Court Opinion

ID: 9899746
Source: CourtListenerOpinion
Date Created: 2023-11-17 17:01:53.707327+00
Date Added: 2024-06-11T09:20:48.258181
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        NOV 17 2023
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

AUTODISTRIBUTORS, INC.; STEVEN                  No.    22-16445
SCHNEIDER,
                                                D.C. No. 4:21-cv-06204-HSG
                Plaintiffs-Appellants,

 v.                                             MEMORANDUM*

NATIONWIDE E&S SPECIALTY; et al.,

                Defendants-Appellees.

                   Appeal from the United States District Court
                     for the Northern District of California
                 Haywood S. Gilliam, Jr., District Judge, Presiding

                          Submitted November 15, 2023**
                              San Jose, California

Before: MURGUIA, Chief Judge, and GRABER and FRIEDLAND, Circuit
Judges.

      AutoDistributors, Inc. and Steven Schneider (collectively

“AutoDistributors”) appeal the district court’s order granting judgment on the

pleadings in favor of Scottsdale Insurance Company, Nationwide E&S Specialty,

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Scottsdale Indemnity Company, and National Casualty Company (collectively

“Defendants”) in this insurance coverage dispute. We have jurisdiction under 28

U.S.C. § 1291, and we affirm.

      This case arises out of an underlying dispute between Sixt Franchise USA,

LLC, Sixt Rent a Car, LLC (collectively “Sixt”), and AutoDistributors. Sixt

Franchise and AutoDistributors entered into a Franchise Agreement that allowed

AutoDistributors to operate a Sixt rental car franchise and use Sixt’s trademarks in

connection with that franchise. Sixt then sued AutoDistributors, alleging that

AutoDistributors violated the Franchise Agreement by operating a used-car-sales

business at the franchise location and using Sixt’s trademarks in connection with

that business. AutoDistributors tendered suit to its insurer Scottsdale Insurance

Company (“Scottsdale”), and Scottsdale denied coverage. AutoDistributors then

sued Defendants for breach of contract and breach of the implied covenant of good

faith and fair dealing. The district court ruled for Defendants, holding that

Scottsdale had no duty to defend AutoDistributors.

      An insurer “must defend a suit which potentially seeks damages within the

coverage of the policy.” Gray v. Zurich Ins. Co., 419 P.2d 168, 176 (Cal. 1966).

To determine whether there is a duty to defend, the insurer compares the “terms of

the policy” with the “allegations of the complaint” and any other facts that are

“reasonably inferable, or otherwise known.” Scottsdale Ins. Co. v. MV Transp.,

                                          2                                     22-16445
115 P.3d 460, 466 (Cal. 2005). If those allegations and facts suggest a possibility

of coverage, the duty to defend is triggered—even if “the precise causes of action

pled by the third-party complaint . . . fall outside policy coverage.” Id.

      AutoDistributors’ insurance policy covers “personal and advertising injury,”

defined to mean injury “arising out of” a specified list of offenses. As relevant

here, those offenses include “[t]he use of another’s advertising idea in your

‘advertisement’” and “[i]nfringing upon another’s copyright, trade dress or slogan

in your ‘advertisement.’” 1 The policy excludes “‘personal and advertising injury’

arising out of the infringement of copyright, patent, trademark, trade secret or other

intellectual property rights” (the “IP Exclusion”). 2 The policy further provides that

the IP Exclusion “does not apply to infringement, in your ‘advertisement’, of

copyright, trade dress or slogan.”

       1.    Some of Sixt’s allegations clearly fell outside the policy’s coverage.

      1
         The definition of “personal and advertising injury” also includes injury
arising out of: “[f]alse arrest, detention or imprisonment;” “[m]alicious
prosecution;” “[t]he wrongful eviction from, wrongful entry into, or invasion of the
right of private occupancy of a room, dwelling or premises that a person occupies,
committed by or on behalf of its owner, landlord or lessor;” “[o]ral or written
publication, in any manner, of material that slanders or libels a person or
organization or disparages a person’s or organization’s goods, products or
services;” and “[o]ral or written publication, in any manner, of material that
violates a person’s right of privacy.”
      2
        The exclusion also states that “other intellectual property rights” do not
include the “use of another’s advertising idea in your ‘advertisement.’”

                                           3                                    22-16445
Sixt alleged that AutoDistributors breached the Franchise Agreement by “operating

the unauthorized Used Car Sales Business at the Store” and “using the Store to

facilitate a start-up incubator business.” That alleged conduct did not implicate

any of the offenses in the definition of “personal and advertising injury,” so it did

not trigger the duty to defend.

       2.     Sixt also alleged that AutoDistributors infringed Sixt’s trademarks by

using the trademarks in connection with the used car business. Based on these

allegations, Sixt alleged claims of trademark infringement and false designation of

origin under the Lanham Act, common law trademark infringement, and common

law unfair competition. This theory was also part of Sixt’s breach of contract

claim because Sixt argued that the Franchise Agreement restricted the use of the

trademarks.

      Even assuming that trademark infringement would constitute a “personal

and advertising injury,” there is no coverage for these claims because of the

policy’s IP Exclusion. That exclusion provides that the policy does not cover

“personal and advertising injury” arising out of the infringement of “trademark.”

       3.     AutoDistributors argues that the duty to defend was still triggered

because the Sixt Complaint included allegations about other “personal and

advertising injuries” beyond just trademark infringement. It first argues that the

Sixt Complaint, liberally construed, also alleged the use of Sixt’s copyright, trade

                                          4                                     22-16445
dress, and slogans. But the Sixt Complaint described AutoDistributors’ use of

Sixt’s trademarks, only—it included no allegations suggesting that

AutoDistributors infringed any Sixt copyright or trade dress. Although the Sixt

Complaint used the word “slogan” once, that single word did not trigger the duty to

defend when read in context. See Total Call Int’l Inc. v. Peerless Ins. Co., 104 Cal.

Rptr. 3d 319, 327 (Ct. App. 2010) (“The fact that the third party complaint

mentions an element of a covered claim does not trigger the duty to defend when

the facts known to the insurer, viewed as a whole, establish that no such claim is

potentially asserted.”). 3 The word “slogan” appeared in a sentence stating that

AutoDistributors’ “use and display of the Sixt Marks or any items associated with

the SIXT® . . . slogans in connection with the operation of the Used Car Sales

Business” caused consumer confusion. But AutoDistributors points to no

allegation in Sixt’s Complaint describing AutoDistributors’ use of items associated

with Sixt’s slogans, as opposed to Sixt’s trademarks, nor has it explained why the

use of an item associated with a slogan would qualify as infringement of a slogan

within the meaning of the policy.

      Finally, AutoDistributors argues that the Sixt Complaint, liberally construed,

could be interpreted to include a claim for the use of Sixt’s “advertising ideas.” In

      3
        A screenshot of AutoDistributors’ website, attached as an exhibit to the
Sixt Complaint, does say, “reliable | fast | agile,” but even assuming that is a
slogan, there is no indication that it is one of Sixt’s slogans.

                                          5                                    22-16445
support of this argument, AutoDistributors cites a declaration from Steven

Schneider stating that AutoDistributors adopted Sixt’s advertising and marketing

materials, including by creating “an electric scooter to rent and sell to

[AutoDistributors’] customers, which utilized Sixt’s distinctive orange and black

color scheme and one of its slogans—‘Feel the Motion.’” But those facts are

nowhere in the Sixt Complaint, and AutoDistributors has not explained why they

would have been “otherwise known” to Scottsdale. 4 An insured “may not trigger

the duty to defend by speculating about extraneous ‘facts’ regarding potential

liability or ways in which the third party claimant might amend its complaint at

some future date.” Gunderson v. Fire Ins. Exch., 44 Cal. Rptr. 2d 272, 277 (Ct.

App. 1995); see also id. (“[T]he extrinsic facts which may create a duty to defend

must be known by the insurer at the inception of the third party lawsuit.”).

      AFFIRMED.

      4
        AutoDistributors argues that these facts were “entirely available to
Scottsdale,” but the Sixt Complaint included no indications that there were any
other personal and advertising injuries, nor did it even contain the word “scooter.”
When a complaint suggests no “conceivable theory” under which there could be
coverage and the insured has not provided any extrinsic facts suggesting as much,
an insurer need not go beyond the complaint to search for the possibility of such
coverage. Am. Int’l Bank v. Fid. & Deposit Co., 57 Cal. Rptr. 2d 567, 574–75 (Ct.
App. 1996) (quoting Gray, 419 P.2d at 176 n.15).

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