 1019 (9th Cir. 2004). We apply California law to the
merits because federal jurisdiction is based on diversity of the
parties. Appling v. State Farm Mut. Auto. Ins. Co., 340 F.3d
769, 778 (9th Cir. 2003).

                               II

   [1] In California, an insurer has a duty to defend its insured
when, comparing the allegations in the third party complaint
with the terms of the policy as well as considering extrinsic
facts, there is “any potential for liability under the policy.”
Horace Mann Ins. Co. v. Barbara B., 846 P.2d 792, 795, 797
(Cal. 1993). Coverage for advertising injury requires the pol-
icy holder to offer facts to support a finding of: (1) an adver-
tising injury as defined in the policy, (2) a course of
advertising, and (3) proof of a causal relationship between the
first and second elements. Bank of the West v. Superior Court,
833 P.2d 545, 558-60 (Cal. 1992). Centennial and Hayward
dispute the first element: whether the In Sync complaint
raised issues potentially within the advertising injury cover-
age under the insurance policy.
15724         HAYWARD v. CENTENNIAL INSURANCE CO.
   [2] Under Hameid,1 advertising injury “requires widespread
promotion to the public such that one-on-one solicitation of a
few customers does not give rise to the insurer’s duty to
defend the underlying lawsuit.” Hameid, 71 P.3d at 762. In
Hameid, beauty salon workers and their new employer
(Hameid) were sued by the workers’ former employer, a
neighboring salon owner, for utilizing plaintiff’s customer list
to identify and solicit customers. Id. at 763, 765. The com-
plaint alleged the “defendants possessed trade secrets, includ-
ing [the plaintiff’s] customer list, price list and pricing
policies, and that the defendants had misappropriated the
above-described trade secrets by committing certain acts,
including, but not limited to: utilizing the customer list in
order to identify and solicit [the plaintiff’s] customers.” Id. at
763 (internal quotation marks omitted). Hameid’s insurance
carrier refused to defend him, arguing the harm was not
within “advertising injury” coverage; Hameid sued the carrier.
The California Supreme Court held that solicitation of cus-
tomers from a customer list cannot constitute advertising
within the meaning of the policy because it does not involve
“widespread distribution of promotional materials to the pub-
lic at large,” the “ordinary and popular meaning” of advertis-
ing. Id. at 769.

   [3] In Rombe Corp. v. Allied Insurance Co., 27 Cal. Rptr.
3d 99, 101 (Cal. Ct. App. 2005), the California Court of
Appeal interprets Hameid to mean that “advertising” and “so-
licitation” are mutually exclusive terms. Though we are not
bound by that court’s interpretation, see Appling, 340 F.3d at
778, we follow it here.

  [4] In Sync’s complaint alleged Hayward misappropriated
  1
   Hameid applies here though it had not been decided when Centennial
reviewed Hayward’s request for defense. Waller v. Truck Ins. Exch., Inc.,
900 P.2d 619, 631 (Cal. 1995); Standard Fire Ins. Co. v. Peoples Church
of Fresno, 985 F.2d 446, 448-50 (9th Cir. 1993) (applying California
Supreme Court case decided while diversity case was on appeal).
             HAYWARD v. CENTENNIAL INSURANCE CO.           15725
trade secrets and breached the Shareholder Agreement and his
fiduciary duty. In Sync accused Hayward of agreeing with
Andresen that he would bring confidential information includ-
ing trade secrets, marketing plans, data and customer and sup-
plier identities to Andresen and that he would solicit
customers, or potential customers, of In Sync for Andresen.
Like the underlying complaint in Hameid, In Sync’s com-
plaint, as it pertains to potential advertising injury, is limited
on its face to allegations of solicitation of customers. The lan-
guage in In Sync’s complaint is virtually identical to that in
Hameid: In Sync alleged Hayward breached his obligation to
In Sync by “speaking with and soliciting customers of In Sync
. . . in connection with his plan to move over to Andresen”
and misappropriated trade secrets by “obtaining a book of
business of plaintiff’s customers” and “and solicited custom-
ers or potential customers of . . . In Sync . . . for services to
be performed by defendants.” Because In Sync’s complaint
alleged wrongful solicitation, and not advertising, under
Hameid and Rombe, the complaint on its face absolved Cen-
tennial of the duty to defend Hayward. On the basis of the
complaint, Hayward, the policy holder, could not offer facts
to support a finding of an advertising injury as defined in the
policy.

  AFFIRMED.