Ralph v. Pipkin

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

February 17, 2005 Session

ROGER M. RALPH, ET AL. v. ROBERT R. PIPKIN, ET AL.

Direct Appeal from the Chancery Court for Lauderdale County

No. 12123 Martha B. Brasfield, Chancellor

No. W2004-0179-COA-R3-CV - Filed May 17, 2005

Plaintiffs in this action, Roger Ralph and Kem Ralph, were sued in federal court for patent

infringement and breach of contract. Their farmer’s liability insurance carrier, Grange Mutual,

denied coverage and refused to defend. Plaintiffs filed a complaint in the Lauderdale County

Chancery Court against Grange Mutual seeking a declaratory judgment, a judgment for breach of

contract, and specific performance. They also filed a complaint for professional negligence and

breach of contract against their insurance agent, Pipkin Insurance Agency/Mr. Robert Pipkin. The

trial court granted Grange Mutual’s motion to dismiss and awarded the Pipkin Insurance Agency/Mr.

Pipkin summary judgment. We affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed; and

Remanded

DAVID R. FARMER , J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,

and HOLLY M. KIRBY , J., joined.

James L. Robertson, Jackson, Mississippi and David M. Livingston, Brownsville, Tennessee, for the

appellants, Roger M. Ralph and Kem L. Ralph.

J. Kimbrough Johnson, Memphis, Tennessee, for the appellees, Robert R. Pipkin and Pipkin

Insurance Agency.

Gary R. Wilkinson and C. Michael Becker, Memphis, Tennessee, for the appellee, Grange Mutual

Casualty Company.

OPINION

This lawsuit arises from a claim brought by Monsanto Company (“Monsanto) against Roger

M. Ralph and Kem Ralph, d/b/a Ralph Brothers Farms (“the Ralphs”), for patent infringement and

breach of contract. The Ralphs are farmers and partners in Ralph Brothers Farms near Covington.

They have been farming together since 1977 and grow cotton, soybeans, and corn. In their

operations, they have routinely saved seed from their cotton and soybean crops and planted those

seeds in subsequent years.

In 1996, Monsanto began marketing seeds with certain herbicide and insect resistant “traits.”

Monsanto licensed these patented seeds to other seed companies. In 1998, the Ralphs purchased

seeds bearing the patented Monsanto traits and saved and cleaned the seed from their 1998 crop for

use in 1999 and 2000. In January 2000, Monsanto sued the Ralphs for patent infringement and

breach of contract, alleging the Ralphs “knowingly and intentionally used, saved, transferred, made,

sold and/or offered for sale” the patented seed (“the Monsanto action”).

The Ralphs gave timely notice of the Monsanto action to their commercial farmer’s liability

insurance carrier, Grange Mutual Casualty Company (“Grange Mutual”), and their insurance agent,

Robert R. Pipkin (Mr. Pipkin). Grange Mutual denied coverage on April 25, 2001, and refused to

defend the Ralphs against the Monsanto lawsuit. The Monsanto action went to trial in December

2002 in federal district court. Ultimately, Monsanto won a judgment for damages against the Ralphs.

Meanwhile, in September 2001, the Ralphs filed a complaint against Grange Mutual and the

Pipkin Insurance Agency (“Pipkin Insurance”) and Mr. Pipkin, who had sold them their liability

policy. The Ralphs sought a declaratory judgment, a judgment for breach of contract, and specific

performance. They asserted insurance coverage under the Grange Mutual policy under the property

damage liability coverage; personal injury coverage; and advertising liability coverage. The Ralphs

further asserted, in the alternative, a claim against Pipkin Insurance and Mr. Pipkin for breach of

contract, negligent failure to procure coverage, and professional liability in tort.

Grange Mutual filed a motion to dismiss for failure to state a cause on December 10, 2001

and Mr. Pipkin filed a motion for summary judgment on June 20, 2002. The trial court granted both

motions on May 14, 2004, and the Ralphs filed a timely notice of appeal to this Court. We affirm.

Issues Presented

The Ralphs have raised 12 issues for our review. However, we perceive the dispositive

issues to be:

(1) Whether the trial court erred in determining that Monsanto’s claims against

the Ralphs were not covered under the commercial farmers’ liability policy

issued by Grange Mutual and in dismissing the Ralphs’ action against Grange

Mutual.

(2) Whether the trial court erred by granting summary judgment to Robert Pipkin

and Pipkin Insurance on the Ralphs’ claim for professional negligence and

failure to provide insurance.

-2-

Dismissal of Action Against Grange Mutual

A Tennessee Rule of Civil Procedure 12.02(6) motion to dismiss for failure to state a claim

tests the legal sufficiency of the complaint itself. Cook v. Spinnakers of Rivergate, Inc., 878 S.W.2d

934, 938 (Tenn. 1994). The grounds for such a motion is that the allegations of the complaint, if

considered true, are not sufficient to constitute a cause of action as a matter of law. Id. A motion to

dismiss should be granted only if “it appears that the plaintiff can establish no facts supporting the

claim that would warrant relief.”1 Doe v. Sundquist, 2 S.W.3d 919, 922 (Tenn. 1999). We review

a trial court's award of a motion to dismiss de novo, with no presumption of correctness. Stein v.

Davidson Hotel Co., 945 S.W.2d 714, 716 (Tenn. 1997).

We begin our analysis of this issue by noting that the courts review an insurance policy under

contract principles. Certain Underwriter's at Lloyd's of London v. Transcarriers Inc., 107 S.W.3d

496, 499 (Tenn. Ct. App. 2002)(citations omitted). As long as the terms of a contract are

unambiguous, the contract will be enforced as written. Id. We generally will construe ambiguous

terms against the drafter. Id. However, the courts will not rewrite an unambiguous term simply to

avoid harsh results. Id. The interpretation of a contract is a matter of law which we review de novo,

with no presumption of correctness afforded to the trial court. Guiliano v. Cleo, Inc., 995 S.W.2d

88, 95 (Tenn. 1999).

In their 2001 complaint, the Ralphs asserted that, under the commercial farmers’ liability

insurance policy, Grange Mutual was required to defend them against the Monsanto action and to

insure them against any liability to Monsanto. The Ralphs prayed for a declaratory judgment that,

under the policy, Grange Mutual is legally obligated to pay them any sums that they may become

obligated to pay to Monsanto as damages. They further prayed for an award of specific performance

1

Under Rule 7.02(1) of the Tennessee Rules of Civil Procedure, a motion to dismiss must “state with

particularity the grounds therefor.” The party moving for dismissal must state the particular grounds for the motion in

the motion itself. Merely moving for dismissal based on the failure to state a claim and stating the grounds in an

accompanying memorandum does not fulfill the requirement. Willis v. Tennessee Dept. of Corr., 113 S.W .3d 706, 709

n.2 (Tenn. 2003). Additionally, under Tennessee Rule of Appellate Procedure 24(a), trial briefs and memoranda of law

are not part of the record on appeal. Id.

In Finchum v. Ace, USA, this Court stated that it would “sua sponte require proper procedures to be followed.”

Finchum v. Ace, USA, 156 S.W.3d 536, 538 n.2 (Tenn. Ct. App. 2004)(Susano, J., dissenting). In Finchum, we held that

the trial court should not have considered a motion to dismiss that failed to fulfill the requirements of Rule 7.02 and,

accordingly, vacated the trial court’s judgment and remanded the matter for further proceedings. Id. at 539.

In the case now before us, Grange Mutual’s motion to dismiss failed to state with particularity why the Ralphs’

cause of action should be dismissed for failure to state a claim. However, Grange Mutual fully addressed the grounds

in its brief to this Court, the trial court clearly stated the grounds for dismissal in its order, and the Ralphs have not raised

the deficiency of the motion to dismiss as an issue for our review. Additionally, we observe that in Willis, the Tennessee

Supreme Court considered the merits of the motion to dismiss notwithstanding the motion’s deficiency. In the interests

of judicial economy, therefore, we will follow the Willis court’s lead and address the merits of Grange Mutual’s motion

to dismiss.

W e emphasize, however, that a motion to dismiss that merely states that a party moves for dismissal under Rule

12.02 but fails to “state with particularity the grounds” supporting the motion is procedurally inadequate under our Rules

of Civil Procedure.

-3-

requiring Grange Mutual to defend them against the Monsanto action and to reimburse them for all

attorneys fees and expenses incurred by them to defend the action. The Ralphs also prayed for a

permanent injunction enjoining Grange Mutual from refusing to honor its obligations under the

policy as alleged, for prejudgment interest, and for punitive damages.

The issue before this Court is whether the insurance policy issued by Grange Mutual, read

in such a way as to construe any ambiguity against Grange Mutual, provides coverage where a third

party has brought an action for patent infringement and breach of contract. In their brief to this

Court, the Ralphs do not contend that the insurance policy protects them against liability for damage

to intangible intellectual property. Section IV of the policy, moreover, defines “property damage”

as “physical damage to tangible property, including all resulting loss of use of that property.”

(Emphasis added.) Rather, the Ralphs’ argument, as we understand it, is that Monsanto’s damages

result from the loss of use of tangible property (gene sequences or the “traits” contained in the seeds)

and are within the policy’s property damage liability coverages; that Monsanto’s damages result from

disparagement and are within the personal injury liability coverage; and that Monsanto’s damages

arise from infringement of Monsanto’s “title” in the seeds and are within the advertising liability

coverage.

We agree with the trial court that the contract of insurance does not obligate Grange Mutual

in this case. Although we find the Ralph’s arguments to be intriguing, as the trial court observed,

Monsanto did not bring an action against the Ralphs for property damage, disparagement, or

damages resulting from the Ralphs’ advertising, but for patent infringement and breach of contract.

We agree with the trial court that an action for patent infringement is not equivalent to an

action for damages to tangible property or for personal injury as defined by this contract of insurance.

The purpose of the patent laws is to “promote the Progress of Science and useful Arts.” U.S. Const.,

Art. I, § 8, cl. 8.; Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., Ltd., 535 U.S. 722, 730

(2002). To this end, a patent rewards innovation by giving the inventor a temporary monopoly.

Festo Corp., 535 U.S. at 730. This monopoly is a property right. Id. However, it is an intellectual

property right that protects an item from being copied until the monopoly right has expired. Dastar

Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 33 (2003). As this Court has noted,

intellectual property is part of “a species of intangible personal property . . . as opposed to tangible

personal property that can be seen, felt, weighed and measured.” Corporate Catering, Inc. v.

Corporate Catering, LLC, No. M1997-00230-COA-R3-CV, 2001 WL 266041, at *5 (Tenn. Ct. App.

Mar. 20, 2001) (no perm. app. filed). The law recognizes important differences between the two.

For example, in Tennessee, a civil action for conversion, the wrongful appropriation of tangible

property, is not recognized for the appropriation of intangible personal property. B & L Corp. v.

Thomas & Thorngren, Inc., 917 S.W.2d 674, 680 (Tenn. Ct. App. 1995).

Contrary to the Ralphs’ contention, the gravamen of the Monsanto action for patent

infringement was not predicated on physical damage to the seeds or the “traits.” Nor was the

Monsanto action one for personal injury. On the contrary, the “damage” to the physical, tangible

seeds evidence the occurrence and extent of the wrongful misappropriation of Monsanto’s

-4-

intellectual property right. The property actually damaged was Monsanto’s right to a monopoly over

its innovation under the patent. Although Monsanto’s intellectual property right could not have been

damaged without some physical interference with its patented innovation, Monsanto’s right to

damages does not arise from the loss of tangible property, but from the loss of its monopoly right.

The measure of the extent of that loss notwithstanding (e.g., technology fees), it is not damage to

tangible property for which it seeks compensation. This intellectual property right is an intangible

intellectual property not covered by the policy of insurance issued by Grange Mutual.

Likewise, the Monsanto action in not an action for personal injuries arising from

disparagement. The policy of insurance issued by Grange Mutual defines “personal injury” as

“injury, other than ‘bodily injury,’ arising out of one or more of the following offenses.” An offense

enumerated by the policy, which the Ralphs’ assert is applicable here is “[o]ral or written publication

of material that . . . disparages a person’s or organization’s goods, products or services[.]” We agree

with the trial court that patent infringement is not equivalent to personal injury arising from

disparagement.

Disparagement is defined as a statement which is intended to “be understood or which is

reasonably understood to cast doubt upon the existence or extent of another’s property in land,

chattels, or intangible things, or upon their quality.” Black’s Law Dictionary 422 (5th ed. 1979).

Disparagement of goods is defined as “[a] statement about a competitor’s goods which is untrue or

misleading and is made to influence or tends to influence the public not to buy.” Id. Disparagement

of title is “detraction from title . . . [i]njurious falsehood in which aspersion is cast on person’s title

to property.”

Certainly, actions may be maintained for disparagement of products. See, e.g., Bose Corp.

v. Consumers Union of U.S., Inc., 466 U.S. 485 (1984). Likewise, actions may be maintained for

disparagement and dilution of intellectual property such as trademarks. See, e.g., Moseley v. V Secret

Catalogue, Inc., 537 U.S. 418, 431 (2003). However, an action for patent infringement is not an

action for disparagement. See, e.g., U.S. Test, Inc. v. NDE Environmental Corp., 196 F.3d 1376,

1382 (Fed. Cir. 1999). Additionally, we note that the Monsanto action is not predicated on an “oral

or written publication of material that . . . disparages” that would be covered under the Grange

Mutual policy of insurance. Thus, the Ralphs’ argument must fail.

The Ralphs’ further contend that Monsanto’s damages arise from their infringement of

Monsanto’s “title” to the seeds and is covered by the advertising clause of the contract for insurance.

Federal courts construing policies with language identical to that of the advertising clause in this case

have noted that infringement of title unequivocally cannot be construed to mean patent infringement.

Id. at 1381.

As the U.S. Test court noted, the courts have uniformly held that this standard, identical

language in advertising clauses does not include coverage for patent infringement. Id. at 1380-81

(citing: See United Nat'l Ins. Co. v. SST Fitness Corp., 182 F.3d 447, 452 n. 2 (6th Cir.1999);

Herman Miller, Inc. v. Travelers Indem. Co., 162 F.3d 454, 455, 49 USPQ2d 1223, 1224 (6th

-5-

Cir.1998); Heil Co. v. Hartford Accident & Indem. Co., 937 F.Supp. 1355, 1365 (E.D.Wis.1996);

Owens-Brockway Glass Container v. International Ins. Co., 884 F.Supp. 363, 367 (E.D.Cal.1995);

Gencor Indus., Inc. v. Wausau Underwriters Ins. Co., 857 F.Supp. 1560, 1564, 32 USPQ2d 1296,

1298 (M.D.Fla.1994); St. Paul Fire & Marine Ins. Co. v. Advanced Interventional Sys., 824 F.Supp.

583, 586, 27 USPQ2d 1624, 1626 (E.D.Va.1993); Julian v. Liberty Mut. Ins. Co., 43 Conn.App. 281,

682 A.2d 611, 613-14 (Conn.App.1996) (following Owens-Brockway, Gencor, St. Paul ); Maxconn

Inc. v. Truck Ins. Exch., 74 Cal.App.4th 1267, 88 Cal.Rptr.2d 750, 756 (Cal.Ct.App.1999); Filenet

Corp. v. Chubb, 324 N.J.Super. 476, 735 A.2d 1203, 1215-16 (N.J.Super.Ct.Law Div.1997)). We

agree with these courts that it is apparent from the language of the policy that the parties did not

intend that patent infringement would be covered under the policy as an “advertising injury.”

Finally, we reject the Ralphs’ argument that Monsanto’s claim for relief could have been one

for “all damages suffered by Monsanto because of the property damage described above [damage

to tangible property (seeds and gene sequences)]; all damages suffered by Monsanto because of

personal injury as described above; and/or all damages suffered by Monsanto because of advertising

injury as described above[.]” This is not, contrary to the Ralphs’ contention otherwise, a question

of mere semantics. Absent its patent, Monsanto simply would have had no cause of action against

the Ralphs. The damages to Monsanto resulting from the Ralphs infringement of its patent are not

covered by the commercial farmers’ liability policy issued by Grange Mutual. Accordingly, we

affirm judgment of the trial court granting Grange Mutual’s motion to dismiss.

Award of Summary Judgment to Pipkin

Summary judgment is appropriate only when the moving party can demonstrate that there

are no disputed issues of material fact, and that it is entitled to judgment as a matter of law. Tenn.

R. Civ. P. 56.04; Byrd v. Hall, 847 S.W.2d 208, 214 (Tenn. 1993). The party moving for summary

judgment must affirmatively negate an essential element of the nonmoving party's claim, or

conclusively establish an affirmative defense. McCarley v. West Quality Food Serv., 960 S.W.2d

585, 588 (Tenn. 1998).

When a party makes a properly supported motion for summary judgment, the burden shifts

to the nonmoving party to establish the existence of disputed material facts. Id. A mere assertion

that the nonmoving party has no evidence does not suffice to entitle the moving party to summary

judgment. Id. In determining whether to award summary judgment, the trial court must view the

evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in

that party's favor. Staples v. CBL & Assocs., 15 S.W.3d 83, 89 (Tenn. 2000). The court should

award summary judgment only when a reasonable person could reach only one conclusion based on

the facts and the inferences drawn from those facts. Id. Summary judgment is not appropriate if

there is any doubt about whether a genuine issue of material fact exists. McCarley, 960 S.W.2d at

588. We review an award of summary judgment de novo, with no presumption of correctness. Guy

v. Mut. of Omaha Ins. Co., 79 S.W.3d 528, 534 (Tenn.2002).

-6-

In this case, the Ralphs’ argument, as we understand it, is that, in the alternative, if the policy

issued by Grange Mutual does not obligate Grange Mutual to defend and indemnify the Ralphs

against the Monsanto action, then Mr. Pipkin negligently failed to procure coverage that would cover

them “one hundred percent” as promised by Mr. Pipkin. We begin our analysis by noting that the

Ralphs do not contend that the Grange Mutual policy is not a standard commercial farmers’ liability

policy. Likewise, the Ralphs do not assert that they specifically requested insurance against claims

of patent infringement. Rather, they submit they requested coverage against all foreseeable risks;

that by 1996 the risk of an action for patent infringement arising from the increased use by area

farmers of seed containing patented technologies was known and foreseeable by Mr. Pipkin, who

held himself out to be experienced and knowledgeable in the industry; and that Mr. Pipkin

negligently failed to provide the “100%” coverage against all foreseeable risks.

Mr. Pipkin, in response, asserts that insurance coverage is not available and cannot be

procured from insurance companies for breach of contract, patent infringement, intentional acts, and

fraud. He asserts the Ralphs sought and received a standard commercial farmers’ liability policy;

that they first obtained the policy in 1996 and renewed the same policy from 1997-2000; and that he

cannot be held liable for the Ralphs’ failure to read and understand the policy. In the alternative, Mr.

Pipkin asserts that, under Tennessee Code Annotated § 56-6-115(b), if he was negligent in failing

to procure the coverage sought by the Ralphs, Grange Mutual, as the insurance agent’s principal, is

liable for any negligence.

We begin our analysis by noting that this case is not about the negligence of an insurance

agent to maintain an existing policy or to procure a coverage requested by an insured. The Ralphs

do not dispute that Mr. Pipkin procured a standard commercial farmers’ liability policy or that he

maintained the policy. Rather, in this case, the Ralphs assert that they did not understand what kind

of coverage they had purchased, or the extent of coverage they might need. Roger Ralph stated in

his affidavit the he had

never understood that it was the insurance customer’s responsibility to know of all

the risks to which he is exposed . . . I know that other people and their lawyers will

sue you over a lot of different things, and I know I can’t keep up with all of these and

I certainly can’t figure out all of these in advance. I have lived long enough to know

that the things that other people can sue you over keep changing.

In essence, the Ralphs assert that they relied on Mr. Pipkin to procure coverage against any civil

action.

This Court has noted that “it is a universal general rule that an agent or broker of insurance

who, with a view to compensation for his services, undertakes to procure insurance for another, and

unjustifiably and through his fault or neglect, fails to do so, will be held liable for any damage

resulting therefrom.” Massengale v. Hicks, 639 S.W.2d 659, 660 (Tenn. Ct. App. 1982). The

Tennessee Code, moreover, provides that an insurance agent who solicits or negotiates an application

for insurance shall be regarded as the agent of the insurer. Tenn. Code Ann. § 56-6-115(b)(2004

-7-

Supp.). This statute has been liberally construed in favor of the insured, moreover, in order to

“prevent the insurance company from denying responsibility for representations and actions from

the agent from whom applications are voluntarily accepted and to protect an applicant who relies on

such representations or actions.” Bill Brown Const. v. Glens Falls Ins., 818 S.W.2d 1, 4 (Tenn.

1991) (quoting 15 Tenn. Jurisprudence, Insurance, § 9 at 180-81(1984); quoting Industrial Life &

Health Ins. Co. v. Trinkle, 30 Tenn. App. 243, 204 S.W.2d 827 (1947)).

In Brown Construction, the Tennessee Supreme Court held that insurance companies do not

have “immunity from legal liability for express commitments” made by their agents. Id. at 13. It

also analogized a contract of insurance to a good under the law of sales and quoted Vulcan Life and

Accident Insurance Company v. Segars, 391 S.W.2d 393, 397-98 (Tenn. 1965), for the proposition

that, like a vender supplying an article which he knows is to be used for a specific purpose, the

insurance agent impliedly warrants that the contract of insurance is suitable for that for which it is

purposed. Id. at 11-12.

However, the courts of this state have repeatedly noted that the value of all contracts would

be destroyed if, in the absence of fraud, a party was permitted to admit that he signed a contract but

did not read it or know its stipulations. Beasley v. Metropolitan Life Ins. Co., 229 S.W.2d 146, 148

(Tenn. 1950)(citing with approval, 17 C.J.S., Contracts, § 137). In this case, Mr. Pipkin provided

a standard commercial farmers’ liability policy. The Ralphs do not allege that Mr. Pipkin

misrepresented the coverages of the policy or that he failed to procure coverages requested. They

argue only that did not know whether the Grange Mutual policy protected them against liability for

patent infringement, but that it should have. They assert Mr. Pipkin was negligent in failing to

provide such coverage because it was foreseeable that farmers such as themselves would have been

exposed to claims of patent infringement arising from the saving of seed.

Foreseeability is an essential element of duty. Biscan v. Brown, No. M2001-02766-SC-R11-

CV, --- S.W.3d ----, 2005 WL 712461, at *15 (Tenn. 2005). In this case, we find it unnecessary to

address Mr. Pipkin’s assertion that insurance against patent infringement and the actions alleged by

Monsanto in its complaint against the Ralphs is not available because it cannot reasonably be argued

that the Monsanto claim against the Ralphs was foreseeable at the time the policy was issued in 1996

or when it was renewed in 1998. The Ralphs actions giving rise to Monsanto’s cause of action for

patent infringement occurred in 1998. The Ralphs assert that, beginning in 1996, Monsanto

introduced and began the commercial sale of its genetically modified, patented seed. They further

submit in their brief to this Court that saving seed produced in one crop year for use in subsequent

years was “routine” among farmers and that Monsanto “has moved heaven and earth to change all

of this” beginning in 1996. They assert that although Monsanto started suing farmers for saving and

replanting the seed, they “did not know this until much later.” Thus, it simply was not foreseeable

in 1996 or 1998 that farmers’ liability policies provided less than full coverage against foreseeable

risks when they did not provide coverage against patent infringement of the type alleged in the

Monsanto complaint. Accordingly, we affirm summary judgment for Mr. Pipkin and the Pipkin

Insurance Agency.

-8-

Holding

In light of the foregoing, the judgment of the trial court is affirmed. Costs of this appeal are

taxed to the Appellants, Roger M. Ralph and Kem L. Ralph d/b/a Ralph Brothers Farms, and to their

surety, for which execution may issue if necessary.

___________________________________

DAVID R. FARMER, JUDGE

-9-