712 F. App'x 745
10th Cir.2017Background
- MusclePharm purchased a claims-made D&O-style policy from Liberty covering "Claims" made during the policy period (Jan 6, 2013–Jan 6, 2014) and defined "Claim" to include (a) written demands for relief, (c) formal administrative/regulatory proceedings, and (d) regulatory investigations when the insured receives a Wells Notice or target letter. The policy also had a "Notice of Circumstance or Wrongful Act" reporting provision.
- The SEC sent MusclePharm a May 16, 2013 letter requesting voluntary documents and issued a formal July 8, 2013 ‘‘Order Directing Private Investigation’’ plus subpoenas seeking documents and testimony; those communications expressly disclaimed any determination of wrongdoing.
- MusclePharm incurred over $3 million responding to the investigation and, on June 20 and August 21, 2013, sought coverage from Liberty; Liberty denied coverage for pre-Wells costs but treated the matter as a notice of circumstance and later agreed to cover some post-Wells costs tied to Wells Notices issued Feb 13, 2015.
- MusclePharm sued Liberty (breach of contract and bad faith) on Feb 12, 2015 (before the Wells Notices). The district court granted summary judgment for Liberty, holding that the July 8 Order/subpoenas were investigatory (not claims) and did not allege a wrongful act under the policy; MusclePharm’s motion to reconsider was denied.
- The Tenth Circuit affirmed: (1) the July 8 Order and subpoenas did not satisfy the policy’s "Claim" requirements pre-Wells because they were investigatory and did not allege wrongdoing against insured persons; (2) MusclePharm’s request for relief tied to post-Wells costs was not before the district court; and (3) the district court did not abuse discretion by denying reconsideration, judicial notice of an online Liberty policy, or consideration of a late expert affidavit. The court also ordered challenged materials unsealed (with third‑party redactions).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the July 8 Order/subpoenas constituted a "Claim" under policy part (a) (written demand for relief) | Subpoenas and the July 8 Order are written demands for non‑monetary relief (requests for documents/testimony) and thus are covered. | The July 8 Order and subpoenas were investigatory requests, expressly disclaimed wrongdoing, and did not seek legal "relief" tied to a wrongful act. | Held for Liberty: not a "Claim" under part (a); investigatory subpoenas are information‑gathering, not requests for legal relief. |
| Whether the July 8 Order was a "formal administrative or regulatory proceeding" under part (c) | The July 8 Order is captioned as a proceeding and authorized under SEC statutes, so it is a proceeding. | The Order’s text shows it is an investigation (fact‑gathering), not a proceeding seeking redress; policy covers proceedings, but investigations only once Wells/target letters issue. | Held for Liberty: the Order was an investigation, not a proceeding; coverage did not attach until Wells Notices. |
| Meaning of "alleged"/whether the July 8 Order "alleged" a wrongful act | The Order’s statements and subpoenas, though provisional, amount to allegations of wrongdoing sufficient to trigger coverage. | "Alleged" means an assertion of wrongdoing; the Order expressly disclaimed any determination or allegation of violation, so no ‘‘alleged wrongful act’’ existed. | Held for Liberty: plain meaning of "alleged" requires assertion of wrongdoing; the Order did not allege a wrongful act. |
| Whether district court abused discretion on reconsideration issues: notice‑of‑circumstance, judicial notice of online policy, and late expert affidavit | District court should have addressed the notice‑of‑circumstance effect, taken judicial notice of an online Liberty policy, and considered the expert affidavit explaining notice provisions. | These arguments/evidence were raised belatedly in the reconsideration motion; district court properly declined to consider new arguments and unauthenticated online material and expert affidavit introduced after summary judgment. | Held for Liberty: no abuse of discretion. Notice‑of‑circumstance argument was untimely; judicial notice and late expert were properly refused. |
Key Cases Cited
- Twigg v. Hawker Beechcraft Corp., 659 F.3d 987 (10th Cir. 2011) (summary judgment standard on appeal)
- Farmington Cas. Co. v. Duggan, 417 F.3d 1141 (10th Cir. 2005) (federal court applies state law to interpret insurance policy in diversity; de novo review of policy interpretation)
- Fidelity Nat’l Title Ins. Co. v. Woody Creek Ventures, LLC, 830 F.3d 1209 (10th Cir. 2016) (use plain meaning and dictionary definitions for undefined policy terms; construe ambiguities for insured)
- Copper Mountain, Inc. v. Indus. Sys., Inc., 208 P.3d 692 (Colo. 2009) (en banc) (contract interpreted in its entirety to harmonize provisions)
- Hayes Family Trust v. State Farm Fire & Casualty Co., 845 F.3d 997 (10th Cir. 2017) (abuse‑of‑discretion standard for Rule 59(e) motions)