Unpublished Disposition, 922 F.2d 845 (9th Cir. 1990)

MEMORANDUM^* 

Pencon International Inc. and Charley Contreras, its president (collectively, "Pencon"), appeal the district court's grant of summary judgment in favor of Safeco Insurance Company of America ("Safeco") in Safeco's diversity action for declaratory relief. The district court found that Safeco had no duty to indemnify or defend Pencon in four district court actions ("the underlying actions") and granted Safeco's motions for summary judgment on its duty to defend and on Pencon's counterclaim for fraud. We affirm.

FACTS

Safeco, a Washington corporation, issued a "Safeplan" liability insurance policy¹  in late 1987 to Pencon International, a California corporation doing business as General Magnetics. Pencon is an electrical supply business which rebuilt and repaired circuit breakers and other electrical products, and allegedly "palmed them off" as new.²  The four underlying complaints accuse Pencon of trademark infringement, trademark dilution, unfair competition, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq.

PROCEEDINGS BELOW

In two separate judgments, Safeco won declaratory relief against Pencon and all four third-party plaintiffs. First, the district court declared in its Statement of Uncontroverted Facts and Conclusions of Law that Safeco had no duty to defend Pencon or to indemnify Pencon in the first underlying action, based on the contract language. Its subsequent grant of summary judgment adopted the original findings and also declared no duty to defend in cases two, three, and four. Finally, Pencon's affirmative defense of equitable estoppel and fraud counterclaim were denied in a second summary judgment order. Pencon timely appeals both summary judgment orders.

DISCUSSION

A grant of summary judgment is reviewed de novo. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989); State Farm Fire and Casualty Co. v. Martin, 872 F.2d 319, 320 (9th Cir. 1989). The appellate court's review is governed by the same standard used by the trial court under Fed. R. Civ. P. 56(c), i.e., whether there are any genuine issues of material fact, viewing the evidence in the light most favorable to the nonmoving party, and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989); Judie v. Hamilton, 872 F.2d 919, 920 (9th Cir. 1989).

We review a district court's interpretation of state law de novo. Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir. 1984) (en banc). When interpreting state law, a federal court is bound by the decision of the highest state court. Dimidowich v. Bell & Howell, 803 F.2d 1473, 1482 (9th Cir. 1986), reh'g denied, op. modified, 810 F.2d 1517 (9th Cir. 1987).

Pencon contends that the district court erred in holding that Safeco had no duty to defend because the trademark infringement alleged in the four underlying complaints could not potentially fall within the coverage of the policy. Its claim rests on two arguments.³  First, it contends that the reason for Safeco's denial of coverage was "because the insured had done willfully wrongful acts," and such willfulness can only be established after full trials of the underlying actions. Secondly, Pencon argues that the trademark and unfair competition claims here fall within the policy's coverage of "advertising injury," or infringement of "copyright, title or slogan."⁴ 

Although California courts have historically construed insurance contracts against insurers, AIU Ins. Co. v. Sup. Court, No. SO12525, 1990 Cal. LEXIS 5050, 22 (Nov. 15, 1990), and the duty to defend may be broader than the duty to indemnify, Gray v. Zurich Insurance Co., 65 Cal. 2d 263, 54 Cal.Rptr 104, 419 P.2d 168, 176 (1966), unambiguous contract language must be given effect.

In this case, the contract language at issue is unambiguous. It clearly covers only injuries caused by "oral or written publication ... that disparages ... goods, products or services," or "infringement of copyright, title, or slogan ... in the course of your advertising activities." The district court correctly held that no "disparagement" occurred here, relying on Aetna Cas. & Sur. Co. v. Centennial Ins. Co., 838 F.2d 346 (9th Cir. 1988) (finding no duty to defend a manufacturer accused of "palming off" goods as its own). Pencon has proffered no evidence or caselaw to indicate otherwise. In addition, Pencon has failed to make any showing that its alleged acts occurred "in the course of advertising" as required by the policy, see National Union Fire Ins. Co. v. Siliconix, 729 F. Supp. 77, 79-80 (N.D. Cal. 1989) (such clauses must be given effect in establishing or negating a duty to defend), or that the policy's exclusion of "intentional or knowing" acts should not apply here.

In sum, Pencon has failed to meet its burden on any of these three issues under Celotex v. Catrett, 477 U.S. 317, 322-23 (1985). No matter how generously we construe the policy language, Pencon's bare allegations have not demonstrated any "potential for liability" or objectively reasonable expectation of coverage. State Farm Mutual Auto. Ins. Co. v. Spann, 31 Cal. App. 3d 97, 100 (1973), Gray, 419 P.2d at 174. Therefore, the grants of summary judgment as to all four underlying cases and the counterclaim are AFFIRMED.