Lionbridge Technologies, LLC v. Valley Forge Ins. Co. ( 2022 )

United States Court of Appeals
For the First Circuit
No. 21-1698
LIONBRIDGE TECHNOLOGIES, LLC, f/d/b/a Lionbridge Technologies,
Inc.
Plaintiff, Appellant,
v.
VALLEY FORGE INSURANCE COMPANY,
Defendant, Appellee,
H.I.G. MIDDLE MARKET LLC; ENDURANCE ASSURANCE CORPORATION;
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
Third Party Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]
Before
Kayatta, Selya, and Thompson,
Circuit Judges.
Nicholas D. Stellakis, with whom Walter J. Andrews, Kevin V.
Small, and Hunton Andrews Kurth LLP were on brief, for appellant.
Kirk Pasich, Christopher Pasich, and Pasich LLP on brief for
United Policyholders, amicus curiae.
William L. Boesch, with whom Regina E. Roman, Kenneth N.
Thayer, and Sugarman, Rogers, Barshak & Cohen P.C. were on brief,
for appellee.
November 21, 2022
THOMPSON, Circuit Judge. This case pits an insured,
Lionbridge, against its general liability insurer, Valley Forge,
to answer whether Valley Forge had to foot Lionbridge's million-
dollar legal bills when the company fended off a trade-secrets
lawsuit in Manhattan brought by a competitor. Valley Forge
initially paid for some of Lionbridge's defense under a reservation
of rights (in insurance-speak, tentative coverage), but only a
fraction of what Lionbridge had racked up. So, Lionbridge sued
Valley Forge in the District of Massachusetts seeking full
coverage, and fighting back, Valley Forge counterclaimed seeking
a declaratory judgment of absolution from policy coverage.1 As
the case progressed below, each side moved to compel discovery
responses from the other, including what they both objected was
attorney/client information (usually considered off-limits in a
lawsuit). Relevant here, a magistrate judge denied Valley Forge's
request for information exchanged between Lionbridge and its
lawyers, which Valley Forge objected up to the district court.
Both parties eventually cross-moved for partial summary judgment
on a few of the key legal issues related to coverage.
The district court went on to grant the portion of Valley
Forge's motion to compel that sought privileged information but,
1 Though not relevant to the issues on appeal, Valley Forge
also cross claimed against other interested persons to this
dispute.
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at the parties' request, stayed all discovery until it ruled on
the cross-motions for summary judgment. So then, ruling in summary
judgment favor for Valley Forge, the district court bought the
argument that Valley Forge should be let off the policy coverage
hook entirely (save for what it had already paid out) concluding
it did not owe Lionbridge a duty to defend (i.e., to pay for its
defense). The district court also dismissed all of Lionbridge's
claims.
Now, to us. On the coverage issue, we disagree, and
therefore reverse the district court's summary judgment ruling and
direct the entry of summary judgment in favor of Lionbridge on the
duty to defend. On the discovery dispute, we affirm the district
court's ruling and direct the court to tailor a discovery order
that addresses the parties' objections.
BACKGROUND
The Underlying Lawsuit
The coverage dispute now before us arose from a lawsuit
("Underlying Lawsuit") brought against Lionbridge, a company
involved in the language-translation industry, in April 2019 in
the Southern District of New York by its main competitor in that
industry, TransPerfect Global ("TPG"). There, TPG alleged that
Lionbridge's corporate owner, private equity firm H.I.G. Middle
Market, LLC ("HIG"), concocted a scheme to gain access to TPG's
trade secrets, like its sales models, pricing information and
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customer lists, so that Lionbridge could poach TPG's customers and
otherwise undermine TPG's business advantage by copying its sales
practices. TPG claimed that HIG pilfered the proprietary
information by faking interest in acquiring TPG throughout
multiple rounds of a court-ordered auction that it described as
rife with conflicts and inflated bids, which HIG then prolonged
(under the guise of engaging in due diligence) just to keep
stealing TPG's business information provided to bidders as part of
the auction process. In the end, HIG did not purchase TPG, but
the winning buyer (one of TPG's co-founders, Philip Shawe) asserted
that he paid more because of HIG's auction antics.
TPG also alleged that Lionbridge "took advantage of the
extended sales process to undercut TPG" in a few other ways --
contentions that make-or-break this whole coverage dispute.2
First, TPG claimed that "Lionbridge sales people falsely told TPG's
customers that Lionbridge was purchasing TPG and that they should
contract with Lionbridge directly before the sale." And second,
that Lionbridge "contacted TPG's existing and prospective clients,
and both misrepresented the nature of the underlying litigation
2We will refer to these allegations as the "Misrepresentation
Allegations" throughout, and to the complaint in the Underlying
Lawsuit as the "TPG Complaint."
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and introduced doubt regarding the stability of TPG in bad faith
for the purpose of damaging TPG and advantaging Lionbridge."3
TPG's amended complaint in the Underlying Lawsuit lodged
ten counts against HIG and Lionbridge: Misappropriation of Trade
Secrets under the Defend Trade Secrets Act ("DTSA"), 18 U.S.C.
§ 1836, et seq., and state law (Counts I, II, III and VI); a
violation of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C.
§ 1030(g) (Counts IV and V); Unfair Competition and Trade Secrets
under state law (Count VII); Unjust Enrichment against Lionbridge
(Count VIII); Breach of Contract against HIG (Count IX); and Fraud
(Count X). TPG sought injunctive relief and damages from HIG and
Lionbridge, estimated at over 400 million dollars.4
3 We infer from this allegation that Lionbridge told TPG's
customers that TPG's business was unstable because of the rancorous
litigation between TPG's co-founders, Philip Shawe and Elizabeth
Elting. The former romantic pair brought their acrimonious
personal and business relationship to the fore of day-to-day
operations at TPG, and after several lawsuits shot back-and-forth,
Elting eventually petitioned a Delaware court to declare a
shareholder deadlock (both co-founders held a 50% stake in TPG)
and appoint a custodian to sell TPG, which it did, resulting in
the court-ordered auction. See Shawe v. Elting, 157 A.3d 152,
156-59 (Del. 2017).
4 The merits of the Underlying Lawsuit have since resolved in
favor of Lionbridge, although that does not impact our analysis of
this coverage dispute. First, in March 2020, shortly after
Lionbridge filed this action, the New York district court dismissed
the CFAA counts. See TransPerfect Glob., Inc. v. Lionbridge
Techs., Inc., No. 19-cv-3283, 2020 WL 1322872 (S.D.N.Y. Mar. 20,
2020). Then, in January 2022, while the parties were briefing
this appeal, the court granted Lionbridge's motion for summary
judgment on the remaining counts. See TransPerfect Glob., Inc. v.
Lionbridge Techs., Inc., No. 19-cv-3283, 2022 WL 195836 (S.D.N.Y.
Jan. 21, 2022).
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Relevant Details of the Policy
Before recounting the coverage dispute, we lay out the
relevant provisions of Lionbridge's commercial general liability
policy ("Policy") from Valley Forge. The Policy covers damages
that the insured is "obligated to pay" because of "personal and
advertising injury." That means Valley Forge "[had] the right and
duty to defend the insured against any suit seeking those damages."
The Policy defines personal and advertising injury by listing
multiple offenses, so "injury . . . arising out of" something on
that list triggers coverage. Within that, we focus on the sole
provision in dispute: the Policy covers injury arising out of
"[o]ral or written publication, in any manner, of material that
slanders or libels a person or organization or disparages a
person's or organization's goods, products or services[.]"
But even if an injury fits into that framework, it might
fall into one of the Policy's exclusions, in which case the insured
could be cut loose from coverage -- more on exclusions later.
How We Got Here
Before we tackle the legal claims at issue, we will
describe how the coverage spat played out below. In June 2019,
Lionbridge notified Valley Forge of the Underlying Lawsuit.
Valley Forge responded in a July letter with an initial coverage
determination, writing that it had "reviewed the Complaint
and . . . the Policies" and concluded that, "[b]ecause certain
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allegations in the Complaint could potentially seek damages for a
personal and advertising injury as defined by [the Policy], [Valley
Forge] will agree to defend [Lionbridge],5 pursuant to a
reservation of rights." Valley Forge quoted the Misrepresentation
Allegations6 and wrote that, "[b]ased on these allegations, [Valley
Forge] will agree to defend . . . Lionbridge in connection with
the TPG Suit . . . only because the above referenced allegations
could potentially seek damages for 'libel, slander or
disparagement,' a personal and advertising injury offense,
published by or on behalf of Lionbridge . . . ."7
Valley Forge indicated that its "coverage position [was]
an initial one, based upon the Complaint's allegations and now
available information," and that it would defend under a
reservation of rights -- in other words, Valley Forge agreed to
pay for Lionbridge's defense, but reserved the right "to modify
[its] position in response to additional information and future
5 We presume the letter intended to say Lionbridge, as
Lionbridge is the insured here.
6 Recall the Misrepresentation Allegations stated, in sum,
that Lionbridge used the auction process to falsely claim that it
was purchasing TPG, and that the TPG co-founders' litigation
rendered the company unstable, all so that Lionbridge could poach
TPG's customers.
7 When TPG filed an amended complaint in the Underlying
Lawsuit, Valley Forge reaffirmed the position in a September 2019
letter that it was agreeing to defend Lionbridge because the
Misrepresentation Allegations could seek damages for libel,
slander, or disparagement.
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developments, should [Valley Forge] subsequently determine
modification is appropriate." Valley Forge also reserved the right
"to file a declaratory judgment action to determine [its] coverage
obligations to Lionbridge under the polic[y]," including the
applicability of the "Knowing Exclusions" and the "Trade Secrets
Exclusions" (details of the relevant exclusions forthcoming). By
defending under a reservation of rights, the letter explained,
Lionbridge could take its pick of the law firm litter, but counsel
could only be reimbursed for "necessary and reasonable defense
costs," including "the hourly rate of commensurate counsel in the
jurisdiction where the [Underlying Lawsuit] is pending," here the
Southern District of New York.
The parties' coverage clash began from there.
Lionbridge retained Kirkland & Ellis, but Valley Forge refused to
pay the law firm's set rates -- $1,410-1,055 per hour for partners
and $925-$795 per hour for associates -- asserting those rates
"substantially exceed the market rates that have been deemed
reasonable by courts in the SDNY area." Instead, Valley Forge
determined its own "reasonable rates for Kirkland," settling on
$600 per hour for partners, $400 per hour for associates and $200
per hour for paralegals. Lionbridge also retained another law
firm, Akerman, supposedly to keep costs down by using the firm's
lower hourly rate to handle discovery. But Valley Forge refused
to pay for any of Akerman's work, asserting that it had no
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obligation to pay a second law firm. Finally, Valley Forge
determined that it would reimburse Lionbridge for 50% of the
"common defense" costs between Lionbridge and HIG, since it insured
Lionbridge, not HIG, and none of the defense costs HIG solely
incurred, since HIG had coverage from another insurer, Endurance
Assurance Corporation ("Endurance").
Lionbridge brought this lawsuit in January 2020 seeking
full coverage from Valley Forge for its defense costs, including
Akerman's fees and Kirkland's set rates, and those fees that
jointly benefitted HIG. Valley Forge counterclaimed for a
declaration that its reimbursements to date were reasonable (i.e.,
that it was not obligated to pay more than its reduced rates for
Kirkland, nothing for Akerman, and 50% of the joint defense
costs).8 Valley Forge also filed a third-party complaint against
HIG and two of its insurers to recoup any costs it had paid to
HIG.9
As of August 2020, Kirkland had billed Lionbridge about $2.1
8
million in fees and expenses, and Akerman had billed about
$550,000. Totaling all invoices (including a third law firm and
vendors), Lionbridge requested reimbursement of over $3.1 million
in legal fees and expenses. Of that, Valley Forge paid about
$620,000.
Valley Forge's third-party complaint alleges that HIG did
9
not pursue defense coverage from Endurance, even though HIG
incurred defense costs that would be covered by the policy it held
with Endurance. So, the complaint charges, Endurance paid nothing,
and Valley Forge paid more for HIG's defense costs than it should
have.
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While discovery was ongoing and the parties continued
their back-and-forth over what legal bills Valley Forge should
cover, Lionbridge moved for partial summary judgment on its
declaratory judgment count, seeking a ruling that Valley Forge
owed Lionbridge a duty to defend. Valley Forge then cross-moved
for summary judgment, arguing that it owed no such duty.10
Meanwhile, the parties forged ahead with discovery, and
continued to butt heads, filing motions to compel certain discovery
responses from each other. Among other requests, Lionbridge wanted
Valley Forge to turn over what rates it had paid its own lawyers
to defend other lawsuits in the Southern District of New York.
And Valley Forge wanted to see certain communications, reports,
and documents between Lionbridge and Kirkland related to
Lionbridge's defense in the Underlying Lawsuit, including
discussions about the firm's retention and Kirkland's reports
about the defense. The parties appeared before a magistrate judge
in November 2020, who ruled at the hearing that the rate request
information Lionbridge was seeking was relevant and must be
10Even after Lionbridge filed its summary judgment motion,
Valley Forge indicated a willingness to stipulate that it had a
duty to defend Lionbridge in the Underlying Lawsuit. At oral
argument, however, counsel for Valley Forge explained that the
insurer first revisited its position on the duty to defend upon
Lionbridge's motion because it was "prompted to look at the issue,"
rather than quibbling over "subsidiary issues" like reasonable
rates, which had previously consumed its litigation resources.
Valley Forge described its about-face, conceding it was a change
of opinion, as "a change of focus, a change of strategy."
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disclosed, but that Valley Forge's request sought attorney-client
privileged documents and communications, which need not be turned
over. Valley Forge objected to these rulings to the district
court, who affirmed on the rate information but overruled the
magistrate's privilege call, and thus granted Valley Forge's
motion to compel information exchanged between Lionbridge and
Kirkland. As to the latter discovery requests, neither decision
ruled on their relevance, just privilege.
Later, in August 2021, the district court ruled on the
cross-motions for summary judgment, deciding based on the language
of the Policy and exclusions that Valley Forge did not owe a duty
to defend Lionbridge in the Underlying Lawsuit. From there, the
court denied Lionbridge's request for additional coverage from
Valley Forge since "there was no duty to defend to begin with,"
and dismissed all of Lionbridge's remaining claims. Summary
judgment also issued for Valley Forge. Lionbridge timely appealed
and now we enter the mix.11
11 A note about our appellate jurisdiction. After briefing
and argument, we questioned whether the district court's dismissal
order, which followed the cross-motions for summary judgment, also
intended to extinguish Valley Forge's counter and third-party
claims, which Valley Forge had brought against HIG's corporate
parent and two of its insurers. If those claims remained pending,
we would lack jurisdiction over this appeal. See United States ex
rel. Willette v. Univ. of Mass., Worcester, 812 F.3d 35, 44-45
(1st Cir. 2016) (emphasizing that "[a] final decision is one that
disposes of all claims against all parties" (quotation marks and
citation omitted)). We granted the parties leave to seek
clarification from the district court pursuant to Fed. R. Civ. P.
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DISCUSSION
Valley Forge's Defense
We review the district court's decision on the cross-
motions for summary judgment de novo. Zurich Am. Ins. Co. v. Elec.
Me., LLC, 927 F.3d 33, 35 (1st Cir. 2019). Our task in this appeal
requires us only to interpret the relevant provisions of the
Policy, and with no genuine dispute of material facts, we must
affirm the judgment below if the district court's conclusions were
correct as a matter of law. Id.Policy Coverage for the Underlying Complaint
Like the district court we start with the threshold issue
presented below and on appeal -- did the allegations in the
underlying complaint trigger coverage under the Policy? Please
bear with us as we begin by laying out the legal landscape that
guides our analysis.
In Massachusetts,12 "[a]n insurer has a duty to defend
an insured when the allegations in [the underlying] complaint are
60(a) and remanded the case to the district court to rule on that
motion. In response, the district court clarified that it intended
to dismiss all claims in the lawsuit, including Valley Forge's
counter and third-party claims. Satisfied with the district
court's clarification, we have jurisdiction to proceed to the
merits of this appeal. Accord Bos. Car Co. v. Acura Auto. Div.,
Am. Honda Motor Co., 971 F.2d 811, 814–15 (1st Cir. 1992).
12 The parties agree that Massachusetts law governs our
analysis of the Policy, and "we accept their reasonable agreement."
Suzuki v. Abiomed, Inc., 943 F.3d 555, 561 (1st Cir. 2019).
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reasonably susceptible of an interpretation that states or roughly
sketches a claim covered by the policy terms," Billings v. Commerce
Ins. Co., 936 N.E.2d 408, 414 (Mass. 2010), and as we'll explain
below, no exclusions preclude coverage, see Norfolk & Dedham Mut.
Fire Ins. Co. v. Cleary Consultants, Inc., 958 N.E.2d 853, 862
(Mass. App. Ct. 2011). The facts alleged need not "specifically
and unequivocally make out a claim within the coverage" but rather
"need only show, through general allegations, a possibility that
the liability claim falls within the insurance coverage."
Billings, 936 N.E.2d at 414 (quoting Sterilite Corp. v. Cont'l
Cas. Co., 458 N.E.2d 338, 341 (Mass. App. Ct. 1983)). Our analysis
"does not turn on the specific cause of action" stated in the
underlying complaint, but rather "focuses on 'envisaging what
kinds of losses may be proved as lying within the range of the
allegations of the complaint, and then seeing whether any such
loss fits the expectation of protective insurance reasonably
generated by the terms of the policy.'" Holyoke Mut. Ins. Co. in
Salem v. Vibram USA, Inc., 106 N.E.3d 572, 577 (Mass. 2018)
(quoting Billings, 936 N.E.2d at 415). In other words, we
determine whether the underlying complaint invokes coverage based
on the "source" of the injury "rather than the specific theories
of liability" advanced in the complaint. Bagley v. Monticello
Ins. Co., 720 N.E.2d 813, 817 (Mass. 1999) (quoting New Eng. Mut.
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Life Ins. Co. v. Liberty Mut. Ins. Co., 667 N.E.2d 295, 299 (Mass.
App. Ct. 1996)).
To answer this threshold coverage question, we
"compar[e] the allegations in the [underlying complaint] against
the provisions of the insurance policy." Deutsche Bank Nat'l Ass'n
v. First Am. Title Ins. Co., 991 N.E.2d 638, 641 (Mass. 2013).
And we resolve "[a]ny uncertainty as to whether the pleadings
include or are reasonably susceptible to an interpretation that
they include a claim covered by the policy terms . . . in favor of
the insured . . . ." Id. at 642.
With this legal guidance in our rear-view mirror, we
tackle the parties' coverage arguments. Lionbridge contends that
the Misrepresentation Allegations in the TPG complaint roughly
sketch a claim for defamation because they show a "possibility" of
falling within the Policy and "envisage" these covered claims,
pointing to allegations of reputational harm and to the damages
TPG sought from all of Lionbridge's alleged conduct. The district
court rejected Lionbridge's position below -- rightly so says
Valley Forge -- by homing in on several pleading infirmities (we'll
drill down on them shortly) as to certain elements of each covered
offense. We disagree and conclude that the complaint in the
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Underlying Lawsuit, specifically the Misrepresentation
Allegations, triggers coverage under the Policy. Here's how.
As we laid out above, the Policy kicks in if the
complaint alleges "injury . . . arising out of . . . [o]ral or
written publication, in any manner, of material that slanders or
libels a person or organization or disparages a person's or
organization's goods, products or services." Espying the
complaint, we see it alleges that "Lionbridge sales people falsely
told TPG's customers that Lionbridge was purchasing TPG and that
they should contract with Lionbridge directly before the [auction]
sale," and also "contacted TPG's existing and prospective clients,
and both misrepresented the nature of the underlying litigation
and introduced doubt regarding the stability of TPG in bad faith
. . . ." As to harm, part of TPG's fraud claim alleged, in
reference to Lionbridge's supposed falsehoods, that "these
statements caused actual confusion among TPG's clients, some of
whom have decreased or reduced their business with TPG."
Taking these allegations, resolving as we must any
uncertainty in favor of Lionbridge, see Deutsche Bank Nat'l Ass'n,
991 N.E.2d at 642, the question before us is whether they roughly
sketch an "injury . . . arising out of" a defamation claim -- be
it libel (written) or slander (spoken) -- because they could
reasonably be read to describe reputational harm to TPG flowing
from Lionbridge spreading falsehoods about the future and
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stability of the company, see Ravnikar v. Bogojavlensky, 782 N.E.2d
508, 510 (Mass. 2003).13 Moreover, tort law specifically
recognizes reputational harm to a business as actionable
defamation. Pan Am Sys., Inc. v. Atl. Ne. Rails & Ports, Inc.,
804 F.3d 59, 64 (1st Cir. 2015) (quoting Restatement (Second) of
Torts § 561(a) (explaining that "'[o]ne who publishes a defamatory
matter' concerning a for-profit corporation can be liable
'if . . . the matter tends to prejudice [the corporation] in the
conduct of its business or to deter others from dealing with
it'")(alteration in original)); Sandals Resorts Int'l Ltd. v.
Google, Inc., 925 N.Y.S.2d 407, 412 (N.Y. App. Div. 2011) (noting
that in New York, corporate defamation requires harm to business
Disparagement, to the contrary, requires falsehoods about
13
a company's products or services to cause them pecuniary loss.
See HipSaver, Inc. v. Kiel, 984 N.E.2d 755, 762 (Mass. 2013). We
agree with the district court that the TPG complaint does not
allege any falsehoods about any of Lionbridge's products or
services, instead casting doubt on the stability and future
ownership of the business. Even if the TPG complaint alleged
pecuniary loss, that loss did not flow from disparagement, but
rather a different source of injury: defamation. See Ruder &
Finn Inc. v. Seaboard Sur. Co., 52 N.Y.2d 663, 670–71 (1981) (New
York law) ("Where a statement impugns the basic integrity or
creditworthiness of a business, an action for defamation lies and
injury is conclusively presumed. Where, however, the statement is
confined to denigrating the quality of the business' goods or
services, it could support an action for disparagement, but will
do so only if malice and special damages are proven."). And
Lionbridge does not challenge on appeal the district court's
determination that the statements did not constitute "use of
another's advertising idea," so we confine our analysis to
defamation.
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reputation); N. Shore Pharmacy Servs., Inc. v. Breslin Assocs.
Consulting LLC, 491 F. Supp. 2d 111, 127 (D. Mass. 2007) (same in
Massachusetts).
Our conclusion -- that Lionbridge's complaint fairly
sketches a defamation claim -- finds support from the Massachusetts
Supreme Judicial Court ("SJC"), whose lead we must follow, which
similarly found a duty to defend for injury arising from
"defamation, libel, or slander," even when those offenses were not
pleaded by name. See Billings, 936 N.E.2d at 415. There, just
like here, an underlying complaint alleged that the insured spread
falsehoods, "pleaded in support of" an intentional tort claim (swap
fraud for intentional infliction of emotional distress), but
nevertheless "roughly sketched a defamation claim," because the
same falsehoods allegedly resulted in reputational damage to the
insured. Id. Valley Forge's attempt to distinguish Billings by
pointing to "critically different" policy language does not
persuade us. True, the Billings policy kicked in for personal
injury caused by "Libel, slander or defamation of character," id.
at 412 n.3, while the Policy here covers Lionbridge for "[o]ral or
written publication, in any manner, of material that slanders or
libels a person or organization or disparages a person's or
organization's goods, products or services." But we rely on
Billings not to hold that the offenses covered by the policies are
identical (although there is indeed much relevant overlap).
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Rather, we rely on Billings for the principle that the causes of
action in the complaint need not map expressly onto those covered
by the Policy if the "expectation of protective insurance
reasonably generated by the terms of the policy" fits the "kinds
of losses [that] may be proved as lying within the range of
allegations of the complaint." Id. at 415 (quoting Boston Symphony
Orchestra, Inc. v. Commercial Union Ins. Co., 545 N.E.2d 1156,
1159 (1989)). Here, the Policy's coverage for claims arising out
of an oral or written publication that slanders or libels an
organization creates a reasonable expectation that the Policy
would protect Lionbridge from a suit claiming that Lionbridge's
statements caused reputational injury to TPG. See Bagley, 720
N.E.2d at 817. We also do not see Billings as distinct from this
case, as Valley Forge urges, given that in Billings the SJC
determined that the complaint roughly sketched a claim for
defamation per se, which does not require proof of economic loss.
See Billings, 936 N.E.2d at 415 (citation omitted). The SJC read
the allegations of falsehoods leading to reputational harm to
sketch a defamation claim, and "[i]n addition," a claim of
defamation per se because the alleged falsehoods involved criminal
accusations. See id. Regardless, the TPG complaint alleged
reputational harm and lost business.
Performing our own de novo comparison of the TPG
complaint to the Policy and resolving any close calls in favor of
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Lionbridge, we conclude that the TPG complaint roughly sketched a
covered claim pursuant to the terms of the Policy. That said, our
analysis does not end here.
Do Any Policy Exclusions Preclude Coverage?
Regardless of our coverage conclusion, Valley Forge
could still extinguish its obligation to defend by demonstrating
that a Policy exclusion precludes coverage. See Scottsdale Ins.
Co. v. Byrne, 913 F.3d 221, 228–29 (1st Cir. 2019). To do so,
Valley Forge, which has the burden of demonstrating that an
exclusion applies, must show "the facts alleged in the third-party
complaint . . . establish that the exclusion applies to all
potential liability as a matter of law." Id. (quoting Norfolk &
Dedham Mut. Fire Ins. Co., 958 N.E.2d at 862 (citation omitted)).
Like the initial coverage determination, whether an exclusion
applies "depend[s] on whether the insured would have reasonably
understood the exclusion to bar coverage." Essex Ins. Co. v.
BloomSouth Flooring Corp., 562 F.3d 399, 404 (1st Cir. 2009). We
conclude that Valley Forge has not met its burden here as to either
category of exclusions at issue in this appeal.
As relevant here, four exclusions come into play which
we group in two pairs. First, what we call the "Knowing
Exclusions": the Policy does not apply to personal and advertising
injury (a) "caused by or at the direction of the Insured with the
knowledge that the act would violate the rights of another and
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would inflict personal and advertising injury," or (b) "arising
out of oral or written publication, in any matter, of material, if
done by or at the direction of the Insured with knowledge of its
falsity." Second, what we call the "Trade Secrets Exclusions":
the Policy does not apply to personal and advertising injury (a)
"arising out of the infringement of copyright, patent, trademark,
trade secret or other intellectual property rights," or (b)
"arising out of any access to or disclosure of any person's or
organization's confidential or personal information, including
patents, trade secrets, processing methods, customer lists,
financial information, . . . or any other type of nonpublic
information."
The Knowing Exclusions preclude coverage for injury
done "with the knowledge that the act would violate the rights of
another and would inflict personal and advertising injury" or "with
knowledge of its falsity." Valley Forge advances two primary
arguments, but we are left unpersuaded by them.
First, Valley Forge points out that the
Misrepresentation Allegations "specifically allege[] that the
statements were made 'in bad faith for the purpose of damaging TPG
and advantaging Lionbridge,' . . . 'to undercut TPG,'" and that,
generally, the complaint alleges an intentional scheme to damage
TPG. Valley Forge does not expand on how its quoted excerpt of
the Misrepresentation Allegations maps onto the Knowing
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Exclusions, but we assume that it, like the district court, equates
bad faith as alleged with intentional conduct which would be
excluded. Even so, we find a critical omission from its quoted
text. Read in the context of the whole allegation -- that
Lionbridge "both misrepresented the nature of the underlying
litigation and introduced doubt regarding the stability of TPG in
bad faith for the purpose of damaging TPG . . ." -- we think
Lionbridge could have reasonably understood the allegation of bad
faith and purposeful damage to apply only to the latter
"introduced-doubt" conduct. In other words, Valley Forge has not
shown that the complaint conclusively alleges intentional conduct
as to Lionbridge's employees "misrepresent[ing] the nature of the
underlying litigation." By contrast, TPG alleged in the fraud
count that "Lionbridge employees deliberately misrepresented to
TPG's clients that Lionbridge would be acquiring TPG, and that
future business inquiries should be directed to Lionbridge." Such
allegation clearly alleges knowledge, leaving no room for a
reasonable interpretation otherwise, and suggests that TPG chose
not to allege intentional conduct as to the allegation concerning
Lionbridge's misrepresentations about the underlying litigation.
And we see no force to Valley Forge's thematic characterization of
the complaint's allegations resting under the umbrella of
intentional conduct; Valley Forge's burden requires it to disprove
all potential liability, as a matter of law, that could arise from
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each allegation. See Norfolk & Dedham Mut. Fire Ins. Co., 958
N.E.2d at 862.
Second, Valley Forge asserts that the Knowing Exclusions
apply because the TPG complaint does not claim or allege
negligence. That argument goes nowhere given Valley Forge's burden
-- again, it must disprove all potential liability as a matter of
law. See id. Nonetheless, Valley Forge presses on this point
that determining the potential for coverage does not involve "such
speculative reinventions of the claims in a complaint." In support
of this proposition, Valley Forge relies upon Doe v. Liberty Mutual
Insurance Co., 667 N.E.2d 1149, 1152 (Mass. 1996), suggesting that
the SJC has rejected an attempt to "isolate instances of possibly
negligent conduct from [the] context of [a] complaint['s
allegations] as a whole." Doe's holding was not so broad -- the
case assessed whether, for the purposes of an intentional injury
exclusion, sexual misconduct with a minor "could be found to be
merely negligent," and thus outside the exclusion. See id.Rejecting the plaintiff's attempt to isolate one instance of
alleged misconduct from the rest ("The complaint alleges an
incident of furtively holding a minor's hand after a weekend of
blatant sexual touching"), the SJC held that intent to injure could
be inferred as a matter of law in these cases because
"intentionally fondl[ing] [a] minor and intentionally [holding]
her hand" could not be artificially separated and were inherently
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injurious. See id. (concluding it was "not possible for
intentional sexual misconduct also to be negligent"). And Doe
suggests that we should not stretch its reasoning much further:
it distinguished between cases where, like we just recited, a
negligence theory was legally unsupportable from the allegations
in the complaint, and cases that involve intentional acts that
could lead to unintentional harm -- classic negligence. See id.Doe now by the wayside, Valley Forge is back where it started --
with the burden to prove that, as a matter of law, a defamation
claim premised on negligent or reckless conduct is legally
impossible. But Valley Forge has made no such argument nor cited
to any case establishing the same and has therefore not met its
burden. See Norfolk & Dedham Mut. Fire Ins. Co., 958 N.E.2d at
862.
Finally, while we have found scant Massachusetts
authority considering the scenario where the possibility of
liability for negligent conduct (here, defamation) allows an
insured to avoid a knowing exclusion, we find support from other
courts that have endorsed this approach. See Pharmacists Mut.
Ins. Co. v. Myer, 993 A.2d 413, 418 (Vt. 2010) (explaining that
"courts have generally construed policy exclusions for
'intentional' misconduct to bar coverage of defamatory statements
made with malice or an intent to deceive, while leaving intact
coverage of defamatory statements made negligently"); KM Strategic
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Mgmt., LLC v. Am. Cas. Co. of Reading PA, 156 F. Supp. 3d 1154,
1170 (C.D. Cal. 2015) (explaining that potential liability "cannot
be 'conclusively negated' by pointing to disputed allegations in
the very complaint that plaintiffs are seeking to defend against,"
as such, "courts usually find a duty to defend despite the knowing
falsehoods exclusion . . . since despite the allegations of
intentional acts, the insured's conduct may be shown to have been
merely reckless or negligent" (citations omitted)); Safeguard
Scis., Inc. v. Liberty Mut. Ins. Co., No. 91-1480, 1992 WL
12915247, at *3 (3d Cir. Mar. 19, 1992) (noting that "Pennsylvania
courts have held that insurers whose policies obligate them to
defend only against unintentional torts still must defend against
defamation claims when the complaint is unclear as to whether the
defamation was intentional or unintentional"); Marleau v. Truck
Ins. Exch., 963 P.2d 715, 718 (Or. Ct. App. 1998), aff'd, 37 P.3d
148 (Or. 2001) (holding that where complaint alleged intentional
defamation, knowledge exclusion did not apply because statements
could have been made "intentionally, but without knowledge of their
truth or falsity").
Moving along to Valley Forge's arguments on the Trade
Secrets Exclusions, we quickly dispose of them. The Trade Secrets
Exclusions bar coverage for injury "arising out of the infringement
of . . . trade secret or other intellectual property rights," or
"arising out of any access to or disclosure of any person's or
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organization's confidential or personal information,
including . . . trade secrets, processing methods, customer lists,
financial information, . . . or any other type of nonpublic
information." Valley Forge contends that the exclusion applies
because the "entire subject of the TPG lawsuit" and all its claims
arose out of Lionbridge's alleged misappropriation of trade
secrets. But we concluded above that the TPG complaint roughly
sketched a defamation claim because it alleged injury arising out
of false statements that harmed TPG's reputation. Such an injury
does not fall into the Trade Secrets Exclusion because it does not
conclusively arise out of the alleged theft or misuse of trade
secrets. See Bagley, 720 N.E.2d at 816 (explaining that "arising
out of" exclusion is "analogous to 'but for' causation," such that
a court should ask "whether there would have been . . . injuries,
and a basis for the plaintiff's suit, in the absence of the
[excluded] conduct"). Here, Valley Forge has not shown how
potential liability for the Misrepresentation Allegations depends
entirely upon TPG's trade secrets. Valley Forge also asserts that,
in "analogous circumstances" to those alleged here, courts hold as
a matter of law that there is no duty to defend in a lawsuit
"involving" alleged misappropriation of trade secrets. But the
policy language in the case Valley Forge relies upon was notably
different -- it contained a second clause, absent from the Policy
here, that excluded "any personal injury alleged in a suit that
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also alleges such infringement." PTC, Inc. v. Charter Oak Fire
Ins. Co., 123 F. Supp. 3d 206, 213, 215 (D. Mass. 2015) (emphasis
added) (concluding that "second part of the IP exclusion . . .
reaches any suit that includes any allegations of IP infringement
or violations in the suit," and applies so long as the allegation
is "present in the claim or suit involving the insured").
Finding no applicable exclusion here, and in light of
our earlier conclusion that the TPG complaint triggers the Policy,
we conclude Valley Forge had a duty to defend Lionbridge in the
Underlying Lawsuit.
Reasonableness of the Defense
Having concluded that Valley Forge had a duty to defend,
we next address the reasonableness of its defense.14 Here, and
below, the parties extensively briefed whether Valley Forge
provided a reasonable defense to Lionbridge between the time it
first agreed to defend under a reservation of rights and the
district court's summary judgment ruling.15 But given the district
court's conclusion that Valley Forge had no duty to defend, it did
not address these arguments, dismissing the entire suit instead.
14 Valley Forge indicated that it would not seek recoupment
of defense costs to date should Valley Forge prevail in its
declaratory judgment action against Lionbridge. Because we have
ruled in Lionbridge's favor, we soldier on.
15 We acknowledge the helpful amicus brief of United
Policyholders.
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Aside from legal determinations, analysis of these arguments
requires factual considerations (e.g., rates paid in similar
cases, the allocation of defense costs between Lionbridge and HIG,
the tasks that Akerman performed) not fully developed in the record
before us. Since we reverse on the duty to defend and find in
favor of Lionbridge on that legal issue, we remand to the district
court for consideration of the reasonableness of Valley Forge's
defense, as well as the remainder of Lionbridge's claims.
Motion to Compel16
In addition to appealing the district court's ruling on
Valley Forge's defense obligations, Lionbridge challenges the
district court's prior discovery ruling that would require it to
turn over at least some documents and communications exchanged
between it and Kirkland.17 The crux of that ruling determined that
16Before taking on the substance of Lionbridge's challenge,
we pause to address our appellate jurisdiction over it. Valley
Forge contends that we lack jurisdiction to consider the issue
because Lionbridge "failed to designate" the discovery order in
its notice of appeal. To cut to the chase, we see no issue with
Lionbridge's notice, which appeals "from the Order of Dismissal
entered in this action . . . and from all prior orders of the
court." The Federal Rules of Appellate Procedure do not require
greater specificity. See Fed. R. App. P. 3(c)(4) ("The notice of
appeal encompasses all orders that, for purposes of appeal, merge
into the designated judgment or appealable order. It is not
necessary to designate those orders in the notice of appeal.");
Gonpo v. Sonam's Stonewalls & Art, LLC, 41 F.4th 1, 9-12 (1st Cir.
2022); accord Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1, 16
(1st Cir. 2012).
17Although Lionbridge sought attorney-client documents from
Valley Forge, it declined to object to the magistrate judge's
ruling denying the same. We also note that the district court,
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the common-interest exception to the attorney-client privilege
doctrine applied to the relationship between Lionbridge, Valley
Forge, and Kirkland. Where, as here, "the parties contest the
formulation of . . . the common-interest doctrine," and its
applicability to attorney-client privilege, our review of the
legal question is de novo. Cavallaro v. United States, 284 F.3d
236, 245 (1st Cir. 2002).
Before we begin, providing some legal context on the
common-interest doctrine would be helpful. The doctrine operates
as an exception to the general rule that attorney-client
communications are generally not discoverable by adverse parties
in litigation. See Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1,
17-18 (1st Cir. 2012). It "is typically understood to apply
'[w]hen two or more clients consult or retain an attorney on
particular matters of common interest.'" Cavallaro, 284 F.3d at249–50 (alteration in original) (quoting Weinstein's Fed.
Evid. § 503.15[3] (J.M. McLaughlin, ed., 2d ed. 2002)). In the
insurance context, we have explained that Massachusetts law
considers "an attorney retained by an insurer to represent the
after issuing its motion-to-compel ruling in favor of Valley Forge,
quickly stayed further discovery at the parties' request, pending
resolution of the cross-motions for summary judgment. Of note,
too, the district court did not rule on any of Lionbridge's
relevance objections nor tailor its ruling to certain categories
of documents that Valley Forge sought. More on that in a bit after
we walk through our legal analysis.
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insured as the attorney for both." Vicor Corp., 674 F.3d at 19
(citing Imperiali v. Pica, 156 N.E.2d 44, 47 (Mass. 1959)). We
have also noted that an insurer providing a defense pursuant to a
reservation of rights, like Valley Forge did here, does not defeat
a common-interest claim. Id.With that explainer out of the way, we move to
Lionbridge's primary contention regarding the common-interest
claim that it was never truly "aligned" with Valley Forge from the
start of the TPG litigation and therefore that doctrine should be
deemed inapplicable here. This argument simply cannot prevail
given our conclusion that Valley Forge had a duty to defend
Lionbridge, even if subsequent litigation arose between them. See
id. at 18-19. In other words, the possibility of Lionbridge's
exposure to an adverse judgment or settlement has satisfied us
that the policyholder and insurer are necessarily aligned, and we
see no reason to depart here from our reasoning in Vicor. Id.;
see also RFF Fam. P'ship, LP v. Burns & Levinson, LLP, No. CIV.A.
12-2234-BLS1, 2013 WL 7855976, at *4 (Mass. Super. Oct. 15, 2013)
(citing Vicor and explaining that common interest flows from the
potential risk of loss in underlying litigation, not from a dispute
over coverage such that "tripartite attorney-client relationship
is ordinarily still intact under Massachusetts law,
notwithstanding that there is an issue (coverage), outside the
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scope of the representation, on which the clients' interests
diverge").
As in Vicor, we stress that our conclusion applying the
common-interest doctrine to the relationship between Valley Forge
and Lionbridge does not "necessarily entitle[] [Valley Forge] to
the entire defense file." Vicor Corp., 674 F.3d at 20. For
example, Lionbridge raised relevance objections below, which
neither the magistrate judge nor the district court addressed. On
remand, the district court shall consider these objections and
tailor a discovery order, to the extent the parties cannot agree
on document production. See id.CONCLUSION
For all the reasons just discussed, we reverse the
district court's grant of summary judgment in favor of Valley Forge
and, on the duty to defend, direct entry of summary judgment in
favor of Lionbridge. On the reasonableness of the defense, we
remand for further proceedings consistent with this decision. We
further affirm the district court's grant of Valley Forge's motion
to compel and direct the district court to tailor a discovery order
subject to any viable objections Lionbridge may interpose. Each
side shall bear its own costs.
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