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TELA Bio, Inc. v. Federal Insurance Co.

United States District Court, E.D. Pennsylvania

March 15, 2018

TELA BIO, INC., et al., Plaintiffs,


          Goldberg, J.

         This insurance coverage case stems from a New Jersey state court lawsuit wherein it was alleged that a company and two of its individual co-founders stole a competitor's employees and trade secrets, in an effort to develop and sell competing products. In the case before me, Plaintiffs-TELA Bio, Inc. (“TELA Bio”) and its individual co-founders, Anthony Koblish and Maarten Persenaire-seek a judicial declaration that Defendant, Federal Insurance Company (“Federal Insurance”), had a duty to defend them in the underlying state suit, under an insurance policy that Federal Insurance issued to TELA Bio.

         Pending are Federal Insurance's Motion to Dismiss for Failure to State a Claim, and TELA Bio's Motion for Partial Summary Judgment. For the reasons that follow, Federal Insurance's Motion will be granted. Accordingly, I need not reach TELA Bio's Motion, which will be denied as moot.


         Unless otherwise noted, the following facts are derived from TELA Bio's Complaint and the exhibits attached thereto, which include the complaint in the underlying state suit and the insurance policy at issue.

         A. The Underlying Lawsuit

         The plaintiff in the underlying state suit, LifeCell Corporation (“LifeCell”), is a “regenerative medicine company.” Founded in 1986, LifeCell develops and sells “tissue repair and replacement products” used in reconstructive surgeries such as breast reconstruction and hernia repair. (Compl., Ex. 2 (cited hereinafter as “LifeCell Suit Compl.”) ¶¶ 1, 18.)

         In 2012, LifeCell's former director of research and development, David McQuillan, co-founded a new company, TELA Bio, allegedly to develop a hernia repair product to compete with LifeCell.[1] To develop and market its competing product, TELA Bio allegedly recruited and hired more than 20 LifeCell employees, knowing that those employees were prohibited from working for TELA Bio due to non-competition covenants. Several of these employees allegedly provided TELA Bio with trade secrets and other proprietary information regarding both the design of LifeCell's products and LifeCell's strategies to market those products. (LifeCell Suit Compl. ¶¶ 2-4, 214-247, 251.)

         In March 2015, LifeCell filed suit in New Jersey state court. (This suit is referred to hereinafter as the “LifeCell Suit.”) Named as defendants in the LifeCell Suit were TELA Bio and two individuals who, along with McQuillan, co-founded TELA Bio-Anthony Koblish and Maarten Persenaire. (The defendants in the LifeCell Suit, all of which are Plaintiffs in this action, are referred to hereinafter collectively as “TELA Bio.”) The LifeCell Suit Complaint set out six causes of action against TELA Bio: (1) misappropriation of trade secrets in violation of the New Jersey Trade Secrets Act; (2) misappropriation of proprietary information under New Jersey common law; (3) unfair competition under the New Jersey Unfair Competition Act and New Jersey common law; (4) tortious interference with contract and prospective economic advantage; (5) civil conspiracy; and (6) unjust enrichment. (Compl. ¶ 10; LifeCell Suit Compl. ¶¶ 214-229.)

         B. The Insurance Policy Federal Insurance Issued to TELA Bio

         The insurance policy at issue is a commercial general liability policy issued by Federal Insurance to TELA Bio on February 5, 2013 (hereinafter “the Policy”). While the Policy contains numerous coverage provisions, TELA Bio seeks coverage for the LifeCell Suit under only one of these provisions, entitled “Advertising Injury and Personal Injury Liability Coverage.” This provision, in relevant part, covers “damages and claimant costs that the insured becomes legally obligated to pay . . . for . . . personal injury that is caused by an offense to which this coverage applies.”[2] The Policy, in turn, sets out five “offense[s]” to which this coverage applies, only one of which is applicable here: “electronic, oral, written or other publication of material that . . . libels or slanders a person or organization (which does not include disparagement of goods, products, property, or services).” (This provision is referred to hereinafter as the “Libel and Slander Provision.”) The terms “publication, ” “libel, ” and “slander” are not defined in the Policy. (Compl. ¶ 8; Compl., Ex. 1 (cited hereinafter as “Policy”), Doc. No. 1-3 at 73, Doc. No. 1-4 at 23.)

         The Policy also contains a number of exclusionary provisions, including one that is relevant here, entitled “Intellectual Property Laws or Rights.” (This exclusionary provision is referred to hereinafter as the “IP Rights Exclusion”). The IP Rights Exclusion provides, in relevant part:

A. This insurance does not apply to any damages, loss, cost or expense arising out of, giving rise to or in any way related to any actual, alleged or threated:
a. Assertion; or
b. Infringement or violation
by any person or organization (including any insured) of any intellectual property law or right.
B. Further, this insurance does not apply to the entirety of all allegations in any claim or suit, if such claim or suit includes an allegation of or a reference to an infringement or violation of an intellectual property law or right, even if the insurance would otherwise apply to any part of the allegations in the claim or suit.

         The Policy defines “intellectual property law or right” as, in relevant part, “any . . . right to, or judicial or statutory law recognizing an interest in, any trade secret or confidential or proprietary non-personal information.” (Policy, Doc. No. 1-3 at 96, Doc. No. 1-4 at 18.)

         C. The Declaratory Judgment Action

         In late January 2016-approximately ten months after the LifeCell Suit was filed in New Jersey state court-TELA Bio notified Federal Insurance of the LifeCell Suit, requesting a defense under the Policy. Believing that Federal Insurance would refuse to defend it, TELA Bio shortly thereafter brought this declaratory judgment action in the United States District Court for the District of New Jersey, seeking a declaration that the LifeCell Suit is covered by the Policy's Libel and Slander Provision.[3] (Compl. ¶¶ 12-13.)

         Federal Insurance moved to transfer venue to this Court, and the Honorable Freda L. Wolfson granted that motion in an Opinion dated October 25, 2016. Following transfer of venue to this Court, the parties filed the motions presently before me. (10/25/2016 Op., Doc. No. 1-41.)

         In its Motion to Dismiss, Federal Insurance contends that TELA Bio has failed to state a claim for two reasons. First, Federal Insurance maintains that it had no duty to defend the LifeCell Suit because none of the factual allegations in the LifeCell Suit Complaint triggered coverage under the Policy's Libel and Slander Provision. Second, Federal Insurance contends that, even if the allegations in the LifeCell Suit Complaint triggered coverage under the Policy's Libel and Slander Provision, the Policy's IP Rights Exclusion precludes coverage for the entire suit such that Federal Insurance had no duty to defend.

         For the reasons that follow, I conclude that Federal Insurance is correct on both points, and will therefore dismiss this action with prejudice for failure to state a claim.


         To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plausibility standard requires more than a “sheer possibility that a defendant has acted unlawfully.” Id. While it “does not impose a probability requirement at the pleading stage, ” plausibility does require “enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary elements of a claim.” Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008).

         To determine the sufficiency of a complaint under Twombly and Iqbal, a court must take the following three steps: (1) the court must “tak[e] note of the elements a plaintiff must plead to state a claim;” (2) the court should identify the allegations that, “because they are no more than conclusions, are not entitled to the assumption of truth;” and (3) “where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.” Burtch v. Milberg Factors, Inc., 662 F.3d 212, 221 (3d Cir. 2011) (citations omitted). Courts must construe the allegations in a complaint “in the light most favorable to the plaintiff.” Id. at 220.

         In evaluating a motion to dismiss, courts generally consider only the allegations contained in the complaint, the exhibits attached thereto, and matters of public record. Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014); Pryor v. Nat'l Collegiate Athletic Ass'n., 288 F.3d 548, 567 (3d Cir. 2002). “[A] complaint may not be dismissed merely because it appears unlikely that [a] plaintiff can prove those facts or will ultimately prevail on ...

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