The text of the PDF JK has provided - IDCC vs Federal
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
INTERDIGITAL COMMUNICATIONS :
CORPORATION : Civil Action No._______
781 Third Avenue :
King of Prussia, PA 19406-1409 : JURY TRIAL DEMANDED
:
and :
:
INTERDIGITAL TECHNOLOGY :
CORPORATION :
300 Delaware Avenue, Suite 527 :
Wilmington, DE 19081, :
:
Plaintiffs, :
:
v. ::
FEDERAL INSURANCE COMPANY :
15 Mountain View Road :
P.O. Box 1615 :
Warren, NJ 07059 :
:
Defendant. :
COMPLAINT
Plaintiffs, InterDigital Communications Corporation and InterDigital
Technology Corporation by way of complaint, set forth the following allegations against
defendant Federal Insurance Company ("Federal"):
1. This is an action for declaratory relief, and for breach of contract
arising out of, inter alia, 1) Federal's refusal to reimburse its insured fully, as required by
Federal's insurance policy, for attorneys' fees in the defense of litigation between
Ericsson Radio Systems, Inc. and Ericsson GE Mobile Communications, Inc., now
known as Ericsson Inc. ("Ericsson") and InterDigital Communications Corporation and
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InterDigital Technology Corporation ("the Ericsson litigation") and 2) a purported
agreement between Federal and InterDigital Communications Corporation and
InterDigital Technology Corporation, drastically reducing the defense obligation of
Federal under its insurance policy, an agreement which plaintiffs believe as a matter of
law is void for lack of consideration.
PARTIES
2. Plaintiff InterDigital Communications Corporation is a Pennsylvania
corporation with its principal place of business located at 781 Third Avenue in King of
Prussia, Pennsylvania.
3. Plaintiff InterDigital Technology Corporation is a Delaware
Corporation with its principal place of business located at 300 Delaware Avenue in
Wilmington, Delaware.
4. InterDigital Technology Corporation is a wholly owned subsidiary of
InterDigital Communications Corporation.
5. InterDigital Technology Corporation and InterDigital Communications
Corporation were parties to the Ericsson litigation and to the purported agreement with
Federal which drastically reduced the defense obligation of Federal under its insurance
policy. (InterDigital Technology Corporation and InterDigital Communications
Corporation will hereinafter be collectively referred to as "InterDigital").
6. Upon information and belief, defendant Federal is a company
organized and existing under the laws of Indiana, with its place of business in Warren,
New Jersey.
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JURISDICTION AND VENUE
7. This court has jurisdiction over this action pursuant to 28 U.S.C. §
1332, because (1) plaintiffs and defendant are citizens of different states and (2) the
amount in controversy exceeds the sum of $75,000, exclusive of interest and costs.
8. This action for declaratory relief is authorized pursuant to 28 U.S.C.
§§ 2201 and 2202. As is shown below, an actual immediate and justiciable controversy
exists between the parties regarding (1) Federal's refusal to reimburse InterDigital fully
for InterDigital's attorneys' fees in the defense of its insured in the Ericsson litigation and
(2) the validity of a purported contract denominated "Litigation Expense and
Reimbursement Agreement" between Federal and InterDigital, which InterDigital
believes is void for lack of consideration.
Venue is proper in this court pursuant to 28 U.S.C. § 1391(a), because a substantial part
of the events and omissions giving rise to this claim, took place in this judicial district.
INSURANCE POLICY AT ISSUE
9. In consideration for the premiums paid, Federal issued to InterDigital a
Commercial General Liability Policy, insurance policy number 3529-74-28 for the policy
period from February 1, 1990 through December 22, 1990 (the "Policy"). The Policy
was renewed annually through December 22, 1993. A true and correct copy of the Policy
is attached as Exhibit A.
10. InterDigital is a named insured under the Policy.
11. The Policy affords coverage for, inter alia, "damages the insured
becomes legally obligated to pay by reason of liability imposed by law or assumed under
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an insured contract because of bodily injury or property damage caused by an occurrence;
or personal injury or advertising injury . . . ."
12. Pursuant to the Policy, Federal was obligated to defend InterDigital
with respect to any claim or suit against InterDigital seeking, inter alia, damages for
personal injury. Specifically the Policy provides that Federal will "pay in addition to the
applicable limit of insurance the defense expense."
13. Under the Policy the term, defense expense means, "payments
allocated to a specific claim or suit for its investigation, settlement, or defense, including:
(1) attorney fees and all other litigation expenses . . . ." (emphasis added).
14. The Policy does not provide that reasonable attorney fees incurred by
InterDigital as a covered defense expense may be arbitrarily limited by Federal.
15. InterDigital paid Federal substantial premiums with the reasonable
expectation that pursuant to the Policy, Federal would pay InterDigital's defense expenses
when a claim or suit was brought against it seeking damages for personal injury.
THE UNDERLYING LITIGATION
16. On or about September 9, 1993, Ericsson filed a six count complaint
against InterDigital in the United States District Court for the Northern District of Texas,
Ericsson Radio Systems, Inc. et. al. v. InterDigital Communications Corporation, et. al.,
Civil Action No. 3:93 CV 1809-H. A copy of the Complaint is attached hereto as Exhibit
B.
17. In its complaint Ericsson alleged that it was developing and making,
using or selling products which were in compliance with the Industry Standard known as
IS-54. Ericsson further alleged that "since at least 1990, defendant IDC has charged in
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press releases, in Annual Reports, in filings with the Securities and Exchange
Commission, and in face-to-face meetings with plaintiffs that all digital cellular systems
marketed in compliance with IS-54 (including those of plaintiffs and each other major
supplier of cellular systems in the United States) infringe some or all of the IDC Patents,
and has stated its clear intention to enforce the IDC Patents against plaintiffs and the
other suppliers." See Exhibit B at ¶ 16.
18. The Ericsson complaint sought declaratory and monetary relief based
upon several causes of action at least one of which alleged defamation and commercial
disparagement that constituted an advertising injury under the Policy.
19. In the Ericsson litigation InterDigital made claims against Ericsson
alleging inter alia patent infringement. The defamation and commercial disparagement
claim as well as all other claims and counterclaims in the Ericsson litigation involved the
same threshold legal issue, the validity of InterDigital's telephony patents.
FEDERAL ACKNOWLEDGES AND ACCEPTS ITS OBLIGATION TO DEFEND
ALL COUNTS IN THE COMPLAINT AND ACKNOWLEDGES THAT IT HAD
NO RIGHT TO REIMBURSEMENT OF ATTORNEYS' FEES AND
LITIGATION EXPENSES
20. On or about September 23, 1993, InterDigital notified Federal of the
Ericsson suit and requested that, pursuant to the Policy, Federal reimburse InterDigital for
its attorneys' fees and litigation expenses.
21. On or about November 23, 1993 Federal wrote a letter to InterDigital
acknowledging and accepting its obligation under the Policy to provide InterDigital with
a defense as to all Counts in the Ericsson complaint. A true and correct copy of Federal's
November 23, 1993 Letter is attached hereto as Exhibit C.
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22. Specifically, Federal's November 23, 1993 letter stated "after a careful
review of the policy and the allegations as set forth in the Complaint, defense coverage as
to all counts in the Complaint will be provided," because there was coverage for
Ericsson's "claim for defamation and commercial disparagement." Federal has never
denied and has never had any basis to deny coverage for Ericsson's "claim for defamation
and commercial disparagement." See Exhibit C.
23. Moreover, in a letter dated February 17, 1995 Federal explicitly
acknowledged it had no right to "reimbursement of attorneys' fees and defense expenses
paid in the event that there is no potential claim for coverage in the underlying action." A
true and correct copy of Federal's February 17, 1995 Letter is attached hereto as Exhibit
D.
WITHOUT ANY JUSTIFICATION FEDERAL ARBITRARILY LIMITS THE
HOURLY RATE OF ATTORNEYS' FEES IT WILL REIMBURSE
24. Consistent with its acknowledged obligation under the Policy Federal
began to reimburse InterDigital for its attorneys' fees and expenses.
25. However, from commencement of coverage, without any justification,
Federal announced to InterDigital that it was limiting its reimbursement of attorneys' fees
to $240 per hour, although InterDigital's counsel regularly and reasonably charged up to
$435 per hour.
26. There is no provision in the Policy that provides for any limitation on
attorneys' fees. Nevertheless, Federal refused to reimburse InterDigital for attorneys' fees
above $240 per hour.
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27. Fearing that Federal would cease payment for its defense, InterDigital
did not challenge Federal's unilateral and arbitrary decision that the maximum billing rate
for attorneys' fees which would be reimbursed by Federal would be $240 per hour.
28. Further, in February 2000, Federal included a term in the
Reimbursement Agreement lowering the maximum rate for attorneys' fees to be
reimbursed by Federal from $240 per hour to $200 per hour for services performed after
April 1, 1999.
29. Because Federal refused to reimburse InterDigital for attorneys' fees
above $240 before April 1, 1999 and $200 per hour after April 1,1999, InterDigital was
forced to pay out of its own pocket in excess of $5 million to defend the Ericsson
litigation, fees that should have been paid by Federal under the terms of its policy.
FEDERAL CLAIMS IT IS ENTITLED TO SEEK REIMBURSEMENT OF
ATTORNEYS' FEES AND LITIGATION EXPENSES ASSOCIATED WITH
UNCOVERED CLAIMS DESPITE THE FACT THAT APPLICABLE LAW
CLEARLY PREVENTED FEDERAL FROM OBTAINING SUCH
REIMBURSMENTS AND THAT FEDERAL EXPLICITLY ACKNOWLEDGED
IT HAD NO RIGHT TO SUCH REIMBURSEMENTS
30. As the Ericsson litigation progressed, although there was no limit of
defense expenses in the Federal policy, Federal began to complain to InterDigital about
the amount of attorneys' fees and litigation costs it was expending in defense of the
Ericsson litigation.
31. Contrary to applicable law and contrary to its prior explicit
acknowledgement that it was not entitled to seek reimbursement of attorneys' fees and
litigation expenses from InterDigital, Federal threatened that it would seek
reimbursement of attorneys' fees and litigation expenses associated with the defense of all
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claims in the Ericsson litigation that did not fall within InterDigital's insurance coverage
for advertising injuries.
32. Further, also contrary to applicable law, Federal threatened that it
would seek to obtain reimbursement of all attorneys' fees and litigation expenses it
incurred in defending the uncovered claims before InterDigital received any settlement
proceeds or award from the Ericsson litigation.
33. Federal made these threats despite the fact that the law in
Pennsylvania, where InterDigital's insurance policy was negotiated and issued, does not
give an insurer the right to claim reimbursement of attorneys' fees and litigation expenses
incurred in defending uncovered claims which are joined to at least one insured claim in a
single integrated litigation.
34. Moreover, prior to its claim for reimbursement, Federal was a party to
a Middle District of Pennsylvania case involving another insured, which explicitly stated
that Federal was not entitled to reimbursement of defense costs for uncovered claims
which were joined to covered claims in a single action. Thus, Federal’s threats to
InterDigital concerning reimbursement of defense costs for uncovered claims were made
with the knowledge that such threats were contrary to Pennsylvania law.
35. Additionally the law in Texas, where the Ericsson litigation was
pending, also clearly prohibits an insurer from obtaining reimbursement of attorneys' fees
and litigation expenses incurred in defending uncovered claims which are joined to at
least one insured claim a single litigation.
36. Fearing that Federal would cease payment for its defense and based
on Federal's misrepresentation respecting its ability to obtain reimbursement of attorneys'
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fees and expenses, on or about February 9, 2000, InterDigital entered into the
Reimbursement Agreement with Federal. A true and correct copy of which is attached as
Exhibit E.
THE REIMBURSEMENT AGREEMENT
37. Pursuant to the Reimbursement Agreement Federal stated that it
would: "continue to reimburse the Insureds for Attorney time in the same manner as
Federal has been doing consistent with the terms of this Agreement. The maximum rate
for attorney time to be reimbursed by Federal will be at the actual hourly rate up to a
maximum of $200 per hour for services performed April 1, 1999 and thereafter." Federal
also stated that it would "continue to reimburse the Insureds for non-attorney litigation
related expenses . . . in the same manner as Federal has been doing to date." See
Reimbursement Agreement at ¶¶ 2,3 (emphasis added).
38. The Reimbursement Agreement states that "the consideration for this
Agreement is the reciprocal trade off, and/or compromise, of their [InterDigital and
Federal's] respective rights which have been reserved and/or asserted with regard to
funding, allocation, apportionment and reimbursement of litigation expenses with regard
to the Combined Lawsuits [the Ericsson litigation] and, further, the certainty that is
derived from such agreement."
39. However, under the Reimbursement Agreement Federal did not give
up or compromise any of its rights with regard to funding, allocation, apportionment and
reimbursement of litigation expenses, and InterDigital did not receive any benefit in this
regard. Rather, under the Reimbursement Agreement Federal only promised to do a part
of what it had a pre-existing legal duty to do pursuant to the Policy: continue to provide
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InterDigital with a defense in the Ericsson litigation. As a matter of law, Federal's
promise to continue to fulfill part of that duty does not constitute legal consideration.
40. Moreover, as a matter of law, Federal's relinquishment of a claim to
reimbursement of attorneys' fees and litigation expenses associated with the uncovered
claims in the Ericsson litigation does not constitute legal consideration because such a
claim is invalid under applicable law.
41. Pursuant to the Reimbursement Agreement, in exchange for Federal's
continuing to honor part of its pre-existing obligations under the Policy by paying only a
portion of InterDigital's defense expenses in the Ericsson litigation, InterDigital was
required to reimburse Federal's defense costs (even defense costs paid by Federal before
the Reimbursement Agreement) by paying Federal 9% of the first $50 million of the
"agreed-upon settlement" and 10% of everything above $50 million of the "agreed-upon
settlement for the patent claims" if Ericsson made any settlement payment to InterDigital.
See Exhibit E at ¶ 6(a).
42. Moreover, Paragraph 6(c)(ii) of the Reimbursement Agreement
provides that if Federal does not believe it will be fully reimbursed within four years
from the date of the settlement, in exchange for continuing to honor part of its preexisting
obligation under the policy, it can seek additional reimbursement from
InterDigital based upon "the additional value to the Insured [InterDigital] and its affiliates
of the settlement (beyond the cash payments related to the Patents and Claims in Suit and
for engineering services).” See Exhibit E at ¶6(c)(ii).
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FEDERAL DEMANDS FULL REIMBURSEMENT OF THE DEFENSE
EXPENSES
43. After the Ericsson litigation settled, Federal, in a letter dated May 21,
2003, invoked section 6(c)(ii) of the Reimbursement Agreement and demanded full
reimbursement of the $27,886,576.64 it claims it paid as partial reimbursement to
InterDigital for its litigation expenses to defend the Ericsson litigation.
44. InterDigital denies that it is obligated to reimburse Federal because,
among other reasons, it believes that as a matter of law the Reimbursement Agreement is
unenforceable for lack of consideration.
45. On October 30, 2003 solely pursuant to a provision of the
Reimbursement Agreement, Federal formally demanded arbitration of its claim for
reimbursement of the $27,886,576.64 it claims it paid for litigation expenses to defend
the Ericsson litigation.
COUNT I
DECLARATORY RELIEF
46. InterDigital incorporates the averments set forth in paragraphs 1
through 45 herein by this reference.
47. InterDigital paid Federal substantial premiums to secure insurance
coverage under the Policy.
48. Pursuant to the Policy, Federal was obligated to pay all attorneys' fees
and defense expenses with respect to any claim or suit against InterDigital seeking, inter
alia, damages for personal injury.
49. Ericsson brought a suit against InterDigital seeking damages for
personal injury by way of a claim for defamation and commercial disparagement.
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50. In a letter dated November 23, 1993 Federal acknowledged and
accepted its obligation to provide InterDigital with a defense as to all Counts of the
Ericsson complaint.
51. As a matter of law, Federal's obligation to provide InterDigital with a
defense as to all Counts in the Ericsson litigation does not cease until there is no
possibility for recovery on any covered claims.
52. Under the Reimbursement Agreement, Federal only promised to do a
part of what it had a pre-existing legal duty to do pursuant to the Policy: continue to
provide InterDigital with a defense in the Ericsson litigation through appeal to final
conclusion. As a matter of law, Federal's promise to continue to fulfill part of that duty
does not constitute legal consideration.
53. Moreover, as a matter of law, Federal's relinquishment of a claim to
reimbursement of attorneys' fees and litigation expenses associated with uncovered
claims does not constitute legal consideration because such a claim is invalid under
applicable law.
54. Nonetheless, Federal has demanded full reimbursement of the
$27,886,576.64 it paid in litigation expenses to defend the Ericsson litigation.
55. InterDigital has already reimbursed Federal approximately $157,000.
In fact the amount of money reimbursed to Federal under the Reimbursement Agreement
should have been significantly less due to limitations within the Reimbursement
Agreement. Therefore, even if the Reimbursement Agreement was a valid, enforceable
agreement, which it is not, InterDigital is entitled to a refund from Federal.
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56. An actual, immediate and justiciable controversy exists between
Federal and InterDigital concerning whether InterDigital is obligated to reimburse
Federal for the monies Federal paid to defend the Ericsson litigation.
57. InterDigital is in need of the Court's assistance in resolving the parties'
differences concerning whether the Reimbursement Agreement is an enforceable
contract.
58. InterDigital now seeks an affirmative declaration that InterDigital is
not obligated to reimburse Federal for the monies Federal paid to defend the Ericsson
litigation because the Reimbursement Agreement lacks consideration. In the alternative,
if this Court finds that the Reimbursement Agreement is valid and enforceable,
InterDigital seeks a declaration that: (1) Federal is entitled to reimbursement based only
on those portions of the amounts received by InterDigital under the settlement of the
Ericsson litigation relating to patents at issue in the Ericsson litigation and excluding any
royalty payments made to InterDigital by Ericsson LM or any other entities that were not
parties to the Ericsson litigation; and (2) InterDigital is entitled to a refund of its over
payments to Federal.
WHEREFORE, plaintiff InterDigital demands that judgment be entered in
its favor and against Federal declaring that InterDigital is not obligated to reimburse
Federal for any of the attorneys' fees or defense expenses it paid to defend the Ericsson
litigation, together with such other relief as the Court deems just and appropriate. In the
alternative, if this Court finds that the Reimbursement Agreement is valid and
enforceable, InterDigital seeks a declaration that: (1) Federal is entitled to
reimbursement based only on those portions of the amounts received by InterDigital
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under the settlement of the Ericsson litigation relating to patents at issue in the Ericsson
litigation and excluding any royalty payments made to IDC by Ericsson LM or any other
entities that were not parties to the Ericsson litigation; and (2) InterDigital is entitled to a
refund of its over payments to Federal.
COUNT II
BREACH OF CONTRACT
59. InterDigital incorporates the averments set forth in paragraphs 1
through 58 herein by this reference.
60. Under the terms of the Policy, Federal's obligation to pay
InterDigital's defense expenses is clear.
61. The Policy does not provide that attorney fees and other litigation
expenses may be limited in any manner by the insurer.
62. Federal's unjustified refusal to reimburse InterDigital for attorneys'
fees above $240 during one period and above $200 per hour during another period is a
breach of contract.
63. As a result of Federal's breach of contract InterDigital was forced to
pay a large portion of its total defense costs in the Ericsson litigation.
64. InterDigital has paid Federal, under the Reimbursement Agreement,
approximately $157,000, an amount which should be refunded to InterDigital in its
entirety.
65. InterDigital paid Federal substantial premiums with the reasonable
expectation that pursuant to the Policy, Federal would pay InterDigital's defense
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expenses, without limitation, when a claim or suit was brought against it seeking
damages for personal injury.
66. Federal's breach of contract has caused InterDigital damages in excess
of $75,000.
WHEREFORE, plaintiff InterDigital demands that judgment be entered in its
favor and against Federal for compensatory damages in an amount in excess of $75,000
plus interest and attorneys' fees, together with such other relief as the Court deems just
and appropriate.
COUNT III
BAD FAITH PURSUANT TO 42 PA. C.S.A. §8371
67. InterDigital incorporates the averments set forth in paragraphs 1
through 65 herein by this reference.
68. The bad faith claim against Federal as set forth herein subjects Federal
to special damages as provided under 42 Pa. C.S.A. § 8371.
69. InterDigital has been injured by Federal's refusal to reimburse
InterDigital fully, as required by Federal's insurance policy, for InterDigital's attorneys'
fees in the defense of the Ericsson litigation and Federal's improper suggestions that it
might stop payment unilaterally of attorneys' fees and expenses to defend the Ericsson
litigation and would seek reimbursement of attorneys' fees and expenses associated with
its defense of the uncovered claims in the Ericsson litigation, all without any good faith
basis for doing so.
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70. Federal's bad faith constitutes a violation of 42 Pa. C.S.A. § 8371, and
otherwise entitles InterDigital to recover special damages, including punitive damages,
interest, attorneys' fees and costs.
WHEREFORE, plaintiff InterDigital demands that judgment be entered in
its favor and against Federal for compensatory damages together with punitive and
exemplary damages in an amount in excess of $75,000 plus interest and attorneys' fees,
together with such other relief as the Court deems just and appropriate.
______________________
Stephen J. Mathes
Tammi Markowitz
HOYLE, FICKLER, HERSCHEL
& MATHES LLP
One South Broad Street - Suite 1500
Philadelphia, PA 19107
(215) 981-5700
Attorneys for InterDigital
Dated: November 4, 2003 Communications Corporation
and InterDigital Technology Corporation
AI
