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May 24, 1990


The opinion of the court was delivered by: Leisure, District Judge.

  This is a diversity action involving the extent, if any, of
the liability of defendant Aetna Casualty and Surety Company
("Aetna") to plaintiff Ethicon, Inc. ("Ethicon"), under
insurance policies issued by Aetna. Ethicon seeks
indemnification for moneys paid in satisfaction of an
$18,900,000 judgment rendered against it in an antitrust
action entitled Handgards, Inc. v. Ethicon, Inc., 552 F. Supp. 820
 (N.D.Cal. 1982), aff'd, 743 F.2d 1282 (9th Cir. 1984),
cert. denied, 469 U.S. 1190, 105 S.Ct. 963, 83 L.Ed.2d 968
(1985). Aetna denies that the amount at issue is covered by the
applicable policies and refuses to indemnify Ethicon. The
parties are now before the Court on plaintiff's motion for
partial summary judgment pursuant to Fed.R.Civ.P. 56. Plaintiff
asserts that it should be indemnified for the judgment in the
Handgards action, and that indemnification should be had on the
1967 policies between the parties, as well as the 1961 policy.
For the reasons stated below, plaintiff's motion for partial
summary judgment is granted in part.


Plaintiff Ethicon is a wholly-owned subsidiary of Johnson & Johnson. Ethicon manufactures, sells and distributes hospital and surgical supplies, including, until 1969, disposable plastic gloves adhered to paper, which were manufactured and distributed by its Arbrook division. In 1969, Arbrook became a subsidiary of Johnson & Johnson, separate from Ethicon. It is Arbrook's product, the disposable plastic glove adhered to paper, that is the underlying subject of the instant litigation.

In 1957, the Scott Company ("Scott"), located in Omaha, Nebraska, began manufacturing and selling disposable plastic gloves. One of Scott's founders, Joseph C. Gerard ("Gerard"), applied for a patent for the process used by Scott to manufacture the disposable plastic gloves on June 2, 1958. In 1961, Ethicon acquired the assets of Scott, including Gerard's patent rights. On April 3, 1962, Ethicon received patent No. 3,028,576 on Gerard's application, entitled "Method and Apparatus for Making Thin Plastic Gloves." In 1957, Rene Orsini ("Orsini") filed a patent application for a manufacturing process essentially similar to that contained in the Gerard application. In 1961, upon learning of this potential interference to the issuance of the Gerard patent, Ethicon purchased Orsini's U.S. patent rights. Patent No. 3,153,481 was issued to Ethicon on October 24, 1964 on Orsini's application.

In October 1962, a few months after the issuance of the Gerard patent, Ethicon instituted patent infringement actions against two other manufacturers of disposable plastic gloves. On October 30, 1962, Ethicon filed an action in Delaware against Plasticsmith, Inc. ("Plasticsmith"), and on October 31, 1962, it filed suit in Nebraska against Mercury Manufacturing Company ("Mercury"). The suit against Plasticsmith was transferred by motion of the defendant to the Northern District of California, and was consolidated on consent with the suit against Mercury, which was also transferred to California. In 1964, after issuance of the Orsini patent, Ethicon amended its complaint against Mercury and Plasticsmith to add a cause of action for infringement of the Orsini patent. In 1966, Plasticsmith and Mercury merged into a successor corporation known as Handgards, Inc. ("Handgards"). Ethicon's action continued thereafter as Ethicon, Inc. v. Handgards, Inc.

In 1968, Ethicon's action came to trial in the Northern District of California. On the second day of trial, Ethicon voluntarily dismissed its claims based on the Orsini patent. The action went forward on Ethicon's claims regarding infringement of the Gerard patent. On April 25, 1968, the District Court entered judgment for Handgards. In its findings of fact and conclusions of law, the Court found the Gerard patent to be invalid due to the prior public use by Plasticsmith's founder Lyle Shabram of the process covered by the Gerard patent. The decision of the District Court was affirmed. Ethicon, Inc. v. Handgards, Inc., 432 F.2d 438 (9th Cir. 1970), cert. denied, 402 U.S. 929, 91 S.Ct. 1525, 28 L.Ed.2d 863, reh'g denied, 403 U.S. 912, 91 S.Ct. 2204, 29 L.Ed.2d 690 (1971).*fn2

On January 24, 1967, while the patent action against Handgards was still pending, Ethicon filed an action in Chicago against T. Hamil Reidy ("Reidy") for allegedly infringing the Gerard patent. Reidy had been the chief executive officer of Handgards' predecessor corporations.*fn3 That action was also transferred to the Northern District of California. On March 18, 1968, the Court dismissed the Reidy action without prejudice.

In June 1968, following its successful defense of the patent action, Handgards filed a complaint against Ethicon and Johnson & Johnson (hereinafter sometimes referred to as "the defendants") alleging that the defendants had violated sections 1 and 2 of the Sherman Anti-Trust Act, 15 U.S.C. § 1, 2.*fn4 In particular, Handgards alleged that the defendants had conspired to restrain trade in the disposable plastic glove market; had conspired to monopolize and attempted to monopolize the disposable plastic glove market; had individually attempted to monopolize the disposable plastic glove market; had monopolized, individually and collectively, the disposable plastic glove market; and had acquired the Scott Company to monopolize or lessen the competition in the disposable plastic glove market. The gravamen of Handgards' original complaint was that Ethicon had fraudulently obtained the Orsini patent by misleading the patent office as to the lack of any interference with that application.

The Handgards litigation did not move swiftly. The action was originally stayed to permit resolution of Ethicon's appeals of the patent action. Upon resolution of those appeals, Handgards moved to supplement its complaint to include acts allegedly committed by the defendants since the date of the original complaint. That motion was granted on May 15, 1974. The defendants moved for reconsideration, and Handgards cross-moved to amend its complaint to add a claim that Ethicon had fraudulently obtained the Gerard patent. Both the motion and the cross-motion were denied by the court. In January 1975, the defendants moved for summary judgment. In April 1975, that motion was granted in part and denied in part. The court dismissed Handgards' claims relating to the procurement of the Orsini patent. The court found, however, that there were genuine issues of fact in dispute relating to the antitrust impact of the various law suits Ethicon pursued against Handgards and its predecessor companies in relation to the Gerard and Orsini patent. The court stated that those lawsuits might be found to have been pursued in bad faith, knowing that the patents were invalid, or that even if Ethicon believed in good faith that the patents were valid, the suits were an integral part of a general scheme to monopolize. Handgards, Inc. v. Johnson & Johnson, 413 F. Supp. 921, 925 (N.D.Cal. 1975).

A trial was held on the remaining claims in January and February 1976. The jury found for Handgards and, in July 1976, judgment was entered for Handgards in amount of $6,219,000, after trebling. In 1979, the Ninth Circuit reversed the jury's verdict due to improper jury instructions, and remanded for a new trial. Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979), cert. denied, 444 U.S. 1025, 100 S.Ct. 688 and 689, 62 L.Ed.2d 659 (1980).

Following the denial of certiori, the parties returned to the district court where Handgards moved to amend its complaint to add a common law claim for malicious prosecution under California law. Ethicon vigorously opposed that motion, which was ultimately denied without opinion. In July 1982, the Handgards action again went to trial. The jury again found for Handgards, and awarded damages of $3,587,331. The court then trebled the damages found by the jury, added appropriate attorneys' fees, and entered judgment against Ethicon in amount of $11,826,936.10 plus interest. That judgment was upheld on appeal. Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282 (9th Cir. 1984), cert. denied, 469 U.S. 1190, 105 S.Ct. 963, 83 L.Ed.2d 968 (1985). Following the exhaustion of its judicial opportunities, Ethicon agreed to pay Handgards $18,900,000, in satisfaction of the amount owing on the judgment.

In June 1984, Ethicon first notified Aetna of a claim under a 1968 personal injury liability policy issued by Aetna to Johnson & Johnson and its subsidiaries. In November 1984, Aetna disclaimed coverage, asserting that, inter alia, Johnson & Johnson's failure to notify Aetna at an earlier date contravened the policy requirement that written notice be given as soon as practicable; the policy provided no coverage for injury arising out of wilful violation of a penal statute for antitrust injuries; and the insured had never informed Aetna that it was seeking coverage for any intentional or malicious acts it had committed.

In September 1985, Ethicon filed the instant action seeking indemnification under successive comprehensive general liability insurance, excess indemnity and excess overlayer indemnity policies in force from 1961 through 1974. In a prior ruling, this Court determined that the only policy definitely triggered by Ethicon's claims was policy # 38 AL 5000 ("the 1961 policy"). The Court further found that policy # 38 AL 128800 and the umbrella policy in effect in 1967 (collectively "the 1967 policies") might also be triggered, depending on the relation of the Reidy action to the ultimate award paid to Handgards. The Court denied coverage under the remain eight policies originally included in Ethicon's complaint. Ethicon, Inc. v. Aetna Casualty and Surety Co., 688 F. Supp. 119 (S.D.N.Y. 1988).

In its earlier decision, the Court assumed, but did not decide, that Aetna had a duty to indemnify Ethicon for its injury resulting from the Handgards action. The parties are now before the Court on the issue of whether Aetna is, in fact, required to cover that injury. Ethicon contends that the sole basis for the jury's adverse verdict in the Handgards action was Ethicon's malicious, bad faith prosecution of the patent action against Handgards and its predecessors. Ethicon points to the insurance policies which provide coverage for injuries resulting from actions for malicious prosecution. Ethicon asserts that since the sole basis of the federal antitrust action was, in essence, the common law tort of malicious prosecution, it should be covered under those policies.

Aetna claims that it does not have a duty to defend or indemnify Ethicon's defense costs of liability in the antitrust action. Aetna contends that since the insurance policies at issue do not explicitly provide coverage for antitrust injuries, and the Handgards action was nothing but an antitrust case, there is no duty to defend or indemnify under the policies. Further, Aetna claims that even if it could be found to have duties to defend and indemnify a claim for antitrust injuries, those duties were discharged in this instance because the injuries for which Ethicon seeks coverage were intentional, and thus are outside the policy. Finally, Aetna urges that even if it is found to have a duty to indemnify Ethicon in the antitrust action, its duty to pay is limited to the actual compensatory damages found by the jury, not the damages as trebled under the Sherman Act, since treble damages are inherently punitive.

Additionally, the parties renew their disagreement as to whether coverage is provided by the 1967 policies as well as the 1961 policy. Ethicon maintains that the Reidy action, filed in 1967, was an integral component of the jury's findings and award in the Handgards action. Aetna claims that the Reidy action played little or no role in the ultimate disposition of the Handgards action, or the determination of damages in that case, and thus should not be considered as a trigger for coverage. The instant motion does not address, nor does it resolve, Aetna's contention that any liability it has is voided by Ethicon's alleged failure to give timely notice of its claim.


Plaintiff has moved for partial summary judgment pursuant to Fed.R.Civ.P. 56. Rule 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "`[A] motion for summary judgment shall be granted only "when, viewing the record in the light most favorable to the nonmoving party, the evidence offered demonstrates that there is no genuine issue of fact and that the moving party is entitled to judgment as a matter of law."'" Leberman v. John Blair & Co., 880 F.2d 1555, 1559 (2d Cir. 1989), quoting Pension Benefit Guaranty Corp. v. LTV Corp., 875 F.2d 1008, 1015 (2d Cir.), cert. granted, ___ U.S. ___, 110 S.Ct. 321, 107 L.Ed.2d 311 (1989), quoting Cinema North Corp. v. Plaza at Latham Associates, 867 F.2d 135, 138 (2d Cir. 1989) (citations omitted).

The substantive law governing the case will identify those facts which are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will probably preclude the entry of summary judgment. . . . While the materiality determination rests on the substantive law, it is the substantive law's identification of which facts are crucial and which facts are irrelevant that governs." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there does indeed exist a genuine issue for trial." Id. at 249, 106 S.Ct. at 2510; see also R. C. Bigelow, Inc. v. Unilever N. V., 867 F.2d 102, 107 (2d Cir.), cert. denied sub nom. Thomas J. Lipton, Inc. v. R. C. Bigelow, Inc., ___ U.S. ___, 110 S.Ct. 64, 107 L.Ed.2d 31 (1989). The party seeking summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits if any,' which it believes demonstrates the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986), quoting Fed.R.Civ.P. 56(c). See also Trebor Sportswear Co. v. Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir. 1989). However, Rule 56 does not require that the moving party support its motion with affidavits or other similar materials which negate the opponent's claim. Rather, "the motion may, and should, be granted so long as what is before the district court demonstrates that the standard for the entry of summary judgment, as set forth in Rule 56(c), is satisfied." Celotex, supra, 477 U.S. at 323, 106 S.Ct. at 2552. "[T]he burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 106 S.Ct. at 2553.

Indeed, once a motion for summary judgment is properly made, the burden then shifts to the nonmoving party, which "must set forth facts showing that there is a genuine issue for trial." Anderson, supra, 477 U.S. at 250, 106 S.Ct. at 2511. The nonmoving party must produce, at the summary judgment stage, "sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. . . . If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. While the Court "must resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought," Heyman v. Commerce and Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975) (citations omitted), the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986) (citations omitted).

Ultimately, "[i]n considering the motion, the court's responsibility is not to resolve disputed issues of fact, but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987), citing Anderson, supra, 477 U.S. at 247-50, 106 S.Ct. at 2509-11.

This Court has previously determined that the 1961 policy issued by defendant to Johnson & Johnson, and which provided coverage to Ethicon, would be triggered by Ethicon's losses in the Handgards action, should such coverage be appropriate under the policy and the applicable law. Under that policy, Aetna agreed:

  To pay on behalf of the insured all sums which
  the insured shall be come legally obligated to
  pay as damages because of injury sustained by any
  person or organization and arising out of the
  following hazards in the conduct of the named
  insured's business designated in the Schedule,
  and [Aetna] shall defend any suit against the
  insured alleging such injury and seeking damages
  which are payable under the terms of this
  endorsement, even if any of the allegations of
  the suit are groundless, false or fraudulent; but
  [Aetna] may make such investigation ...

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