RH&M Machine Company v. Westfield Insurance ( 1998 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
RH&M MACHINE COMPANY,
Plaintiff-Appellant,
v. No. 97-2018
WESTFIELD INSURANCE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of West Virginia, at Clarksburg.
Irene M. Keeley, District Judge.
(CA-97-16)
Argued: January 27, 1998
Decided: April 30, 1998
Before ERVIN and MICHAEL, Circuit Judges, and BRITT,
Senior United States District Judge for the Eastern District
of North Carolina, sitting by designation.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Vincent Jerome King, Charleston, West Virginia, for
Appellant. Catherine Dabney Munster, MCNEER, HIGHLAND,
MCMUNN & VARNER, L.C., Clarksburg, West Virginia, for Appel-
lee. ON BRIEF: James A. Varner, Larry W. Chafin, MCNEER,
HIGHLAND, MCMUNN & VARNER, L.C., Clarksburg, West Vir-
ginia, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
This case involves the second declaratory judgment action between
RH&M Machine Company and the Westfield Insurance Company.
RH&M seeks a declaration that the insurance contract issued to it by
Westfield creates a duty for Westfield to defend RH&M in a lawsuit
alleging patent infringement and unfair competition. The district court
granted Westfield summary judgment from which RH&M appeals.
We affirm.
RH&M builds trailerable backhoes, and their design has led to two
suits against the company for patent infringement. The first infringe-
ment suit was brought against RH&M by Spancrete Machinery Cor-
poration in June 1992. Although Westfield denied that RH&M's
commercial general liability policy covered such suits, it initially paid
for RH&M's defense while reserving the right to seek reimbursement.
Spancrete succeeded in this suit and was awarded a small amount of
damages, $12,000. Westfield ultimately paid this judgment as well as
RH&M's defense costs.
However, while the Spancrete litigation was pending, Westfield
brought the first declaratory judgment action in the Northern District
of West Virginia seeking a declaration that its insurance policy did
not create a duty to defend or indemnify RH&M on claims of patent
infringement. In December 1993 Westfield agreed not to seek reim-
bursement from RH&M for the costs that Westfield had incurred in
the Spancrete suit, but Westfield reserved the right to continue with
its declaratory judgment action. Two-and-one-half years later (on
April 8, 1996), however, the parties voluntarily dismissed the declara-
tory judgment suit with prejudice.
Thereafter, HCC, Inc., a company that had purchased Spancrete's
backhoe patent, sued RH&M for infringement on this same patent.
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RH&M again tendered the defense to Westfield under its insurance
contract, but Westfield denied RH&M's request for coverage,
defense, and indemnity. RH&M then filed this declaratory judgment
action in West Virginia state court, and Westfield removed the action
to federal court.
The district court subsequently granted summary judgment for
Westfield. Ruling from the bench, the court held that the first declara-
tory judgment action did not have a res judicata or collateral estoppel
effect that would bar Westfield from arguing that its policy did not
cover the HCC suit. While recognizing that cases dismissed with prej-
udice are normally considered to be decisions on the merits, see
Harrison v. Edison Bros. Apparel Stores, Inc., 924 F.2d 530, 534-35
(4th Cir. 1991), the court adopted the reasoning of Kaspar Wire
Works, Inc. v. Leco Engineering & Machine, Inc., 575 F.2d 530, 534-
40 (5th Cir. 1978), and ruled that declaratory judgment actions dis-
missed with prejudice are not final judgments on the merits that can
serve as res judicata. Similarly, the court ruled that because the extent
of the policy's coverage was not actually decided in the first declara-
tory judgment action, that action did not collaterally estop Westfield
from denying coverage here.
The district court then found for Westfield on the merits of the suit.
The court rejected RH&M's argument that HCC's allegations of
patent infringement stated an "advertisement injury" that would be
covered by Westfield's insurance policy. According to its terms, the
policy provided "advertising injury liability" coverage for the follow-
ing "advertising injur[ies]" caused by RH&M "in the course of adver-
tising [its] goods, products or services":
a. Oral or written publication of material that slanders or
libels a person or organization or disparages 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. Misappropriation of advertising ideas or style of doing
business; or
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d. Infringement of copyright, title or slogan.
Although RH&M argued that HCC's complaint alleged injuries cov-
ered by paragraphs (a) and (d), the district court disagreed and granted
summary judgment for Westfield.
On appeal, RH&M challenges the district court's ruling (1) that res
judicata and collateral estoppel do not preclude Westfield from deny-
ing coverage and (2) that HCC's claims of patent infringement are not
covered by the insurance contract. RH&M also contends that HCC's
lawsuit alleges an advertising injury arising from a misappropriation
of a style of doing business (see par. (c)) because HCC's complaint
alleges that RH&M advertised an infringing backhoe but ultimately
sold a non-infringing backhoe. However, since this last argument was
not raised before the district court, we decline to address it on appeal.
As to RH&M's other arguments, we affirm on the reasoning of the
district court.
AFFIRMED
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