SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST, Plaintiff-Appellant, v. CREATION SUPPLY, INC., Defendant-Appellee.

 

No. 1-16-1899

 

APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SIXTH DIVISION

 

2017 IL App (1st) 161899-U; 2017 Ill. App. Unpub. LEXIS 1368

 

 

June 30, 2017, Decided

 

 

NOTICE:    THIS ORDER WAS FILED UNDER SUPREME COURT RULE 23 AND MAY NOT BE CITED AS PRECEDENT BY ANY PARTY EXCEPT IN THE LIMITED CIRCUMSTANCES ALLOWED UNDER RULE 23(e)(1).

 

PRIOR HISTORY:     [**1] Appeal from the Circuit Court of Cook County. No. 12 CH 24438. Honorable Peter Flynn, Judge Presiding.

Selective Ins. Co. of the Southeast v. Creation Supply, Inc., 2015 IL App (1st) 140152-U, 2015 Ill. App. Unpub. LEXIS 202 (Feb. 9, 2015)

 

DISPOSITION:    Affirmed in part, reversed in part, and remanded with directions.

 

JUDGES: JUSTICE DELORT delivered the judgment of the court. Presiding Justice Hoffman and Justice Rochford concurred in the judgment.

 

OPINION BY: DELORT

 

OPINION

 

ORDER

[*P1]  Held: The circuit court properly awarded attorney fees and expenses which the defendant insured incurred in its prosecution of an affirmative third-party claim. The attorney fees and costs for the third-party claim were within the scope of the plaintiff insurer’s duty to defend. However, once the underlying plaintiffs, dismissed after settlement with the insured, the insurer’s duty to defend ceased. We affirm in part, reverse in part, and remand with directions.

[*P2]  This is the second appeal arising from a declaratory judgment action filed by plaintiff Selective Insurance Company of the Southeast (Selective) against defendant Creation Supply, Inc. (Creation Supply). In the first appeal, we found, among other things, that Selective had a duty to defend Creation Supply in an underlying Oregon lawsuit, which alleged numerous claims of intellectual property infringement involving the import and [**2]  sale of square-shaped markers. See Selective Insurance Co. of the Southeast v. Creation Supply, Inc., 2015 IL App (1st) 140152-U (unpublished order under Supreme Court Rule 23). Here, Selective challenges the circuit court’s order granting a fee petition in favor of Creation Supply, arguing it should not be required to pay attorney fees Creation Supply incurred in prosecuting its affirmative claims for intellectual property infringement against the manufacturer of the markers. In the alternative, Selective contends it should not be required to pay Creation Supply’s attorney fees because all claims asserted against Creation Supply were dismissed on August 19, 2013, following a settlement. We affirm in part, reverse in part, and remand with directions.

 

[*P3]  BACKGROUND

[*P4]  On April 25, 2012, Too Marker Products, Inc. and Imagination International, Inc. (collectively, the underlying plaintiffs) filed a complaint against Creation Supply and its sole proprietor, John Gragg, in the United States District Court for the District of Oregon.1 Too Marker Products, Inc. v. Creation Supply, Inc., No. 3:12-cv-00735 (D. Ore.). The underlying plaintiffs alleged trademark infringement, violation of trade dress, and unfair competition against their line of “COPIC” double-ended, alcohol-based colored art markers. According [**3]  to the underlying complaint, Creation Supply and Gragg imported and sold a competing line of “MEPXY” markers having the same squarish bodies and end-caps as the COPIC markers.

 

1   Gragg was later dismissed as a defendant from the underlying case.

[*P5]  On June 13, 2012, Creation Supply requested Selective, an insurance company that issued a business owners’ policy to Creation Supply, effective August 19, 2011 to August 19, 2012, to defend it in the Oregon lawsuit. Selective denied Creation Supply’s request for a defense under the policy in a letter dated June 22, 2012.

[*P6]  Thereafter, on July 2, 2012, Selective filed a declaratory judgment complaint against Creation Supply, Gragg, and the underlying plaintiffs alleging, among other things, that it did not owe a duty to defend Creation Supply or Gragg and that no coverage was available for the underlying claims for attorney fees and costs. Creation Supply and Gragg answered the complaint and asserted counterclaims seeking a declaratory judgment finding that Selective owed them a defense in the underlying claim and alleging breach of contract and bad faith.

[*P7]  On July 11, 2012, Creation Supply filed a complaint against Alpha Art Materials Co., Ltd. (Alpha), the manufacturer of the subject markers, in United States District [**4]  Court for the Northern District of Illinois. Creation Supply, Inc. v. Alpha Art Materials Co., Ltd., No. 1:12-cv-05456 (N.D. Ill.). Creation Supply sued Alpha for breach of the implied warranty against infringement under section 2-312 of the Uniform Commercial Code (810 ILCS 5/2-312 (West 2012)). Creation Supply also sued for a claim of implied indemnity. Although Creation Supply contested personal jurisdiction in the Oregon lawsuit, it nevertheless filed a third-party complaint against Alpha in Oregon on August 21, 2012, alleging similar infringement claims as asserted in the Illinois lawsuit.

[*P8]  Creation Supply moved for summary judgment against Alpha on its infringement claim in Illinois. At a pretrial conference, the district court judge sua sponte transferred the case to Oregon, finding that “venue is proper in the District of Oregon and that the convenience of the parties favors a transfer.” The transfer became effective on June 19, 2013 and the Illinois and Oregon claims were consolidated in Oregon.

[*P9]  The underlying plaintiffs and Creation Supply settled all their claims and counterclaims on July 29, 2013. The Oregon court dismissed the underlying plaintiffs’ lawsuit against Creation Supply without prejudice [**5]  on August 19, 2013 pursuant to the settlement agreement. Creation Supply’s third-party claims against Alpha remained pending in Oregon.

[*P10]  On October 21, 2013, the Oregon court denied Creation Supply’s summary judgment motion. Alpha moved for summary judgment on Creation Supply’s claims, which the court granted on August 4, 2014. The Oregon court entered final judgment on October 14, 2014.

[*P11]  With this background in mind, we turn back to the coverage litigation in Cook County. The circuit court granted summary judgment in favor of Creation Supply and against Selective on December 19, 2013, finding that Selective owed Creation Supply a duty to defend the underlying lawsuit in Oregon. On January 7, 2014, Creation Supply submitted invoices to Selective for work performed by its counsel, Bishop, Diehl & Lee, seeking payment. Selective did not respond. Selective filed its notice of appeal on January 9, 2014.

[*P12]  On January 12, 2014, Creation Supply filed a postjudgment “Motion to Quantify Damages,” in which it requested that the circuit court find Selective’s duty to defend encompassed the affirmative claims Creation Supply asserted against Alpha, initially in Illinois, and later in Oregon. Creation [**6]  Supply argued that the affirmative claims “were part of the same dispute as that of the underlying lawsuit and were brought to defeat or offset any liability that [Creation Supply] would have owed to the plaintiffs in the underlying lawsuit.” The circuit court denied Creation Supply’s motion on January 22, 2014.2

 

2   Although the circuit court’s order is not included in the record, we may take judicial notice of the on-line docket report of chancery division filings issued by the clerk of the circuit court of Cook County. See, e.g., All Purpose Nursing Service v. Human Rights Comm’n, 205 Ill. App. 3d 816, 823, 563 N.E.2d 844, 150 Ill. Dec. 717 (1990) (citing People v. Davis, 65 Ill. 2d 157, 357 N.E.2d 792, 2 Ill. Dec. 572 (1976)); Boston v. Rockford Memorial Hospital, 140 Ill. App. 3d 969, 972, 489 N.E.2d 429, 95 Ill. Dec. 208 (1986). The docket report is a matter of record which this court may take judicial notice, and its contents are not difficult to ascertain.

[*P13]  Creation Supply again sought payment from Selective on February 19, 2014. Selective did not respond.

[*P14]  Creation Supply filed a motion to recover fees and enforce judgment on March 7, 2014, supplemented on April 1, 2014, seeking $305,759.10 in attorney fees and costs, and $12,230.36 in prejudgment interest (hereinafter collectively, the fee petition). The amounts sought did not include Creation Supply’s fees and costs incurred in defending the coverage action (which Creation Supply claimed to be $115,353.53 at that point). Creation Supply attached attorney affidavits and redacted invoices setting forth its attorney fees and expenses for the underlying lawsuit and “work performed relative to the contractual indemnity claims against Alpha.”

[*P15]  On May 20, 2014, Selective filed a response to Creation Supply’s fee petition arguing, among other things, that Creation Supply was not [**7]  entitled to payment of costs allegedly incurred in prosecuting its affirmative claims against Alpha. Selective contended the affirmative claims were not included as part of the defense in the underlying case and, therefore, were outside the scope of Selective’s duty to defend. The circuit court ordered Selective to file specific objections to the invoice entries by August 18, 2014.

[*P16]  On December 9, 2014, Creation Supply filed a motion to supplement the fee petition to include additional invoices for fees and expenses incurred in the prosecution of its affirmative claims against Alpha from July 2014 through the October 14, 2014 final judgment. Selective responded, arguing that the requested fees were not reimbursable because: (1) they were incurred almost one year after the underlying claims asserted against Creation Supply were dismissed and, therefore, were no longer part of “the defense” of claims asserted against Creation Supply; and (2) the affirmative claims against Alpha were unrelated to the defense of the dismissed underlying claims against Creation Supply.

[*P17]  The circuit court determined that an evidentiary hearing on the fee petition was unnecessary and entered a detailed, written [**8]  preliminary order on June 19, 2015. The court granted the fee petition and found that Creation Supply’s third-party affirmative complaint against Alpha in Oregon was encompassed in Selective’s duty to defend and that, although the claims against Creation Supply in the underlying lawsuit were dismissed, Creation Supply was entitled to reimbursement for attorney fees and costs for the underlying lawsuit and the third-party complaint against Alpha filed in the underlying lawsuit. The court concluded that Creation Supply’s third-party complaint potentially benefitted Selective, as well as Creation Supply, because it provided another source of reimbursement for defense costs.

[*P18]  In addition, the circuit court found, in part, that: (1) Creation Supply was not entitled to reimbursement for fees incurred in the prosecution of its lawsuit against Alpha filed in the Northern District of Illinois; (2) Selective’s duty to defend survived the dismissal of all claims asserted against Creation Supply in the underlying case in August 2013; and (3) Creation Supply was not entitled to prejudgment interest. The court awarded Creation Supply $305,759.10, less the identifiable fees and expenses attributable [**9]  to the Illinois Alpha action, the difference between the total amount of the local counsel fees and the $14,475.25 awarded by the court, and other expenses which fell into the category of “overhead.” The court directed Creation Supply to file and serve on Selective a revised calculation of the amount due and ordered Selective to pay the revised amount within 14 days of receipt. The court also found its ruling was “without prejudice to [Creation Supply’s] ability to claim reimbursement for other amounts, including fees and expenses attributable to the Illinois Alpha Action, by further motion, supported as indicated herein.”

[*P19]  Creation Supply filed a “Notice of Compliance” on June 25, 2015, seeking payment of $217,002.86, “without prejudice to [Creation Supply’s] ability” to seek reimbursement for fees and expenses attributable to the Illinois Alpha lawsuit, totaling $77,132.27.

[*P20]  On July 1, 2015, Selective filed a motion to clarify the June 19, 2015 order and stay payment, and responded to Creation Supply’s notice of compliance, arguing it failed to comply with the June 19, 2015 order. Selective sought clarification regarding what invoices were potentially subject to appeal and a stay of [**10]  payment pending entry of a final judgment on the amount of defense costs owed.

[*P21]  Creation Supply filed a motion for additional fees on July 7, 2015, which included a revised calculation of the attorney fees and expenses allegedly owed. Creation Supply claimed an additional $182,087.53 in attorney fees not previously addressed in the circuit court’s June 19, 2015 order. Creation Supply also renewed its request to recover $10,956.60 in local counsel fees and $667.37 in costs that the court disallowed due to Creation Supply’s failure to provide detailed invoices. Further, Creation Supply renewed its demand for attorney fees and expenses attributable to its claims against Alpha in Illinois.

[*P22]  On May 23, 2016, the circuit court issued an order granting Creation Supply’s motion for additional fees and quantifying those fees and expenses. The court noted that Selective did not challenge the reasonableness of the requested fees, but instead essentially repeated the previous arguments it made in its response to the fee petition. Selective did not challenge specific invoices or argue that the additional invoices were unreasonable or unsupported. The court stated that it provided Selective with an [**11]  opportunity to dispute the reasonableness of the fees in question, but it chose not to do so. The court declined to revisit the same arguments that it addressed and ruled upon in the June 19, 2015 order. The court also declined to award Creation Supply attorney fees for its claims against Alpha in Illinois.

[*P23]  The circuit court found Creation Supply was entitled to recover a total of $392,147.61, including: (1) $182,087.53 detailed in additional invoices from February 2014 through November 2014; (2) the $217,002.86 set forth in its revised calculation less the identifiable attorney fees attributable to the Illinois Alpha action ($13,906.75) and the coverage claim ($4,660.00); (3) reimbursement for the remainder of local counsel fees totaling $10,956.60; and (4) overhead expenses totaling $667.37.

[*P24]  On June 21, 2016, the circuit court entered final judgment on Creation Supply’s fee petition in the amount of $392,147.61, which was offset in the amount of $178,000.00 for payments previously made by Selective to Creation Supply. This appeal followed.

 

[*P25]  ANALYSIS

[*P26]  Selective argues that the circuit court erred when it granted Creation Supply’s fee petition because Creation Supply’s third-party affirmative [**12]  claims against Alpha were not within the scope of the duty to defend under the language of its insurance policy. Selective also contends the court erred when it required Selective to pay Creation Supply’s attorney fees incurred in prosecuting the Alpha claims in Oregon even after all the claims asserted against Creation Supply were dismissed on August 19, 2013.

[*P27]  Our review of the decision to grant Creation Supply’s fee petition is limited to the attorney fees and expenses incurred from the prosecution of the third-party complaint Creation Supply filed against Alpha. No claim is raised in this appeal related to Creation Supply’s claim against Alpha in the United States District Court for the Northern District of Illinois.

 

[*P28]  Standard of Review

[*P29]  Selective seeks de novo review of the circuit court’s decision. However, the circuit court has broad discretion when awarding attorney fees and its decision will not be reversed absent an abuse of discretion. In re Estate of Callahan, 144 Ill. 2d 32, 43-44, 578 N.E.2d 985, 161 Ill. Dec. 339 (1991); Richardson v. Haddon, 375 Ill. App. 3d 312, 314, 873 N.E.2d 570, 313 Ill. Dec. 946 (2007). Although the issue in this appeal is whether the circuit court properly awarded attorney fees, within that determination is whether the circuit court properly applied the language of the insurance policy, which includes the contract provision [**13]  governing attorney fees. “An insurance policy is a contract, and the general rules governing the interpretation of other types of contracts also govern the interpretation of insurance policies.” Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill. 2d 11, 17, 823 N.E.2d 561, 291 Ill. Dec. 269 (2005). Accordingly, we consider whether Selective’s policy, properly construed, prohibits or permits the award of attorney fees under the factual circumstances of this case. This poses a legal issue which we review de novo. Id.

 

[*P30]  Whether Attorney Fees From the Prosecution of an Affirmative Claim is Within the Scope of the Duty to Defend

[*P31]  Selective argues that the attorney fees associated with Creation Supply’s prosecution of the affirmative claims against Alpha were not incurred in the “defense” of the underlying “suit” brought against Creation Supply under the language of its policy. Selective contends the circuit court erroneously relied on the holding in Great West Casualty Co. v. Marathon Oil Co., 315 F. Supp. 2d 879 (N.D. Ill. 2003) in finding that the costs incurred from Creation Supply’s prosecution of the affirmative claims fell within the scope of Selective’s duty to defend.

[*P32]  The provision at issue in Selective’s policy states:

 

“We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and [**14]  advertising injury’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ to which this insurance does not apply.”

 

 

The policy defines the term, “suit” as “a civil proceeding in which damages because of ‘bodily injury,’ ‘property damage,’ or ‘personal and advertising injury’ to which this insurance applies are alleged.”

[*P33]  The language of Selective’s policy alone belies its argument regarding the scope of the duty to defend. In construing an insurance policy, the court determines the intent of the parties to the contract by construing the policy as a whole, with due regard to the risk undertaken, the subject matter that is insured and the purposes of the entire contract. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108, 607 N.E.2d 1204, 180 Ill. Dec. 691 (1992). Where the words in the policy are clear and unambiguous, “a court must afford them their plain, ordinary, and popular meaning.” (Emphasis in original.) Id. However, if the words in the policy are susceptible to more than one reasonable interpretation, they will be considered ambiguous [**15]  and will be strictly construed in favor of the insured and against the insurer that drafted the policy. Id. Nonetheless, courts will not strain to find an ambiguity where none exists. Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill. 2d 11, 17, 823 N.E.2d 561, 291 Ill. Dec. 269 (2005).

[*P34]  Under Illinois law, an insured contracts for, and has a right to expect, two separate and distinct duties from an insurer: (1) the duty to defend if a claim is made against the insured; and (2) the duty to indemnify if the insured is found legally liable for the occurrence of a covered risk. Chandler v. Doherty, 299 Ill. App. 3d 797, 801, 702 N.E.2d 634, 234 Ill. Dec. 294 (1998). While an insurer’s duty to indemnify arises only if the facts alleged actually fall within coverage, the duty to defend is much broader. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 398, 620 N.E.2d 1073, 189 Ill. Dec. 756 (1993). “To determine whether the insurer has a duty to defend the insured, the court must look to the allegations in the underlying complaint and compare these allegations to the relevant provisions of the insurance policy.” Outboard Marine Corp., 154 Ill. 2d at 107-08. If the underlying complaint alleges facts that fall “within or potentially within” the coverage of the policy, the insurer is obligated to defend its insured even if the allegations are “groundless, false, or fraudulent.” (Emphasis in original.) United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73, 578 N.E.2d 926, 161 Ill. Dec. 280 (1991). “An insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face [**16]  of the underlying complaint that the allegations fail to state facts which bring the case within, or potentially within, the policy’s coverage.” (Emphasis in original.) Id. The threshold requirement that the complaint must satisfy to present a claim of potential coverage is minimal; the complaint need present only a possibility, not a probability, of recovery. Bituminous Casualty Corp. v. Gust K. Newberg Construction Co., 218 Ill. App. 3d 956, 960, 578 N.E.2d 1003, 161 Ill. Dec. 357 (1991).

[*P35]  In determining whether the allegations in the underlying complaint meet that threshold requirement, both the underlying complaint and the insurance policy must be liberally construed in favor of the insured. Wilkin Insulation Co., 144 Ill. 2d at 73. “[T]he duty to defend does not require that the complaint allege or use language affirmatively bringing the claims within the scope of the policy.” International Insurance Co. v. Rollprint Packaging Products, Inc., 312 Ill. App. 3d 998, 1007, 728 N.E.2d 680, 245 Ill. Dec. 598 (2000). The insured bears the burden of proving its claim falls within the coverage of an insurance policy. Addison Insurance v. Fay, 232 Ill. 2d 446, 453, 905 N.E.2d 747, 328 Ill. Dec. 858 (2009). “Once the insured has demonstrated coverage, the burden then shifts to the insurer to prove that a limitation or exclusion applies.” Id. at 453-54. Finally, all doubts are resolved in the insured’s favor. Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 154, 708 N.E.2d 1122, 237 Ill. Dec. 82 (1999) (citing Wilkin Insulation Co., 144 Ill. 2d at 74).

[*P36]  Under certain circumstances, a court may look beyond the underlying complaint in order to determine an insurer’s duty to defend. Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446, 458-59, 930 N.E.2d 1011, 341 Ill. Dec. 497 (2010). Indeed, “the trial court should be able to [**17]  consider all the relevant facts contained in the pleadings, including a third-party complaint, to determine whether there is a duty to defend.” American Economy Insurance Co. v. Holabird & Root, 382 Ill. App.3d 1017, 1031-32, 886 N.E.2d 1166, 320 Ill. Dec. 97 (2008). We examine Selective’s policy language with these principles in mind.

[*P37]  Selective’s policy states that it has “the right and duty to defend” Creation Supply “against any ‘suit’ seeking” damages in the event Creation Supply is found liable, in this case, for “personal and advertising injury.” In the first appeal, we found the allegations in the underlying complaint, the photograph of the retail product display of MEPXY markers, and the relevant policy language triggered Selective’s duty to defend Creation Supply in the underlying case. Selective Insurance Co., 2015 IL App (1st) 140152-U, ¶¶ 30, 34, 37, 42, 54. In part, we determined that trade dress infringement is a covered “advertising injury” under the terms of Selective’s policy and that the underlying complaint alleged trade dress infringement in Creation Supply’s advertisement of the MEPXY markers. Id. ¶¶ 34, 37.

[*P38]  Creation Supply’s third-party complaint alleged that Alpha violated section 2-312 of the UCC because it “offered for sale and sold purportedly infringing goods to [Creation Supply].” Creation Supply also alleged that it “would not have been sued in the state of [**18]  Oregon for trademark infringement and related claims but for Alpha’s actions.” Although Alpha was not responsible for the retail display that was the subject of the alleged advertising injury in the underlying complaint, no “advertising injury” could occur without some public display of the infringing marker. In this case, the shape and design of the MEPXY marker was prominently displayed, which was the source of the underlying trade dress claim. In short, the allegations of the underlying complaint are inextricably intertwined with the allegations in Creation Supply’s third-party complaint. Thus, the duty to defend, in this circumstance, further extends to a third-party complaint. Pekin Insurance, 237 Ill. 2d at 458-59.

[*P39]  Moreover, the definition of “suit” in Selective’s policy does not distinguish between an offensive or defensive lawsuit. Any ambiguity arising from the definition of “suit” is strictly construed in favor of the insured and against the insurer that drafted the policy. Outboard Marine, 154 Ill. 2d at 108.

[*P40]  Creation Supply sought recovery from what it considered to be the ultimate source of the infringement problem. The third-party complaint derived its facts from the underlying complaint, which included the alleged offense of “[i]nfringing upon another’s [**19]  copyright, trade dress or slogan in your ‘advertisement.'” Selective has not shown that the third-party complaint failed to state facts which bring the case within, or potentially within, the policy’s coverage. Based on the language of Selective’s policy and the close connection between the underlying complaint and the third-party complaint, we find Selective was obligated to pay the expenses incurred from Creation Supply’s prosecution of the third-party claim against Alpha.

[*P41]  Great West supports this result. There, the court determined whether the insurer, Great West Casualty Company (Great West), was required to pay attorney fees incurred in two third-party indemnification actions prosecuted by its insured, Marathon Oil Company (Marathon). Great West, 315 F. Supp. 2d at 880. The decedent, Paul Howe, drove a truck while employed by Heidenreich Trucking Company, Inc. (Heidenreich) and was fatally injured when he loaded his truck with gasoline purchased by or for Krystal Gas Marketing Company (Krystal) at a Marathon terminal. Marathon was named as an additional insured on Heidenreich’s liability policy issued by Great West. Howe’s estate filed a negligence lawsuit against Marathon and Marathon filed third-party complaints [**20]  against Heidenreich and Krystal for contribution and indemnity. Id.

[*P42]  The district court found that Great West’s duty to defend encompassed attorney fees and costs incurred in the third-party actions aimed at shifting liability for the claim as to which the duty to defend exists. Id. at 882. The Great West court concluded:

 

“‘Defense’ is about avoiding liability. Claims and actions seeking third-party contribution and indemnification are a means of avoiding liability just a clearly as is contesting the claims alleged to give rise to liability. A duty to defend would be nothing but a form of words if it did not encompass all litigation by the insured which could defeat its liability, including claims and actions for contribution and indemnification.” Id. at 882-83.

 

 

[*P43]  We find this reasoning persuasive and apply it here. Creation Supply’s third-party complaint against Alpha was aimed at shifting the liability for the underlying intellectual property infringement claims against Creation Supply. Simply put, Creation Supply’s efforts to seek liability against Alpha ultimately would have aided Selective because whatever amount Creation Supply would have recovered from Alpha would then reduce Selective’s obligation to [**21]  Creation Supply for the defense of the underlying litigation.

[*P44]  Furthermore, Rollprint does not support Selective’s argument. In Rollprint, the insurer, International Insurance Company (International) brought a declaratory judgment action seeking a declaration that it did not owe its insured, Rollprint Packaging Products, Inc. (Rollprint), a duty to defend and indemnify it in a federal employment discrimination lawsuit pursuant to a commercial general liability insurance policy. The circuit court found, and the appellate court agreed, that International’s duty to defend was triggered by the allegations of the federal complaint. Rollprint, 312 Ill. App. 3d at 1009. The underlying lawsuit dealt with Netzer Novissar’s termination from Rollprint’s employ. In the course of defending the lawsuit, Rollprint counterclaimed, seeking a finding that it owned various trade secrets, the ownership of which Novissar’s claim had put in issue. The reviewing court ruled, however, that International had no obligation to pay legal fees incurred in connection with this ownership of the trade secrets counterclaim. Id. at 1014-15.

[*P45]  Because of a lack of controlling Illinois authority, the court looked to cases from other states which had held that an insurer [**22]  which is obligated to defend is also obligated to provide coverage for certain counterclaims and cross-claims filed by the insured in the underlying action. For example, the court cited Oscar W. Larson Co. v. United Capitol Insurance Co., 845 F. Supp. 458, 461 (W.D. Mich. 1993), which found the insurer’s duty with respect to affirmative claims brought by the insured depends upon whether such claims are “‘defensive’ in nature,” meaning “‘prosecuted to limit or defeat plaintiff’s [the insured’s] liability [to a third party].'” Id. at 1015 (quoting Oscar W. Larson, 845 F. Supp. at 461). Such claims are encompassed by the duty to defend whereas offensive claims, such as Rollprint’s suit for a declaration as to its ownership of trade secrets, are not.

[*P46]  The court explained:

 

“Rollprint admits that its counterclaim against Novissar sought to ‘enjoin’ him from making any future use of the trade secrets for which ownership was contested by the parties in the Novissar lawsuit. This situation is different from that where a third-party action or counterclaim, such as for contribution, is filed to limit a defendant’s potential liability. The counterclaim filed by Rollprint in the Novissar lawsuit was not necessary for the determination of ownership of the trade secrets which was already at issue in that lawsuit. Rollprint’s counterclaim [**23]  against Novissar was comparable to any action Rollprint might have had to take to enjoin Novissar from using the trade secrets after his termination, even if he had not filed a lawsuit. The counterclaim, therefore, was not defensive in nature.” Id.

 

 

[*P47]  In this case, the language contained in Creation Supply’s third-party complaint shows an attempt to limit its potential liability in the underlying lawsuit. The analysis in Rollprint supports a finding that Creation Supply’s third-party complaint against Alpha was defensive in nature, thus, triggering Selective’s duty to defend.

[*P48]  Selective also argues that Great West ignored the court’s holding in W.E. O’Neill Construction Co. v. General Casualty Co. of Illinois, 321 Ill. App. 3d 550, 748 N.E.2d 667, 254 Ill. Dec. 949 (2001). In W.E. O’Neill, the court held one insurer, General Casualty Company of Illinois (General Casualty) was not liable to another insurer, Assurance Company of America (Assurance), for a law firm’s fees incurred from contacting other insurers to determine the division of defense costs. Id. at 558-59. The court concluded that the fees were not defense costs within the scope of the duty to defend. Id. at 558. The court found unpersuasive Assurance’s argument that General Casualty was liable for those fees because contacting the other insurers was to the benefit of General [**24]  Casualty. Id. at 558-59. The court stated that “a benefit to the primary insurer is not a test of what is a defense cost.” Id. at 559.

[*P49]  We agree with the circuit court that W.E. O’Neill is inapplicable because in this case, the fees incurred from the third-party complaint were not related to insurance coverage work. Creation Supply’s claims against Alpha were closely related to the underlying plaintiffs’ claims. Alpha’s liability to Creation Supply, if any, was the result of Alpha manufacturing and selling markers to Creation Supply that led to the underlying lawsuit. In contrast, any liability the other insurers would have had in W.E. O’Neill would have resulted from a contractual obligation, the insurance policies, which were entirely separate from the underlying claims.

[*P50]  Accordingly, Creation Supply’s prosecution of its third-party complaint against Alpha is within the scope of Selective’s duty to defend. The circuit court correctly found that Creation Supply is entitled to the reimbursement from Selective of attorney fees and costs for both the underlying lawsuit and the third-party complaint Creation Supply filed against Alpha.

 

[*P51]  Whether the Alpha Claims Were Aimed at Shifting Liability

[*P52]  Selective contends [**25]  that even if the duty to defend encompasses the costs associated with the prosecution of the affirmative claims against Alpha, those claims were not aimed at shifting liability for the claim as to which the duty to defend exists. Selective argues this is because the claim, which was premised upon Alpha’s alleged breach of implied warranties of noninfringement, was wholly unrelated to the defense of the potentially covered claims asserted against Creation Supply in the underlying case — infringement of trade dress in Creation Supply’s “advertisements.” In other words, Selective characterizes Creation Supply’s allegations against Alpha as “stand-alone claims for consequential damages.” Selective argues that Great West only supports contribution claims as having the effect of reducing or eliminating the liability on the potentially covered claim.

[*P53]  The holding in Great West is not limited in the manner asserted by Selective. The court in Great West specifically identified “a class of affirmative claims which, if successful, have the effect of reducing or eliminating the insured’s liability and that the costs and fees incurred in prosecuting such ‘defensive’ claims are encompassed in an [**26]  insurer’s duty to defend.” Great West, 315 F. Supp. 2d at 881. The question is whether the claim would defeat or offset liability. The nature of the claim, whether filed as contribution, indemnification, or a third-party claim, is irrelevant so long as the aim is to shift liability.

[*P54]  In this case, Creation Supply could not have asserted its breach of implied warranty claims or indemnity claims against Alpha if it had not first been sued for intellectual property infringement by the underlying plaintiffs. We previously held that trade dress infringement is a covered advertising injury and that, here, the advertising injury in the underlying case allegedly arose from the display of the Alpha-manufactured markers. As a prerequisite for Creation Supply’s claim against Alpha for breach of implied warranty, Creation Supply already was the subject of an infringement claim based on the product Alpha manufactured and sold to Creation Supply. Logically, it follows that Creation Supply’s claim against Alpha first required a claim for which Creation Supply could be indemnified. Contrary to Selective’s characterization, Creation Supply’s claims did not “stand alone,” but instead were brought to deflect trade dress infringement liability [**27]  onto Alpha. In short, Creation Supply’s claim against Alpha sought to shift liability and, had Creation Supply been successful, it would have reduced Selective’s obligation. We reject Selective’s argument on this issue.

 

[*P55]  Whether the Duty to Defend Survives Dismissal of the Underlying Claims

[*P56]  Finally, Selective argues that its duty to defend expired on August 19, 2013, the date the court dismissed the underlying lawsuit. Selective contends that after settlement of the underlying lawsuit, the rationale for finding coverage for the costs associated with the prosecution of the Alpha claims ceased, as there were no pending liability claims against Creation Supply. According to Selective, once the potentially covered liability claimed by the underlying plaintiffs was fixed at zero dollars3 and the claims were dismissed, Creation Supply’s continued efforts to obtain affirmative relief against Alpha could not have shifted liability for the claim as to which the duty to defend previously existed.

 

3   Selective claims that Creation Supply paid nothing in its settlement of the underlying lawsuit, but provided no citation to the record in support of that statement. The record shows, however, that the underlying lawsuit settled and was dismissed on August 19, 2013.

[*P57]  We agree with Selective on this issue. While Illinois law is clear that an insurer’s duty to defend is broader than the duty to indemnify, our supreme court has held that this is true “only when the insurer [**28]  has the potential obligation to indemnify.” Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill. 2d 23, 52, 514 N.E.2d 150, 112 Ill. Dec. 684 (1987). However, when “the insurer has no potential obligation to indemnify it has no duty to defend.” Id. See also Lockwood International, B.V. v. Volm Bag Co., 273 F.3d 741, 744 (7th Cir. 2001) (“if in the course of litigation the covered claims fall out of the case through settlement or otherwise, the insurer’s duty to defend his insured ceases”). In short, when the uncontroverted facts preclude the possibility of a duty to indemnify, the duty to defend ceases and the duty to indemnify is negated.

[*P58]  In this case, Creation Supply filed a third-party complaint against Alpha in Oregon on August 21, 2012. The underlying plaintiffs and Creation Supply settled all their claims and counterclaims on July 29, 2013. The Oregon court dismissed the underlying lawsuit against Creation Supply on August 19, 2013 without prejudice pursuant to the settlement agreement. Therefore, as of August 19, 2013, the covered claims for intellectual property infringement fell out of the case through settlement, which precluded the possibility of a duty to indemnify after that date and ceased the duty to defend. Creation Supply’s third-party claims against Alpha, which were premised upon the allegations of the underlying complaint that initially triggered [**29]  the duty to defend, could no longer be afforded coverage after the underlying lawsuit settled and was dismissed.

[*P59]  Accordingly, we reverse on this issue and remand the cause to the circuit court to determine the amount of attorney fees and costs for Creation Supply’s third-party claim against Alpha in Oregon from its initiation on August 21, 2012 until the dismissal of the underlying lawsuit on August 19, 2013, and to reduce the June 21, 2016 judgment by that amount.

 

[*P60]  CONCLUSION

[*P61]  We find the scope of the duty to defend includes attorney fees and costs incurred from the prosecution of Creation Supply’s third-party complaint against Alpha in Oregon. The circuit court properly granted Creation Supply’s fee petition and we affirm that decision. However, Creation Supply’s reimbursement for attorney fees and costs is limited to the time period from the inception of its third-party claim on August 21, 2012 until final judgment was entered dismissing the underlying lawsuit on August 19, 2013. On that issue, we reverse and remand to the circuit court with directions to determine the amount of attorney fees and costs consistent with this order.

[*P62]  Affirmed in part, reversed in part, and remanded with [**30]  directions.

JILL MUZZARELLI, Plaintiff, v. UNITED PARCEL SERVICE INC., Defendant.

 

Case No. 1:15-cv-01169-JBM-JEH

 

UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF ILLINOIS, PEORIA DIVISION

 

2017 U.S. Dist. LEXIS 99395

 

 

June 27, 2017, Decided

June 27, 2017, Filed

 

 

COUNSEL:  [*1] For Jill. Muzzarelli, Plaintiff: Louis J Meyer, MEYER & KISS LLC, Peoria, IL; Patrick J Jennetten, LAW OFFICE OF PATRICK JENNETTEN, P.C., Peoria, IL.

 

For United Parcel Service Inc, Defendant: Joseph Michael Mitchell, Scott C Bentivenga, LEWIS BRISBOIS BISGAARD & SMITH LLP, Chicago, IL.

 

JUDGES: JOE BILLY McDADE, United States Senior District Judge.

 

OPINION BY: JOE BILLY McDADE

 

OPINION

 

ORDER & OPINION

This matter is before the Court on Defendant United Parcel Service’s (“UPS”) Motion for Summary Judgment. (Doc. 34). Plaintiff has filed a Response (Doc. 36) and Defendant has filed a Reply. (Doc. 37). Therefore, the matter is fully briefed. For the reasons stated below, Defendant’s Motion is denied.

 

1. BACKGROUND1

 

1   These background facts are drawn from the parties’ respective statements of material facts, and are undisputed unless otherwise indicated. Facts that are immaterial to the disposition of the Motion for Summary Judgment are excluded.

Plaintiff’s claim arises from a fall she endured when she tripped over a package delivered by UPS. Around 6pm on January 11, 2013, Plaintiff returned to her boyfriend’s home, where she had resided for approximately twelve years. Plaintiff entered the house through a side door. When she left, she exited out the front door. The front door consisted of an inner main door and a screen door. After opening the screen door all the way, she exited and tripped over a large package that was sitting unconcealed on the porch [*2]  in front of the door. The package had been delivered for Plaintiff’s boyfriend earlier in the day by UPS.

On January 8, 2015, Plaintiff filed a negligence lawsuit against UPS in the Circuit Court of the Thirteenth Judicial Circuit of Illinois, which is in Bureau County, Princeton, Illinois. On April 6, 2015, Defendant was served with a summons and copy of the Complaint. On April 24, 2015, Defendant removed the case to this Court on the basis of diversity jurisdiction. Plaintiff is a resident of Princeton, Illinois.2 Defendant is a Delaware corporation with its principal place of business in Georgia. The amount in controversy exceeds $75,000. On November 11, 2016, Defendant filed its Motion for Summary Judgement. (Doc. 34). On December 13, 2016, Plaintiff filed her Response. (Doc. 36).3 On December 22, 2016, Defendant filed its Reply to Plaintiff’s Response. (Doc. 37). Therefore, the matter is fully briefed and the Court finds that oral arguments are unnecessary.4

 

2   The Court notes that this case should have been brought in the Rock Island Division pursuant to Local Rule 40.1(C), as Princeton is in Bureau County, which is in the Court’s Rock Island Division. Had the Notice of Removal complied with Local Rule 40.1(F), the proper division would have been identified sooner. Since this case has been pending for two years now, the Court finds it would not be in the interests of judicial economy or justice to transfer the case at this point. Counsel, however, are admonished to follow the local rules.

3   The Court notes that Plaintiff failed to comply with Local Rules 7.1(B)(4)(a) and 7.1(D)(5), which requires a response to be double-spaced. Plaintiff’s response uses 1.5 spacing. However, Plaintiff’s reply appears to comply with the type volume limitation, because it appears to be 5,636 words. Local Rule 7.1(B)(4)(b)(1). The Court admonishes Plaintiff to consult the Local Rules and ensure compliance before submitting material to the Court.

4   In its Motion to Dismiss, Defendant states “Oral Argument Requested Pursuant to L.R. 7.1”. However, Defendant failed to comply with Local Rule 7.1(A)(2), which requires parties to state why an oral argument is sought. The Court again admonishes Defendant to also consult the Local Rules and ensure compliance before submitting material to the Court.

 

1. LEGAL STANDARDS

Summary judgment shall be granted where “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). In ruling on a motion for summary [*3]  judgment, the Court must view the evidence in the light most favorable to the non-moving party. SMS Demag Aktiengesellschaft v. Material Scis. Corp., 565 F.3d 365, 368 (7th Cir. 2009). All inferences drawn from the facts must be construed in favor of the nonmovant. Moore v. Vital Prods., Inc., 641 F.3d 253, 256 (7th Cir. 2011). However, the Court is “not required to draw every conceivable inference from the record”; the Court draws only reasonable inferences. Smith v. Hope Sch., 560 F.3d 694, 699 (7th Cir. 2009) (quotations omitted).

To survive summary judgment, the “nonmovant must show through specific evidence that a triable issue of fact remains on issues on which he bears the burden of proof at trial.” Warsco v. Preferred Tech. Grp., 258 F.3d 557, 563 (7th Cir. 2001) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)). If the evidence on record could not lead a reasonable jury to find for the non-movant, then no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. See McClendon v. Ind. Sugars, 108 F.3d 789, 796 (7th Cir. 1997). At the summary judgment stage, the court may not resolve issues of fact; disputed material facts must be left for resolution at trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).

 

III. DISCUSSION

Defendant brings forth three arguments in its motion for summary judgment. First, Defendant argues that the Carmack Amendment preempts Plaintiff’s claim. Second, Defendant argues that the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) preempts Plaintiff’s claim. Lastly, Defendant argues that the open and obvious doctrine [*4]  precludes recovery under state tort law.

The Court finds that neither the Carmack Amendment nor the FAAAA preempts Plaintiff’s claim. Lastly, the Court finds that the open and obvious doctrine is inapplicable because Plaintiff’s Complaint does not plead a premise liability claim. Therefore, Defendant’s motion for summary judgement is denied.

 

1. THE CARMACK AMENDMENT DOES NOT APPLY

Defendant argues that Plaintiff’s claim is preempted by the Carmack Amendment. However, Plaintiff’s claim is not preempted because it arises out of a separate and distinct ground from the loss of, or the damage to, the goods that were shipped.

The Carmack Amendment was enacted in 1906 “to establish uniform federal guidelines designed in part to remove the uncertainty surrounding a carrier’s liability when damage occurs to a shipper’s interstate shipment.” Glass v. Crimmins Transfer Co., 299 F. Supp. 2d 878, 884 (C.D. Ill. 2004) (quotations omitted). The pertinent portion of the Carmack Amendment reads:

 

“A carrier providing transportation or service . . . shall issue a receipt or bill of lading for property it receives for transportation under this part. That carrier and any other carrier that delivers the property and is providing transportation or service . . . are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this paragraph is [*5]  for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States. Failure to issue a receipt or bill of lading does not affect the liability of a carrier.”

 

 

49 U.S.C. § 14706(a)(1) (2012).5 The Carmack Amendment creates a comprehensive remedial scheme for a shipper to recover the loss of cargo that is lost or damaged by a carrier; however, that loss is limited to actual losses or less, if the shipper and carrier negotiated a lower cap on potential losses for lower shipping rates. Glass, 299 F. Supp. 2d at 884. Preemption is evidenced where Congress has legislated so comprehensively that it has left no room for supplementary state legislation. Since the enactment of the Carmack Amendment, the United States Supreme Court and the United States Courts of Appeals have addressed whether Congress sought to preempt state and common law through the Carmack Amendment and the extent of such preemption.

 

5   The Carmack Amendment was originally codified at 49 U.S.C. § 11707(a)(1) (1994). However, the Interstate Commerce Commission Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803, amended the Act and recodified it at 49 U.S.C. § 14706(a)(1).

In 1913, the United States Supreme Court held that the Carmack Amendment preempted state and common law remedies. Adams Express Co. v. Croninger, 226 U.S. 491, 505-06, 33 S. Ct. 148, 57 L. Ed. 314 (1913). The Court found that “almost every detail of the subject is covered as completely that there can be no rational doubt that Congress intended to take possession of the subject and supersede all state regulation with reference to it.” [*6]  Id. at 504. Adams Express and its progeny establish that “state statutes and common law are preempted by the Carmack Amendment if they ‘in any way enlarge the responsibility of the carrier’ for losses or if they ‘at all affect the ground of recovery or the measure of recovery.'” Glass, 299 F. Supp. 2d at 885 (citing Charleston & W. C. R. Co. v. Varnville Furniture Co., 237 U.S. 597, 604, 35 S. Ct. 715, 59 L. Ed. 1137 (1915)).

However, the United States Court of Appeals for the Seventh Circuit has found that the Carmack Amendment does not shelter a carrier from all liability. In Gordon v. United Van Lines, the Seventh Circuit found an exception to preemption for “state law claims that allege liability on a ground that is separate and distinct from the loss of, or the damage to, the goods that were shipped in interstate commerce.” 130 F.3d 282, 289 (7th Cir. 1997) (emphasis added). In Gordon, instead of moving an eighty-year-old grandmother’s possessions, the moving company discarded them and then lied to the grandmother about the status of her possessions. Id. at 283-285. The moving company sought preemption for the grandmother’s claim of intentional infliction of emotional distress against them. Id. at 289. The Seventh Circuit allowed the intentional infliction of emotional distress because the claim relied on a separate and distinct ground “from the loss of, or the damage to, the goods that were shipped.” Id. at 289. Therefore, [*7]  while many state and common law claims are preempted by the Carmack Amendment, it is clear that it does not preempt all claims simply because they arise during the shipment of goods; rather the Court must examine the facts and claims at hand to determine whether the claims arise from a separate and distinct ground from the loss of or damage to the shipped goods.

This Court finds that under Gordon, Plaintiff’s claim is not preempted by the Carmack Amendment because it arises from a “separate and distinct [ground] from the loss of, or the damage to, the goods that were shipped.” Id. Plaintiff does not allege damage to the goods that were shipped; in fact, Plaintiff does not allege that the package was damaged at all. Rather Plaintiff alleges that Defendant was negligent in the placement of the package on the porch which caused personal injuries to the Plaintiff. Therefore, Plaintiff’s claim arises from a separate and distinct ground from the loss of, or damage to, the goods that were shipped.

Defendant argues that the Court is bound to follow Glass, which is a 2004 case from the Central District of Illinois. 299 F. Supp. 2d at 878. In Glass, a moving company was contracted to move and store a family’s personal property. Id. at 883. During the storage of the property it was damaged [*8]  by mildew. Id. The mildewdamaged property caused health injuries to the family. Id. The family brought a variety of claims against the movers, including negligence which resulted in the injury of two of the family members. Id. Magistrate Judge Gorman found that the claims were preempted by the Carmack Amendment because the “physical injuries arose directly from the carrier’s mis-handling of the property.” Id. at 887.

Defendant argues that this case is similar; therefore, Plaintiff’s claim should be similarly preempted. However, the Court finds Glass to be distinguishable and therefore less persuasive. In Glass, damage from the storage of the family’s property caused the mildew and the mildew caused the family’s injury. Therefore, the family’s personal injury claims were directly connected to the damage of their property. However, Plaintiff’s injury arose because of the alleged negligent placement of the box, not because goods were damaged during shipment.

The Court finds Plaintiff’s claim is more analogous to that in McGinn v. JB Hunt Transp., Inc., No. 10-CV-610-JPS, 2012 U.S. Dist. LEXIS 5362, at * 4-11 (E.D. Wis. Jan. 17, 2012). In McGinn, gas grills were shipped to a store in a trailer. 2012 U.S. Dist. LEXIS 5362 at *4. After opening the trailer, employees found a hole in the trailer’s roof and wet boxes. [*9]  Id. While unloading the trailer, some of the boxes fell on an employee, striking him in the neck. 2012 U.S. Dist. LEXIS 5362 at *5. The defendant argued that the employee’s claims of common law negligence were preempted by the Carmack AmendmentCarmack Amendment. 2012 U.S. Dist. LEXIS 5362 at *1.

The McGinn Court rejected Defendant’s preemption argument explaining:

 

“Here, based on the Seventh Circuit’s holding in Gordon, the court finds that the plaintiffs’ claims are not preempted by the Carmack Amendment because they allege a separate, independently actionable harm from the loss of or damage to the goods. In the case at hand, the harm is infliction of bodily injury, not property loss or damage. Supporting this finding, is the fact that the plaintiffs’ potential measure of damages is not at all correlative to the loss or damage to the goods. Indeed, it is not even clear that the goods involved in the accident were, in fact, damaged. The bottom line is that [plaintiff] is not seeking a remedy for damaged or lost goods. He is seeking a remedy for the bodily injuries sustained due to [one defendant]’s negligent loading of the goods and [another defendant]’s failure to maintain and inspect the trailer on which the good were transported.

To be clear, the plaintiffs’ claims certainly have [*10]  some association with the transfer of goods. Indeed, [plaintiff] would not have been injured but for his unloading of goods that were shipped in interstate commerce. Yet, the relevant inquiry is not whether there is some association between the claim and the transport but, rather, whether the state law claim is really a claim for damages to the shipper’s goods in disguise . . . .

Moreover, the purpose of the Carmack Amendment was to ‘establish uniform federal guidelines designed in part to remove the uncertainty surrounding a carrier’s liability when damage occurs to a shipper’s interstate shipment.’ Hughes v. United Van Lines, Inc., 829 F.2d 1407, 1415 (7th Cir. 1987). Thus, to expand Carmack Amendment preemption to cases in which a plaintiff seeks to hold a carrier liable, not for damage or loss of the goods, but rather for personal injuries allegedly caused by the carrier’s negligence in the transport of those goods, would seem to be at odds with both the plain language of the statute and the purpose behind its enactment.”

 

 

2012 U.S. Dist. LEXIS 5362 at *8-11 (emphasis added). The Court finds that the McGinn court’s reasoning is equally applicable to the facts at hand. Plaintiff is not alleging damage to the goods; nor is she seeking damages for the goods dressed up as a state law claim. Rather, Plaintiff is seeking [*11]  remedies for personal injuries allegedly caused by the carrier’s negligence in delivering the goods. The Court finds that Plaintiff’s claim falls within Gordon’s exception to the Carmack Amendment because it arises from a separate, independent ground, not from the damage to the goods. Therefore, the Carmack Amendment does not preempt Plaintiff’s claim.

 

1. Federal Aviation Administration Authorization Act of 1994 (“Faaaa”) Does Not Apply

The Court finds that, despite Defendant’s contentions, Plaintiff claim is not preempted by the FAAAA. The FAAAA states that: “a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier.” 49 U.S.C. § 14501(c)(1) (2012). The clause borrows language from the Airline Deregulation Act of 1978 (“ADA”), Rowe v. N.H. Motor Transp. Ass’n, 552 U.S. 364, 368, 128 S. Ct. 989, 169 L. Ed. 2d 933 (2008), and the United States Supreme Court has found that the identical ADA and FAAAA statutes should be construed and interpreted consistently with each other. Id. at 370; S.C. Johnson & Son, Inc. v. Transp. Corp. of Am., Inc., 697 F.3d 544, 548 (7th Cir. 2012). Preemption applies not only to state statutes, but also to state common law claims, which are considered to be another “provision having the force and effect of law.” Am. Airlines v. Wolens, 513 U.S. 219, 233 n.8, 115 S. Ct. 817, 130 L. Ed. 2d 715 (1995).

Therefore, whether a claim is preempted depends on whether the claim is “related to” a price, [*12]  route, or service of UPS. The United States Supreme Court has explained that “relating to” does not require a direct connection to a price, route, or service, but arises if the claim has a significant effect on rates, routes, or services. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384, 112 S. Ct. 2031, 119 L. Ed. 2d 157 (1992). The Seventh Circuit has explained that “related to” is shown by either “expressly referring to them or by having a significant economic effect upon them.” Id. (citing Travel All Over the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423 (7th Cir. 1996)). However, claims that might indirectly affect fares, routes, and services are not preempted because they are “too tenuous, remote, or peripheral in manner.” S.C. Johnson, 697 F.3d at 550 (citing Morales, 504 U.S. at 390). Therefore, the Court must decide two issues: whether Plaintiff’s claim “relates to” Defendant’s rates, routes, or services and whether Plaintiff’s claim is “too tenuous, remote, or peripheral” to have a significant effect. See, e.g., Concovich v. Air Evac EMS Inc., No. 15-cv-0294-MJR-DGW, 2016 U.S. Dist. LEXIS 28826, at *4-5 (S.D. Ill. Mar. 4, 2016) (“so the question is whether the ‘claim[] at issue’ in this case ‘either expressly refer[s]’ to an airline’s prices, routes, or services or would have a ‘significant economic effect’ on them–and even if it does, whether the claim is so tenuously linked to prices, routes, or services that it falls on the nonpreemption side of the line.”) (emphasis [*13]  added). The Court finds that the placement of the package is part of Defendant’s services6; therefore, the Court must determine whether Plaintiff’s claim is too tenuously, remotely, or peripherally related to the Defendant’s services to be preempted.

 

6   The Court finds that the placement of the package falls within Defendant’s services. The United States Court of Appeals for the Seventh Circuit has adopted the following definition of “services”:

 

 

“‘Services’ generally represents a bargained-for or anticipated provision of labor from one party to another. . . . This leads to a concern with the contractual arrangement between the airline and the user of the service. Elements of the air carrier service bargain include items such as ticketing, boarding procedures, provision of food and drink, and baggage handling, in addition to the transportation itself.”

 

 

Travel All Over the World, 73 F.3d at 1433 (citing Hodges v. Delta Airlines, Inc., 44 F.3d 334, 336 (5th Cir. 1995) (en banc). The Court doubts that the Seventh Circuit intended for this broad definition to preempt personal injury claims arising from negligent actions by an employee simply because the employee works in the airline or shipping fields. The Court’s opinion is supported by Hodges, from which the definition of “services” is borrowed. In Hodges, a passenger was injured when a case containing several bottles of rum was dislodged from an overhead compartment and fell on the passenger, injuring her arm and wrist. 44 F.3d at 335. The court was asked to determine whether the plaintiff’s claim for negligent operation of the aircraft was preempted by the ADA. Id. The United States Court of Appeals for the Fifth Circuit defined “services”, as seen above, and found that plaintiff’s negligence claim was not preempted. Id. at 336-37. The Hodges court held that “federal preemption of state laws, even certain common law actions ‘related to services’ of an air carrier, does not displace state tort actions for personal physical injuries or property damage caused by the operation and maintenance of aircraft.” Id. at 337. Similarly, the Court finds it unlikely that the Seventh Circuit intended for the definition of services to be interpreted so broadly as to preempt all personal injury negligence claims by delivery services.

However, this broad definition of services is binding upon this Court until declared otherwise by the Seventh Circuit or the United States Supreme Court. Therefore, the Court finds that the placement of the package during the delivery is part of UPS’s services. Contra Centuori v. UPS, No. C16-0654JLR, 2017 U.S. Dist. LEXIS 48191, at *14-16 (W.D. Wash. Mar. 30, 2017) (finding that under the Ninth Circuit’s narrower definition of “services” that UPS’s placement of packages was akin to an amenity and not a service).

The Court finds that Plaintiff’s personal injury claim is not preempted by the FAAAA for several reasons. First, Plaintiff’s personal injury claim is “too tenuously related” to be preempted. Second, courts have repeatedly found against preemption in cases where plaintiffs invoke traditional tort law and sue for personal injuries. Third, the United States Supreme Court does not interpret the ADA to preempt personal injury suits; therefore, the FAAAA should, likewise, not preempt personal injury [*14]  suits. Fourth, the FAAAA fails to provide a federal remedy for personal injury suits, therefore it is unlikely that Congress intended to preempt them. Lastly, the FAAAA does not clearly manifest a purpose of Congress to preempted state personal injury claims.

First, the Court finds that Plaintiff’s personal injury claim is too tenuously related to Defendant’s routes, rates, and services to be preempted by the FAAAA. Whether a box is placed in front of a door or alongside a door is too tenuously and peripherally related to Defendant’s services to be preempted. Defendant argues that enforcing Plaintiff’s claim would use negligence law “to alter the manner in which a motor carrier delivers a package.” (Doc. 34 at 10). However, placing a package in front of the door versus not in front of the door would not significantly impact Defendant’s rates, routes, or services. Rowe, 552 U.S. at 375 (requiring a significant impact on rates, routes, or services for preemption); see also Centuori v. UPS, No. C16-0654JLR, 2017 U.S. Dist. LEXIS 48191, at *15-16 (“Any impact those theories have on UPS’s services would therefore be collateral and tenuous.”). Unlike cases where plaintiffs have sought to force the delivery service to implement new procedures within [*15]  the process, Plaintiff does not seek to alter or implement a new delivery process; rather Plaintiff’s only alleges the negligent performance of Defendant’s current procedures, which require packages not to be left in dangerous places. Compare Kuehne v. UPS, 868 N.E.2d 870, 876 (Ind. Ct. App. 2007) (“However, once a package is delivered, we cannot say that subsequent occurrences stemming from the alleged negligence of an employee amount to a ‘service’ of UPS to the extent that federal preemption should apply in all causes of action that a plaintiff might institute against the company”) and Centuori v. UPS, No. C16-0654JLR, 2017 U.S. Dist. LEXIS 48191, at *15 (W.D. Wash. Mar. 30, 2017) (finding no preemption because the plaintiff’s theories do not require a particular delivery procedure but rather “these theories of negligence assert that UPS was negligent for failing to follow its normal practices”) with Rowe, 552 U.S. at 364 (finding that a Maine law requiring a recipient-verification service for the delivery of cigarettes was preempted because it dictates particular delivery procedures, including requiring a signature) and Rockwell v. United Parcel Serv., Inc., No: 99-CV-57, 1999 U.S. Dist. LEXIS 22036, at *2-4 (D. Vt. 1999) (finding preemption because the plaintiff sought to require bomb-detecting technology in UPS’s delivery system, which would alter the delivery [*16]  process). The impact of Plaintiff’s negligence claim is too tenuous and peripheral to affect the Defendant’s routes, rates, and services and, therefore, it is not preempted.

Second, courts have repeatedly found against preemption when the issue of preemption arises in cases where the plaintiffs invoke traditional elements of tort law and sue for personal injuries. See Dudley v. Business Express, 882 F. Supp. 199, 206 (D.N.H. 1994) (citing Margolis v. United Airlines, Inc., 811 F. Supp. 318, 322 (E.D. Mich. 1993) (citing cases)).

Third, the United States Supreme Court does not interpret the ADA preemption clause to extend to personal injury suits. See Wolens, 513 U.S. at 231 n. 7. Although these cases involved the ADA’s preemption clause, because the FAAAA’s preemption clause is identical, the Court finds them persuasive support for finding that the FAAAA would similarly not preempt personal injury suits.

Fourth, the Court finds it unlikely that Congress intended to preempt state personal injury claims, because it failed to provide any federal remedy for those hurt by such conduct. See, e.g., Hodges, 44 F.3d at 338 (citing Silkwood v. Kerr-Mcgee Corp., 464 U.S. 238, 251, 104 S. Ct. 615, 78 L. Ed. 2d 443 (1984)); see also Travel All Over the World, 73 F.3d at 1430 (“The Congressional intent to preempt state law should be the ultimate touchstone in our preemption analysis.”).

Lastly, the United States Supreme Court has repeatedly cautioned federal courts that state police powers should not be displaced [*17]  by federal law unless that was the “clear and manifest purpose of Congress.” California v. ARC Am. Corp., 490 U.S. 93, 102, 109 S. Ct. 1661, 104 L. Ed. 2d 86 (1989) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 91 L. Ed. 1447 (1947)). The FAAAA does not manifest a clear purpose to preempt state personal injury claims. Rather, the “purpose of the FAAAA was to address loss or damage to property.” Kuehne, 868 N.E.2d at 876; see also S.C. Johnson, 697 F.3d at 544 (explaining that the “broad applicability of the preemption statutes should be understood in light of their deregulatory purpose”); Nationwide Freight Sys. v. Baudino, No. 12-C-2486, 2013 U.S. Dist. LEXIS 135449, at *21 (N.D. Ill. Sept. 23, 2013) (“This court must also consider the deregulatory purpose of the FAAAA, and [whether] the statutes at issue have ‘a significant impact on carrier rates, routes, or services.'”) (quoting Rowe, 552 U.S. at 375).

Defendant argues that the Seventh Circuit recently established a bright-line rule that “[law]s that affect the way a carrier interacts with its customers fall squarely within the scope of FAAAA preemption” in Costello v. BeavEx, Inc. 810 F.3d 1045, 1054 (7th Cir. 2016). However, the Court finds that Defendant is reading Costello too broadly. In Costello, the Seventh Circuit analyzed whether an Illinois law establishing a test for when an individual must be classified as an employee was preempted by the FAAAA. Id. at 1050. The Seventh Circuit said

 

“Our opinion in S.C. Johnson and the decisions of our sister circuits confirm that there is a relevant distinction for purposes of FAAAA preemption [*18]  between generally applicable state laws that affect the carrier’s relationship with its customers and those that affect the carrier’s relationship with its workforce. Laws that affect the way a carrier interacts with its customers fall squarely within the scope of FAAAA preemption. Laws that merely govern a carrier’s relationship with its workforce, however, are often too tenuously connected to the carrier’s relationship with its consumers to warrant preemption.”

 

 

Id. at 1054. Therefore, within the context of the Costello, it becomes evident that the Seventh Circuit was drawing a distinction pertaining to labor law. However, the Court does not find that this creates a broad bright-line rule that provides that any law which affects the way a carrier interacts with a customer is automatically preempted, as Defendant implies. Under Defendant’s bright-line rule, a breach of contract claim would be preempted because it affects the way a carrier interacts with a consumer. However, breach of contracts cases have repeatedly been found not to be preempted by the Supreme Court and the Seventh Circuit. See, e.g., Wolens, 513 U.S. at 226; Travel All Over the World, 73 F.3d at 1432; S.C. Johnson, 697 F.3d at 552-53 (citing United Airlines, Inc. v. Mesa Airlines, Inc., 219 F.3d 605 (7th Cir. 2000). Furthermore, the Seventh Circuit has already explained that ADA and FAAAA preemption [*19]  analysis does not allow for the creation of broad, bright-line rules. See, e.g., Travel All Over the World, 73 F.3d at 1433. In Travel All Over the World, the Seventh Circuit found that “Morales does not permit us to develop broad rules concerning whether certain types of common-law claims are preempted by the ADA. Instead, we must examine the underlying facts of each case to determine whether the particular claims at issue ‘relate to’ airline rates, routes or services.” Id. Costello did not overturn Travel All Over the World; therefore, the Court is unpersuaded by Defendant’s argument to interpret Costello as a broad bright-line rule governing which types of common law claims are preempted.

 

1. OPEN AND OBVIOUS DOCTRINE7

 

7   Because this Court is a federal court sitting in diversity, the Court is obligated to apply the law of the state in which it sits–Illinois. Autocephalous Greek-Orthodox Church v. Goldberg & Feldman Fine Arts, Inc., 917 F.2d 278, 286 (7th Cir. 1990) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938)). There the Court applies Illinois law when addressing Defendant’s state law argument.

Defendant’s final argument is that the package was an open and obvious danger and, therefore, Defendant is not liable for any physical harm caused by it. However, an open and obvious danger is a defense to premise liability, which is inapplicable because Plaintiff’s Complaint appears to assert an ordinary negligence claim.

Defendant argues that Illinois has adopted the Restatement (Second) of Torts with respect to premise liability and it [*20]  should be able to assert an open and obvious danger as a defense. Under § 383 of the Restatement (Second) of Torts:

 

“One who does an act or carries on an activity upon land on behalf of the possessor is subject to the same liability, and enjoys the same freedom from liability, for physical harm caused thereby to others upon and outside of the land as though he were the possessor of the land.”

 

 

Restatement (Second) of Torts § 383 (Am. Law Inst. 1965); Randich v. Pirtano Constr. Co., 346 Ill. App. 3d 414, 804 N.E.2d 581, 589, 281 Ill. Dec. 616 (Ill. App. Ct. 2004). Illinois has also adopted the “open and obvious danger” defense from the Restatement, which states that:

“A possessor of land is not liable to his invitees for physical harm caused to them by any activity or condition on the land whose danger is known or obvious to them, unless the possessor should anticipate the harm despite such knowledge or obviousness.”

 

 

Restatement (Second) of Torts § 343A (Am. Law Inst. 1965); Bruns v. City of Centralia, 2014 IL 116998, ¶ 16, 386 Ill. Dec. 765, 21 N.E.3d 684. Therefore, Defendant argues that the Court should find that the box was an open and obvious danger, for which a possessor would not be liable if it caused an invitee physical harm. Therefore, Defendant argues that because it was performing an act for the possessor8 (i.e. delivering the package), it should be entitled to enjoy the same freedom from liability as the possessor would be entitled.

 

8   The Court notes that Plaintiff’s boyfriend is the possessor of the property. The Restatement (Second) of Torts defines a “possessor” as “a person who is in occupation of the land with intent to control it.” Restatement (Second) of Torts § 328E (Am. Law Inst. 1965). Plaintiff argues that the open and obvious doctrine cannot apply because it is only applicable to invitees on a possessor’s land and Plaintiff argues that she is not an invitee because she lives there. (Doc. 36 at 11). However, living in another’s house does not make one a possessor. Comment h of § 330 of the Restatement (Second) of Torts states that “[t]he members of the possessor’s household” are licensees. Therefore, as a member of her boyfriend’s household, Plaintiff would typically be considered a licensee on his premise; however, Illinois has eliminated the distinction between invitees and licensees. See Illinois Premises Liability Act, 740 Ill. Comp. Stat. § 130/1 et seq. (1996). Therefore, Plaintiff is not a possessor of the property simply because she lives there with her boyfriend.

However, Defendant’s argument relies on Plaintiff’s [*21]  claim being a premise liability claim, which the Court does not read it to be. Based upon the face of Plaintiff’s Complaint, she appears to be asserting an ordinary negligence claim. (Doc. 1-1 at 4). Plaintiff’s Complaint alleges:

 

“At all times the Defendant had a duty to place boxes and deliveries in a manner so as not to create a dangerous condition on Plaintiff’s premises.

Defendant, by and through one of its agents/employees, in violation of that duty, committed one or more of the following acts or omissions:

 

 

1. Placed a box directly in front of Plaintiff’s doorway;
2. Failed to leave the box in a location that would not create a dangerous condition;
3. Failed to properly train its employees as to the manner in which to leave deliveries;
4. Failed to properly supervise its employees;
5. Failed to warn Plaintiff of the existence of said dangerous condition;
6. Was otherwise negligent in the delivering [of] said box to Plaintiff’s residence.

 

 

As direct and proximate result of one or more of the foregoing negligent acts and/or omissions, the Plaintiff was greatly and seriously injured in both body and mind . . .”

 

 

(Doc. 1-1 at 4) (emphasis added). Therefore, Plaintiff’s complaint appears to allege [*22]  that Defendant was negligent through its actions. Premise liability is “a landowner’s or landholder’s tort liability for conditions or activities on the premise.” Black’s Law Dictionary (10th ed. 2014). However, on the face of Plaintiff’s complaint, she does not assert that UPS was negligent in its maintenance of a dangerous condition on its property. Rather, Plaintiff asserts that Defendant caused a dangerous condition, which is an ordinary negligence claim; Plaintiff does not assert that Defendant maintained a dangerous condition, which is a premise liability claim. Reed v. Wal-Mart Stores, 298 Ill. App. 3d 712, 700 N.E.2d 212, 215, 233 Ill. Dec. 111 (Ill. App. Ct. 1998) (“The plaintiffs’ complaint seems to allege both an ordinary negligence cause of action (Wal-Mart caused the dangerous condition) and a premises liability cause of action (Wal-Mart maintained a dangerous condition).”). Therefore, Plaintiff’s claim is a claim of ordinary negligence.

For Defendant to assert that § 383 applies, Defendant must be facing a premise liability claim. However, Plaintiff’s claim does not allege that Defendant negligently maintained its premise. For a duty to arise under Illinois’s Premise Liability Act, “the defendant must possess and control the real property on which the injury occurred.” Kotecki v. Walsh Constr. Co., 333 Ill. App. 3d 583, 776 N.E.2d 774, 779, 267 Ill. Dec. 402 (Ill. App. Ct. 2002) (citing [*23]  Godee v. Ill. Youth Soccer Ass’n, 327 Ill. App. 3d 695, 764 N.E.2d 591, 261 Ill. Dec. 976 (Ill. 2002)). However, Defendant did not possess or control the real property nor does Plaintiff allege that.

Furthermore, the Court finds that Defendant cannot use § 383 to assert a possessor’s defenses because Defendant’s limited actions would not be enough to consider Defendant a possessor under § 383.9 This is because Illinois courts have declined to use § 383 to assert a premise liability claim against a party who was acting for the possessor but who only had limited control of the property. See Grzelak v. Classic Midwest, Inc., 2013 IL App (1st) 122701-U, ¶ 20-23 (finding no liability because plaintiff did not show that defendant “had ultimate control or intended to have ultimate control over the land at issue”); O’Connell v. Turner Constr. Co., 409 Ill. App. 3d 819, 949 N.E.2d 1105, 1110, 351 Ill. Dec. 10 (Ill. App. 2011) (finding that “one who controls the land on behalf of another is not the possessor and that limited control of the land does not equate possession.”). Although Defendant delivered the package for the possessor (Plaintiff’s boyfriend), there is no indication, nor does Plaintiff ever assert, that Defendant “possessed” or “controlled” the real property at any point in time, including the time of the incident, which was after Defendant had made the delivery and left the property. Therefore, it becomes apparent that Plaintiff is asserting ordinary negligence claim, not [*24]  premise liability claim, against Defendant.

 

9   Rather than being considered a possessor, Illinois Courts are more like to find that Defendant was a business invitee, who was providing a service for the possessor’s benefit. See, e.g., McGinley v. HOB Chi., Inc., 2016 IL App (1st) 152167-U, ¶ 13 (“Plaintiff entered HOB’s premises as a business invitee providing a delivery service for HOB’s benefit.”); Mooney v. Graham Hosp. Ass’n, 160 Ill. App. 3d 376, 513 N.E.2d 633, 635, 112 Ill. Dec. 219 (Ill. App. 1987) (“when plaintiff’s status is related to defendant’s alleged negligence in a way not common to any other business invitee, e.g., a delivery man”).

However, the open and obvious defense has not been recognized as a defense to claims of ordinary negligence in Illinois. See Camp v. TNT Logistics Corp., 553 F.3d 502, 511 (7th Cir. 2009) (“We are not aware of any Illinois court that has applied the open and obvious doctrine outside of premises or product liability arenas . . .”); Smith v. MHI Injection Molding Mach., Inc., No. 10-C-8276, 2014 U.S. Dist. LEXIS 54498, at *5 n.7 (N.D. Ill. Apr. 18, 2014) (“Moreover, those cases dealt with the open and obvious hazard doctrine, and no Illinois court has extended that doctrine to cover ordinary negligence claims.”). Therefore, Defendant’s argument that the danger was open and obvious is inapplicable to Plaintiff’s Complaint, which raises an ordinary negligence claim on its face.

 

1. CONCLUSION

For the aforementioned reasons, the Court finds that neither the Carmack Amendment nor the FAAAA preempt Plaintiff’s claim. Additionally, the Court finds that the open and obvious doctrine is inapplicable because Plaintiff asserts an ordinary negligence claim. Therefore, Defendant’s Motion for Summary Judgment (Doc. 34) is denied.

Entered this 27th day of June, 2017.

/s/ Joe B. McDade

JOE BILLY McDADE

United States Senior District Judge