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Hattenhauer Distributing Co. v. Nationwide Agribusiness Insurance Co.

United States District Court, D. Oregon, Portland Division

June 29, 2017



          Honorable Paul Papak United States Magistrate Judge.

         Plaintiff Hattenhauer Distributing Co. brings this action against Defendant Nationwide Agribusiness Insurance Co., claiming that Defendant breached its duties under a liability policy when it refused to defend Plaintiff in a lawsuit brought by Noble Roman's, Inc. (Noble Roman's) against Plaintiff. Noble Roman's, Inc. v. Hattenhauer Distributing Co., No, l:14-cv-01734-WTL-DML (S.D. Ind.) (filed Oct. 23, 2014) (the Underlying Action). In the Underlying Action, Noble Roman's claims that Plaintiff breached a franchise agreement by under-reporting revenue from sales of Noble Roman's products and by selling inferior pizza under the Noble Roman's name.

         The parties now file cross-motions for partial summary judgment[1] on Plaintiffs duty to defend claim. For the following reasons, I grant Defendant's motion for partial summary judgment and deny Plaintiffs motion.


         The following facts are from Noble Roman's complaint (the Complaint) in the Underlying Action. Stip. Facts, Ex. 3, 1-9, ECF No. 17-3. Plaintiff operates a combination convenience store and gas station in Goldendale, Washington, and a similar business in Wasco, Oregon. Complaint ¶5. In 2005, Plaintiff signed a five-year franchise agreement with Noble Roman's to sell Noble Roman's pizza at Plaintiffs Oregon store. The parties renewed the franchise agreement in 2011. In 2006, Plaintiff executed a ten-year franchise agreement to sell Noble Roman's pizza at Plaintiffs Washington store. Noble Roman's franchise agreements required that Plaintiff use only approved ingredients for pizza, including a proprietary cheese blend. Complaint ¶ 18.

         Noble Roman's filed the Underlying Action in October 2014, alleging that "from January 2011 until veiy recently, [Plaintiffs] Oregon location had not been buying or using Noble Roman's proprietary blend of cheese for its Noble Roman's pizzas, and instead has been buying and using a different cheese that did not conform to Noble Roman's standards and specifications as required under the Franchise Agreements." Complaint ¶ 25. Noble Roman's alleged that "by selling inferior-quality pizza containing cheese that was not Noble Roman's proprietary pizza cheese to the public purportedly under the Noble Roman's name, [Plaintiff] has damaged Noble Roman's reputation and goodwill, engaged in unfair competition, and breached the Franchise Agreements." Complaint ¶26, Noble Roman's asserted that Plaintiff "trade[d] unfairly upon Noble Roman's well-established goodwill and reputation by confusing the public as to the origin of its menu items, including the sale of non-conforming items at the Oregon location since January 2011 while holding itself out to the public as a vendor of Noble Roman's products." Compl. ¶ 28. Noble Roman's alleged that Plaintiff "has profited from its acts of unfair competition by purchasing an inferior and cheaper pizza cheese instead of the Noble Roman's proprietary blend of cheese." Compl. ¶ 29.[2]

         1 note that the district court in the Underlying Action recently granted Plaintiffs motion for summary judgment as to Noble Roman's federal unfair competition claim, concluding that the claim was barred by laches. Noble Roman's, Inc. v. Hattenhauer Distrib. Co., 2017 WL 747536, at *3-*4 (S.D, Ind. Feb. 27, 2017) (Noble Roman's). The district court entered judgment after declining to exercise supplemental jurisdiction over the parties' remaining state law claims and counterclaims. Id. at *4; Underlying Action, ECF No. 211 (judgment entered Feb. 27, 2017).


         I. Motions for Summary Judgment

         The court must grant summary judgment when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed, R. Civ. P. 56(c). If the moving party shows that there are no genuine issues of material fact, the nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The substantive law governing a claim or defense determines which facts are material. See Moreland v. Las Vegas Metro, Police Dep 't, 159 F.3d 365, 369 (9th Cir. 1998).

         II. The Duty to Defend

         The interpretation of an insurance policy is a question of law for the court. St. Petal Fire & Marine Ins. Co. v. McCormick & Baxter Creosoting Co., 324 Or. 184, 192, 923 P.2d 1200, 1205 (1996). The insured has the initial burden of showing coverage exists, and the insurer has the burden of showing the policy excludes coverage. Employers Ins. of Waitsau v. Tektronix, Inc., 211 Or.App. 485, 509, 156 P.3d 105, 119 (2007).

         An insurer has a duty to defend an action "if the complaint filed against the insured 'could, without amendment, impose liability for conduct covered by the policy.'" U.S. Fid. & Guar. Co. v. Star Techs., Inc.,935 F.Supp. 1110, 1113 (D. Or. 1996) (quoting Ledford v. Gutoski,319 Or. 397, 399-400, 877 P.2d 80, 82 (1994)). The court, considering only the allegations in the complaint, determines whether any of the allegations could support a covered claim against the insured. Id. "If the complaint is unclear or ambiguous and may be reasonably interpreted to include an incident within the coverage of the policy, the insurer has a duty to defend." Id. (citing Oakridge Cmty. Ambulance Serv., Inc. v. United States Fid. & Guar. Co.,278 Or. 21, 24, 563 P.2d 164, 166 (1977)). The insurer must defend if the claims "fall both within and outside coverage of the policy." Id. (citing Ferguson v. Birmingham Fire Ins. Co.,254 Or. 496, 507, 460 P.2d 342, 347 (1969)). ...

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