Court Opinion

ID: 19320
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:23:24+00
Date Added: 2024-06-11T16:46:51.230334
License: Public Domain

UNITED STATES COURT OF APPEALS
                             FOR THE FIFTH CIRCUIT
                    __________________________________________

                                    No. 98-31238
                                  Summary Calendar
                     _________________________________________
                             DELTA COMPUTER CORP,

                                                       Plaintiff,
                                        VERSUS

                             WALTER J FRANK JR, ET AL ,

                                                       Defendants,

TEC SERVICES, INC, et al., formally known as TEC Communication Services; BAY SPRINGS
      TELEPHONE CO, INC, wholly owned subsidiary of Telephone Electronics Corp,

                                                       Defendants-Appellants,

   TELEPHONE ELECTRONICS CORP; COMMUNIGROUP OF ALABAMA, INC, wholly
 owned subsidiary of Communigroup, Inc; LECNET, INC, formerly known as Communigroup of
      the Gulf Coast, Inc; COMMUNIGROUP, INC, wholly owned subsidiary of Telephone
    Electronics Corp; COMMUNIGROUP OF JACKSON, INC., wholly owned subsidiary of
     Communigroup Inc; CROCKETT TELEPHONE CO., INC, wholly owned subsidiary of
 Telephone Electronics Corp; COMNET INC, wholly owned subsidiary of Telephone Electronics
 Corp; NATIONAL TELEPHONE OF ALABAMA, INC, wholly owned subsidiary of Telephone
     Electronics Corp; COMMUNIGROUP OF NORTH ALABAMA, INC, Partially owned
subsidiary of Communigroup Inc.; PEOPLES TELEPHONE CO, INC, wholly owed subsidiary of
  Telephone Electronics Corp; ROANOKE TELEPHONE CO, INC, wholly owned subsidiary of
 Telephone Electronics; TECNET INC, wholly owned subsidiary of Telephone Electronics Corp;
      TELEPHONE ELECTRONICS CORP WEST, wholly owned subsidiary of Telephone
     Electronics Corp; VIDEO INC, wholly owned subsidiary of Telephone Electronics Corp;
   VARTEC TELECOM, INC, formally known as Vartec National, Inc; WEST TENNESSEE
        TELEPHONE CO, INC, wholly owned subsidiary of Telephone Electronics Corp,

                                                         Defendants - Third Party
                                                Plaintiffs - Appellants,

                        UNITED STATES FIRE INSURANCE CO,

                                                       Third Party Defendant -
                                                       Appellee.

                    __________________________________________

                       Appeals from the United States District Court
                          for the Western District of Louisiana
                    __________________________________________

                                    December 2, 1999

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Before REYNALDO G. GARZA, HIGGINBOTHAM, and, JONES, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

                      I. FACTUAL AND PROCEDURAL BACKGROUND

       This is an insurance coverage dispute that arose from a copyright infringement case. The

underlying copyright litigation began in July 1996, when Delta Computer Corporation (“DCC”)

filed suit alleging that Delta Computer Leasing, LM Data, Walter L. Frank and other partners of

LM Data, Telephone Electronics Corporation (“TEC”) , and thirty TEC subsidiaries,

misappropriated DCC’s copyrighted computer software. DCC developed, for the purpose of

generating long distance resale bills, a computer program to record the identity of long distance

callers and the length of long distance calls. The computer program also allowed for the inclusion

of advertisements along with the text of the bills.

       The TEC parties, defendants and third party plaintiffs, filed suit against United States Fire

Insurance Company (“US Fire”), alleging that DCC’s claim against the TEC parties was covered

under its Commercial General Liability Coverage policy. US Fire denied that the policy insured

the TEC parties against DCC’s claim and filed a motion for summary judgment, which the District

Court granted. The underlying dispute between DCC and the TEC parties has since been settled

without the participation of US Fire. This appeal of the District Court’s ruling on US Fire’s

motion for summary judgment followed.

                                   II. STANDARD OF REVIEW

       Courts of Appeals review summary judgments de novo, applying the same standard as the

district courts. Fed. R. Civ. P. 56. If the pleadings, answers to interrogatories, admissions and

affidavits on file indicate no genuine issue as to any material fact, the moving party is entitled to

judgment as a matter of law. Little v. Liquid Aid Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en

banc); Fed. R. Civ. P. 56. When the burden at trial rests on the nonmovant, the movant must

merely demonstrate an absence of evidentiary support in the record for the nonmovant’s case.

Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).

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       Courts consider the evidence in the light most favorable to the nonmovant, yet the

nonmovant may not rely on mere allegations in the pleadings; rather, the nonmovant must respond

to the motion for summary judgment by setting forth particular facts indicating that there is a

genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). After the

nonmovant has been given an opportunity to raise a genuine factual issue, if no reasonable juror

could find for the nonmovant, summary judgment will be granted. Celotex Corp., 477 U.S. at

322; Fed. R. Civ. P. 56(c).

                                             III. DISCUSSION

       Under controlling Louisiana substantive law, courts must determine coverage and the duty

to defend based solely upon the factual allegations on the face of the complaint as compared with

the terms of the policy. Bryant v. Motwani, 683 So. 2d 880 (La. Ct. App. 4th Cir. 1996). When a

complaint alleges facts that, if assumed to be true, would support a claim for which coverage is

not unambiguously excluded, the duty to defend arises. Complaint of Stone Petroleum Corp.,

961 F.2d 90 (5th Cir. 1992). There must be a potential for recovery by the plaintiff as well as

coverage under the policy for the insurer to be bound by a duty to defend. American Home

Assurance Company v. Czarniecki, 230 So. 2d 253 (La. 1969).

       Under the insurance policy terms, US Fire agreed to cover the TEC parties against

advertising injury liability.10. This Court relies on Policy #5430674601.2 The Fifth Circuit,

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           The policy provides that:

                 This insurance applies to: . . .
                 (2) “Advertising injury” caused by an offense committed in the course of advertising your
                 goods, products or services;. . . (R. 69, exh. A)

            The policy also states that:

          “Advertising injury” means injury arising out of one or
more of the following offenses:
               a.   Oral or written publication or material that
slanders or libels a person or                    organization or
disparages a person’s or organization’s goods, products or

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applying Texas law and considering policy language identical to that presently at issue, held that a

policy covering advertising injuries in the course of advertising the insured’s products or services

did not cover a complaint alleging that the insured infringed the plaintiff’s copyrights by using its

written work without authorization. Sentry Insurance v. RJ. Weber Co., Inc., 2 F.3d 554 (5th

Cir. 1993). The Court found that there must be a connection between the copyright claims and

the insured’s advertising activity. Sentry Insurance, 2 F.3d at 557.

       No such causal connection exists in the case at bar, and the coverage requirements of

Louisiana law are not met because the underlying pleading states nothing about advertising. DCC

did not complain of any injury suffered in the course of the TEC parties’ advertising, nor could a

reference to advertising be fairly inferred from the language of the pleadings; rather, DCC’s claim

is essentially for infringement of its copyrighted software program, which was developed primarily

for billing purposes, not for advertising activity. Although the software included a feature that

allowed the bills generated to include advertisements, any advertising done through use of the

software is incidental to DCC’s core complaint.

       In Sentry Insurance, 2 F.3d at 557, this court held that there was no link to any

advertising activities as a matter of law because the injury could have occurred independent of any

advertising by the appellants. In the present case, DCC’s copyright infringement claim stands on

its own because even if the TEC parties had never discovered or used the software advertising

feature in the course of their billing activity, DCC could still have suffered the same injury and

asserted the same software copyright infringement claim.

       This court therefore concludes as a matter of law that US Fire has no duty to defend the

TEC parties and that DCC’s underlying claims are excluded from coverage by the insurance

               services.;
               b.   Oral or written publication of material that
violates a person’s right of                 privacy;
               c.   Misappropriation of advertising ideas or
style of doing business; or
               d.   Infringement of copyright, title or slogan.
Id.

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policy’s advertising injury liability provisions. Accordingly, we AFFIRM the district court’s

decision.

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