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Travelers Property Casualty Co. v. Serverlogic Corporation

United States District Court, D. Oregon

March 3, 2015

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, a Connecticut corporation, Plaintiff,
v.
SERVERLOGIC CORPORATION, an Oregon corporation; NORTHWEST TIRE FACTORY, LLC, an Oregon limited liability company, Defendants.

Lloyd Bernstein, BULLIVANT HOUSER & BAILEY PC, 888 S.W. Fifth Avenue, Suite 300, Portland, OR 97204. Of Attorneys for Plaintiffs.

William E. Gaar and Jillian Pollock, BUCKLEY LAW PC, 5300 Meadows Road, Suite 200, Lake Oswego, OR 97035; Arthur S. Garrett, III, KELLER AND HECKMAN LLP, 1001 G Street NW, Suite 500 West, Washington, DC 20001. Of Attorneys for Defendant ServerLogic Corporation.

OPINION AND ORDER

MICHAEL H. SIMON, District Judge.

Plaintiff, Travelers Property Casualty Company of America ("Travelers"), maintains this action against Defendants ServerLogic Corporation ("ServerLogic") and Northwest Tire Factory, LLC ("NWTF"). Travelers seeks a judgment declaring that Travelers is not obligated to indemnify ServerLogic for an underlying arbitration award granted in favor of NWTF against ServerLogic. Before the Court are Travelers' Motion for Summary Judgment (Dkt. 24) and ServerLogic's Cross Motion for Summary Judgment (Dkt. 26) on its counterclaim for breach of contract. For the reasons that follow, Travelers' motion is granted and ServerLogic's motion is denied.

STANDARDS

A party is entitled to summary judgment if the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party has the burden of establishing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir. 2001). Although "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge... ruling on a motion for summary judgment, " the "mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient...." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 255 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation and quotation marks omitted).

When parties file cross-motions for summary judgment, the court "evaluate[s] each motion separately, giving the non-moving party in each instance the benefit of all reasonable inferences." A.C.L.U. of Nev. v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (quotation marks and citation omitted); see also Pintos v. P. Creditors Ass'n, 605 F.3d 665, 674 (9th Cir. 2010) ("Cross-motions for summary judgment are evaluated separately under [the] same standard."). In evaluating the motions, "the court must consider each party's evidence, regardless under which motion the evidence is offered." Las Vegas Sands, LLC v. Nehme, 632 F.3d 526, 532 (9th Cir. 2011). "Where the non-moving party bears the burden of proof at trial, the moving party need only prove that there is an absence of evidence to support the non-moving party's case." In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010). Thereafter, the non-moving party bears the burden of designating "specific facts demonstrating the existence of genuine issues for trial." Id. "This burden is not a light one." Id. The Supreme Court has directed that in such a situation, the non-moving party must do more than raise a "metaphysical doubt" as to the material facts at issue. Matsushita, 475 U.S. at 586.

BACKGROUND

This is a case about two competing interpretations of an insurance policy. ServerLogic argues that the policy requires Travelers to indemnify ServerLogic against an arbitration award issued against ServerLogic and in favor of co-defendant NWTF. Travelers argues that the Policy excludes coverage for all damages in the award.

A. Professional Services Contract between ServerLogic and NWTF

On January 22, 2009, NWTF and ServerLogic entered into a Professional Services Master Agreement ("PSMA") in which ServerLogic agreed to provide specific services set forth in a subsequent Statement of Work ("SOW"). In the PSMA and SOW, ServerLogic agreed to create a custom point-of-sale software system for NWTF. Under the terms of the SOW, the software system was to be ready for pilot implementation in NWTF stores by the end of September 2009 at a total cost to NWTF of $462, 000 (the "Contract Price").

Over the next 18 months, NWTF and ServerLogic made multiple amendments to the scope of the SOW to correct deficiencies in the software system and to respond to NWTF's requests for modifications. In October 2010, NWTF informed ServerLogic that NWTF believed ServerLogic had breached the contract by failing to deliver a software system within the terms of the SOW. On October 15, 2010, the CEOs of the two companies met to attempt to resolve the dispute, and subsequently entered into a Letter Agreement on December 13, 2010 ("the Letter Agreement"). The Letter Agreement modified the scope of the work to be performed by ServerLogic and required ServerLogic to correct identified defects in the software and make additional modifications requested by NWTF.

After NWTF's unsuccessful attempts to implement the software system over the next twelve months, on December 28, 2011, NWTF sent written notice to ServerLogic that its services were terminated. On May 25, 2012, NWTF initiated arbitration ("the Arbitration") against ServerLogic under section 18.5 of the PSMA by filing a Statement of Claim with the Arbitration Services of Portland. Travelers defended ServerLogic under a reservation of rights.

B. Insurance Contract between Travelers and ServerLogic

Travelers issued several forms of liability insurance to ServerLogic, effective December 1, 2009 to December 1, 2010. Under the policy's CyberFirst Technology Errors and Omissions Liability Coverage Form ("the Policy"), Traveler's agreed to "pay those sums that the insured must pay as damages' because of loss to which this insurance applies." Dkt. 25, Ex. A at 26. Section I, Subsection 1(b) of the Policy provides that "[t]his insurance applies to loss only if... [t]he loss arises out of your product' or your work' provided or performed for others. Id. Section II of the policy defines "damages" as either (a) "[s]ums any insured is legally obligated to pay as compensatory damages imposed by law"; or (b) "[s]ums any insured must pay as consequential damages." Id. at 29.

Additionally, the Policy contains certain exclusions. Id. at 27-29. Relevant to this case, Section I, Subsection 2(c) of the Policy ("the Warranty Exclusion") excludes the following:

Any cost or expense incurred by any insured or others:

(1) To comply with any warranty for "your product" ...

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