Academy of Country Music, a California nonprofit corporation v. Continental Casualty Company, an Illinois corporation

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ACADEMY OF COUNTRY MUSIC, a
California nonprofit corporation,
Plaintiff-Appellant,
v.
CONTINENTAL CASUALTY
COMPANY, an Illinois corporation,
Defendant-Appellee.
No. 22-55534
D.C. No. 2:20-cv-03046-PLA
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Paul L. Abrams, Magistrate Judge, Presiding
Argued and Submitted June 12, 2023
Pasadena, California
Before: PAEZ and CHRISTEN, Circuit Judges, and FITZWATER,** District Judge.
Plaintiff-Appellant Academy of Country Music (“Academy”) appeals a
summary judgment order entered in favor of Defendant-Appellee Continental
FILED
JUL 10 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable Sidney A. Fitzwater, United States District Judge for the
Northern District of Texas, sitting by designation.

-- 1 of 5 --

Casualty Company (“Continental”). We have jurisdiction under 28 U.S.C. § 1291,
and we affirm.
1. In 2016, Academy and its Chief Executive Officer (“CEO”), Robert Romeo
(“Romeo”), entered into a separation agreement to facilitate the termination of
Romeo’s employment without cause. Under the separation agreement, Romeo would
be paid the remainder of his base salary and car and phone allowances, payable “on
regularly scheduled paydays in accordance with [Academy’s] usual payroll practices,
until August 23, 2017.” He would also be paid a lump-sum settlement of $170,000.
In exchange, Romeo released all claims against Academy and agreed to provide
certain minimal transitional services.
Shortly after the parties entered into the separation agreement, Academy
discovered that Romeo may have breached his employment contract while acting as
CEO. As a result, Academy’s board unanimously voted to stop making payments
under the separation agreement. Romeo asserted that Academy had breached the
separation agreement and sought arbitration. The arbitrator found in Romeo’s favor
and awarded damages and fees in excess of $1.2 million.
Academy had an insurance policy (“the Policy”) from Continental that included
Employment Practices Liability Coverage (“EPL”) and Directors and Officers
Liability Coverage (“D&O”). Academy filed a claim under the Policy for coverage
- 2 -

-- 2 of 5 --

of the arbitration award. Continental covered Academy’s legal fees for the arbitration
proceeding but declined to indemnify Academy for the arbitrator’s award. Academy
then filed the instant suit, alleging claims for breach of contract and tortious breach
of the duty of good faith and fair dealing. The district court granted summary
judgment for Continental, and Academy appeals.
2. “This court reviews a district court’s grant of summary judgment de novo.”
T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 629 (9th Cir.
1987). We also review the interpretation of a contract de novo. Kassbaum v.
Steppenwolf Prods., Inc., 236 F.3d 487, 490 (9th Cir. 2000)). We may affirm “on any
ground raised below and fairly supported by the record.” Columbia Pictures Indus.,
Inc. v. Fung, 710 F.3d 1020, 1030 (9th Cir. 2013) (quoting Proctor v. Vishay
Intertechnology Inc., 584 F.3d 1208, 1226 (9th Cir. 2009)).
3. Continental contended in its summary judgment motion that the arbitration
award was excluded from Policy coverage. It maintained that for EPL coverage, the
Policy excluded from the definition of covered “loss” “any amounts for which an
Insured is liable due to an act or omission in knowing violation of any written contract
of employment[.]” For D&O coverage, the Policy excluded “any amounts for which
an Insured is liable due to an act or omission in knowing violation of any oral or
written contract or agreement[.]”
- 3 -

-- 3 of 5 --

4. We hold that these two exclusions operate to preclude coverage of the
arbitration award and therefore affirm the district court’s judgment.
Under the EPL coverage exclusion, a loss is not covered if it arises out of
Academy’s knowing violation of a written contract of employment. When
interpreting a contract under California law, “ordinary words must be given their
normal, popular meaning … while it must be presumed legal terms are used in their
legal sense.” Poag v. Winston, 241 Cal. Rptr. 330, 337 (Cal. Ct. App. 1987) (internal
citations omitted).
Academy knowingly violated the separation agreement because it consciously
decided to cease making payments to Romeo, without any reasonable basis for
concluding that its performance under the separation agreement was excused.
Although Academy maintains that it was not obligated to perform under the separation
agreement because it believed Romeo had breached his employment contract, that
belief was unreasonable. First, the arbitrator justifiably concluded that Romeo’s
wrongful acts did not constitute material breaches of his employment contract and
thus did not excuse Academy from performing under the separation agreement.
Second, Academy knew or should have known about Romeo’s objectionable conduct
long before the parties entered into the separation agreement. Academy’s conduct
thus amounted to a knowing violation of the separation agreement.
- 4 -

-- 4 of 5 --

Additionally, the separation agreement is a written employment contract. It
required Romeo to discharge certain transitional duties at Academy’s election.
Academy argued in the arbitration, and the arbitrator concluded, that the separation
agreement either was an employment contract or was closely intertwined with
Romeo’s original employment contract. The separation agreement therefore falls
within the normal meaning of the term “contract of employment.” Accordingly,
Academy’s decision to stop making payments as required by the separation agreement
constitutes a knowing violation of a written employment contract. The arbitration
award is therefore excluded from the Policy’s EPL coverage.
5. Under the Policy, D&O coverage is excluded for any loss arising out of
Academy’s knowing violation of any oral or written contract or agreement. The EPL
coverage exclusion is narrower than this exclusion in that it requires that Academy
violate a written contract of employment. Because the narrower EPL exclusion applies
to the arbitration award, the broader D&O exclusion does as well. Accordingly, the
arbitration award is excluded from D&O coverage.
6. Because the Policy does not provide coverage for the arbitration award, we
affirm the summary judgment entered in Continental’s favor.
AFFIRMED.
- 5 -

-- 5 of 5 --