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Chinook USA, LLC v. Duck Commander Inc.

United States District Court, W.D. Louisiana, Monroe Division

June 28, 2017

CHINOOK USA, LLC
v.
DUCK COMMANDER INC., ET AL.

          KAREN L. HAYES MAG. JUDGE

          OPINION

          ROBERT G. JAMES UNITED STATES DISTRICT JUDGE

         This is a breach of contract case brought by Chinook, USA, LLC (“Chinook”) against Defendants Duck Commander (“DC”), Dahlen Associates, Inc. (“Dahlen Associates”), 3292 Brands, LLC, (“3292 Brands”), Go-Time Energy, LLC (“Go-Time”), and Checkered Flag Business, LLC, (“Checkered Flag”) (collectively “Defendants”) arising from a licensing agreement entered into by Chinook and DC.

         A bench trial was held June 5, 2017, through June 6, 2017, and the Court took the matter under advisement.

         I. FINDINGS OF FACT AND CONCLUSIONS OF LAW

         The Court hereby enters the following findings of fact and conclusions of law. To the extent that any finding of fact constitutes a conclusion of law, the Court hereby adopts it as such, and to the extent that any conclusion of law constitutes a finding of fact, the Court hereby adopts it as such.

         A. FINDINGS OF FACT

         DC is a Louisiana Corporation with its principal place of business in West Monroe, Louisiana. DC is a corporation owned by the Robertson family, which originally manufactured and marketed duck calls and hunting-related merchandise. Prior to the agreement between Chinook and DC, the Robertson family starred in a reality TV series called “Duck Dynasty” on the A&E network. One of the key Robertson family members is Si Robertson (“Uncle Si”). Uncle Si's well-known affinity for iced tea led several beverage companies to approach DC about producing and licensing a Duck Commander/Uncle Si-branded iced tea beverage.

         In mid-2013, DC began licensing its name to appear on a multitude of products. Chinook was one of the companies interested in pursuing a license for DC-branded beverages. Chinook is a limited liability company formed for the purpose of bottling, marketing, and selling ready-to-drink beverages (“RTD”).

         Paul Cox (“Cox”) owned and operated a venture capital firm, Cox Venture, that provided funding to Chinook for the Uncle Si's Iced Tea venture. Cox served on Chinook's Board of Directors. Mark Gunderson (“Gunderson”) acted as Chinook's Chief Marketing Officer, Joe Regazzo acted as Chinook's Director of Sales, and David Salmon (“Salmon”) acted as Chinook's President and Chief Operating Officer at all relevant times.

         DC retained Defendant Dahlen Associates to act as its licensing agent. Defendant 3292 Brands is a Louisiana Limited Liability Company formed by Dahlen Associates and Korie Robertson. 3292 Brands became the licensing agent for DC and was responsible for ensuring DC did not grant overlapping or conflicting licenses. David Bolls (“Bolls”) acted as Chief Operating Officer for DC at all relevant times.

         Chinook submitted a licensing proposal to DC in September 2013. After selecting Chinook's proposal, DC presented Chinook with its form licensing agreement. The negotiations between the two parties were conducted by Gunderson, Trey Fisher and Salmon on behalf of Chinook, and Rachel Dahlen (“Dahlen”), Scott Headington, Korie Robertson, and Bolls on behalf of DC.

         Chinook and DC executed the Licensing Agreement (“Agreement”) on January 7, 2014, with an effective date of October 23, 2013. The Agreement granted Chinook a five-year exclusive right to license, manufacture, sell, and distribute DC-branded “Licensed Products.” “Licensed Products” are defined as “Iced tea, Ready-to-Drink (RTD) Teas, RTD Beverages.” In return Chinook agreed to pay DC a royalty as set forth in Schedule A, paragraph 6, of the Agreement. Additionally, Chinook agreed to pay DC a “Guaranteed Minimum Royalty” of $1, 000, 000.00 for each year of the contract.

         Schedule B of the Agreement is an endorsement provision for the personal endorsement of Uncle Si and “key Robertson family members.” In return for the personal endorsement, Chinook agreed to pay DC $1, 000, 000.00. The endorsement provision included “the support of Duck Commander and key Robertson family members and the support of their social media and public relations efforts when appropriate.”

         The Agreement is governed by Louisiana law and contains an integration clause which states that the Agreement is the “entire understanding of the parties” and “shall not be modified or amended except in writing signed by the parties hereto and specifically referring to this Agreement.” The Agreement required the product to be introduced on “April 30, 2014 or sooner if feasible if both parties agree.”

         On January 13, 2014, Chinook made a $250, 000 advance royalty payment to Dahlen as agent for DC.

         On February 13, 2014, DC and 3292 Brands held a meeting with Chinook representatives to discuss a potential marketing opportunity for Uncle Si's Iced Tea at the upcoming Duck Commander Texas 500 NASCAR race (“Duck Commander 500”). Chinook agreed to pay $1, 000, 000 of DC's $1, 500, 000 sponsorship fee for the race. The product launch date was accelerated to April 5, 2014, in advance of the Duck Commander 500.

         On April 1, 2014, DC entered an agreement with Go-Time which granted Go-Time a three year “exclusive right” to license, manufacture, sell, and distribute “Duck Commander Go-Time Energy Shots.” In exchange, Go-Time agreed to pay DC a $250, 000 annual “Guaranteed Minimum Royalty” payment.

         On April 6, 2014, Dahlen approached Cox at the Duck Commander 500 to inquire into whether Chinook had any interest in possibly pursuing energy shots. Cox declined an opportunity to create any product other than tea at that time. At the Duck Commander 500, Salmon expressed to Dahlen and Bolls that Chinook would appreciate an opportunity to be notified of any future offers DC received on beverage products. The Robertsons were present at the Duck Commander 500 on April 6th, the day it was to be held, but the race had to be rescheduled due to a rain delay until the next day. The Robertsons left late April 6th and were not present at the actual race because of filming obligations with A&E.

         On April 25, 2014, Gunderson requested Uncle Si's appearance at the Kentucky Derby which was to be held on May 3, 2014. Uncle Si declined because the request was on short notice and he had scheduling conflicts.

         On May 5, 2014, Willie Robertson was asked to conduct a CNBC interview promoting the tea the next day in Shreveport, Louisiana. Willie Robertson declined the interview, citing the distance in traveling on short notice. Willie Robertson attempted to reschedule for the following week, but did not conduct the interview.

         On May 16, 2014, Salmon sent a letter to Bolls asking him to confirm that Chinook had an exclusive license over the “Licensed Products.” On the same day, Bolls replied, “[t]hank you for taking the time to ask for a confirmation of Chinook USA's rights as our exclusive licensee of tea in single serve and food service channels. This email confirms the same.”

         On or around June 28, 2014, Chinook made a transfer of $250, 000 to 3292 Brands as agent for DC.

         Cox testified that after the initial good reception for the product, sales numbers became flat in the summer of 2014 and “[w]e didn't see the growth that we had hoped.”

         On August 6, 2014, 3292 Brands provided to Chinook a proposal DC received from Checkered Flag to license a vitamin water and gave Chinook the opportunity to “propose on a similar product” before it made a decision to move forward with Checkered Flag. Additionally, 3292 Brands attached an “Amendment to the contract that will give Chinook first right of refusal going forward for the RTD Beverage Category within 10 days of notification of a pending deal.” On September 2, 2014, Bolls relayed to Dahlen that Chinook's number of days to review the vitamin water proposal had passed and “we are clear to move forward without them.”

         On September 3, 2014, Salmon sent an email to Scott Headington expressing his gratitude for contacting him about being approached with an offer for licensing a health supplement water and stating that “[a]fter an extensive review of this category, we feel it is in Chinook USA's and our existing brands best interest to pass on the development of a health supplement water.” Salmon went on to state that Chinook's board felt there was no need to add an amendment to the Agreement. Salmon explained, “[w]e understand from time-to-time 3292 Brands and Duck Commander may be approached by a potential licensee about a product that falls within our existing agreement and that you will contact us about the opportunity.”

         On September 15, 2014, Dahlen sent an email to Korie Robertson stating that:

we would like to have Chinook sign a clear definition of RTD instead of the first right of refusal. They created a stink over the Energy Shot and we can't have that continue to happen every time we want to do a liquid product. We also drafted that first right of refusal at their request to be good partners and they have decided not to sign it, which is fine with us.

         On September 22, 2014, DC granted Checkered Flag a five-year non-exclusive license to sell DC-branded “flavored bottled water and enhanced bottled water with multiple flavor options.” [Doc. No. 48-7, p. 11');">p. 11]. The agreement required Checkered Flag to pay an advance of $300, 000 and a “Guaranteed Minimum Royalty” of $9, 000, 000 spread out over the five-year term of the contract. Id.

         On or around September 26, 2014, Chinook made a transfer of $250, 000 to 3292 Brands as agent for DC.

         On October 8th, 9th, and 10th, 2014, Willie Robertson made an appearance on behalf of DC at the National Association of Convenience Stores Show in Las Vegas. Chinook had requested an appearance by Uncle Si, but instead a video of Uncle Si promoting the tea played on a loop at the convention.

         On November 6, 2014, a meeting was held between representatives of DC and Chinook. Present on behalf of Chinook were Cox, Salmon, Gunderson, and Chinook board member Dennis Frankenberger. Present on behalf of DC were Bolls and Kyle Tengwall.

         Following the meeting, Cox asked Dennis Frankenberger to draft a report of the meeting. On November 10, 2014, the report was sent to certain Chinook employees, indicating that DC was receptive to the fact that Chinook had not wired the scheduled licensee fee to DC because of DC's inability to comply with Schedule B. Additionally, it was discovered that an energy shot was being licensed by DC. On that same day, Salmon replied that DC was “very receptive to our proposals and willing to look at potential revisions to our agreement.” Further, Salmon went on to state:

to the best of my knowledge and from information provided by David Bolls we passed on the Duck Commander Energy Shot back in April at the Duck Commander 500. After being made aware that the product was on the market this past July I contacted David Bolls with my concern about the product. David informed me that comments made by Paul at the Duck Commander 500 were interpreted by Rachel Dahlen and Scott Headington that Chinook USA had no interest or intention in pursuing an Energy Shot product. I believe their understanding was that they addressed it with us and we passed. After being informed of this by David Bolls, I told David that in the future they must come to us formally in writing when checking our interest in pursuing new opportunities related to our RTD exclusivity.

         At a December 2014 meeting, Cox was introduced to Terry Griffin who proposed to take over Chinook's exclusivity license and have Cox placed in a minority position to recoup his losses. Cox ultimately declined that proposal.

         In a letter dated January 21, 2015, the licensing agreement between Checkered Flag and DC was terminated by the parties.

         On January 25, 2016, Chinook filed the instant lawsuit seeking damages against Defendants alleging fraud in the inducement, breach of contract, breach of covenant of good faith, federal trademark infringements, civil conspiracy relating to tortious interference with a contract, tortious interference of a contract, unfair trade practices, and bankruptcy-related claims. [Doc. No. 1].

         On March 28, 2016, 3292 Brands answered Chinook's Complaint. [Doc. No. 11].

         On March 31, 2016, DC answered Chinook's Complaint and asserted a counter-claim against Chinook. [Doc. No. 14]. DC asserts that Chinook failed to pay DC the minimum royalty payments and a personal endorsement fee in accordance with the Agreement. Id. at 11.

         On April 5, 2016, Dahlen Associates, Checkered Flag, and Go-Time answered Chinook's Complaint. [Docs. No. 19, 20, & 21].

         On April 22, 2016, the Court's Judgment dismissed Counts I, II, III and VII of Chinook's Complaint concerning bankruptcy-related matters and trademark claims. [Doc. No. 33].

         On February 2, 2017, Chinook filed a Motion for Partial Summary Judgment [Doc. No. 48], and Defendants filed a Motion for Summary Judgment [Doc. No. 47]. On May 2, 2017, the Court ruled on the cross motions for summary judgment, denying Chinook's Motion for Partial Summary Judgment and granting in part and denying in part Defendants' Motion for Summary Judgment. The Court dismissed Chinook's tortious interference with a contract and civil conspiracy claims.

         B. CONCLUSIONS OF LAW

         The Court applies substantive state law in a diversity action. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); see ACS Constr. Co., Inc. of Miss. v. CGU, 332 F.3d 885, 888 (5th Cir. 2003) (“We look to state law for rules governing contract interpretation.”). In addition, Section 16 of the Agreement provides that the Agreement “shall be governed in accordance with the laws of the State of Louisiana.” Accordingly, the Court interprets the Agreement in accordance with Louisiana law.

         Chinook's remaining claims include claims for breach of contract, breach of covenant of good faith, fraud in the inducement, and for unfair trade practices.

         1. ...


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