Find Laws Find Lawyers Free Legal Forms USA State Laws
Laws-info.com » Cases » Illinois » 2nd District Appellate » 2001 » McDonald's Corp. v. American Motorists Insurance Co.
McDonald's Corp. v. American Motorists Insurance Co.
State: Illinois
Court: 2nd District Appellate
Docket No: 2-00-0566 Rel
Case Date: 05/02/2001

May 2, 2001

No. 2--00--0566


IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT


McDONALD'S CORPORATION,

            Plaintiff-Appellant,

v.

AMERICAN MOTORISTS INSURANCE COMPANY,
CENTURY INDEMNITY COMPANY AND
INDEMNITY INSURANCE COMPANY OF NORTH
AMERICA, and ST. PAUL SURPLUS LINES
INSURANCE COMPANY,

          Defendants-Appellees.

)
)
)
)
)
)
)
)
)
)
)
)
)
Appeal from the Circuit Court of
Du Page County.


No. 97--L--0144





Honorable
Hollis L. Webster,
Judge, Presiding.

JUSTICE GROMETER delivered the opinion of the court:

This appeal involves an insurance coverage dispute. Plaintiff-insured,McDonald's Corporation (McDonald's), appeals from an order of the circuit courtof Du Page County granting summary judgment in favor of defendants-insurers,American Motorists Insurance Company, Century Indemnity Company & Indemnity Insurance Company of North America, and St. Paul Surplus Lines Insurance Company(collectively, insurers). The trial court determined that the advertiser'scoverage part of the "Media Special Perils" policies issued to McDonald's byinsurers did not require insurers to indemnify McDonald's in the settlement of anunderlying federal lawsuit alleging, inter alia, violation of the Illinois TradeSecrets Act (765 ILCS 1065/1 et seq. (West 1994)). McDonald's also appeals froma trial court order denying its motion to compel discovery, an issue we discussin the nonpublished portion of this opinion. We affirm.

I. BACKGROUND

The parties are already familiar with the long and complex factualbackground of this case. Accordingly, we recite only those facts necessary foran understanding of the issues raised on appeal.

At the time of the events giving rise to the underlying federal litigation,McDonald's was a named insured under the advertiser's coverage part of a "MediaSpecial Perils" (MSP) policy issued by First National Insurance Company of America(Safeco). To secure additional protection, McDonald's also purchased excessinsurance from insurers, with defendant-insurer American Motorists InsuranceCompany (AMICO) being the lead umbrella carrier. The purpose of the MSP policieswas to insure McDonald's against the cost of defending lawsuits arising out of itsadvertising, publicity, or promotional activities and to indemnify McDonald's forthe adverse judgments that may result from any such lawsuits. The AMICO policiescontained "broad as primary" endorsements. The "broad as primary" endorsementsprovided that AMICO agreed to be bound by the terms of the underlying primarypolicy, notwithstanding any more restrictive terms in the excess policy. TheAMICO policy listed Safeco as the primary carrier for the MSP policy. Theremainder of the excess insurance policies indicated that they "follow form" tothe AMICO policy. In other words, coverage under the excess carriers was alsoprovided on the same terms as the Safeco policy and was to be implicated once theunderlying layers of coverage were exhausted. The instant dispute concerns theexcess insurance policies. Safeco is not a party to this appeal.

On February 7, 1997, McDonald's filed a complaint against insurers in thecircuit court of Du Page County. The second amended complaint consisted of sixcounts. Relevant here are those counts in which McDonald's sought a declarationthat insurers were required to indemnify it for the settlement of a complaintfiled in federal court and captioned as Thermodyne Food Service Products, Inc. v.McDonald's Corp., originally filed as No. 95 CV 0232 (D. Ind.), later transferredand redocketed as No. 95 C 6747 (N.D. Ill.) (Thermodyne litigation).

The Thermodyne litigation stemmed from the development of a product knownas the "Thermodyne" oven. The appeal of this product to McDonald's was itsability to heat frozen food to serving temperature and hold it for extendedperiods of time without affecting the quality or taste of the food. Thetechnology used in the Thermodyne oven was developed principally by an engineernamed Benno Liebermann. Liebermann developed this technology while he was theowner of a company called Advanced Food Technology, Inc. (AFTEC). Eventually,Vincent Tippman purchased a majority of the stock in AFTEC and formed ThermodyneFood Service Products, Inc. (Thermodyne). AFTEC researches and develops foodservice equipment, which Thermodyne then manufactures and markets. Liebermannrefined the technology used in the Thermodyne oven while working for Tippman. Aspart of the purchase agreement for AFTEC, Liebermann executed a five-yearemployment contract with Tippman, which included a covenant not to compete. Fora period of time, McDonald's worked with Thermodyne and AFTEC in developingproducts for McDonald's restaurants using the Thermodyne oven. McDonald'seventually purchased a Thermodyne oven. Shortly after the purchase, arepresentative from McDonald's told Tippman that McDonald's was no longerinterested in the Thermodyne oven.

Liebermann eventually became unhappy with his relationship with Tippman andresigned from Thermodyne. Liebermann began working for Beltec, a partnershipbetween himself and OSI Industries, Inc. (OSI). OSI was a meat supplier forMcDonald's. Thereafter, Beltec developed a product known as the "Temperfect"oven. Beltec licensed the right to manufacture the Temperfect oven to TaylorCompany (Taylor), a division of Specialty Equipment Companies, Inc. (SpecialtyEquipment). Specialty Equipment was one of McDonald's equipment suppliers. Taylor began to manufacture the Temperfect oven for McDonald's use. Soonthereafter, McDonald's began developing products prepared using the Temperfectoven. Once the Temperfect oven was installed in a restaurant, representativesfrom other companies, including competitors of McDonald's, visited the restaurantto observe the Temperfect oven in use. McDonald's also showcased the Temperfectoven to owner-operators of its restaurants as well as various equipment and foodsuppliers. In addition, at McDonald's request, Taylor developed for distributiona specification sheet and a brochure for the Temperfect oven. The specificationsheet stated that "THE INFORMATION SHOWN ON THIS SPECIFICATION SHEET IS FOR THEEXCLUSIVE USE OF LICENSEES OF McDONALD'S SYSTEMS, INC."

Eventually, Thermodyne and AFTEC (collectively, the Thermodyne plaintiffs)became aware of the development of the Temperfect oven. On July 20, 1995, theThermodyne plaintiffs initiated their lawsuit in federal district court. TheThermodyne plaintiffs claimed that McDonald's and others misappropriated theirtrade secret to develop a competing product called the "Temperfect" oven. TheThermodyne plaintiffs alleged that McDonald's and the other named defendants"engaged in a course of conduct designed to misappropriate [p]laintiffs'employees, technology, and trade secrets." The complaint further alleged that"[d]efendants' promotion of the 'Temperfect Oven' exposed [p]laintiffs' tradesecrets to the market place."

The Thermodyne plaintiffs' amended complaint consisted of eight counts, thefollowing six of which were directed against McDonald's. Count I allegedviolation of the Illinois Consumer Fraud and Deceptive Business Practices Act (815ILCS 505/1 et seq. (West 1994)). Count II alleged a violation of the IllinoisTrade Secrets Act. Count III alleged unfair competition. Count IV alleged breachof confidence. Count V alleged interference with contractual relations. CountVIII alleged conspiracy. On McDonald's motion, the district court dismissed withprejudice counts I, III, and IV on the basis that they were preempted by theIllinois Trade Secrets Act. As the litigation progressed, the parties to theThermodyne litigation prepared a "Final Pretrial Order" pursuant to Rule 16 of theFederal Rules of Civil Procedure (Fed. R. Civ. P. 16).

The Thermodyne plaintiffs also sought to recover for damages, unjustenrichment, exemplary damages, attorney fees, and a "reasonable royalty for[d]efendants' past or future use of or profits from the sale of [p]laintiffs'trade secret or the application thereof." In addition, attached to the finalpretrial order was a "Statement of Special Damages." Among other things, theThermodyne plaintiffs alleged that they lost between $54.3 million and $97.9million in lost profits as a result of "Market Opportunity Due To Uncertainty AsTo Ownership Of The Thermodyne Technology Plus Prejudgment Interest."

Meanwhile, McDonald's attempted to tender the Thermodyne litigation toSafeco. Safeco denied coverage. However, McDonald's eventually reached asettlement with Safeco, and the insurer agreed to pay $725,000 of the $850,000owed on its policy. Insurers, however, denied coverage, and McDonald's initiatedthe instant litigation. Thereafter, McDonald's settled the Thermodyne litigationfor $25 million. The entire settlement was paid solely by McDonald's. At thetime of settlement, the only theories pending against McDonald's with respect tothe Thermodyne litigation were misappropriation of trade secrets (count II),interference with contractual relations (count V), and conspiracy (count VIII).

On December 17, 1998, insurers filed a motion for summary judgment in thisinsurance coverage litigation. Insurers argued that they did not have a duty toindemnify McDonald's in the Thermodyne litigation. Insurers explained that theMSP policies required a "causal connection" between the commission of an offensecovered by the policies (enumerated offense) and the content of McDonald'spromotional activity. Here, insurers argue, there was no coverage because therewas no "causal connection" between the content of McDonald's promotional activityand the commission of an enumerated offense. The trial court denied insurers'motion without prejudice, and the parties proceeded with discovery.

On January 5, 2000, insurers filed a renewed motion for summary judgment. The trial court granted insurers' motion. The court concluded that, as a matterof law, there was no "causal connection" between the content of McDonald'spromotional activity and the commission of an enumerated offense. The trial courtfound that only count II, misappropriation of trade secrets, could arguably fallwithin the MSP policies. However, the court explained that the theft of the tradesecret occurred before any promotion commenced. Accordingly, the promotion couldnot have caused the misappropriation of trade secrets. Thus, the court concludedthat this offense was not committed "within the four corners of the promotion." McDonald's now appeals.

II. ANALYSIS

As a preliminary matter, we address the insurers' joint motion to strikefrom McDonald's opening brief "irrelevant and inadmissible material regarding thenon-party primary insurance carrier's settlement." We ordered the motion as wellas McDonald's objections thereto taken with the case. After careful consideration,we now deny insurers' motion.

A. Duty to Indemnify

McDonald's argues that the trial court erred in granting insurers' renewedmotion for summary judgment. According to McDonald's, while the trial courtcorrectly began its analysis by examining the Thermodyne plaintiffs' amendedcomplaint, it was required to examine also the final pretrial order to determineexactly what transpired in the Thermodyne litigation. Looking beyond the labelsof the amended complaint, McDonald's asserts, reveals that the Thermodyneplaintiffs' most significant claim against McDonald's is a claim for "cloud ontitle." According to McDonald's, this theory implicates the Thermodyneplaintiffs' allegations that McDonald's had "misled the market into believing thatTippman was not the rightful owner of the technology in the Thermodyne oven bypromoting the Temperfect oven as incorporating technology that was ownedexclusively by McDonald's." McDonald's contends that the "cloud on title" theoryarose directly out of its promotion of the Temperfect oven. McDonald's furthermaintains that this "cloud on title" theory was actionable as an "unfaircompetition" claim or a "slander of title" claim.

Insurers respond that the trial court properly granted their renewed motionfor summary judgment. Examining the causes of action actually asserted by theThermodyne plaintiffs reveals that there is no causal connection between theacquisition and use of technological trade secrets and McDonald's promotion of theTemperfect oven. McDonald's attempt to assert that the Thermodyne plaintiffspursued a "cloud on title" theory is flawed because the "cloud on title" theorywas a damages theory, and the plain language of the MSP policies permits coverageonly if an offense is caused by promotion, not if damages are caused by thepromotion. Insurers finally contend that McDonald's improperly attempts to recastthe Thermodyne litigation as one involving unfair competition or slander of tile.

In appeals from summary judgment rulings, this court conducts a de novoreview. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90,102 (1992). Summary judgment is a drastic measure and should be granted only ifthe movant's right to judgment is clear and free from doubt. Missouri PacificR.R. Co. v. American Re-Insurance Co., 286 Ill. App. 3d 129, 133 (1996). Summaryjudgment is appropriate when there are no genuine issues of material fact and themoving party is entitled to judgment as a matter of law. International InsuranceCo. v. Rollprint Packaging Products, Inc., 312 Ill. App. 3d 998, 1007 (2000). Areviewing court may affirm a trial court's ruling granting summary judgment on anygrounds that appear in the record, regardless of whether the trial court reliedon them. International Insurance Co., 312 Ill. App. 3d at 1007. We further notethat the construction of an insurance contract is a question of law, and aninterpretation of an insurance contract provision is appropriate on a motion forsummary judgment. International Insurance Co., 312 Ill. App. 3d at 1007.

This case involves whether insurers had a duty to indemnify McDonald's inthe settlement of the Thermodyne litigation. The duty to indemnify is muchnarrower than the duty to defend. Atlantic Mutual Insurance Co. v. AmericanAcademy of Orthopaedic Surgeons, 315 Ill. App. 3d 552, 559 (2000). Unlike theduty to defend, the duty to indemnify cannot be determined simply on the basis ofwhether the factual allegations of the underlying complaint potentially state aclaim against the insurer. Waste Management, Inc. v. International Surplus LinesInsurance Co., 144 Ill. 2d 178, 203 (1991) (supplemental opinion on denial ofrehearing). The duty to indemnify arises only when the facts alleged actuallyfall within the coverage of the policy at issue. Crum & Forster Managers Corp.v. Resolution Trust Corp., 156 Ill. 2d 384, 398 (1993).

In accordance with the above principles, we must analyze the underlyingcomplaint in light of the applicable policy provisions to determine whether thecomplaint actually falls within the coverage of the policy at issue. In federallitigation, the final pretrial order supercedes the complaint. See, e.g., Ash v.Wallenmeyer, 879 F.2d 272, 274 (7th Cir. 1989) (noting that the effect of thepretrial order is to supersede the pleadings); Ghandi v. Police Department, 823F.2d 959, 962 (6th Cir. 1987) (same); Hoagburg v. Harrah's Marina Hotel Casino,585 F. Supp. 1167, 1175 (D. N.J. 1984) (same). Therefore, in addition toexamining the allegations of the underlying complaint, we will consider also theallegations as set forth in the final pretrial order. Moreover, we note that, atthe time McDonald's settled the Thermodyne litigation, three counts were pendingagainst it. Of those three counts, only count II, violation of the Illinois TradeSecrets Act, is implicated here.

Our analysis necessarily begins with the language of the insurance policiesin dispute. Pursuant to the advertiser's coverage part of the MSP policies issuedto McDonald's, insurers agreed:

"[t]o pay on behalf of the insured all loss and claim expense which theinsured shall become legally obligated to pay because of liability imposedby law or assumed under contract as a result of one or more claims arisingout of:

  1. any form of defamation or other tort related to disparagement or harmto the character, reputation or feelings of any natural person ororganization, including but not limited to libel, slander, productdisparagement, trade libel, infliction of emotional distress, outrageor outrageous conduct;
  2. any form of invasion, infringement or interference with rights ofprivacy or publicity, including but not limited to false light,public disclosure of private facts, intrusion and commercialappropriation of name or likeness;
  3. [i]nfringement of copyright, title, slogan, trademark, trade name,trade dress, service mark, service name, trade identity or patent[;]
  4. plagiarism, piracy, or misappropriation of ideas under impliedcontract;
  5. [u]nfair competition, including, but not limited to, dilution,deceptive trade practices, civil actions for consumer fraud, falseadvertising or misrepresentation in advertising, and claims underSection 43 (a) of the Lanham Act or similar state statutes;

committed in the utterance or dissemination of matter arising out of anoccurrence during the policy term, regardless of when claim is made or suitis brought."

The policies define "matter" as:

"the content of advertising, publicity or promotion in any form including,but not limited to, the artistic, literary, printed, pictorial, statistical,musical, audio, audio-visual or dramatic content of such advertising,publicity or promotional material, and use of such matter by others with thepermission of the Named Insured."

The policies define "occurrence" as:

"the broadcast, telecast, cablecast, publication, distribution, display, orexhibition of advertising material, promotional material or publicitymaterial by or within the permission of the Named Insured on its ownbehalf."

Thus, insurers have a duty to indemnify McDonald's if (1) the Thermodyneplaintiffs were pursuing one of the offenses enumerated in the policy; (2) theenumerated offense was committed in the content of advertising, publicity orpromotion; and (3) the enumerated offense arose out of the publication ofadvertising, publicity, or promotional material.

McDonald's argues that the trial court erred in granting insurers' renewedmotion for summary judgment. According to McDonald's, separate and apart from theThermodyne plaintiffs' allegations of misappropriation and use of trade secretswas their claim for "cloud on title." McDonald's claims that it settled theThermodyne litigation "because it feared being hit with a runaway verdict for aclaim *** for the cloud that its promotional activities had allegedly cast on[Tippman's] title to the technology incorporated in the Thermodyne oven." Fromthis statement, McDonald's suggests that the Thermodyne plaintiffs' claim for"cloud on title" was more than a theory of consequential damages. Looking beyondlabels, McDonald's insists, reveals that the "cloud on title" claim wasindependently actionable as a claim for slander of title or unfair competition. McDonald's contends that under either of these theories there is a direct causalconnection between the content of McDonald's promotion of the Temperfect oven andthe commission of an enumerated offense.

Insurers disagree. Insurers claim that, even if the "misappropriation oftrade secrets" cause of action constitutes an enumerated offense for purposes ofthe MSP policies, McDonald's is not entitled to coverage because there is nocausal connection between McDonald's promotional activities and themisappropriation and use of the Thermodyne plaintiffs' trade secrets. Insurersargue that, because McDonald's is unable to establish a causal connection betweenits promotional activities and the "misappropriation of trade secrets" cause ofaction in the Thermodyne litigation, McDonald's improperly attempts to obtaincoverage under the MSP polices by recasting the Thermodyne litigation as a lawsuitfor "slander on title" or "unfair competition" claims. However, insurers arguethat neither the Thermodyne plaintiffs' underlying complaint nor the finalpretrial order includes causes of action for unfair competition or slander oftitle. Moreover, insurers maintain, such causes of action would be legallyimpossible to bring under the circumstances. In any event, the "cloud on title"theory upon which these two claims are based is solely a measure of damagesflowing from the causes of action asserted against McDonald's. Consequently,McDonald's cannot meet the direct causal connection requirement because saidrequirement requires that the offense be caused by the promotion, not merely thedamages.

We conclude that insurers were entitled to summary judgment because neitherthe allegations in the Thermodyne plaintiffs' amended complaint nor those in thepretrial order actually fall within the coverage of the policy. None of theallegations contained in these two pleadings constitute an enumerated offense. In any event, the "cloud on title" theory was a damages theory, outside the reachof the coverage of the policy. Even assuming that the allegations ofmisappropriation of trade secrets constitutes an enumerated offense, McDonald'sis unable to demonstrate that the misappropriation of trade secrets was caused byits promotional activities.

Several courts have already determined that claims of trade secretmisappropriation do not satisfy the causal connection requirement of "advertisinginjury" policy language similar to the MSP policy here. See, e.g., Simply FreshFruit, Inc. v. Continental Insurance Co., 94 F.3d 1219 (9th Cir. 1996); WinklevossConsultants, Inc. v. Federal Insurance Co., 991 F. Supp. 1024 (N.D. Ill. 1998). Realizing this, McDonald's argues that separate and apart from themisappropriation of trade secrets allegations, the Thermodyne plaintiffs alsoasserted a claim for "cloud on title."

The Thermodyne plaintiffs' amended complaint contains the followingallegations:

"3. By way of introduction and synopsis, [p]laintiffs' assert that[d]efendants have engaged in a course of conduct designed to misappropriate[p]laintiffs' employees, technology, and trade secrets. *** [A]nd,[d]efendants' promotion of the 'Temperfect Oven' exposed [p]laintiffs' tradesecrets to the market place."

The complaint also asserted:

"62. Plaintiffs are entitled to recover their damages, any unjustenrichment to [d]efendants, exemplary damages, and attorneys' fees pursuantto 765 ILCS 1065/4-5.

63. Additionally, [p]laintiffs are entitled to a reasonable royaltyfor [d]efendants' past or future use of or profits from the sale of[p]laintiffs' trade secret or the application thereof."

As refined in the Thermodyne plaintiffs' brief submitted with the finalpretrial order, the Thermodyne plaintiffs posited their theory of liabilityagainst McDonald's for misappropriation of trade secrets as follows:

"McDonald's improperly acquired the Plaintiffs' trade secrets byrepresenting to the Plaintiffs that it had an interest in viewing andtesting Plaintiffs' Thermodyne oven and other systems in order to determinewhether it would agree to purchase these ovens and other systems from thePlaintiffs for use in McDonald's restaurants or approve their use in itslicensees' restaurants. McDonald's recognized the value and revolutionarypotential of the Thermodyne to the fast food industry and conspired with[OSI] to misappropriate control over its future use and development.

In April, [sic] 1990, OSI, in collusion with McDonald's, entered intoa partnership with Liebermann, Plaintiffs' key researcher and developer, todevelop the Plaintiffs' technology and hired Liebermann as an employee ofthe partnership. Then, after test marketing various products using thePlaintiffs' ovens, McDonald's insisted on purchasing an oven from thePlaintiffs on June 6, 1990, executed a Confidentiality Agreement forLiebermann personally on June 7, 1990, and then 5 days later informed thePlaintiffs' [sic] that it was putting the testing of Plaintiffs' ovens onhold. McDonald's immediately began working with OSI and Taylor to developand manufacture an oven based on the Plaintiffs' technology. Following theexecution of a Partnership Agreement on July 24, 1990, the partnership(Beltec) entered into a licensing agreement with Taylor for the manufactureof ovens based on Plaintiffs' technology to be sold to McDonald's. Also onJuly 24, 1990, Liebermann entered into a written Employment Agreement withBeltec, having resigned from AFTEC on July 18, 1990, breaching his contractwith AFTEC. The first prototype Temperfect ovens manufactured latercontained more modifications of the various interconnecting Thermodynesystems and component parts. McDonald's purchased the ovens manufacturedby Taylor under license from Beltec and used the ovens in its restaurantsand continues to do so."

Also part of the final pretrial order was a statement of special damages,including damages for lost profits "as a result of reduction of market opportunitydue to uncertainty as to ownership of the Thermodyne technology."

Based on our review of the record, including the Thermodyne plaintiffs'amended complaint and the final pretrial order, we are unpersuaded by McDonald'sargument that the Thermodyne plaintiffs stated a cause of action for "cloud ontitle." McDonald's has not cited any cases recognizing such a cause of action inIllinois. Moreover, our independent research has not found any case in which acourt in this state has recognized such a cause of action. Cf. American NationalBank & Trust Co. v. Bentley Builders, Inc., 308 Ill. App. 3d 246, 252 (1999)(noting that the act of maliciously recording a document that clouds one's titleto real estate is actionable as slander of title); Lakeview Trust & Savings Bankv. Estrada, 134 Ill. App. 3d 792, 811 (1985) (explaining that an action to quiettitle in property is an equitable proceeding in which a party seeks to remove acloud upon his title to the property). We will not strain to locate a cause ofaction that does not exist. See, e.g., Bart v. Board of Education, 256Ill. App.3d 880, 886 (1993) (noting that, although article I, section 12, of the IllinoisConstitution (Ill. Const. 1970, art. I,

Illinois Law

Illinois State Laws
Illinois Tax
Illinois Court
Illinois Labor Laws
    > Minimum Wage in Illinois
Illinois Agencies
    > Illinois DMV

Comments

Tips