MORRISON C. ENGLAND, JR., UNITED STATES DISTRICT JUDGE.
In bringing this lawsuit, Kinsale Insurance Company ("Plaintiff") seeks redress from Sky High Sports Opportunities LLC ("Opportunities") and three Sky High Sports franchisees: Sky High Sports Santa Clara LLC, Sky High Sports Sacramento LLC, and Sky High Sports Concord LLC ("Ownership Companies"), (collectively "Defendants").
For the reasons set forth below, the Court GRANTS in part and DENIES in part Plaintiff's Motion, ECF No. 37.
Defendants franchise and/or operate amusement centers with trampolines, foam pits, and snack bars at various locations across the United States. FAC ¶ 13. Plaintiff is an Arkansas corporation that provides,
Most of the facts surrounding the present action are undisputed by the parties. Defs.' Opp. at 3:5-8; SUMF, ECF No. 53-2.
To determine the final premium, Plaintiff was entitled to perform an audit of Defendants' finances at the end of each policy term. FAC ¶ 15; SUMF ¶¶ 17, 54. A dispute arose when Defendants refused to provide Plaintiff original financial ledgers after the coverage periods of the Insurance Contracts ended. FAC ¶ 16. This prevented Plaintiff from calculating Defendants' gross sales for the purpose of determining the insurance premiums owed.
By way of this lawsuit Plaintiff seeks to recover those final premiums and unreimbursed deductibles as identified by the audit. FAC ¶ 19-20. Plaintiff filed the present Motion on June 21, 2016, asking that this Court find as a matter of law that Defendants are liable in accordance with the audit's findings. Pl.'s P & A Mot. at 20:18-21. Defendants filed an Opposition, conceding that Plaintiff is owed reimbursement for the deductible payments, but challenging the amount owed for insurance premiums. Defs.' Opp. at 2:2-7, 3:18-6:11.
The Federal Rules of Civil Procedure provide for summary judgment when "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);
Rule 56 also allows a court to grant summary judgment on part of a claim or defense, known as partial summary judgment.
In a summary judgment motion, the moving party always bears the initial responsibility of informing the court of the basis for the motion and identifying the portions in the record "which it believes demonstrate the absence of a genuine issue of material fact."
In attempting to establish the existence or non-existence of a genuine factual dispute, the party must support its assertion by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits[,] or declarations ... or other materials; or 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 opposing party must demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the suit under the governing law.
In resolving a summary judgment motion, the evidence of the opposing party is to be believed, and all reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party.
Plaintiff brings four causes of action against Defendants: (1) Breach of Contract, based on the alleged failure to pay deductibles and premiums pursuant to the Insurance Contracts; (2) Money Due for Unpaid Insurance Premiums, seeking payment of interest at a rate of 10% per annum for the aggregate debt of the unpaid insurance premiums; (3) Open Book Account, seeking reimbursement of deductibles paid by Plaintiff on Defendants' behalf; and (4) Money Had and Received ("Quantum Valebant"), seeking payment of interest at a rate of 10% per annum for the unreimbursed deductibles owed to Plaintiff by Defendants. FAC at 8:18-10:16.
Defendants raise only two contentions in opposition to Plaintiff's Motion. Defs.' Opp. at 3:21-23. First, Defendants contend that including franchise fee payments ("Royalties") in Opportunities' gross sales calculations
Defendants' two contentions each concern only the amount owed by Opportunities in unpaid insurance premiums. Defendants concede that Plaintiff is entitled to judgment with regard to the unreimbursed deductible payments. Defs.' Opp. at 3:21-23. Defendants also do not contend that the Ownership Companies received Royalties, or that the Ownership Companies were incorrectly classified as "Amusement Centers" within the applicable Insurance Contracts. Therefore, the Court GRANTS Plaintiff's Motion with regard to culpability for unreimbursed deductibles owed by Defendants, and further finds Ownership Companies liable for unpaid insurance premium payments under the Insurance Contracts.
The issues remaining are as follows: (1) whether the Royalties received by Opportunities were derived from "patent rights or copyrights" such that they should be excluded from its gross sales figures; and (2) whether Opportunities was improperly classified as an "Amusement Center" in the 2011-2012 Insurance Contract, such that the contract should not be enforced as written. The Court answers both questions in the negative. As set forth below, it determines that franchise fee payments received by Opportunities were properly included in its gross sales figures, and further finds that Defendants have offered no evidence that would justify reformation of the 2011-2012 Insurance Contract.
The Insurance Contracts define "Gross Sales" to exclude, in relevant part, "Royalty income from patent rights or copyrights which are not product sales...." SUMF ¶ 21. Opportunities argues that as a franchisor, it grants licenses to franchisees permitting the use of its proprietary property, including, but not limited to, policies, procedures, marks trade dress, trade secrets, and management training programs. Defs.' Opp. at 4:9-5:4. Use of this license, Opportunities contends, subjects the franchisee to a "Royalty" fee based off a percentage of the franchisee's gross revenue. Defs.' Opp. at 5:5-17. As "license" Royalty payments, Opportunities argues that this revenue stream does not constitute "product sales" for the purpose of determining gross sales. Defs.' Opp. at 5:5-17.
Plaintiff contends that Defendants rely on bare references to unidentified copyrighted materials, and that Opportunities has identified no copyrighted materials that it purportedly licensed to franchisees. Pl.'s Reply at 3:4-20. The Court agrees. Copyright protection does not "extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work." 17 U.S.C. § 102(b). Defendants have failed to provide any evidence that "Royalties" paid by the Ownership Companies were derived from "original works of authorship" which include "(1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic, and sculptural works; (6) motion pictures
Therefore, the Court finds that inclusion of the franchise fee payments received by Opportunities was properly included in the calculations of gross sales for the purpose of determining the amount of insurance premiums owed under the 2011-2012 Insurance Contract.
Defendants' second argument in opposing Plaintiff's Motion rests on a contention that the Declarations Page of Opportunities' 2011-12 policy should, in essence, be rewritten so as to exempt Opportunities from a gross sales calculation of its final premium owed, and instead calculate Opportunities' premium based on the square footage of its Nevada headquarters building. Specifically, Defendants urge the Court to change the classification code for Opportunities' policy from one applicable "Amusement Centers" (under Class Code 10015.01) to a "Buildings or Premises — Office — premises occupied by employees of the insured" classification pursuant to Class Code 61224.01. That argument, however, is not well taken.
Defendants' contention that the policy's classification is incorrect amounts to a request for reformation of the insurance contract. To support that contention, Defendants argue that Opportunities is a management/administration company that has nothing to do with the Sky Highbranded Amusement Centers operated by the Ownership Companies. Consequently, Defendants claim that Opportunities' activities pose no insured risk or exposure to Plaintiff. They maintain that Opportunities' premium classification should be changed to a buildings and premises code that calculates premium based on square footage as opposed to a surcharge-based formula predicated on gross sales.
This Court has, however, already resolved the dispute as to how any premium due in this matter should be calculated by finding that the final premium due under each policy, including Opportunities', will be derived from the gross sales formula attaching to an Amusement Centers classification.
Defendants fare no better even if the Court were to proceed to the merits of their reformation claim. First, no claim for reformation has been raised in any previous pleading, including Defendants' prior summary judgment motion. Moreover, in order to justify reformation, Defendants must show through clear and convincing evidence that the policy provisions in question, here the classification codes in Opportunities' Declarations Page, did not reflect the pre-formation intent of both parties.
While Defendants are liable for their breach of the Insurance Contracts, it remains unclear to the Court how much each Defendant allegedly owes in unpaid insurance premiums and unreimbursed deductibles. Plaintiff's FAC provides that "Defendants" are liable to Plaintiff for $969,984.96 in unpaid deductibles and premiums. FAC ¶ 46. Plaintiff subsequently asserts that the Ownership Companies owe $376,965.00, and Opportunities owes $496,818.76 in unpaid premiums and deductibles. Pl.'s P & A Mot. 20:17-21. Thereafter, Plaintiff's Amended Motion provides that "Sky High Sports Ontario LLC, Sky High Sports Sacramento LLC, [and] Sky High Sports Santa Clara LLC" owe an aggregate sum of $873,783.73, and that Opportunities owes a total of $496,818.76. Pl.'s Am. Mot., ECF No. 39, at 2:4-20. Plaintiff's Amended Motion also lists Sky High Sports Ontario LLC as a liable party, (Pl.'s Am. Mot. at 2:7-10), which contradicts Plaintiff's earlier concession that the Ontario franchisee owed no premium or deductible payments.
Therefore, the Court GRANTS Plaintiff's Motion with regard to Defendants' culpability, but orders the parties to schedule a prove-up hearing concerning the narrow issue of how much each Defendant is liable for in unpaid insurance premiums and deductibles under the Insurance Contracts, as well as whether any prejudgment interest is due on amounts owed.
For the reasons discussed, the Court GRANTS, in part, and DENIES, in part, Plaintiff's Motion for Summary Judgment, ECF No. 37. Plaintiff's Motion is GRANTED as to Defendants' liability for breach of contract arising from the failure to pay unreimbursed deductibles and insurance premiums pursuant to the Insurance Contracts. Plaintiff's motion is DENIED, without prejudice, with regard to the determination of specific amounts owed by each Defendant, and with regard to any prejudgment interest owed on those amounts, since the amounts owed remain unclear.
IT IS SO ORDERED.