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Milbank Insurance Co. v. Rushmore Photo & Gifts, Inc.

United States District Court, D. South Dakota, Western Division

September 4, 2018

MILBANK INSURANCE COMPANY, Plaintiff,
v.
RUSHMORE PHOTO & GIFTS, INC., a South Dakota Corporation, JRE, INC., a South Dakota Corporation, CAROL NIEMANN, PAUL A. NIEMANN, and BRIAN M. NIEMANN, Defendants.

          ORDER

          JEFFREY L. VIKEN CHIEF JUDGE

         INTRODUCTION

         Defendants Rushmore Photo & Gift, Inc., JRE, Inc., Carol Niemann, Paul A. Niemann and Brian M. Niemann (jointly the “RPG Defendants”) filed a motion to dismiss count I, count II and paragraphs 68(a), (b), (c), (d), (e), (g) and (k) of count III of plaintiff's complaint pursuant to Federal Rules of Civil Procedure 12(b)(5) and (6). (Docket 7). Plaintiff resists defendants' motion. (Docket 19). For the reasons stated below, defendants' motion is granted.

         ANALYSIS

         For purposes of resolving the RPG Defendants' motion, the facts alleged in the complaint are accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ”) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         Plaintiff Milbank Insurance Company (“Milbank”) filed a complaint against the RPG Defendants on August 22, 2017. (Docket 1). The complaint asserts the court has diversity of citizenship jurisdiction pursuant to 28 U.S.C. § 1332(a).[1] Id. ¶ 18. The complaint seeks a “declaratory judgment, brought pursuant to 28 U.S.C. §§ 2201 & 2202, for the purpose of determining the rights and legal obligations under insurance policies issued by Milbank to the RPG Defendants.” (Docket 1 ¶ 1). Plaintiff alleges “[t]he Milbank Policies do not apply to claims for trademark infringement, intentional violations of the known rights of another, and injunctive relief.” Id. ¶ 2. Milbank states that “[o]n June 22, 2011, Sturgis Motorcycle Rally, Inc. (“SMRI”), filed suit against the RPG Defendants alleging trademark infringement relating to the Sturgis Motorcycle Rally in Sturgis, South Dakota.” Id. ¶ 3. See Sturgis Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., et al., Civ. 11-5042 (D.S.D. 2011) (the “SMRI Lawsuit”). The complaint alleges that “Milbank agreed to defend the RPG Defendants, subject to a reservation of rights that the Milbank Policies do not provide coverage for trademark violations, intentional violations of the known rights of another, or claims for injunctive relief.” (Docket 1 ¶ 4).

         “On April 24, 2012, SMRI filed an Amended Complaint alleging the same causes of action as its original Complaint, but adding Wal-Mart as a defendant.” (Docket 1 ¶ 40) (referencing Civ. 11-5052, Docket 52). “Without consulting Milbank, Rushmore agreed to defend and indemnify Wal-Mart relative to the [SMRI] Lawsuit.” Id. ¶ 43. “Until its decision to amicably withdraw[ ] from the RPG Defendants' defense, Milbank was also paying for [RPG Defendants' attorneys] defense of Wal-Mart subject to a reservation of rights.” Id. ¶ 45. “Milbank now seeks a ruling that Milbank has no duty to defend the RPG Defendants in the [SMRI] [L]awsuit.” Id. ¶ 10.

         Count I seeks a declaratory judgment that “the Trademark Exclusion bars coverage for the [SMRI] Lawsuit in its entirety.” Id. ¶ 60. Count II seeks a declaratory judgment that “the Intentional and/or Willful Conduct Exclusion bars coverage for the [SMRI] Lawsuit in its entirety.” Id. ¶ 66. Count III seeks a declaratory judgment “that Milbank has no duty to provide coverage, or is entitled to recover certain amounts spent in connection with the [SMRI] Lawsuit, based on [certain] grounds . . . .” Id. ¶ 68. Relevant to the RPG Defendants' motion, the complaint alleged that Milbank had no duty to:

1. defend claims for “personal and advertising injury” where such injury arises from publications or distributions of infringing material that occurred prior to the inception of any Milbank Policy. Id. ¶ 68(a).
2. defend claims for any liability or potential liability which the RPG Defendants knew of, and did not disclose to Milbank, prior to the inception of any Milbank Policy. Id. ¶ 68(b).
3. defend claims for “personal and advertising injury” arising out of oral or written publication of material, if done by or at the direction of the RPG Defendants with knowledge of its falsity. Id. ¶ 68(c).
4. defend claims for “personal and advertising injury” arising out of the failure of goods, products or services to conform with any statement of quality or performance made in the RPG Defendants' “advertisement.” Id. ¶ 68(d).
5. defend claims that do not seek damages, or claims that . . . seek solely injunctive or equitable relief. Id. ¶ 68(e).
6. pay defense costs that are not reasonable and necessary, or are otherwise unrelated to a covered claim. ...

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