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AU Electronics, Inc. v. Harleysville Group, Inc.

United States District Court, N.D. Illinois, Eastern Division

March 10, 2015

AU ELECTRONICS, INC., ADNAN VADRIA, and UMAIR YASIN, Plaintiffs/Counter-Defendants,
v.
HARLEYSVILLE GROUP, INC., Defendant, and HARLEYSVILLE LAKE STATES INSURANCE CO., Defendant/Counter-Plaintiff

For AU Electronics, Inc., Adnan Vadria, Umair Yasin, Plaintiffs, Counter Defendant: Shorge Kenneth Sato, LEAD ATTORNEY, Brown, Udell, Pomerantz & Delrahim, Chicago, IL.

For Harleysville Group, Inc., Harleysville Lake States Insurance Company, Defendants, Counter Claimant: Edric S Bautista, LEAD ATTORNEY, Sanchez Daniels & Hoffman, Chicago, IL; John J. Piegore, Sanchez & Daniels, Chicago, IL.

For T-Mobile USA, Inc., Sprint Nextel Corporation, Sprint Communications Company, L.P., Counter Defendants: Gail Ellen Podolsky, PRO HAC VICE, Carlton Fields Jorden Bert, P.A., Atlanta, GA; James Blaker Baldinger, PRO HAC VICE, Carlton Fields, West Palm Beach, FL; Lawrence Harris Heftman, Schiff Hardin LLP, Chicago, IL; Stacey K. Sutton, PRO HAC VICE, Carlton Fields Jorden Burt, P.A., West Palm Beach, FL.

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MEMORANDUM OPINION AND ORDER

Gary Feinerman, United States District Judge.

This insurance coverage dispute pits AU Electronics, Adnan Vadria, and Umair Yasin (collectively, " AU," unless context requires otherwise) against Harleysville Group and Harleysville Lake States Insurance Company (together, " Harleysville," unless context requires otherwise). In the underlying suits, Sprint and T-Mobile, the large wireless network providers, alleged

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that AU bought cellphones in bulk, " unlocked" them so that they could be used on any cellular network, and then resold them overseas. Sprint Nextel Corp. v. AU Elecs., Inc., No. 12 C 9095 (N.D. Ill. filed Nov. 13, 2012); T-Mobile USA, Inc. v. AU Elecs., Inc., No. 12 C 10046 (N.D. Ill. filed Dec. 18, 2012); see Docs. 100-3, 100-4 (the complaints in those suits). Both suits settled. Doc. 120 at ¶ ¶ 45-46; see Final Judgment and Permanent Injunction, Sprint Nextel Corp. v. AU Elecs., Inc., No. 12 C 9095, (N.D. Ill. Jan. 23, 2014), ECF No. 210; Final Judgment and Permanent Injunction, T-Mobile USA, Inc. v. AU Elecs., Inc., No. 12 C 10046, (N.D. Ill. Jan. 23, 2014), ECF No. 201.

Well after the underlying suits commenced and before they settled, AU brought this case, which alleges that Harleysville breached its duty to defend and indemnify AU in those suits. Doc. 1. Harleysville answered and counterclaimed for a declaration that it owed no such duty. Docs. 9, 18. The parties have filed cross-motions for summary judgment. Docs. 93, 99. AU's motion is denied, and Harleysville's is granted.

Background

When considering Harleysville's summary judgment motion, the facts are considered in the light most favorable to AU, and when considering AU's motion, the facts are considered in the light most favorable to Harleysville. See In re United Air Lines, Inc., 453 F.3d 463, 468 (7th Cir. 2006) (" With cross summary judgment motions, we construe all facts and inferences therefrom in favor of the party against whom the motion under consideration is made." ) (internal quotation marks omitted). On summary judgment, the court must assume the truth of those facts, but does not vouch for them. See Smith v. Bray, 681 F.3d 888, 892 (7th Cir. 2012). That said, many of the following facts are undisputed; any contested facts will be noted.

Vadria founded AU Electronics, a consumer electronics store, in mid-2011; he is the company's president and co-owner. Doc. 105 at 3, ¶ 2; Doc. 128 at ¶ ¶ 1-2, 6. Yasin's father is the company's other co-owner. Doc. 128 at ¶ ¶ 3-4. Yasin says that he " assisted" his father with the business " to help him overcome cultural and language barriers," id. at ¶ 5; Sprint's complaint alleged that Yasin was " the sales and purchasing director of AU Electronics," Doc. 100-3 at ¶ 16.

In 2011, AU purchased a business insurance policy from Harleysville. Doc. 120 at ¶ 65; see Doc. 100-1 (copy of the policy). The policy obligates Harleysville to defend and indemnify AU for any " personal and advertising injury" suffered by a third party due to AU's conduct. Doc. 120 at ¶ 69; see Doc. 100-1 at 45-46 (Policy § II.A.1.b(2)). The policy provides liability coverage of up to $1 million per occurrence and $2 million in the aggregate. Doc. 120 at ¶ 69; see Doc. 100-1 at 5.

In late 2012, Sprint and T-Mobile each filed suit against AU Electronics, Vadria, and Yasin, Doc. 128 at ¶ 1, alleging that they engaged in a scheme to purchase cellphones in the United States, reprogram them so that the phones were no longer tethered to Sprint's or T-Mobile's networks, and then resell the phones overseas, usually stripped of all packaging and documentation. Doc. 120 at ¶ ¶ 13-18, 26-31; see Doc. 100-3 at 1-36 ( Sprint complaint); Doc. 100-4 at 1-35 ( T-Mobile complaint). The underlying complaints stated various statutory and common law claims, including under the Lanham Act, 15 U.S.C. § 1051 et seq. Doc. 120 at ¶ ¶ 19-21, 32-34; see Docs. 100-3, 100-4. Sprint alleged trademark infringement under § 32 of the Lanham Act, 15 U.S.C. § 1114,

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and " federal common law" trademark infringement under § 43(a) of the Lanham Act, 15 U.S.C. § § 1125(a)(1)(A) & (B). Doc. 100-3 at ¶ ¶ 154-170. T-Mobile brought only a federal common law trademark infringement claim under § 43(a). Doc. 100-4 at ¶ ¶ 90-99. Both Sprint and T-Mobile based their § 43(a) claims on the allegation that AU's activities " constitute[d] false designation of origin, false descriptions and representations, and false advertising." Doc. 100-3 at ¶ 168; Doc. 100-4 at ¶ 97. Specifically, Sprint alleged that AU's

use of the Sprint Marks evokes an immediate, favorable impression or association and constitutes a false representation that the products and businesses of [AU] have some connection, association, or affiliation with Sprint, and thus constitutes false designation of origin and is likely to mislead the trade and public into believing that [AU's] products and services originate from, are affiliated with, or are sponsored, authorized, approved or sanctioned by Sprint.

Doc. 100-3 at ¶ 165. T-Mobile alleged the same thing with respect to the T-Mobile marks. Doc. 100-4 at ¶ 93. AU denies that it engaged in that misconduct, but does not deny that Sprint and T-Mobile alleged that it did. Doc. 120 at ¶ ¶ 13-18, 26-31.[*]

As noted, AU's insurance policy covers " personal and advertising injury," a term defined to include " [t]he use of another's advertising idea in your 'advertisement.'" Doc. 120 at ¶ 70; see Doc. 100-1 at 59 (Policy § II.F.14.f). The policy excludes coverage for " personal and advertising injury ... arising out of the infringement of ... trademark, trade secret, or other intellectual property rights." Doc. 120 at ¶ 71; see Doc. 100-1 at 52 (Policy § II.B.1.p(12)). But the exclusion " does not apply to infringement, in your 'advertisement', of copyright, trade dress or slogan." Doc. 120 at ¶ 71 (emphasis added); see Doc. 100-1 at 52 (Policy § II.B.1.p(12)). Thus, trademark claims are excluded from coverage, but trade dress claims are not.

Shortly after Sprint and T-Mobile filed their suits, AU and its counsel " reviewed the Policy to determine coverage" but " concluded that they needed more information to determine whether the Underlying Lawsuits were covered or excluded under the Policy." Doc. 105 at ¶ 11. On July 16, 2013, Sprint and T-Mobile produced in discovery lists of people with whom they claimed AU had conspired. The lists included everyone who--based on the carriers' review of AU's own invoices and purchase orders, which AU had earlier produced in discovery--had sold at least two new Sprint or T-Mobile phones to AU. Doc. 105 at ¶ 22; see Docs. 100-8, 100-9 (the lists).

AU says that after receiving those lists from Sprint and T-Mobile, it " determined that for the first time [it] had a reasonable basis for seeking coverage or indemnification" from Harleysville. Doc. 105 at ¶ 23 (emphasis added). AU sent a tender for defense and indemnity to Harleysville on July 31, 2013. Ibid. AU's letter stated that " it has recently become clear to us ...


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