Great American E & S Ins. v. Theos Medical Systems, Inc. ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS APR 1 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
GREAT AMERICAN E & S INSURANCE No. 19-15351
COMPANY,
D.C. No. 5:17-cv-05660-LHK
Plaintiff-Appellee,
v. MEMORANDUM*
THEOS MEDICAL SYSTEMS, INC.,
Defendant-Appellant,
SAKET BHATIA,
Counter-claimant-Appellant.
Appeal from the United States District Court
for the Northern District of California
Lucy H. Koh, District Judge, Presiding
Submitted March 25, 2020**
San Francisco, California
Before: GOULD, CHRISTEN, and BRESS, Circuit Judges.
Theos Medical Systems, Inc. and Saket Bhatia (collectively, “Theos”) appeal
*
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).
the district court’s order granting summary judgment to Great American E&S
Insurance Company on (1) Great American’s request for declaratory judgment that
it had no duty to defend or indemnify Theos in a civil contempt proceeding; and (2)
Theos’ counterclaim for breach of the implied covenant of good faith and fair
dealing. We assume the parties’ familiarity with the facts and procedural history.
We have jurisdiction under 28 U.S.C. § 1291 and now affirm.
The parties agree that California law applies to this insurance coverage action.
Under California law, “[a] liability insurer owes a broad duty to defend its insured
against claims that create a potential for indemnity.” Montrose Chem. Corp. v.
Superior Court, 861 P.2d 1153, 1157 (Cal. 1993) (quotations omitted). But the duty
to defend “is not unlimited.” Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 628
(Cal. 1995). “[W]here there is no possibility of coverage, there is no duty to
defend . . . .” Id. at 627 (quotations omitted). This court “review[s] the district
court’s grant or denial of summary judgment” and “its interpretation of state law and
the insurance policies de novo.” Westport Ins. Corp. v. Cal. Cas. Mgmt. Co., 916
F.3d 769, 773 (9th Cir. 2019).
Consistent with precedent, the district court appropriately analyzed the
policies’ coverage provisions before turning to their exclusions. See, e.g., Sony
Comput. Entm’t Am. Inc. v. Am. Home Assurance Co., 532 F.3d 1007, 1017 (9th Cir.
2008). We may affirm on any ground, Stevens v. Jiffy Lube Int’l, Inc., 911 F.3d
2
1249, 1252 (9th Cir. 2018), and agree with the district court that the exclusions
clearly apply to the civil contempt proceeding, such that Great American had no duty
to defend or indemnify Theos in that proceeding.
As relevant here, the policies exclude from coverage any “suit” that alleges
claims “arising out of” any “violation . . . of any intellectual property right” or any
“violation of any statutes, common law, or other laws or regulations concerning
unfair competition.” Under the policies, a “suit” is defined as “a civil proceeding”
in which specified damages are alleged. The parties do not dispute that the
underlying action in which the civil contempt proceeding arose (the so-called
Malem Action) constitutes a “suit” that alleges claims for intellectual property
infringement and unfair competition. Accordingly, the Malem Action is excluded
from coverage.
It follows that the contempt proceeding, which arose in the Malem Action, is
excluded as well. Courts have long held that contempt proceedings are considered
part of the suit in which they arise. See, e.g., Leman v. Krentler-Arnold Hinge Last
Co., 284 U.S. 448, 452 (1932) (“The question of the relation of such a [civil
contempt] proceeding to the main suit was fully considered in the case of Gompers
v. Buck[‘s] Stove & Range [Co.], 221 U.S. 418 [(1911)], and it was determined that
the proceeding was not to be regarded as an independent one, but as a part of the
original cause.”); Donovan v. Sureway Cleaners, 656 F.2d 1368, 1373 (9th Cir.
3
1981) (“[T]he filing of a civil contempt petition is not the commencement of an
independent cause of action . . . but rather is a part of the original cause of action.”);
see also Ahearn ex rel. NLRB v. Int’l Longshore & Warehouse Union, Locals 21 &
4, 721 F.3d 1122, 1131 (9th Cir. 2013).
Theos argues that the policies’ intellectual property and unfair competition
exclusions violate public policy under California law. This argument lacks merit
because California courts have regularly applied exclusions for various intellectual
property claims. See, e.g., S.B.C.C., Inc. v. St. Paul Fire & Marine Ins. Co., 112
Cal. Rptr. 3d 40, 51 (Cal. Ct. App. 2010); Aloha Pac., Inc. v. Cal. Ins. Guar. Ass’n,
93 Cal. Rptr. 2d 148, 164–65 (Cal. Ct. App. 2000); Indus. Indem. Co. v. Apple
Comput., Inc., 95 Cal. Rptr. 2d 528, 538 (Cal. Ct. App. 1999).
Because Theos was not entitled to coverage, the district court also correctly
granted Great American summary judgment on Theos’ counterclaim for breach of
the covenant of good faith and fair dealing. See, e.g., Benavides v. State Farm Gen.
Ins. Co., 39 Cal. Rptr. 3d 650, 656 (Cal. Ct. App. 2006).1
AFFIRMED.
1
Theos’ motion to strike Great American’s supplemental excerpts of record is
denied. See 9th Cir. R. 30-1.5.
4