Travelers Property Casualty Co v. Kfx Medical Corporation

FILED
NOT FOR PUBLICATION
JAN 08 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

TRAVELERS PROPERTY CASUALTY No. 13-17301
COMPANY OF AMERICA, a
Connecticut corporation, D.C. No. 3:13-cv-00710-JSW

Plaintiff - Appellee,
MEMORANDUM*
v.

KFX MEDICAL CORPORATION, a
California corporation,

Defendant - Appellant.

Appeal from the United States District Court
for the Northern District of California
Jeffrey S. White, District Judge, Presiding

Argued and Submitted December 7, 2015
San Francisco, California

Before: O’SCANNLAIN, SILVERMAN, and BEA, Circuit Judges.

*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Defendant-Appellant KFx Medical Corporation (“KFx”) appeals the district

court’s grant of partial summary judgment to Plaintiff-Appellee Travelers Property

Casualty Company of America (“Travelers”) on Travelers’ claims for declaratory

relief. The district court held Travelers had no duty to defend or indemnify KFx in

a patent dispute between KFx and Arthrex Incorporated (“Arthrex”) (the “KFx v.

Arthrex Litigation”) under an insurance policy that Travelers had issued to KFx

(the “Policy”).

We review these findings de novo. State Farm Fire & Cas. Co. v. Pickard,

849 F.2d 1220, 1221 (9th Cir. 1988).1 Because we agree that “there is no genuine

issue as to any material fact and [Travelers] is entitled to judgment as a matter of

law,” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986) (quoting Fed. R.

Civ. P. 56), we affirm. It is undisputed that Arthrex’s answer and counterclaims

(the “Arthrex Counterclaims”) did not allege any covered claim against KFx.2

Thus, the primary issue here is whether “the facts alleged, reasonably inferable, or

otherwise known” at the time of KFx’s tender of defense and indemnity to

1
In so doing, we apply California substantive law of contract interpretation. See
Stanford Ranch, Inc. v. Maryland Cas. Co., 89 F.3d 618, 624 (9th Cir. 1996).
2
It is undisputed that Arthrex’s Answer to KFx’s Complaint in the underlying KFx
v. Arthrex Litigation alleges only patent-related counterclaims for non-
infringement, invalidity, and unenforceability, and that such claims are not covered
under the Policy.

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Travelers reasonably suggest that the Arthrex Counterclaims might “fairly be

amended” to state a covered claim, thus giving rise to potential liability under the

Policy and a corresponding duty to defend. See Scottsdale Ins. Co. v. MV Transp.,

115 P.3d 460, 466 (Cal. 2005).

1. We find the possibility that the Arthrex Counterclaims might be

amended to state claims for abuse of process or product disparagement (thus giving

rise to potential liability) too speculative to trigger a duty to defend or to

indemnify. See Gunderson v. Fire Ins. Exch., 44 Cal. Rptr. 2d 272, 277 (Cal. Ct.

App. 1995) (Mere “speculat[ion] . . . about extraneous ‘facts’ regarding potential

liability or ways in which the third party claimant might amend its complaint at

some future date” does not create a duty to defend.). Neither finds any factual

basis in the Arthrex Counterclaims. See Microtec Research, Inc. v. Nationwide

Mut. Ins. Co., 40 F.3d 968, 971 (9th Cir. 1994). Arthrex’s boilerplate request for

injunctive relief against interference with its business relationship is not reasonably

read as accusing KFx of making improper extrajudicial threats where there is no

factual support for such an inference. Nor has KFx identified any court process

that Arthrex is supposedly accusing it of abusing—as would be required to support

a prima facie abuse of process claim. See Rusheen v. Cohen, 128 P.3d 713, 718

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(Cal. 2006).3 KFx’s product disparagement theory fails because KFx has offered

no evidence that Arthrex “distinctly aver[red] a disparaging publication . . . .”

Nichols v. Great Am. Ins. Cos., 215 Cal. Rptr. 416, 420–21 (Cal. Ct. App. 1985).

KFx’s citation to a press release that pre-dates the Arthrex Counterclaims by

several months (thus giving Arthrex ample opportunity to include a claim thereon

in its Counterclaims) does not create a potential for liability where Arthrex did not

reference that press release in the KFx v. Arthrex Litigation. See Microtec, 40 F.3d

at 971.

2. Second, there is no potential for coverage as a matter of law because

Arthrex sought only injunctive and declaratory relief, whereas the Policy covers

only claims for “damages.” Attorneys’ fees are not “damages” under California

law. See Cutler-Orosi Unified Sch. Dist. v. Tulare Cnty. Sch. Dist. Liab./Prop.

Self-Ins. Auth., 37 Cal. Rptr. 2d 106, 114–15 (Cal. Ct. App. 1994). Moreover,

Arthrex’s boilerplate request for “other and further relief, at law or in equity” does

not create a potential for damage liability where none of Arthrex’s enumerated

3
We note that the Policy purports to cover only “malicious prosecution”
claims—not claims for abuse of process. Nevertheless, we have previously held
that, as a matter of California law, the use of either term in an insurance policy
should be construed as incorporating the other. See Lunsford v. Am. Guar. & Liab.
Ins. Co., 18 F.3d 653, 655–56 (9th Cir. 1994). Thus, for purposes of this
disposition we assume coverage extended to claims of abuse of process, had they
been made.

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claims provide a basis for a damage recovery. See Atl. Mut. Ins. Co. v. J. Lamb,

Inc., 123 Cal. Rptr. 2d 256, 267 (Cal. Ct. App. 2002) (instructing courts to look to

the “nature of the claims made,” not to the relief requested (emphasis omitted)).

3. Third, even if—contrary to what we have held above—the Arthrex’s

counterclaims might be amended to state a covered claim, Travelers would still

have no duty to defend or indemnify because the Travelers Policy excludes from

coverage any claim “arising out of any actual or alleged infringement or violation

of . . . intellectual property rights or laws” (the “IP Exclusion”). KFx is arguing

that it disparaged Arthrex by wrongfully accusing it of patent infringement. KFx is

similarly arguing that Arthrex has accused it of abusing court processes by filing a

frivolous patent suit against Arthrex. Thus, both of these claims would “arise out

of” the underlying patent litigation, and would therefore fall squarely within the IP

Exclusion. Cf. e.g., Southgate Recreation & Park Dist. v. Cal. Ass’n for Park &

Rec. Ins., 130 Cal. Rptr. 2d 728, 733 (Cal. Ct. App. 2003).

For all the reasons set forth above, we find as a matter of law that Travelers

had no duty to defend or indemnify KFx in the KFx v. Arthrex Litigation. The

district court’s grant of partial summary judgment to Travelers is AFFIRMED. We

also GRANT Plaintiff-Appellee Travelers’ Motion for Judicial Notice dated April

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18, 2014, pursuant to Federal Rule of Evidence 201(b)(2). See Harris v. County of

Orange, 682 F.3d 1126, 1132 (9th Cir. 2012) (holding that federal court documents

are judicially noticeable).

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