Travelers Property Casualty v. Charlotte
Russe Holding
Filed 6/21/12 Travelers Property Casualty v. Charlotte
Russe Holding CA2/1
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
ONE
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,
Plaintiff and Respondent,
v.
CHARLOTTE RUSSE HOLDING, INC.,
et al.,
Defendants and Appellants.
B232771
(Los Angeles
County
Super. Ct.
No. BC442597)
APPEAL from
a judgment of the Superior Court of
Robert L. Hess, Judge. Reversed.
Caldwell
Leslie & Proctor, Christopher G. Caldwell, Andrew Esbenshade and Kelly L.
Perigoe for Defendants and Appellants.
Lewis
Brisbois Bisgaard & Smith, Lane J. Ashley, Raul L. Martinez and Raquel
Vidal for Plaintiff and Respondent.
___________________________________
Plaintiff
and respondent, Travelers Property Casualty Company Of America (Travelers),
filed this action for declaratory relief seeking a determination that there was
no potential for coverage under its policy, and therefore no duty to defend its
insureds, Charlotte Russe Holding, Inc., Charlotte Russe Merchandising, Inc.,
David Mussafer, Jenny J. Ming, Advent International Corp., Advent CR Holdings,
Inc., and Advent CR, Inc. (the Charlotte Russe parties), in litigation against
them by Versatile Entertainment, Inc., and its parent, People’s Liberation,
Inc. (collectively Versatile). The trial
court agreed with Travelers, and granted its
BACKGROUND
name="_ftnref1" title="">[1]
Underlying lawsuits
by Versatile against the Charlotte Russe parties
The
underlying litigation for which the Charlotte Russe parties sought coverage
arises out of pleadings filed by Versatile in litigation against the Charlotte
Russe parties. On October 26, 2009, certain of the Charlotte Russe
parties sued Versatile alleging claims for fraud,
breach of contract, and restitution.
On October 27, 2009,
Versatile filed an action against those parties, alleging causes of action for
breach of contract, declaratory relief, and fraudulent and negligent
misrepresentation. Also on October 27, 2009, Versatile filed
another action against others of the Charlotte Russe parties, alleging their
intentional interference with the contractual relationship between Versatile
and Charlotte Russe. And on December 23, 2009, Versatile filed a
cross-complaint in the Charlotte Russe parties’ action against it.
As relevant
here, Versatile’s pleadings alleged that the Charlotte Russe parties had contracted
in December 2008 to become the exclusive sales outlet for Versatile’s
“‘People’s Liberation’†brand of apparel, which included jeans and knits. Versatile identified the People’s Liberation
brand as a “‘premium,’†“‘high end’†brand, claiming that it had “‘invested
millions of dollars developing the [People’s Liberation] [b]rand so that it
became associated in the marketplace with high-end casual apparel†which “was
distributed . . . exclusively through fine department stores
and boutiques . . . .’†(Italics
omitted.) Versatile alleged that
although Charlotte Russe had never before offered this sort of apparel for sale
“‘at a higher price point commanded by a premium brand such as People’s
Liberation Brand,’†(italics omitted) Charlotte Russe had promised to provide
the investment and support necessary to “‘promote the sale of premium brand
denim and knit products in order to encourage [Charlotte Russe’s] customers to
purchase such premium products at a higher price point at its [Charlotte Russe]
stores.’†(Italics omitted.) Versatile’s pleadings went on to allege that
the Charlotte Russe parties had failed to live up to those representations,
however, giving rise to its allegation of causes of action for breach of
contract, declaratory relief, and fraudulent and negligent misrepresentation.
Specifically,
Versatile alleged, the Charlotte Russe parties had threatened, and had begun,
“‘the “fire sale†of People’s Liberation Branded apparel at “close-outâ€
prices.’†This sale of Versatile’s
premium brand clothing at severe discounts not only violated the parties’
agreement, it alleged, but “will also certainly result in significant and
irreparable damage to and diminution of the People’s Liberation Brand and
trademark.†Versatile sought declaratory
relief and damages for its losses “as a result of Defendants’ breaches,
including damage to and diminution of the People’s Liberation Brand and
trademark which will certainly result from Defendants’ ‘fire sale’ of People’s
Liberation Branded goods at ‘close-out’ prices.â€
During
their later correspondence with Travelers, the Charlotte Russe parties informed
Travelers that Versatile’s discounting claim was factually based on the
Charlotte Russe parties’ “‘public display of signs in store windows and on clothing
racks announcing that People’s Liberation brand jeans were on sale,’†as well
as on their “written mark-downs on individual People’s Liberation clothing
items.†And in connection with
Travelers’ summary judgment motion, the Charlotte Russe parties presented
evidence of 70 to 85 percent price markdowns of People’s Liberation brand
clothing, and the opinion of an experienced apparel industry expert that such
markdowns and “dramatic price reduction[s],
promoted in such a manner, had the potential to have a disparaging effect on
the People’s Liberation brand,†for it suggests to the consumer that the
product—particularly “premium, high-end or luxury goods such as the People’s
Liberation brand productsâ€â€” is of an inferior quality.â€
The relevant
Travelers policies
The
Charlotte Russe parties were covered by two consecutive Travelers policies,
from September 30, 2008 to September 30, 2010, providing
commercial general liability coverage.
Both policies include “personal injury†and “advertising injury†liability
coverage, with insuring agreements providing that the insurer has a duty to
defend the insured against any suit seeking damages for “personal injury†and
“advertising injury†claims.
The policies’ personal injury
coverage applies to “‘[p]ersonal injury’ caused by an offense arising out of
your business, excluding advertising . . . .â€
Its advertising injury coverage applies to “‘[a]dvertising injury’
caused by an offense committed in the course of advertising your goods,
products or services; . . .†Both
provide “broad ‘offense-based’ coverage†for claims alleging injury arising out
of “[o]ral, written, or electronic publication of material that slanders or
libels a person or organization or disparages a person’s or organization’s
goods, products or services, provided that claim is made or ‘suit’ is brought
by the person or organization that claims to have been slandered or libeled, or
whose goods, products or services have allegedly been disparaged; . . .†The policies exclude coverage for an “‘advertising
injury’ arising out of a breach of contract.â€
There is no similar exclusion for a personal injury arising out of a
breach of contract.
Travelers denies
coverage
The
Charlotte Russe parties tendered the Versatile actions to Travelers for a
defense on December 24, 2009.
On May 13, 2010, Travelers notified the
Charlotte Russe parties by letter that it was declining to either indemnify or
defend them against the claims asserted by Versatile, on the ground that there
was no potential for coverage. In the
ensuing exchange of correspondence, Charlotte Russe took the position that
Versatile’s claims involved disparagement within the policies’ terms,
potentially within the policies’ coverage for both personal injury and
advertising injury. Travelers maintained
that “coverage was not available under its Policies because ‘the reduction of a
product’s price is not . . . a disparagement of that product.’â€
The coverage
litigation and Travelers’ motion for summary judgment
On July 29, 2010, Travelers filed a
determination that it owed no duty to defend or indemnify the Charlotte Russe
parties in the various underlying actions.
The Charlotte Russe parties cross-complained for declaratory relief,
breach of contract, and breach of the implied covenant of good faith and fair
dealing, alleging that Travelers’ denial of a defense under the liability
policies resulted in serious damages.
Travelers
moved for summary judgment, contending that the Charlotte Russe parties would
be unable to establish a potential for coverage under the Travelers’
policies. The motion’s key contention
was that in order for the Charlotte Russe parties to be eligible for coverage
under its policies’ personal injury or advertising injury provisions, the
claims against them must amount to actionable claims of trade libel. According to Travelers’ motion, “under
established California law, the allegations in the underlying Versatile
litigation against the Charlotte Russe entities must be compared with the
elements of the trade libel tort in order to properly assess the potential for
coverage under the Travelers’ disparagement coverage.†The motion contended that a cause of action
for trade libel or disparagement requires an allegation of the publication of a
false statement and resulting loss of business, and that Versatile’s claims
against the Charlotte Russe parties alleged neither.
Travelers is awarded
summary judgment; the Charlotte Russe parties appeal
The trial
court heard Travelers’ summary judgment motion on March 9, 2011, overruling
Travelers’ objections to certain of the Charlotte Russe parties’ opposing
evidence, but granting Travelers’ motion.
Judgment was entered in Travelers’ favor on April 22, 2011, and notice
of its entry was filed April 29, 2011.
The Charlotte Russe parties filed a timely appeal on May 3, 2011.
DISCUSSION
The
critical question in this appeal is whether Versatile’s claims against the
Charlotte Russe parties constitute allegations that the Charlotte Russe parties
disparaged its goods, within the meaning of the Charlotte Russe parties’
coverage under the Travelers’ policies.
If they do not, there was no potential for coverage, and Travelers had
no duty to defend.
However, if
Versatile’s allegations can reasonably be interpreted to encompass claims that
the Charlotte Russe parties disparaged its goods, within the meaning of the
Travelers’ policies, there was a potential for coverage under the policies’
personal injury coverage, and therefore a duty to defend the Charlotte Russe
parties against Versatile’s claims in the underlying litigation. Because we conclude that the allegations of
the Versatile pleadings could be reasonably interpreted to allege that the
Charlotte Russe parties disparaged the People’s Liberation brand and led
potential purchasers to believe that it was not a “premium,†“high end†brand,
we will reverse the summary judgment.
Standard
of Review
Summary
judgment may be granted only “if all the papers submitted show that there is no
triable issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law,†eliminating the need for a trial of the
action. (Code Civ. Proc., § 437c, subd.
(c); Villa v. McFerren (1995) 35 Cal.App.4th 733, 741.) This court
>
independently determines the legal effect of the
documentation underlying the summary judgment motion in the trial court. (Villa v. McFerren, supra, 35 Cal.App.4th at p. 741.)
The party moving for summary
judgment—Travelers—bears the burden of showing that there is no triable issue
of material fact, and therefore that it is entitled to judgment as a matter of
law. “There is a triable issue of
material fact if, and only if, the evidence would allow a reasonable trier of
fact to find the underlying fact in favor of the party opposing the motion
in accordance with the applicable
standard of proof.†(
25 Cal.4th 826, 850, fn. omitted.) An
issue of fact becomes one of law only if “the undisputed facts leave no room
for a reasonable difference of opinion.â€
(Preach v. Monter Rainbow (1993) 12 Cal.App.4th 1441, 1450.)
In order to carry its burden
of proof, a party moving for summary judgment must first make a prima facie
showing that there is an absence of an essential element of, or a complete
defense to, the case against it. (Aguilar
v. Atlantic Richfield Co.,
supra, 25 Cal.4th at p. 849.)
Once the defendant has made that prima facie showing, the burden shifts
to the opposing party to show that one or more material facts essential to a
cause of action or defense require trial.
(Code Civ. Proc., § 437c, subd. (p)(2).)
The interpretation, construction, and application of an insurance
contract are purely issues of law. (Century
Transit Systems, Inc. v. American Empire Surplus Lines Ins. Co. (1996) 42
Cal.App.4th 121, 125.)
Versatile’s
claims give rise to a potential for coverage under the Travelers policy
Duty
to defend
A liability
insurer’s duty to defend arises when a suit against its insured seeks damages
that are potentially within the
policy’s coverage. (La Jolla Beach
& Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27,
43.) An insurer has no duty to defend
its insured only if the claim against it cannot, by any conceivable theory, raise an issue that would bring it
within policy’s coverage. (Ibid.) The duty does not depend on the labels given
to the causes of action in the underlying claims against the insured; “instead
it rests on whether the alleged facts or known extrinsic facts reveal a possibility
that the claim may be covered by the policy.
(Atlantic Mutual Ins. Co. v. J.
Lamb, Inc. (2002) 100 Cal.App.4th 1017, 1034 (Atlantic Mutual).)
A liability
insurer’s duty to defend is broader than its duty to indemnify; it therefore
may owe a duty to defend its insureds even when a trier of fact might
ultimately determine that the policy does not entitle them to indemnity for the
claims against them. (
(1993) 6 Cal.4th 287, 300 (Montrose
Chemical).) Whether the insurer owes
a duty to defend turns not on whether the insured proves to be actually
entitled to be indemnified for the underlying claim, but only on “‘those facts
known by the insurer at the inception of a third party lawsuit,’†along with
facts extrinsic to the complaint that may also “‘reveal a possibility that the
claim may be covered by the policy.’†(
The
insurer’s coverage obligation begins whenever the insurer becomes aware of
facts giving rise to the potential for coverage, and continues until it has
been established that there is no potential for coverage. (Montrose
Chemical, supra,
for summary judgment based on the absence of a duty to defend, “the insured
need only show that the underlying claim may fall within policy
coverage; the insurer must prove it cannot.†(Id. at p. 300.) Once
the possibility of coverage arises, “[a]ny doubt as to whether the facts
establish [or defeat] the existence of the defense duty must be resolved in the
insured’s favor.†(Id. at pp. 299-300.)
name="_ftnref4" title="">
The
underlying litigation need not allege all elements of a cause of action for
trade libel in order to trigger personal injury coverage for product disparagement
Coverage
may be triggered by implied allegations of disparaging statements
The Versatile pleadings charged in
the underlying litigation that the Charlotte Russe parties had offered the
People’s Liberation products for sale at severely discounted prices, resulting
in “significant and irreparable damage to and diminution of the People’s
Liberation Brand and trademark,†damaging its “marketability and
saleability.†Travelers contends that
these allegations of price discounts do not accuse the Charlotte Russe parties
of either product disparagement or false statements, and therefore that they do
not trigger the policies’ personal injury or advertising injury coverage.
In order to
trigger personal injury coverage it is not essential that the underlying claims
must be expressly phrased in terms of “disparagement†or trade libel,
however. (Atlantic Mutual, supra,
100 Cal.App.4th at p. 1034.) The
underlying claims may trigger a duty to defend if the conduct for which the
policies provide coverage is charged by implication, as well as by direct
accusation.
In the
coverage for the insured’s publication of material “‘that slanders or libels a
person or organization or disparages a person’s or organization's goods, products
or services . . . .’†(100 Cal.App.4th at p. 1032.) The insured sought coverage for underlying
litigation that alleged it had falsely stated to the plaintiff’s customers that
the plaintiff’s products were burdened with patents, and that their purchase of
those products would subject them to litigation. (Id.
at pp. 1024, 1034-1035.) The
question therefore was whether the underlying litigation’s allegations amounted
to claims that the insured had published “matter derogatory to the plaintiff’s
title to his property, or its quality, or to his business in general’â€; if so,
it “disparaged†the product. (
The court
held in Atlantic Mutual that the
underlying litigation came within the policy’s personal injury coverage because
it alleged that the insured had published “‘matter derogatory to the
plaintiff’s title to his property, or its quality, or to his business in
general.’†“The plain language of the
Atlantic Mutual policy includes in the definition of ‘personal injury’ the
publication of any oral or written statement that not only slanders or libels
but also one that disparages an organization or its goods, products, or
services. This amounts to coverage for
product disparagement and trade libel as well as defamation.†(Atlantic
Mutual, supra, 100 Cal.App.4th at
p. 1035.)
The
language of Travelers’ policies is the same as that in Atlantic Mutual, providing coverage for “publication of material
that slanders or libels a person or organization or disparages a person’s or
organization’s goods, products or services . . . .†And here, too, the
allegation of disparagement may be implied.
The question here, as in Atlantic
Mutual, therefore is not whether the underlying claims expressly allege
that the Charlotte Russe parties disparaged Versatile’s products, but whether
the allegations may be understood to accuse the Charlotte Russe parties of
statements and conduct “that slanders or libels a person or organization or
disparages a person’s or organization’s goods, products or services . . . .â€
A
claim of trade libel is not a prerequisite to personal injury coverage for
disparagement
Travelers contends that
“disparagement,†in the insurance context, “refers to the tort of trade libel,â€
a tort that requires pleading and proof of a false statement of fact.
According to Travelers, coverage therefore is
defeated as a matter of law by the underlying pleadings’ failure to allege “an
injurious false statement disparaging Versatile’s products . . . .â€
However,
Versatile’s pleadings alleged that the People’s Liberation brand had been
identified in the market as premium, high-end goods; and that the Charlotte
Russe parties had published prices for the goods implying that they were
not. It therefore pled that the
implication carried by the Charlotte Russe parties’ pricing was false. That is enough. (Atlantic
Mutual, supra, 100 Cal.App.4th at
pp. 1034-1035; Nichols v. Great American
Insurance Companies (1985) 169 Cal.App.3d 766, 774 [statement may
constitute product disparagement if plaintiff pleads facts showing the statements’ defamatory
meaning “by innuendoâ€]; Epiphany, Inc. v.
St. Paul Fire & Marine Ins. Co. (N.D. Cal. 2008) 590 F.Supp.2d 1244,
1253-1254 [insured’s claim of superiority of its products necessarily implied
inferiority of competitor’s products].)
Moreover,
even if it were true that Versatile’s claim against the Charlotte Russe parties
could not be viable without alleging all the elements of a trade libel cause of
action, as Travelers argues and the trial court apparently concluded,
the result here would be no different.
The insurer’s duty to defend is not conditioned on the sufficiency of
the underlying pleading’s allegations of a cause of action; that is an issue
for which the policy entitled the Charlotte Russe parties to an insurer-funded
defense. (Montrose Chemical, supra,
6 Cal.4th at p. 298 [“insurer may not decline to defend a suit merely because
it is devoid of merit, but instead must assert appropriate defenses on its
insured’s behalf in the underlying actionâ€]; Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500,
510.) “The fact that [the insurer] may
have known of a good defense, even an ironclad one, to the [underlying] claim
did not relieve it of its obligation to defend its insured.†(CNA
Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598,
609, fn. 4.)
title="">
Finally, we
cannot rule out the possibility that Versatile’s pleadings could be understood
to charge that the dramatic discounts at which the People’s Liberation products
were being sold communicated to potential customers the implication—false,
according to Versatile—that the products were not (or that the Charlotte Russe
parties did not believe them to be) premium, high-end goods. Arguably, a trade libel claim might survive
under these theories. According to the
comments to the Restatement Second of Torts, the concept of trade libel
encompasses “a statement in the form of an opinion, if the statement implies
the existence of undisclosed facts that justify the opinion. . . .†(Rest.2d Torts, § 626, com. c, p. 346;
see also Atlantic Mutual,
fn. 3 [allegation that insured asserted patent carries implication of false
statement that competitor was infringing patent.)
The
policy language does not require pleading or proof of a trade libel tort
We find no
suggestion in the language of the policy’s personal injury coverage that a
prerequisite to establishing a potential for personal injury coverage for
disparagement is that the accusations against its insured must include all the
essential elements of the trade libel tort (whatever those requirements may
be). Rather, the policy language is
inconsistent with that contention.
The claims
asserted by Versatile were sufficient to raise reasonable inferences that the
Charlotte Russe parties had disparaged the People’s Liberation products and
brand, within the meaning of the policy language. As noted above, that language provides
personal injury coverage for “publication of material that slanders or libels a
person or organization or disparages
a person’s or organization’s goods, products or services . . . .†(Italics added.) That phraseology makes coverage for
disparagement an alternative to coverage for libelous materials, not an element
of that coverage. Under it, the policy
covers publication of material either
that slanders or libels a person or organization, or that disparages a person’s or organization’s goods, products or
services; both are not required.
CONCLUSION
Coverage is triggered under this
policy language by a claim that the insureds published material that disparages
a person’s or organization’s goods, products or services, whether trade libel
is or is not an element of that claim.
Because the Versatile claims against the Charlotte Russe parties could
reasonably be interpreted to constitute a claim of product disparagement
resulting in damage to their People’s Liberation brand, those claims are
sufficient to trigger Travelers’ obligation to provide the Charlotte Russe
parties with a defense. The trial court
therefore erred in granting summary judgment to the contrary.
DISPOSITION
The
judgment is reversed. Appellants are
awarded their costs on appeal.
NOT TO BE
PUBLISHED.
CHANEY,
J.
We concur:
ROTHSCHILD,
Acting P. J. JOHNSON,
J.
Unless otherwise noted, the facts are taken from those conceded by the parties to be undisputed, and the documents
presented by the parties in connection with the summary judgment motion.
Although Travelers’ summary judgment motion identifies four sets of pleadings
involving the various Versatile and Charlotte Russe parties, because they all
contain substantially identical allegations against the Charlotte Russe
parties, we discuss them below without specific identification or
differentiation.
