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State Farm Fire & Casualty Co. v. King Sports, Inc.

827 F. Supp. 2d 1364 (2011)

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State Farm Fire & Casualty Co. v. King Sports, Inc.

United States District Court for the Northern District of Georgia
827 F. Supp. 2d 1364 (2011)

Facts

King Sports, Inc. (defendant) advertised and sold golf clubs online. Jui-Chen Chang owned King Sports and had business-liability insurance through State Farm Fire & Casualty Company (plaintiff). In 2007, King Sports was sued by two separate branded entities, both alleging trademark infringement. State Farm defended King Sports against both lawsuits and settled the cases. In 2008, Cleveland Golf sent King Sports a letter demanding that King Sports stop selling allegedly infringing golf clubs. In that case, State Farm reserved its right not to defend or indemnify King Sports and requested that Chang call immediately to discuss the matter. Chang did not contact State Farm as requested, and King Sports continued to advertise and sell the alleged infringing clubs. After its letter to King Sports, Cleveland Golf sued King Sports and Chang for various intellectual-property-rights violations. State Farm retained Bruce Hedrick as defense counsel. Throughout the litigation, Hedrick reached out to Chang and King Sports through letters, text messages, emails, and phone calls to no avail. Hedrick only spoke with Andy Lee, an employee who informed Hedrick that he was only a messenger and had no authority to act in the matter. Lee eventually discontinued communication with Hedrick. Four months into the litigation, with no response from Chang and after State Farm had employed internal investigators and an agent to research and follow-up leads on Chang’s whereabouts, Hedrick was granted a motion to withdraw as counsel. However, after Hedrick’s withdrawal and without prior approval from State Farm, Lee settled with Cleveland Golf on King Sports’s behalf. State Farm filed suit in federal district court seeking declaratory judgment that it had no duty to defend nor indemnify King Sports against Cleveland Golf. Cleveland Golf joined the suit and counterclaimed that State Farm had acted in bad faith by refusing to further defend King Sports and honor the settlement in the underlying suit.

Rule of Law

Issue

Holding and Reasoning (Batten, J.)

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