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Agrakey Solutions, LLC and v. Mid-Continent Casualty Company

March 14, 2012

AGRAKEY SOLUTIONS, LLC AND JOHN REITSMA,
PLAINTIFFS,
v.
MID-CONTINENT CASUALTY COMPANY, DEFENDANT.



The opinion of the court was delivered by: Honorable Edward J. Lodge U. S. District Judge

MEMORANDUM DECISION AND ORDER

INTRODUCTION

The Court has before it plaintiff AgraKey Solutions, LLC and John Reitsma's motion for summary judgment (Dkt. 19). The Court has determined oral argument would not significantly assist the decisional process and will decide the motion without a hearing. For the reasons expressed below, the Court will deny the motion.

FACTS

This is an insurance policy coverage dispute. AgraKey bought general commercial liability insurance from Mid-Continent Casualty Company. The policy included coverage for "advertising or personal injury."

During the effective date of the policy, third party BioMagic, Inc. commenced arbitration proceedings against AgraKey, individual defendant John Reitsma, and Dutch Brothers Enterprises, LLC. AgraKey*fn1 contends that BioMagic sought redress for "personal or advertising injury" in that arbitration and, therefore, believes Mid-Continent was obligated to provide a defense.

The BioMagic arbitration concerns a license dispute between BioMagic, on the one hand, and Dutch Brothers, AgraKey, and Reitsma, on the other hand. See Demand for Arbitration, Dkt. 26-1. In its arbitration demand, BioMagic alleges that these parties breached a December 2005 license agreement.

Under that agreement, BioMagic granted Dutch Brothers an exclusive license to manufacture, market, and sell BioMagic's "proprietary bio-stimulant products, accessories, and supplies in 'agriculture and agriculturally related applications in North America, including Hawaii." Dkt. 26-1 at 5. In 2007, BioMagic consented to Dutch Brothers' transfer of its rights under the license agreement to Reitsma, individually. See May 7, 2007 License Transfer Agmt., Dkt. 26-1. Reitsma then formed a new company -- AgraKey -- to perform the marketing and sales functions under the license agreement, while Dutch Brothers continued to manufacture the product.

In hindsight, BioMagic believed AgraKey saw this transfer agreement as a means to avoid paying royalty payments due under the original license agreement. See Dkt. 26-1, at 5-6.

BioMagic alleges that beginning in early 2009, AgraKey and Dutch Brothers materially breached the license agreement by marketing and selling BioMagic's "proprietary products" to businesses not involved in agriculture. Dkt. 26-1, at 6. BioMagic also claimed that AgraKey and Dutch Brothers failed to pay royalties for the first three quarters of 2009. BioMagic indicated that it would elect to terminate the license agreement unless these breaches were cured. AgraKey and Dutch Brothers responded that they wanted to terminate the license agreement anyway. As a result, the license agreement terminated effective November 2, 2009.

On November 13, 2009, BioMagic filed its arbitration demand, summarizing its complaint as follows: "By continuing to manufacture, market, and sell Claimant's proprietary products after termination of the License Agreement and to companies outside the scope of their licensing rights, Respondents are intentionally misappropriating Claimant's property, engaging in unfair competition, and intentionally interfering with Claimant's prospective business relationships." Dkt. 26-1, at 7.

Roughly six months after commencing the arbitration, BioMagic moved for injunctive relief. See Dkt. 26-2. In that motion, BioMagic contended that defendants' continued manufacture and sale of the products was "creating confusion in the marketplace as to who actually owns the proprietary rights of BioMagic's products." Dkt. 26-1 at 10:22-24; see also Watt Dec., Dkt. 26-3; Mobley Dec., Dkt. 26-4.

Shortly after BioMagic filed its motion for injunctive relief, AgraKey tendered defense of the BioMagic arbitration to Mid-Continent. See June 22, 2010 Letter, Dkt. 26- 9. After some back and forth between the insurance company and its insured, Mid-Continent denied coverage. See Oct. 4, 2010 Letter, Dkt. 26-17.

Meanwhile, the arbitration proceedings continued and in February 2011, the arbitrator entered its final award in favor of BioMagic. After the arbitrator entered this award, AgraKey pressed the coverage issue, attempting to convince Mid-Continent to reconsider its decision to deny coverage. Mid-Continent again denied coverage and, shortly thereafter, AgraKey and Reitsma filed this suit.

THE LEGAL STANDARD

Motions for summary judgment are governed by Rule 56 of the Federal Rules of Civil Procedure. Rule 56 provides that "[t]he court shall grant 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). "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1).

The party moving for summary judgment has the initial burden of showing there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, 477 U.S. 242, 247-48 (1986). Material facts are those necessary to the proof or defense of a claim, and are determined by reference to substantive law. Id. at 248. A fact issue is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

Once the moving party has met its initial burden, the nonmoving party has the burden of presenting evidence to show that a genuine issue of fact remains. The party opposing the motion for summary judgment may not rest upon the mere allegations or denials of her pleading, but must set forth specific facts showing that there is a genuine issue for trial. Id. at 248. If the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial" then summary judgment is proper as "there can be no 'genuine issue of material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322--23 (1986).*fn2

In applying the above standard, the Court must view the evidence in the light most favorable to the non-moving ...


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