Manzarek v. St. Paul Fire ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RAYMOND MANZAREK; DOORS 
TOURING, INC., a California
corporation,
No. 06-55936
Plaintiffs-Appellants,
v.  D.C. No.
CV-06-02082-R
ST. PAUL FIRE & MARINE
OPINION
INSURANCE COMPANY, a Minnesota
corporation,
Defendant-Appellee.

Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Argued and Submitted
February 11, 2008—Pasadena, California
Filed March 25, 2008
Before: Alfred T. Goodwin, Betty B. Fletcher, and
N. Randy Smith, Circuit Judges.
Opinion by Judge N.R. Smith
2971
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2975
COUNSEL
Kirk A. Pasich, Esq., Dickstein Shapiro LLP, Los Angeles,
California, for the plaintiffs-appellants.
Andrew R. McCloskey, Esq., Riedl, McCloskey & Waring
LLP, San Diego, California, for the defendant-appellee.
OPINION
N.R. Smith, Circuit Judge:
We hold that the district court erred by dismissing Ray-
mond Manzarek’s and Doors Touring, Inc.’s (“DTI”)
amended complaint because the underlying complaints raised
at least the potential for coverage under the operative insur-
ance policies. We further hold that the district court abused its
discretion by not giving Manzarek and DTI an opportunity to
amend their complaint. We have jurisdiction under 28 U.S.C.
§ 1291. We reverse and remand for further proceedings.
I. Background
A. Underlying Lawsuits
This insurance coverage and bad faith lawsuit arose out of
two lawsuits (“Underlying Lawsuits”) filed in California state
court against Manzarek (a founding member of the classic
rock group The Doors), DTI, and the other members of Man-
zarek’s band at the time of the filing of the lawsuits. John
Densmore (the former drummer for The Doors) filed one of
the Underlying Lawsuits (“Densmore Lawsuit”). The parents
of Jim Morrison (the former vocalist for The Doors) and the
parents of Pamela Courson (Morrison’s late wife) together
filed the other underlying lawsuit (“Courson Lawsuit”). Both
Underlying Lawsuits alleged that Manzarek and members of
2976 MANZAREK v. ST. PAUL FIRE & MARINE INS.
his band were liable for infringing on The Doors name, trade-
mark, and logo in conjunction with their planned national and
international tours. Both Underlying Lawsuits included alle-
gations against Manzarek and DTI for the improper use of
The Doors logo in conjunction with the marketing of products
and merchandise. Additionally, the Densmore Lawsuit alleged
that the breaches by Manzarek and his band caused Densmore
to suffer economic damages as well as damage to his “reputa-
tion and stature by causing people to believe that he was not,
and is not, an integral and respected part of The Doors band,
or is one member who easily can be replaced by another
drummer.”
The state trial court consolidated the Underlying Lawsuits
for trial but reserved some equitable claims for determination
by the court. At trial, the jury found Manzarek and the other
defendants liable on some claims but awarded no damages.
The record before us is not clear what result the state trial
court reached on the equitable claims that it removed from the
jury’s consideration. Manzarek’s and DTI’s defense fees and
costs in the Underlying Lawsuits exceeded $3 million.
B. The Policies
From May 24, 2002 to May 24, 2003, St. Paul Fire &
Marine Insurance Company (“St. Paul”) insured Manzarek
only under a commercial general liability policy (“Manzarek
Policy”). The Manzarek Policy was effective beginning on
May 24, 2002 but St. Paul did not issue it until October 3,
2002. From December 30, 2002 to December 30, 2003, St.
Paul insured Manzarek, DTI, and Robert Krieger1 under
another commercial general liability policy (“DTI Policy”).
The DTI Policy was effective beginning on December 30,
2002, but St. Paul did not issue it until February 19, 2003. It
1
The policy lists “Robbie Creeder” as an insured. This appears to be a
typographical error as Robert Krieger is a founding member of The Doors
and was part of Manzarek’s new band.
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2977
is not clear from our review of the record when St. Paul actu-
ally delivered copies of the Manzarek Policy or the DTI Pol-
icy to its insureds, though the complaint in this action alleges
that St. Paul did not deliver the DTI Policy until sometime
after February 28, 2003.
Among other things, both of the commercial general liabil-
ity policies (“Policies”) insured against the occurrence of
“bodily injury,” “property damage,” “personal injury,” and
“advertising injury.” Manzarek and DTI argue, and St. Paul
concedes, that some of the alleged conduct falls within the
“advertising injury” portion of the Policies. That portion of
the Policies contains the following provisions:
Advertising injury liability. We’ll pay amounts any
protected person is legally required to pay as dam-
ages for covered advertising injury that:
• results from the advertising of your products,
your work, or your completed work; and
• is caused by an advertising injury offense com-
mitted while this agreement is in effect.
Advertising injury offense means any of the follow-
ing offenses:
• Libel, or slander, in or with covered material.
• Making known to any person or organization
covered material that disparages the business,
premises, products, services, work, or completed
work of others.
• Making known to any person or organization
covered material that violates a person’s right of
privacy.
2978 MANZAREK v. ST. PAUL FIRE & MARINE INS.
• Unauthorized use of any advertising idea or
advertising material, or any slogan or title, of oth-
ers in your advertising.
Advertising means attracting the attention of others
by any means for the purpose of:
• seeking customers or supporters; or
• increasing sales or business.
Advertising idea means a manner or style of adver-
tising that others use and intend to attract attention
in their advertising.
But we won’t consider information used to identify
or record customers or supporters, such as a list of
customers or supporters, to be an advertising idea.
Advertising material means any covered material
that:
• is subject to copyright law; and
• others use and intend to attract attention in their
advertising.
Both Policies also contain a Field of Entertainment Limita-
tion Endorsement (“FELE”) which “changes [the insured’s]
Commercial General Liability Protection” and “reduces cov-
erage.” In relevant part, the FELE “reduces coverage” as fol-
lows:
Field of Entertainment. We won’t cover personal
injury or advertising injury that results from the con-
tent of, or the advertising or publicizing for, any
Properties or Programs which are within your Field
of Entertainment Business.
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2979
Properties or Programs means any of your proper-
ties, products, programs, materials or other matter.
Field of Entertainment Business includes the follow-
ing;
• The creation, production, publication, distribu-
tion, exploitation, exhibition, advertising and
publicizing of product or material in any and all
media such as motion pictures of any kind and
character, television programs, commercials or
industrial or educational or training films, phono-
graph records, audio or video tapes, CDs or CD
ROMs, computer on-line services or internet or
Web site pages, cassettes or discs, electrical tran-
scriptions, music in sheet or other form, live per-
formance, books or other publications.
• The ownership, operation, maintenance or use of
radio and television broadcasting stations. CATV
systems, cinemas, stage productions with living
actors, and any similar exhibition or broadcast
media.
• The ownership, operation maintenance or use of
merchandising programs, advertising or publicity
material, characters or ideas: whether or not on
your premises or in your possession at the time of
the alleged offense.
As referenced above, both Policies also insured against the
occurrence of “bodily injury.” The Policies define “bodily
injury” to mean “any physical harm, including sickness or dis-
ease, to the physical health of other persons.” The Policies
include mental anguish, injury, or illness, and emotional dis-
tress in the definition of covered “bodily injuries.”
2980 MANZAREK v. ST. PAUL FIRE & MARINE INS.
C. The Instant Action
On February 5, 2003, Manzarek and DTI notified St. Paul
of the Densmore Lawsuit. St. Paul responded by letter on Feb-
ruary 18, 2003. That letter notified Manzarek and DTI that,
although St. Paul was still investigating coverage issues, its
preliminarily determination was that the Policies did not cover
the Densmore Lawsuit. According to the complaint, St. Paul
delivered this letter before it issued the DTI Policy or deliv-
ered a copy of it to its insureds. St. Paul did not issue the DTI
Policy until February 19, 2003—nearly two weeks after Man-
zarek and DTI tendered a copy of the Densmore Lawsuit to
St. Paul. The complaint also alleges that St. Paul preliminarily
denied coverage before it considered the language contained
in either of the Policies.
On March 5, 2003, St. Paul notified Manzarek and DTI that
both Policies contained the FELE. St. Paul denied coverage
and refused to defend the Densmore Lawsuit on that basis. On
March 19, 2003, St. Paul reiterated the applicability of the
FELE and notified Manzarek and DTI that the Policies did not
obligate it to defend or indemnify the Densmore Lawsuit.
Thereafter, Manzarek and DTI tendered the Courson Law-
suit to St. Paul. On May 6, 2003, St. Paul advised its insureds
that the Policies did not provide coverage for the Courson
Lawsuit. St. Paul therefore denied coverage and declined to
defend the Courson Lawsuit based on its interpretation of the
FELE. In the months that followed, Manzarek and DTI con-
tinued to demand a defense under the Policies and St. Paul
persisted in its refusal to defend or indemnify its insureds.
Manzarek and DTI filed this coverage and bad faith lawsuit
against St. Paul in Los Angeles Superior Court approximately
two years later. On April 5, 2006, Manzarek and DTI volun-
tarily amended their complaint. The amended complaint con-
tained claims against St. Paul for (1) breach of contract; (2)
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2981
breach of the implied covenant of good faith and fair dealing;
and (3) declaratory relief.
St. Paul removed the action to the United States District
Court on April 6, 2006. On April 11, 2006, St. Paul filed a
motion to dismiss the first amended complaint pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure. The
district court heard argument on St. Paul’s motion to dismiss
on May 15, 2006 and entered a two-line docket entry granting
the motion to dismiss that same day. The docket entry by the
district court states that “[t]he court GRANTS the motion.
Defendants shall submit a proposed order.” On May 18, 2006,
St. Paul provided the district court with a proposed order
granting the motion to dismiss with prejudice.
The district court signed St. Paul’s proposed order on May
19, 2006. The clerk entered the order on May 22, 2006. That
order dismissed with prejudice Manzarek’s and DTI’s claims
for breach of contract and breach of the implied covenant of
good faith and fair dealing, holding that the FELE was con-
spicuous, plain, clear, and unambiguous. Consequently, the
district court held that St. Paul owed Manzarek and DTI no
duty to defend or indemnify against the claims in the Underly-
ing Lawsuits. Additionally, the district court found that
“[a]mendment of Plaintiffs’ First Amended Complaint would
be futile because plaintiffs would be unable to allege facts that
would alter these strictly legal determinations.”
Manzarek and DTI appeal the district court’s order granting
the motion to dismiss. Manzarek and DTI contend that the
district court erred by (1) holding that no duty to defend
existed under the Policies; (2) dismissing their claim for
breach of contract; and (3) dismissing their claim for breach
of the implied covenant of good faith and fair dealing. Alter-
natively, Manzarek and DTI argue that the district court
should have allowed them the opportunity to amend their
complaint to state a viable claim for relief against St. Paul.
2982 MANZAREK v. ST. PAUL FIRE & MARINE INS.
Manzarek and DTI argue that the district court abused its dis-
cretion by not giving them a chance to amend.
II. Standard of Review
We review de novo the district court’s decision to grant St.
Paul’s motion to dismiss under Federal Rule of Civil Proce-
dure 12(b)(6). See Outdoor Media Group, Inc. v. City of
Beaumont, 506 F.3d 895, 899 (9th Cir. 2007) (internal citation
omitted). “When ruling on a motion to dismiss, we may ‘gen-
erally consider only allegations contained in the pleadings,
exhibits attached to the complaint, and matters properly sub-
ject to judicial notice.’ ” Id. at 899-900 (quoting Swartz v.
KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007)). We accept
factual allegations in the complaint as true and construe the
pleadings in the light most favorable to the nonmoving party.
Id. at 900. We need not accept as true conclusory allegations
that are contradicted by documents referred to in the com-
plaint. Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136,
1139 (9th Cir. 2003) (internal citation omitted).
“Denial of leave to amend is reviewed for an abuse of dis-
cretion.” Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir.
2002). “ ‘Dismissal without leave to amend is improper unless
it is clear, upon de novo review, that the complaint could not
be saved by any amendment.’ ” Id. (quoting Polich v. Bur-
lington N., Inc., 942 F.2d 1467, 1472 (9th Cir. 1991)).
III. Discussion
In this diversity case, we must apply California law when
interpreting the Policies. See Aetna Cas. & Sur. Co., Inc. v.
Centennial Ins. Co., 838 F.2d 346, 350 (9th Cir. 1988). Inter-
pretation of insurance contracts under California law requires
us to employ general principles of contract interpretation.
MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1212 (Cal.
2003); Safeco Ins. Co. of Am. v. Robert S., 28 P.3d 889, 893
(Cal. 2001). Under California law, we are to give effect to the
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2983
“mutual intention of the parties at the time the contract is
formed.” MacKinnon, 73 P.3d at 1213; see Cal. Civ. Code
§ 1636.
Clear, explicit, and unambiguous contractual language gov-
erns. See Boghos v. Certain Underwriters at Lloyd’s of Lon-
don, 115 P.3d 68, 71 (Cal. 2005); Cal. Civ. Code § 1638. In
the event of an ambiguity, we must interpret contractual terms
to “protect the objectively reasonable expectations of the
insured.” Boghos, 115 P.3d at 71 (internal quotation marks
and citations omitted). “Only if these rules do not resolve a
claimed ambiguity do we resort to the rule that ambiguities
are to be resolved against the insurer.” Id.
A. Breach of Contract
Manzarek and DTI assert that the district court erred by dis-
missing their claim for breach of contract with prejudice
because the allegations in the Underlying Lawsuits triggered
a contractual duty to defend. For the reasons set forth below,
we agree.
1. Applicable Law
a. Scope of Duty to Defend
[1] Under California law, an insurer must defend its insured
“if the underlying complaint alleges the insured’s liability for
damages potentially covered under the policy, or if the com-
plaint might be amended to give rise to a liability that would
be covered under the policy.” Montrose Chem. Corp. v. Supe-
rior Court, 861 P.2d 1153, 1160 (Cal. 1993) (citation omit-
ted). The duty to defend is broader than the duty to indemnify.
Id. at 1157. Even if no damages are awarded, the duty to
defend may still exist. Id. “ ‘The determination whether the
insurer owes a duty to defend usually is made in the first
instance by comparing the allegations of the complaint with
the terms of the policy.’ ” Id. (quoting Horace Mann Ins. Co.
2984 MANZAREK v. ST. PAUL FIRE & MARINE INS.
v. Barbara B., 846 P.2d 792, 795 (Cal. 1993)). “Any doubt as
to whether the facts establish the existence of the defense duty
must be resolved in the insured’s favor.” Montrose Chem.
Corp., 861 P.2d at 1160. If any of the claims in the underlying
complaint are covered, the insurer has a duty to defend the
entire action. Horace Mann Ins. Co., 846 P.2d at 797-98. The
court may consider facts outside the complaint “ ‘when they
reveal a possibility that the claim may be covered by the poli-
cy.’ ” Id. at 795.
b. Enforceability of Coverage Limitations
[2] “[I]nsurance coverage is interpreted broadly so as to
afford the greatest possible protection to the insured,
[whereas] exclusionary clauses are interpreted narrowly
against the insurer.” MacKinnon, 73 P.3d at 1213 (internal
quotation marks and citation omitted) (bracketed text in origi-
nal); see Mariscal v. Old Republic Life Ins. Co., 50 Cal. Rptr.
2d 224, 227 (Cal. Ct. App. 1996) (recognizing that “exclu-
sions are strictly interpreted against the insurer”). An “exclu-
sionary clause must be conspicuous, plain and clear.”
Mackinnon, 73 P.3d at 1213 (internal quotation marks and
citation omitted). “This rule applies with particular force
when the coverage portion of the insurance policy would lead
an insured to reasonably expect coverage for the claim pur-
portedly excluded.” Id. “The burden is on the insured to estab-
lish that the claim is within the basic scope of coverage and
on the insurer to establish that the claim is specifically exclud-
ed.” Id. “Coverage may be limited by a valid endorsement
and, if a conflict exists between the main body of the policy
and an endorsement, the endorsement prevails.” Haynes v.
Farmers Ins. Exch., 89 P.3d 381, 385 (Cal. 2004).
2. Analysis
The district court signed and entered St. Paul’s proposed
order granting St. Paul’s motion to dismiss the claim for
breach of contract. The order states that “[t]he FELE was suf-
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2985
ficiently conspicuous” and notes that “[i]n addition to being
conspicuously referenced in the policy declarations and
attached as a separate endorsement, the language of the FELE
[was] plain and clear.” The district court then concluded that
based on the plain and clear language of the FELE, it was rea-
sonable for St. Paul to believe its insureds understood the lim-
iting effect of the FELE on advertising injury coverage under
the Policies. Based on that conclusion, the district court dis-
missed the breach of contract claim with prejudice.
[3] The fundamental problem with the district court’s deci-
sion is that it fails to apply the language of the FELE to the
factual allegations contained in the complaints filed in the
Underlying Lawsuits. The FELE excludes coverage for the
“advertising or publicizing for, any Properties or Programs
which are within your Field of Entertainment Business.” Con-
trary to the interpretation adopted by the district court, the
definition of Field of Entertainment Business is not broad
enough to cover the entirety of the allegations in the Underly-
ing Lawsuits. In relevant part, the Policies define “Field of
Entertainment Business” as follows:
The creation, production, publication, distribution,
exploitation, exhibition, advertising and publicizing
of product or material in any and all media such as
motion pictures of any kind and character, television
programs, commercials or industrial or educational
or training films, phonograph records, audio or video
tapes, CDs or CD ROMs, computer on-line services
or internet or Web site pages, cassettes or discs, elec-
trical transcriptions, music in sheet or other form,
live performance, books or other publications.
(Emphasis added).
[4] California law requires us to adopt a narrow construc-
tion of the FELE. With such narrow construction, the FELE
would not exclude advertising injury coverage if, for example,
2986 MANZAREK v. ST. PAUL FIRE & MARINE INS.
Manzarek and DTI began distributing “The Door’s Own” line
of salad dressing.2 Advertising injury coverage for such a
product would still exist because Manzarek and DTI would
not necessarily publicize, distribute, exploit, exhibit, or adver-
tise in media such as motion pictures, etc. For similar reasons,
the FELE would not completely exclude advertising injury
coverage if Manzarek and DTI began marketing a line of t-
shirts or electric guitars with The Doors logo or Morrison’s
likeness on them. Although marketing these products would
undoubtedly expose Manzarek and DTI to a claim for adver-
tising injury, Manzarek and DTI would still enjoy advertising
injury coverage under the Policies.
[5] In this case, the Underlying Lawsuits allege that Man-
zarek and DTI marketed products and merchandise at their
concerts and on The Doors official website. The Underlying
Lawsuits, however, are silent about what type of products and
merchandise that Manzarek and DTI produced and marketed.
For all St. Paul knew when it denied coverage, the products
marketed by Manzarek and DTI included guitars, t-shirts, and
perhaps (although we realize it is not likely) salad dressing
bottles with The Doors logo and/or Morrison’s likeness
affixed to them. These allegations raised a potential for cover-
age under the Policies and, for that reason, the district court
erred by summarily dismissing Manzarek’s and DTI’s breach
of contract claim.
[6] Additionally, the district court erred by dismissing the
breach of contract claim because the Underlying Lawsuits
raised a potential for coverage under the “bodily injury” por-
tion of the Policies. The Densmore Lawsuit contained an alle-
gation that Manzarek’s and DTI’s actions caused damage to
Densmore’s “reputation and stature by causing people to
believe that he was not, and is not, an integral and respected
2
St. Paul uses “The Doors Own” salad dressing as an example of a prod-
uct that Manzarek and DTI could market and still enjoy advertising injury
coverage under the Policies.
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2987
part of The Doors band, or is one member who easily can be
replaced by another drummer.” This allegation was sufficient
to raise the potential of an award of mental anguish or emo-
tional distress damages. For that additional reason, the district
court erred by dismissing the breach of contract claim.
[7] Finally, the district court held that dismissal was appro-
priate because “[s]ince the FELE was conspicuous, plain and
clear, it was reasonable for St. Paul to believe the insured
understood it.” We also find this problematic, because we
must take the allegations in the complaint as true. The com-
plaint makes clear that St. Paul had not yet delivered or issued
the DTI Policy to Manzarek and/or DTI when Manzarek and
DTI demanded coverage under the Policies. The record is
silent about when St. Paul delivered the Manzarek Policy. It
should go without saying that an insured cannot be deemed to
reasonably understand the terms of a policy he or she has not
seen or fully comprehend the exclusionary language of a pol-
icy that has not yet been issued. In light of those facts, again
under the deferential standard of review applicable to a
motion to dismiss, it is far from clear that “it was reasonable
for St. Paul to believe the insured understood” the impact of
the FELE on advertising and personal injury coverage. Thus,
it was error for the district court to adopt St. Paul’s proposed
order and dismiss the breach of contract claim.
B. Breach of the Implied Covenant of Good Faith and
Fair Dealing
The entirety of the district court’s analysis regarding its
decision to dismiss Manzarek’s and DTI’s claim for breach of
the implied covenant of good faith and fair dealing is encap-
sulated in the following sentence: “St. Paul did not breach the
covenant of good faith and fair dealing in denying coverage
or in declining to defend the Underlying Actions as a matter
of law.” This holding was in error.
[8] California law is clear, that without a breach of the
insurance contract, there can be no breach of the implied cov-
2988 MANZAREK v. ST. PAUL FIRE & MARINE INS.
enant of good faith and fair dealing. Waller v. Truck Ins.
Exch., Inc., 900 P.2d 619, 638-39 (Cal. 1995). In Waller, the
California Supreme Court stated that:
It is clear that if there is no potential for coverage
and, hence, no duty to defend under the terms of the
policy, there can be no action for breach of the
implied covenant of good faith and fair dealing
because the covenant is based on the contractual
relationship between the insured and the insurer.
Id. at 639; see also Am. Med. Int’l, Inc. v. Nat’l Union Fire
Ins. Co. of Pittsburgh, 244 F.3d 715, 720 (9th Cir. 2001)
(“Without a right to coverage, the Waller court concluded,
there is no obligation the insurer may frustrate.”).
[9] As discussed above, the district court erred by dismiss-
ing the claim for breach of contract. In light of our holding
regarding the viability of that claim, the district court also
erred by summarily dismissing the claim for breach of the
implied covenant of good faith and fair dealing.
C. Leave to Amend
[10] The district court also abused its discretion by failing
to allow Manzarek and DTI an opportunity to amend. “Dis-
missal without leave to amend is improper unless it is clear,
upon de novo review, that the complaint could not be saved
by any amendment.” Steckman v. Hart Brewing, Inc., 143
F.3d 1293, 1296 (9th Cir. 1998) (internal quotation marks,
brackets, and citation omitted). “The decision of whether to
grant leave to amend nevertheless remains within the discre-
tion of the district court, which may deny leave to amend due
to ‘undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, [and] futility of
amendment.’ ” Leadsinger, Inc. v. BMG Music Publ’g., 512
MANZAREK v. ST. PAUL FIRE & MARINE INS. 2989
F.3d 522, 532 (9th Cir. 2008) (quoting Foman v. Davis, 371
U.S. 178, 182 (1962)). “An outright refusal to grant leave to
amend without a justifying reason is, however, an abuse of
discretion.” Id. (internal citation omitted).
[11] Here, the district court abused its discretion, because
Manzarek and DTI only learned that the district court would
not allow them an opportunity to remedy any perceived
defects in the complaint after St. Paul submitted its proposed
order, and the district court summarily signed and entered it.
The district court never explained at a hearing that it intended
to dismiss the complaint with prejudice. The district court’s
docket entry (granting the motion to dismiss) also did not
reflect that the dismissal would be without leave to amend.
Though the district court signed an order, stating that
“[a]mendment of Plaintiffs’ First Amended Complaint would
be futile because plaintiffs would be unable to allege facts that
would alter these strictly legal determinations,” it never
allowed Manzarek and DTI a chance to explain how they
could amend the complaint if allowed to do so. Indeed,
according to the record before us on appeal, it appears that the
district court did not even consider the viability of any poten-
tial amendments to the complaint before dismissing the com-
plaint with prejudice.
At the appellate hearing, Manzarek’s and DTI’s counsel
suggested that Manzarek and DTI could have made several
factual amendments and clarifications to undermine St. Paul’s
argument that the FELE excluded all potential for coverage
under the Policies. Manzarek and DTI argued that they might
have amended the complaint (1) to identify the products that
they marketed to make clear that the FELE did not exclude
advertising injury coverage for those products; (2) to allege
that they were not told of the applicability of the FELE at the
time they purchased the Policies; (3) to allege that St. Paul
misrepresented the terms of the Policies at the time they pur-
chased the Policies; or (4) to allege that the FELE makes the
2990 MANZAREK v. ST. PAUL FIRE & MARINE INS.
Policies unconscionable. We express no view on the viability
of these potential amendments or whether the complaint can
stand without amendment. The district court should have the
opportunity to reconsider its ruling on the original complaint
and to consider the proposed amendments in the first instance.
[12] This record does not evidence any other reason to deny
leave to amend. There was no indication of undue delay, bad
faith, or dilatory motive on the part of Manzarek or DTI. See
Leadsinger, Inc., 512 F.3d at 532. There was also no showing
of prejudice to St. Paul by allowing an amendment. Id.
Instead, the opposite was true. The action had been in federal
court for less than two months when the district court dis-
missed the claims with prejudice. Trial was not fast approach-
ing. In summary, nothing in the record justified the district
court’s decision to enter dismissal with prejudice. The district
court summarily signed and entered a written order proposed
by St. Paul including such relief. The district court therefore
abused its discretion by refusing to allow Manzarek and DTI
an opportunity to amend their complaint before entering final
judgment against them.
IV. Conclusion
We therefore reverse and remand the district court’s order
granting St. Paul’s motion to dismiss. Taking the allegations
in the complaint as true, Manzarek and DTI stated a viable
claim for breach of contract against St. Paul. As a result, the
district court erred by dismissing Manzarek’s and DTI’s
claims for breach of contract and breach of the implied cove-
nant of good faith and fair dealing. Lastly, the district court
abused its discretion by failing to allow Manzarek and DTI
the opportunity to amend.
REVERSED.