United National Insurance Company v. Spectrum Worldwide ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED NATIONAL INSURANCE 
COMPANY, a Pennsylvania
corporation,
Plaintiff-Appellee,
v.
SPECTRUM WORLDWIDE, INC., a
California corporation; CELEBRITY No. 07-55833
PRODUCTS DIRECT, INC., a
California corporation; LISA  D.C. No.
CV-05-04610-SGL
TREMAIN, a California citizen;
HOWARD SCHWARTZ, a California OPINION
citizen,
Defendants-Appellants,
and
MONTICELLO INSURANCE COMPANY, a
Delaware corporation,
Defendant.

Appeal from the United States District Court
for the Central District of California
Stephen G. Larson, District Judge, Presiding
Argued and Submitted
October 21, 2008—Pasadena, California
Filed February 2, 2009
Before: Harry Pregerson and N. Randy Smith, Circuit
Judges, and Raner C. Collins,* District Judge.
*The Honorable Raner C. Collins, United States District Judge for the
District of Arizona, sitting by designation.
1157
1158 UNITED NATIONAL v. SPECTRUM WORLDWIDE
Opinion by Judge N.R. Smith
1160 UNITED NATIONAL v. SPECTRUM WORLDWIDE
COUNSEL
James C. Nielsen, Jennifer S. Cohn, and August L. Lohuaru,
Nielsen, Haley & Abbott LLP, Los Angeles, California, for
the plaintiffs-appellees.
Peter W. Ross, Gene Williams, and Keith J. Wesley, Brown
Woods & George LLP, Los Angeles, California, for the
defendants-appellants.
OPINION
N.R. SMITH, Circuit Judge:
Spectrum Worldwide, Inc. (“Spectrum Worldwide”),
Celebrity Products Direct, Inc. and Celebrity Products, Inc.
(collectively “Celebrity”), Spectrum Worldwide’s president
Murray Moss (“Moss”), CEO Lisa Tremain (“Tremain”), and
CFO Howard Schwartz (“Schwartz”) (all of the defendants
hereinafter referred to as “Spectrum”) asks this court to deter-
mine whether the “first publication” exclusion found in the
United National Insurance Company’s (“United”) excess
insurance policy applies to infringement claims. We hold that
it does. Additionally, because Spectrum presents us with a
legal position that is clearly inconsistent with the position it
took and benefitted from in previous litigation, judicial estop-
pel prevents us from allowing Spectrum to argue that it first
published infringing material after purchasing its excess
insurance coverage. Further, the district court did not abuse its
discretion when it held Schwartz and Tremain jointly and sev-
erally liable for repayment of United’s contribution.
UNITED NATIONAL v. SPECTRUM WORLDWIDE 1161
I
In December 1997, Sunset Health Products, Inc. (“Sunset”)
hired Spectrum to advertise and distribute the “Hollywood 48-
Hour Miracle Diet” drink (“Miracle Diet”). Soon thereafter,
Tremain and Schwartz formed Celebrity to market and sell a
similar product, “The Original Hollywood Celebrity Diet”
drink (“Celebrity Diet”). Spectrum then terminated its con-
tract with Sunset and began marketing Celebrity Diet.
In December 1998, and again in March 1999, Sunset
demanded that Spectrum cease infringing on its Miracle Diet
trademark. In October 2001, Sunset filed a trade dress
infringement claim against Spectrum, alleging that Spectrum
“deliberately” made Celebrity Diet’s packaging and labeling
so similar to Miracle Diet that it confused consumers and
damaged Sunset’s reputation (the “Sunset Action”). Sunset
applied for a temporary restraining order (“TRO”), wherein it
asked District Judge Nora Manella1 to compare Sunset’s 1998
label to Spectrum’s 1998 and 2001 labels to determine that
Spectrum’s 2001 label constituted an immediate harm to Sun-
set. In 1998, Sunset’s Miracle Diet label prominently featured
the word “Hollywood,” contained the phrase “Lose Up To 10
lbs. in 48 Hours!,” and included palm trees, gold stars, and
Hollywood-style searchlights—all set on a blue/purple back-
ground (“Sunset’s 1998 label”). Spectrum initially sold Celeb-
rity Diet under a label featuring very similar phrasing, but set
against a black background with a large gold star
(“Spectrum’s 1998 label”). In 1999, Spectrum changed Celeb-
rity Diet’s label, sporting the same large gold star and phras-
ing, but switching to a purple/blue background featuring
Hollywood-style searchlights (“Spectrum’s 1999 label”). In
May 2001, Spectrum again altered Celebrity Diet’s label,
1
District Judge Nora M. Manella heard the Sunset Action and was origi-
nally assigned to hear United’s reimbursement claim. However, United’s
action was transferred to District Judge Stephen G. Larson upon Judge
Manella’s appointment to the California Court of Appeal.
1162 UNITED NATIONAL v. SPECTRUM WORLDWIDE
changing the font and style of the word “Hollywood” to look
more like the Hollywood Hills sign, and modified the star and
searchlights (“Spectrum’s 2001 label”).
Judge Manella granted the TRO based on the dramatic
change between Spectrum’s 1998 and 2001 labels. In the sub-
sequent preliminary injunction hearing, however, Spectrum
argued that it changed its 1998 label in 1999, and that its 1999
label was so similar to its 2001 label that Sunset was not in
danger of experiencing immediate harm. Judge Manella
accepted Spectrum’s position, and denied Sunset’s prelimi-
nary injunction action on this basis. Spectrum therefore con-
tinued profiting from the sale of Celebrity Diet, while
deepening potential insurers’ liability.
In 2001, United also issued Spectrum a one million dollar
excess third party liability policy (the “United Policy”) related
to an underlying policy issued by Monticello Insurance Com-
pany (the “Monticello Policy”). United’s policy became effec-
tive on April 26, 2001, and is “subject to definitions, terms,
conditions, exclusions and limitations contained in the [Mon-
ticello Policy],” which indemnifies Spectrum for damages
resulting from “advertising injury” liability, meaning injury
arising from:
a. Oral or written publication of material that slan-
ders or libels a person or organization or dispar-
ages a person’s or organization’s goods,
products, or services;
b. Oral or written publication of material that vio-
lates a person’s right of privacy;
c. Misappropriation of advertising ideas or style of
doing business;
d. Infringement of copyright, title or slogan.
UNITED NATIONAL v. SPECTRUM WORLDWIDE 1163
The United Policy does not, however, apply to an “adver-
tising injury . . . arising out of oral or written publication of
material whose first publication took place before the begin-
ning of the policy period.”
After subsequent hearings on cross-motions for summary
judgment in the Sunset Action, the parties were left with Sun-
set’s core trade-dress infringement claim. Spectrum and Sun-
set then settled the Sunset Action for a total of $3,220,000
paid to Sunset, funded by Spectrum’s insurers. United con-
tributed $420,000 to the settlement, pursuant to its obligations
under the United Policy.
United sought reimbursement of its settlement contribution
through a Complaint filed against Spectrum on June 24, 2005.
United moved for summary judgment, arguing that the United
Policy’s first publication exclusion eliminated its indemnifica-
tion obligations. Finding the first publication exclusion gener-
ally applicable to infringement claims, the district court
nonetheless denied United’s motion on September 6, 2006
because “triable issues of fact” prevented the court from
determining whether Spectrum’s offending actions occurred
prior to the United Policy’s effective date.
United moved for reconsideration, based on its claim that
Sunset’s advertising injury had already been determined by
Judge Manella in the Sunset Action. After reviewing Judge
Manella’s findings, the district court reconsidered and granted
United’s motion for summary judgment, holding that Spec-
trum’s 1999 label formed the substance of Sunset’s advertis-
ing injury, and therefore that the first publication exclusion
eliminates United’s liability. The district court entered a judg-
ment against Spectrum Worldwide, Schwartz, and Tremain in
the amount of $420,000 plus interest. Spectrum moved for
reconsideration, arguing first that the district court should not
have relied upon Judge Manella’s previous findings, and sec-
ond that Schwartz and Tremain should not have been included
in the judgment. The district court denied Spectrum’s motion
1164 UNITED NATIONAL v. SPECTRUM WORLDWIDE
on May 11, 2007. Spectrum filed a Notice of Appeal on June
6, 2007, and satisfied the judgment.
II
We review de novo a district court’s decision to grant sum-
mary judgment. Thomas v. City of Beaverton, 379 F.3d 802,
807 (9th Cir. 2004). We do not weigh the evidence or deter-
mine the truth of the matter, but only determine whether there
is a genuine issue of fact for trial. See Balint v. Carson City,
180 F.3d 1047, 1054 (9th Cir. 1999). We may affirm on any
basis supported by the record, Valdez v. Rosenbaum, 302 F.3d
1039, 1043 (9th Cir. 2002).
III
Spectrum argues that the United Policy’s first publication
exclusion does not apply to Sunset’s infringement claim,
because (1) first publication exclusions do not apply to
infringement actions in California and (2) even if the clause
applies to infringement actions, summary judgment was not
proper to determine whether Spectrum first published infring-
ing material before the United Policy took effect. We find that
(1) the United Policy unambiguously applies to infringement
actions, and (2) summary judgment is proper to determine the
date of first publication in this case, because Spectrum is judi-
cially estopped from presenting and prevailing on inconsistent
arguments before the district courts.
A
[1] Insurance policy interpretation is a question of Califor-
nia law, which requires courts to initially look to the insur-
ance policy language in order to ascertain its plain meaning.
Cal. Civ. Code § 1636; Waller v. Truck Ins. Exch., Inc., 900
P.2d 619, 627 (Cal. 1995). Because insurance policy interpre-
tation must give effect to the parties’ “mutual intention” at the
time they formed the contract, Cal. Civ. Code § 1636, the par-
UNITED NATIONAL v. SPECTRUM WORLDWIDE 1165
ties’ intent should be inferred solely from the written provi-
sions of the contract. Cal. Civ. Code § 1639. The written
provisions should be examined “together, so as to give effect
to every part, if reasonably practicable.” Cal. Civ. Code
§ 1641. If a written policy provision is “clear and explicit,” it
must be given proper effect. E.g., Fireman’s Fund Ins. Co. v.
Superior Court, 78 Cal. Rptr. 2d 418, 422 (Cal. Ct. App.
1997).
On the other hand, if a policy provision is capable of two
or more reasonable constructions, it is “ambiguous,” Waller,
900 P.2d at 627 (citing Bay Cities Paving Grading, Inc. v.
Lawyers’ Mutual Ins. Co., 855 P.2d 1263, 1271 (Cal. 1993)),
and courts “must resolve the ambiguity in favor of the
insured, consistent with the insured’s reasonable expecta-
tions,” E.M.M.I. Inc. v. Zurich American Ins. Co., 84 P.3d
385, 391 (Cal. 2004) (citation omitted). However, “[c]ourts
will not strain to create an ambiguity where none exists.”
Waller, 900 P.2d at 627 (citing Reserve Ins. Co. v. Pisciotta,
640 P.2d 764, 768 (Cal. 1982)). In addition, insurance policy
exclusions must be “conspicuous, plain and clear,” otherwise
they are “strictly construed” in favor of the insured. E.M.M.I.
Inc., 84 P.3d at 389 (citations omitted) (emphasis in original).
[2] We find that the United Policy’s first publication clause
is clear and explicit, and must be given its proper effect. The
United Policy’s first publication exclusion asserts that “[t]his
insurance does not apply to . . . ‘advertising injury’ . . . (2)
Arising out of oral or written publication of material whose
first publication took place before the beginning of the policy
period.” The Policy further defines “advertising injury,” in
relevant part, as “injury arising out of . . . [i]nfringement of
copyright, title or slogan.” Plainly reading the first publication
exclusion and the relevant advertising injury definition
together indicates that the parties intended to exclude from
coverage any copyright infringement injury that arose from an
oral or written publication of material first published before
the policy became effective.
1166 UNITED NATIONAL v. SPECTRUM WORLDWIDE
United argues that this language unambiguously applies to
infringement claims. Spectrum asserts that the language is
ambiguous, arguing that because the “advertising injury” defi-
nition only uses the word “publication” in sections (a) (slan-
der, libel) and (b) (invasion of privacy), and not in sections (c)
defamation and (d) infringement, “it is reasonable to conclude
that the first publication exclusion only applie[s] to claims for
libel, slander and invasion of privacy because the exclusion
explicitly refer[s] to the ‘oral or written publication of materi-
al.’ ” See Arnette Optic Illusions, Inc. v. ITT Hartford Group,
Inc., 43 F. Supp. 2d 1088 (C.D. Cal. 1998)).2 Accordingly,
Spectrum concludes that because two reasonable interpreta-
tions exist (that the exclusion applies to infringement claims,
or it does not), the first publication exclusion is ambiguous
and must be interpreted in its favor. See id. at 1097 (citation
omitted).
Spectrum’s argument would require us to ignore sections
(c) (misappropriation) and (d) (infringement) of the “advertis-
ing injury” definition in order to find an ambiguity. That argu-
ment contradicts California policy that instructs courts (1) to
“give effect to every part, if reasonably practicable,” Cal. Civ.
Code § 1641, and (2) not to “strain” to find ambiguities. See,
e.g., Waller, 900 P.2d at 627. In order to find Spectrum’s
interpretation reasonable, we would have to conclude that it
is reasonable to ignore Monticello’s3 efforts to carefully
define the term “advertising injury” to mean injury arising out
of defamation, invasion of privacy, misappropriation, and/or
infringement and set the term off in quotation marks through-
out the policy. We would also have to conclude that it is rea-
2
In Arnette, the district court reviewed a first publication exclusion that
was identical to the United Policy exclusion, and found that both interpre-
tations are reasonable. Arnette, 43 F. Supp. 2d at 1097. Accordingly, the
court concluded that the exclusion was ambiguous. Id. Spectrum relies on
Arnette’s reasoning throughout its argument.
3
Monticello drafted the United Policy; United referred to the original
Monticello policy for its excess coverage policy terms.
UNITED NATIONAL v. SPECTRUM WORLDWIDE 1167
sonable to believe Monticello used “advertising injury” to
mean injury arising out of defamation, invasion of privacy,
misappropriation, and/or infringement in several places
throughout the policy, but not in the first publication exclu-
sion, despite no language in the exclusion to that effect. We
cannot reasonably make these conclusions while complying
with California contract interpretation principles.
[3] Moreover, under California law, a split in authority
does not necessarily render an exclusion ambiguous. See, e.g.,
MacKinnon v. Truck Ins. Exchange, 73 P.3d 1205, 1212 (Cal.
2003) (a policy exclusion “does not become ambiguous
merely because the parties disagree about its meaning, or
because they can point to conflicting interpretations of the
clause by different courts”). Accordingly, based on a plain
reading of the insurance policy, we find that the United first
publication exclusion is unambiguous and that it clearly
applies to infringement claims.
B
Because we find that United Policy’s first publication
exclusion clearly applies to trade dress infringement claims,
we must next consider whether the exclusion applies to Sun-
set’s infringement claim. The district court found that “the
substance of the advertising injury claimed by Sunset were
those elements found on [Spectrum’s] January, 1999 label,”
and thus granted summary judgment that the first publication
of infringing material occurred prior to the policy’s effective
date. The doctrine of judicial estoppel requires that we affirm
the district court.
[4] The doctrine of judicial estoppel is an equitable doctrine
a court may invoke to protect the integrity of the judicial pro-
cess. Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990). It
was developed to prevent litigants from “playing fast and
loose” with the courts by taking one position, gaining advan-
tage from that position, then seeking a second advantage by
1168 UNITED NATIONAL v. SPECTRUM WORLDWIDE
later taking an incompatible position. Risetto v. Plumbers and
Steamfitters Local 343, 94 F.3d 597, 600 (9th Cir. 1996)
(holding that a plaintiff was judicially estopped from asserting
claims based on her ability to work where she had previously
received a favorable Workers’ Compensation settlement
based on assertions that she was unable to work). Judicial
estoppel not only bars inconsistent positions taken in the same
litigation, but “bar[s] litigants from making incompatible
statements in two different cases.” Hamilton v. State Farm
Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 2001).
In New Hampshire v. Maine, 532 U.S. 742 (2001), the
Supreme Court provided a blueprint for determining whether
judicial estoppel applies here. First, Spectrum’s current posi-
tion must be “clearly inconsistent” with its earlier position. Id.
at 750. Second, Spectrum must have succeeded in persuading
the district court to accept the earlier position, so that accept-
ing Spectrum’s current argument would create “the perception
that either the first or the second court was misled.” Id. Third,
we query whether Spectrum would derive an unfair advantage
if not estopped. Id.We follow this blueprint to find that judicial estoppel
should apply to prevent Spectrum from deriving an unfair
advantage by taking its current position. In the 2001 prelimi-
nary injunction hearing, Sunset argued that Spectrum’s recent
label change too closely resembled its trade dress and “moti-
vated the [infringement] lawsuit,” though Sunset “claim[ed]
to have been aware of [Spectrum’s] alleged infringement by
December 1998.” Spectrum’s response focused on Sunset’s
“delay in seeking injunctive relief,” arguing that it had been
using the label elements Sunset complained of for almost
three years. In essence, Spectrum argued that any alleged
infringement began occurring when it adopted its label in Jan-
uary 1999, that any change thereafter was merely incremental
shifting of the 1999 label elements, and that the 2001 label did
not initially present the harm Sunset asserted—thus prelimi-
UNITED NATIONAL v. SPECTRUM WORLDWIDE 1169
nary injunction was not warranted, because Sunset waited
nearly three years to bring a claim that arose in 1999.
Spectrum’s current argument more closely resembles Sun-
set’s 2001 position—that it was the 2001 label, not the 1999
version, that resulted in the Sunset action, and that the 2001
label constituted distinct infringing material. Moreover, Spec-
trum argued that if the court granted injunctive relief, it would
force them to abandon the label they had spent three years and
$4.7 million promoting, further supporting its argument that
the trade dress claim dated to 1999. Spectrum’s 2001 argu-
ments helped convince Judge Manella that Sunset could not
identify any “new or immediate harm that would threaten its
livelihood,” because Spectrum’s 1999 to 2001 label “alter-
ations [were] incremental,” and Spectrum’s “trade dress ha[d]
remained largely consistent since . . . January 1999.” In addi-
tion, Schwartz’s declarations led Judge Manella to conclude
that the 1999 label was “remarkably similar” to Sunset’s, and
thus by waiting to file until 2001, Sunset “waited almost three
years after [Spectrum] adopted a similar trade dress to seek
injunctive relief.” Spectrum relied on these arguments to con-
vince the court that Sunset did not experience new or immedi-
ate harm, and thus an injunction was inappropriate. The
district court clearly accepted and relied upon these assertions
when making its ruling. Accordingly, if we accept Spectrum’s
current argument that the 2001 label was the basis for Sun-
set’s infringement claim, it may create the perception that
Spectrum misled either us or Judge Manella. See New Hamp-
shire v. Maine, 532 U.S. at 750.
[5] As the discussion set forth above illustrates, Spectrum
benefitted from arguing in 2001 that Sunset’s alleged
infringement claim arose from materials first published in
1999. If we now allow Spectrum to argue that the claim did
not arise until 2001, Spectrum’s “gaming” of the courts will
allow it the possibility of prevailing on the very position it
successfully discredited while attempting to avoid preliminary
injunction. The result would be unfair to Sunset, whose
1170 UNITED NATIONAL v. SPECTRUM WORLDWIDE
alleged harms increased as a result of Spectrum’s 1999 argu-
ments. The result would also be unfair to United, whose
indemnification obligations increased as Sunset’s damages
widened after Spectrum successfully avoided an injunction,
then later settled.
[6] Accordingly, because Spectrum obtained a favorable
decision in the district court as a result of its assertions that
the alleged infringement first arose in 1999, we find that
Spectrum is estopped from claiming before this court that the
2001 label formed the basis of Sunset’s claim. We thus affirm
the district court in its conclusion that Spectrum first pub-
lished infringing material in 1999, before the United Policy
took effect, and uphold its decision to exclude the Sunset
claim from coverage under the Policy.
IV
After the district court entered judgment against Tremain
and Schwartz, Spectrum filed a motion to reconsider under
Federal Rules of Civil Procedure 59(e) and 60(b), arguing that
Tremain and Schwartz should not be held personally liable for
reimbursing United. The district court rejected this argument;
Spectrum argues that this was an error. Because Spectrum
first raised this issue in its motion for reconsideration, we
only address the argument within that context.
A denial of a motion for reconsideration under Rule 59(e)
is construed as one denying relief under Rule 60(b) and nei-
ther will be reversed absent an abuse of discretion. Duarte v.
Bardales, 526 F.3d 563, 567 (9th Cir. 2008) (citations omit-
ted). Under Rule 59(e), it is appropriate to alter or amend a
judgment if “(1) the district court is presented with newly dis-
covered evidence, (2) the district court committed clear error
or made an initial decision that was manifestly unjust, or (3)
there is an intervening change in controlling law.” Zimmer-
man v. City of Oakland, 255 F.3d 734, 740 (9th Cir. 2001).
UNITED NATIONAL v. SPECTRUM WORLDWIDE 1171
Rule 60(b) allows a district judge to provide relief from a
final judgment if the moving party can show
(1) mistake, inadvertence, surprise, or excusable
neglect; (2) newly discovered evidence that, with
reasonable diligence, could not have been discovered
in time to move for a new trial under Rule 59(b); (3)
fraud . . . , misrepresentation, or misconduct by an
opposing party; (4) the judgment is void; (5) the
judgment has been satisfied, released, or discharged;
it is based on an earlier judgment that has been
reversed or vacated; or applying it prospectively is
no longer equitable; or (6) any other reason that jus-
tifies relief.
Fed. R. Civ. Pro. 60(b).
[7] Spectrum did not present any evidence that would allow
the district court to grant relief from a final judgment under
Rule 60(b). Neither did Spectrum present new evidence, nor
did controlling law change in the interim. The district court
rejected Spectrum’s contention that holding Tremain and Sch-
wartz individually liable was unjust, concluding that since
“United raised the issue of [Tremain’s and Schwartz’s] liabil-
ity in its motion for summary judgment,” and Spectrum did
not “interpose[ ] an argument against that claim,” Spectrum
could not raise it post-judgment. Because “[a] district court
does not abuse its discretion when it disregards legal argu-
ments made for the first time” on a motion to alter or amend
a judgment, Zimmerman, 255 F.3d at 740 (citing Rosenfeld v.
U.S. Department of Justice, 57 F.3d 803, 811 (9th Cir. 1995)),
we affirm the district court with respect to this issue.
V
In sum, we hold that the district court properly granted
summary judgment to United on the issues of whether the
United Policy’s first publication exclusion applies to trade
1172 UNITED NATIONAL v. SPECTRUM WORLDWIDE
dress infringement claims, and whether Sunset’s claim arose
from information first published prior to the Policy’s effective
date. Additionally, we hold that the district court did not
abuse its discretion when it held Tremain and Schwartz indi-
vidually liable for the judgment.
AFFIRMED.