In a recent California District Court decision concerning the case of Playboy Enterprises International, Inc. v. Play Beverages, LLC, et al., U.S. District Judge S. James Otero has granted the Defendants’ Motion to Dismiss on the basis of improper venue. According to the Complaint that was originally filed by Playboy Enterprises International, Inc. (Playboy) back in December of 2012, Playboy is a Delaware corporation that has its principal place of business in the state of California. The Defendant, Play Beverages, LLC (PlayBev), is also a Delaware corporation; however, it’s principal place of business is in the state of Utah. At first glance, you might not see an issue with the case being heard in the state of California, particularly since Playboy has its principal place of business in California. However, one must look deeper into the facts of the case before making determinations concerning venue.
The History of the Case
Back in 2006, PlayBev entered into a license agreement with Playboy whereby PlayBev would have limited rights to make and sell certain non-alcoholic beverages, to include Playboy-branded energy drinks. That agreement was due to expire in March of 2012; but unfortunately, PlayBev ended up in bankruptcy proceedings in 2011. Since negotiations with PlayBev and its creditors were taking place throughout the bankruptcy proceeding phase, two extensions of the licensing agreement were ultimately sought and eventually entered into between Playboy and PlayBev, one of which expired in July of 2012, and the other which was due to expire in September of 2012 if certain conditions weren’t met. Both of these extensions were approved by the Bankruptcy Court; however, according to Playboy, the conditions set forth under the second extension agreement were not met, and that is what sparked the Complaint for the unauthorized use of the Playboy Marks.
Playboy filed the complaint in California, noting that PlayBev was subject to the personal jurisdiction of the Court since it was conducting business in the state and was therefore considered to be a “resident of the district.” However, looking within the four corners of the license agreement that was made by the parties, there clearly was a specific forum selection clause contained therein–which quickly brings us up to the case at hand.
The Forum Selection Clause
Generally speaking, forum selection clauses in contracts are provisions that relate to which particular state and/or court the parties will be required to litigate, should a dispute arise. In the instant case, the forum clause contained in the Playboy/PlayBev licensee agreement reads as follows:
The parties hereto agree that any and all disputes arising out of or relating in anyway to this Agreement shall be litigated only in courts sitting in Cook County, Illinois.
Licensor shall have the option, however, to instead file lawsuit at licensee’s domicile which will then be litigated in the courts competent for that domicile.
We see here that the clause clearly lists Cook County, Illinois as the place where all disputes are to be resolved; however, the “tricky” part comes in the statement that gives the licensor the option to file a lawsuit in the state of the licensee’s “domicile.”
The Argument and the Court’s Conclusion
Playboy argued that since PlayBev had a member/owner who lived in California, venue was proper within the state because as an LLC, PlayBev “is a citizen of every state of which its owners/members are citizens.” But PlayBev disagreed, noting that the rule quoted by the Plaintiff was not applicable in this case with respect to determining the domicile of an LLC for purposes of venue. Judge Otero agreed with PlayBev.
Specifically, the Court found that Federal law is applicable in cases involving the interpretation of a forum selection clause in a contract. Judge Otero noted that when it comes to the interpretation of contracts under Federal law, the terms of the contract should be given their “ordinary” meaning (unless certain circumstances dictate that a special meaning should be attached to them), and when the contract terms are clear, “the intent of the parties must be ascertained from the contract itself.”
The Court then took a look at the dictionary. “Domicile” is defined in Black’s Law Dictionary as, “the residence of a person or corporation for legal purposes,” and “residence” is defined as “the place where a corporation or other enterprise does business or is registered to do business.” Based upon these ordinary meanings, the Court determined that the term “domicile” as contained in the license agreement gives Playboy the option to file its lawsuit at PlayBev’s place of residence or principal place of business, both of which are in the state of Utah. Judge Otero found that there was no special meaning attached to the word “domicile,” and the parties did not argue that there was a special meaning for the term; therefore, venue is proper in either Illinois (as clearly stated in the clause) or Utah — not California.
The president of CirTran, which is the exclusive manufacturer and distributor of the Playboy Energy Drink and also a party to this action, said that the ruling was “good news” for both PlayBev and CirTran. Good news it may be, but has the momentum that propelled the brand into the energy drink world been completely lost? I guess only time will tell.
About the Author
Adrienne Kendrick holds a BA in English from the University of Maryland, as well as a JD from John Marshall Law School. She also completed the MBA program (with an emphasis in Project Management) at Keller Graduate School of Management. Ms. Kendrick has been a professional legal writer and editor for almost 15 years, and she not only enjoys writing about topics related to intellectual property, but she also has an interest in the areas of Immigration law, Employment law, and Criminal law.