Play Beverages, LLC v. Playboy Enters. Int'l, Inc.

2018 IL App (1st) 171850

116 N.E.3d 1053

426 Ill.Dec. 753

PLAY BEVERAGES, LLC, and CirTran Beverage Corporation, Plaintiffs and Counterdefendants-Appellants,

v.PLAYBOY ENTERPRISES INTERNATIONAL, INC., Defendant and Counterplaintiff-Appellee.

No. 1-17-1850

Appellate Court of Illinois, First District, Fifth Division.

Opinion filed: September 14, 2018

Bradley Riley Jacobs PC, of Chicago (Todd C. Jacobs and David M. Caves, of counsel), for appellants.

Miller Shakman & Beem LLP, of Chicago (Edward W. Feldman and Melissa B. Pryor, of counsel), and Browne George Ross LLP, of Los Angeles, California (Peter W. Ross, of counsel), for appellee.

JUSTICE ROCHFORD delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs, Play Beverages, LLC (PlayBev) and CirTran Beverage Corporation (CTB) brought a second-amended complaint against defendant, Playboy Enterprises International, Inc. (Playboy) to recover damages relating to Playboy's alleged breach of a license agreement pursuant to which PlayBev was granted the exclusive right to distribute the Playboy Energy Drink. Plaintiffs' causes of action included breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract, promissory estoppel, injunctive relief, and civil conspiracy. Playboy brought several counterclaims against plaintiffs, including breach of contract, trademark infringement, trademark dilution, false advertising, violation of the Uniform Deceptive Trade Practices Act ( 815 ILCS 510/1 (West 2012) ), and violation of the Anti-Cybersquatting Consumer Protection Act ( 15 U.S.C. § 1125(d) (2012) ). The jury found in favor of Playboy on each of plaintiffs' claims, and also returned a verdict in favor of Playboy on its counterclaims and awarded it $6.6 million in damages for trademark infringement and breach of contract. The trial court subsequently denied plaintiffs' posttrial motions and granted Playboy's motion for attorney fees and for treble damages under 15 U.S.C. § 1117(b) (2012). On appeal, plaintiffs argue that the trial court erred by (1) denying their request to interrupt the second day of jury deliberations and question three jurors regarding their statement to the court clerk the day before that they were "scared" of "the men in the gallery;" and (2) admitting the video testimony of witness, Lori Bodily, regarding threatening comments made to her by Fadi Nora, a manager of PlayBev. We affirm.¹

¶ 2 BACKGROUND

¶ 3 I. Pretrial Proceedings

¶ 4 Prior to trial, the trial court entered an in limine order excluding any reference at trial to the ethnicity and national origin of Mr. Nora, or Iehab Hawatmeh, the chief executive officer of CTB. Playboy honored the in limine order.

¶ 5 During voir dire , plaintiffs (not Playboy) twice told prospective jurors that certain witnesses speak with an accent because they are from outside of the United States, and they asked the panelists whether that would cause them to not believe such witnesses. No prospective juror responded in the affirmative.

¶ 6 II. Trial Testimony

¶ 7 A. The Parties

¶ 8 Playboy is a corporation with its principal place of business in California. Playboy derives substantial revenue from licensing its trademarked name and bunny-head logo (the Playboy Marks) to entities who sell many types of consumer products, such as apparel, handbags, luggage, and fragrances.

¶ 9 PlayBev is a limited liability company based in Utah, which was formed in 2006 for the purpose of creating and selling a nonalcoholic energy drink.

¶ 10 CTB is a wholly-owned subsidiary of CirTran Corporation, a publicly-traded company with 2000 shareholders. During the relevant time period, CTB was engaged in the marketing and designing of a wide variety of consumer products.

¶ 11 B. The 2006 Exclusive License Agreement

¶ 12 PlayBev and Playboy entered into an exclusive license agreement in December 2006, pursuant to which Playboy agreed to license the Playboy Marks to PlayBev for use on the Playboy Energy Drink, meaning that PlayBev would be the only company that would have an energy drink with the Playboy name and bunny-head logo.

¶ 13 The license agreement provided that PlayBev would pay Playboy minimum annual royalties (beginning at $1 million and later increased to $2 million) for use of the Playboy Marks, and it required that PlayBev achieve certain minimum sales. The parties agreed that PlayBev "shall be responsible for and shall assume and pay for all costs and expenses related to [PlayBev's] design, manufacture, advertising, promotion, sale and distribution" of the energy drinks. The license agreement imposed no requirements on Playboy to support PlayBev's sales or to refrain from advertising or buying competing brands.

¶ 14 The parties agreed that the license agreement would expire on March 31, 2012, unless three renewal conditions precedent were met: (1) Playboy "provided, not later than February 1, 2012, its written approval for the Agreement to renew;" (2) PlayBev achieved certain minimum net sales for each license year; and (3) PlayBev was "in full compliance with all of the terms and conditions of this Agreement, including the timely payment of all amounts required under this Agreement."

¶ 15 C. PlayBev's Relationship With CTB

¶ 16 The original principals of PlayBev did not have experience with beverage marketing or distribution. In 2007, the PlayBev principals sold their interest in PlayBev to Mr. Hawatmeh, the chief executive officer of CTB, which had experience marketing consumer products. PlayBev subsequently contracted with CTB to manufacture and distribute the Playboy Energy Drink.

¶ 17 D. Initial Product Development and Marketing

¶ 18 After the formula for the Playboy Energy Drink was developed, plaintiffs conducted focus groups and developed a marketing plan that centered on a promotional bus tour in the southeastern region of the United States. They hired Andrei McQuillan to manage marketing. Mr. McQuillan had previous experience marketing certain celebrities but not beverages.

¶ 19 In the energy drink market, there are two avenues for distribution: on-premises (sold at a restaurant, bar or nightclub) and off-premises (sold at a grocery store or convenience store). Plaintiffs' branding and marketing focus was on the on-premises sales. The primary distribution strategy was to get the Playboy Energy Drink into high-visibility, on-premises locations to create branding cachet. Plaintiffs also pursued an international strategy, enlisting distributors for the Playboy Energy Drink in 65 countries.

¶ 20 E. Product Failure

¶ 21 Plaintiffs suffered severe operating losses for calendar years 2007 to 2012, resulting in the failure of the Playboy Energy Drink.

¶ 22 Plaintiffs argued at trial that sales of the Playboy Energy Drink were poised to increase in 2011, until Playboy sent them default and termination notices in May and June 2011 and allegedly interfered with a contract with one of plaintiffs' distributors and tried to take over the international distribution network. Plaintiffs also argued that Playboy breached the terms of the license agreement by contracting with other energy drink companies to serve their energy drinks at Playboy-owned properties, thereby hurting sales of the Playboy Energy Drink and contributing to its failure.

¶ 23 Playboy denied these allegations, arguing that the sales for the Playboy Energy Drink had been falling for four years for a variety of reasons, none of which had anything to do with any alleged conduct by Playboy; that PlayBev fell behind in paying royalties and had never met the minimum sales requirements; and that, after PlayBev was placed into bankruptcy, it stopped paying any royalties while continuing to sell the product.

¶ 24 F. Testimony Regarding the Reasons for the Product Failure

¶ 25 1. Robert Nistico

¶ 26 Robert Nistico testified that he served as president of PlayBev and executive vice president of CTB from 2007 to 2009, after having previously worked at several beverage firms, including 10 years at Red Bull. Mr. Nistico explained that the Playboy Energy Drink failed because "[w]e didn't receive enough repeat orders. * * * In the markets where we supported the brand it was difficult to gain distribution, and when we did, the consumer for some reason wasn't picking the brand up for a second time."

¶ 27 2. Ralph Kytan

¶ 28 Ralph Kytan worked for 34 years as a beverage marketing executive, until his retirement in 2013. Mr. Kytan opined that plaintiffs failed to develop, fund, and implement a professional marketing plan, which impeded their ability to successfully penetrate the competitive energy drink market. Plaintiffs also failed to spend the money necessary to advertise the product and erred in attempting to introduce the product to 65 international markets within a short time period. Plaintiffs also experienced problems with leaking cans, which adversely affected their sales.

¶ 29 3. Christina Eden

¶ 30 Christina Eden was hired in 2009 as PlayBev's Mid-Atlantic and New York region sales director after having previously worked for Red Bull for 10 years. Ms. Eden testified that unlike Red Bull, plaintiffs had "no real short or long-term plan" or strategy for selling the Playboy Energy Drink. Ms. Eden also noted plaintiffs failed to consistently pay their vendors on time, which damaged the credibility of the brand, and that plaintiffs failed to provide enough "point-of sale" materials, i.e. , displays, signage and other items that give the product visibility in the store or bar where it is sold.

¶ 31 4. Kathryn Chalmers

¶ 32 Kathryn Chalmers, PlayBev's Southern California sales manager from 2008 through 2009, testified similarly to Ms. Eden that plaintiffs' marketing strategy was "helter-skelter" and that the nonpayment of vendors and the lack of point-of-sale materials hurt sales.

¶ 33 5. Andrei McQuillan

¶ 34 Mr. McQuillan testified to plaintiffs' failure to pay the bus tour company as well as other vendors.

¶ 35 6. Lori Bodily

¶ 36 Lori Bodily worked...