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Southern California Gas Co. v. Syntellect, Inc.

United States District Court, S.D. California

January 28, 2014

SOUTHERN CALIFORNIA GAS COMPANY, a California corporation, Plaintiff,
SYNTELLECT, INC., a Delaware corporation, Defendant.


ROGER T. BENITEZ, District Judge.

Before this Court is a Motion For Partial Summary Judgment filed by Plaintiff Southern California Gas Company (SoCal Gas). (Docket No. 172). For the reasons stated below, the Motion is GRANTED.


This case arises out of the SoCal Gas's purchase of an automated interactive system for handling incoming telephone calls made by Syntellect, Inc. (Syntellect). The Syntellect System is one component in SoCal Gas's system for handling customer phone calls. Among other functions, the System allowed SoCal Gas to tie an incoming call to customer information from SoCal Gas's computers. For instance, the System could obtain account records from a computer database based on the incoming phone number. Syntellect's custom application programs provided decision trees for handling calls based on the caller's inputs, enabling call flows that would allow the customer to either complete their task in the automated system, or speak to a live operator.

The purchase agreement for the Syntellect System contained a broad indemnity provision:

[Syntellect] shall indemnify, defend and hold [SoCal Gas]... harmless from and against any and all claims, actions, suits, proceedings, losses, liabilities, penalties, damages, costs or expenses (including attorney's fees and disbursements) of any kind whatsoever arising from (1) actual or alleged infringement or misappropriation by [Syntellect] or any subcontractor of any patent, copyright, trade secret, trademark, service mark, trade name, or other intellectual property right in connection with the System, including without limitation, any deliverable (2) [Syntellect's] violation of any third party license to use intellectual property in connection with the System, including, without limitation, any deliverable.

(Purchase Agreement, Wilson Decl. Ex. I ¶ 20.2).

The "System" includes the Vista Interactive Voice Response System, custom application programs developed by Syntellect specifically to SoCal Gas's application specifications, and all specifications and requirements included in the Request for Proposal. (Mem. Disp. at 3).

SoCal Gas was sued by a third party, Ronald A. Katz Technology Licensing, L.P. (Katz), which alleged that SoCal Gas's system violated patents held by Katz. (Katz Complaint, Wilson Decl. Ex. C). SoCal Gas asked Syntellect to defend the suit, but Syntellect refused to defend or indemnify SoCal Gas. SoCal Gas reached a settlement with Katz by entering a licensing agreement granting SoCal Gas a license to use the patents, and releasing them from liability for past use. (Settlement Agreement, Wilson Decl. Ex. D; Licensing Agreement, Wilson Decl. Ex. E). SoCal Gas agreed to pay a licensing fee to Katz based upon past calls that had used the automated system. There were two categories of calls for which Katz demanded payment and which had actually occurred in the SoCal Gas system: 1) calls which were resolved entirely in the automated system, and 2) calls that were in the automated system, then transferred to a live customer service representative. (Katz Letter, Wilson Decl. Ex. F). For each minute of the entire duration of both categories of calls, SoCal Gas agreed to pay $0.011. ( Id. ; Lic. Ag. ¶ 1.12; Battles Decl. ¶ 25).

SoCal Gas filed the instant lawsuit to seek indemnification from Syntellect, including the entire licensing fee paid in the settlement, attorney's fees, and interest. (Compl.) On March 28, 2011, this Court granted SoCal Gas's motion for partial summary adjudication on the question of whether Syntellect breached the indemnity provision by failing to defend and indemnify SoCal Gas in the Katz infringement case. (Docket No. 79). This Court also granted a motion in limine excluding evidence related to the allocation of damages. (Docket No. 149).

Syntellect appealed to the Ninth Circuit. In a memorandum disposition, the Ninth Circuit affirmed this Court's grant of summary adjudication on the question of liability. (Mem. Disp. at 4). The Ninth Circuit noted the broad language of the indemnity provision, and that California law interpreted language such as "arising from" to mean that liability will attach if the indemnitor's performance under the contract is "causally related in some manner to the injury for which indemnity is claimed." ( Id. at 3 (citing St. Paul Fire and Marine Ins. Co. v. Am. Dynasty Surplus Lines Ins. Co., 101 Cal.App.4th 1038, 1050 (2d Dist. 2002))). The Court found that each of the "accused services" in the Katz complaint was "enabled by Syntellect's performance of its contractual duties." ( Id. ) It concluded that the allegations of patent infringement were causally related to Syntellect's provision of the System, and that Syntellect was therefore liable for "damages stemming from utilization of the System." ( Id. ) The Ninth Circuit also found that SoCal Gas's own liability was reflected in the "presumptively reasonable amount of the settlement." ( Id. at 5).

However, the Ninth Circuit found that SoCal Gas must still demonstrate that the entire liability should be allocated to Syntellect. When there is a dispute over allocation, the plaintiff is required to prove the reasonableness of the proposed allocation by ordinary means, and a district court may not exclude all evidence relevant to the allocation of damages. ( Id. ) As this Court excluded such evidence, the case was remanded for this Court to undertake this inquiry "in the first instance." ( Id. at 6).

The Ninth Circuit clearly stated that it was not holding that apportionment was required, or that Syntellect could not be held responsible for the entire amount. ( Id. ) Rather, this Court must consider evidence to determine if apportionment is necessary. To determine if apportionment is required, this Court is direct to consider the "nature of the Katz claims as they apply to the indemnity provision and to other potentially liable parties." ( Id. ) The Ninth Circuit stated that when an indemnity obligation is "limited under the contract, an allocation of liability between culpable parties is appropriate." ( Id. at 5). Apportionment is appropriate where "some portion of the liability for the alleged infringement is not embraced by Syntellect's indemnity obligation." ( Id. at 6)


Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In considering a summary judgment motion, a court examines the evidence in the light most ...

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