author: MULLIGAN, Circuit Judge:

text:
    Steven FLAKS et al., Plaintiffs-Appellees, v. David I. KOEGEL and Flora Mir Candy Corporation, Defendants-Appellants.
    No. 1135, Docket 74-1437.
    United States Court of Appeals, Second Circuit.
    Argued July 15, 1974.
    Decided Sept. 25, 1974.

      Harold B. Lawrence, New York City (Salon, Ortner, Yavers, Dershowitz & Raybin, New York City, Joseph Jackson, New York City, of counsel), for plaintiffs-appellees.
    Clark J. Gurney, New York City (Roth Carlson & Spengler, New York City, Charles E. Matthews, Jr., William J. McSherry, Jr., New York City, of counsel), for defendants-appellants.
    Before MULLIGAN, WINTER, Circuit Judges and NEWMAN, District Judge.

       Of the United States Circuit Court of Appeals, Fourth Circuit, sitting by designation.

       Of the United States District Court, District of Connecticut, sitting by designation.

   MULLIGAN, Circuit Judge:

The eight named plaintiffs brought an action on May 8, 1972 in the United States District Court for the Southern District of New York charging the defendants with violations of sections 5 and 17 (a) of the Securities Act of 1933, as amended (15 U.S.C. §§ 77e & 77q(a)), and section 10(b) of the Securities Exchange Act of 1934, as amended (15 U.S.C. § 78j(b)), as well as common law fraud and deceit. The plaintiffs alleged that in April, 1968 and various times thereafter, they were induced to purchase certain 5% convertible subordinated debentures of Flora Mir Candy Corporation (Flora Mir) by the false representations of the defendant David I. Koegel, who is the president and principal stockholder of Flora Mir, which is joined as a corporate defendant. The complaint alleged in substance that Koe-gel had misrepresented the financial condition of the company; allegedly, its assets and sales volume were substantially overstated and its liabilities were substantially understated. The complaint sought to recover $400,000 in damages plus interest, rescission and $400,000 in punitive damages. In their answer, the defendants denied the material allegations of the complaint and pleaded affirmative defenses, including the statute of limitations, laches, the exemption from registration of the securities under the 1933 Act and a provision in the purchase agreement by which the plaintiffs acknowledged that no inducements had been made to cause them to enter the agreement unless contained in the agreement or the debentures which were the subject of the sale. The issues in the case never reached trial. On August 22, 1973, the Hon. Morris E. Las-ker, United States District Judge, entered an order striking the defendants’ answer because of the failure of the.defendants to respond fully to interrogatories which had been served and the failure of Koegel to appear at a deposition of David I; Koegel Enterprises, Inc., a corporation wholly owned by Koegel and his wife. The order also directed the clerk to enter a default judgment in the amount sought in the complaint, plus interest. A motion to vacate the default judgment under Fed.R.Civ.P. 60(b) was made on September 14, 1973 and was denied without a hearing in a memorandum and order dated January 25, 1974. Final judgment in the sum of $919,147.-50 was entered by the clerk of the court on January 28, 1974. There was no proof or hearing to' ascertain damages. This appeal by the defendants followed. The denial of the motion to vacate is reversed and the case remanded for an evi-dentiary hearing in accordance with this opinion.

I

On June 20, and June 23, 1972, the plaintiffs served written interrogatories on Koegel and Flora Mir respectively. Each set consisted of 130 questions with numerous subquestions. (One set takes up 47 pages of the appendix.) When the interrogatories were not answered, plaintiffs moved on July 31, 1972 for an order to compel their answer. This motion was referred to United States Magistrate Gregory J. Potter, and thereafter an agreement was reached between the parties that the defendants would furnish responses by December 19, 1972. When sufficient responses were not forthcoming, the plaintiffs moved on January 4, 1973 to strike the answer of the defendants pursuant to Fed.R.Civ.P. 37(b)(2)(C) & (d). The motion was then referred to United States Magistrate Gerard L. Goettel, who held hearings on February 23, 1973 and April 17, 1973, resulting in the service of answers and supplemental answers which plaintiffs’ counsel still deemed inadequate. In a Report and Recommendation dated May 22, 1973, Magistrate Goettel found that the defendants had failed to adequately explain the absence of pertinent books and records which were alleged to be necessary to respond completely. He stated: “Should depositions (or other discovery) establish that the defendants’ failure to obtain the records and supply responsive answers to the interrogatories has been willful, the conduct of the defendants can be dealt with at that time.” He found that the answers to four items, questions 20(a), (b) and (c), 38, 45(b) and 66(b), were inadequate and recommended that an order be entered providing for the striking of the answer unless these items were answered within 20 days after the date of the court’s order. In view of the amount of time and effort expended by plaintiffs on motions to have the interrogatories answered, the Magistrate recommended that the court assess attorneys’ fees in the amount of $1,000 against defendants. Although expressly making no finding as to willfulness, the report did comment that the defendants were not cooperating with their own counsel.

On June 7, 1973, an adjourned examination before trial of David I. Koegel Enterprises, Inc. was scheduled to take place in the office of counsel for the plaintiffs. This corporation, wholly owned by Koegel and his wife, was alleged to be a device utilized by Koegel to further the deception practiced upon the plaintiffs. Koegel, who was to be deposed on behalf of the corporation, failed to appear. Instead Koegel’s counsel delivered a letter to plaintiffs’ counsel indicating that his law firm was withdrawing as of that date as counsel to the defendants. The letter contained a request that the examination be adjourned until new counsel was substituted. The adjournment was refused by counsel for plaintiffs.

On June 13, 1973, the plaintiffs made a motion, returnable on June 27, 1973, for an order pursuant to Rule 37(d) and Rule 37(b)(2)(C) striking the answer and rendering judgment by default. The affidavit accompanying the notice of motion recited the history of the litigation up to June 13, but primarily relied upon the recommendations of Magistrate Goettel’s report of May 22nd and the failure of Koegel to appear for the June 7th examination.

On June 14, 1973, defendants’ counsel filed a motion for an order permitting them to withdraw as counsel. On June 21st, Judge Lasker, without a hearing, entered an order which confirmed the Magistrate’s report and ordered the answer stricken unless responses to the four items in issue were provided within 20 days. Attorneys’ fees of $1,000 payable to the plaintiffs were also assessed against the defendants.

On July 25, 1973, Judge Lasker granted the motion of defendants’ counsel to be relieved, noting that no opposing papers had been filed although the notice, of motion had been served upon defendants, and that the Judge had personally written a letter to Koegel on June 28, 1973 advising him of his perilous situation. Judge Lasker, at a conference in chambers, further advised Koegel’s personal attorney, who represented the defendants there although he had not been retained in this matter, that the court was prepared to act on the plaintiffs’ motion to strike and to enter a default on July 27,1973.

On August 2nd, the motion to strike the answer was granted, the district court judge noting in the endorsement that the defendants had been given adequate time to find new counsel but had failed to do so. An order was directed to be submitted on notice to defendants or any counsel who might appear for defendants. No response to the order was made, and on August 22, 1973 an order was entered by Judge Lasker striking the answer and directing the clerk of the court to enter judgment for the sums demanded in the complaint with interest. This appeal from the default judgment and the denial of the subsequent Rule 60(b) motion to vacate followed.

II

Before discussing the question of whether or not any default judgment was appropriate, we should make clear that the particular judgment entered here must be vacated. The ad damnum clause did seek the sum of $400,000 in punitive damages, and this amount was included in the default judgment entered. It -is well established that an award for punitive damages is not permissible for violations either of section 10(b) of the 1934 Act, Green v. Wolf Corp., 406 F.2d 291 (2d Cir. 1968), cert. denied, 395 U.S. 977, 89 S.Ct. 2131, 23 L.Ed.2d 766 (1969), or of section 17(a) of the 1933 Act, Globus v. Law Research Serv., Inc., 418 F.2d 1276 (2d Cir. 1969), cert. denied, 397 U.S. 913, 90 S.Ct. 913, 25 L.Ed.2d 93 (1970). However, the plaintiffs have also claimed common law fraud, and it would appear that punitive damages are permissible

on this pendent claim. Coffee v. Permian Corp., 474 F.2d 1040, 1044-1045 (5th Cir.), cert. denied, 412 U.S. 920, 93 S.Ct. 2736, 37 L.Ed.2d 146 (1973) ; Young v. Taylor, 466 F.2d 1329, 1337-1338 (10th Cir. 1972) ; Burkhart v. Alison Realty Trust, 363 F.Supp. 1286, 1290-1291 (N.D.Ill.1973); In re Caesars Palace Sec. Litigation, 360 F.Supp. 366, 393-394 (S.D.N.Y.1973); Gann v. Bernzomatic Corp., 262 F.Supp. 301, 304 (S.D.N.Y. 1966); VI L. Loss, Securities Regulation 3781-3783 (Supp.1969); Hirsch & Lewis. Punitive Damage Awards Under the Federal Securities Acts, 47 Notre Dame Law. 72, 79 (1971); Note, Measurement of Damages in Private Actions Under Rule 10b-5, 1968 Wash. U.L.Q. 165, 168 n. 20.

While punitive damages are recoverable, it is evident that their amount cannot be fixed without an evidentiary hearing. An award of punitive damages is not a matter of right but is within the discretion of the trier of the facts and will depend upon the degree of wanton and willful conduct of the defendant. Globus v. Law Research Serv., Inc., 287 F.Supp. 188, 192 (S.D.N.Y.1968), aff’d in part and rev’d in part, 418 F.2d 1276 (2d Cir. 1969), cert. denied, 397 U.S. 913, 90 S.Ct. 913, 25 L.Ed.2d 93 (1970). But here, there has been no trial of the facts and therefore no basis for determining how egregious or opprobrious that conduct has been. While a default judgment constitutes an admission of liability, the quantum of damages remains to be established by proof unless the amount is liquidated or susceptible of mathematical computation. Trans World Airlines, Inc. v. Hughes, 449 F.2d 51, 69-70 (2d Cir. 1971), rev’d on other grounds, 409 U.S. 363, 93 S.Ct. 647, 34 L.Ed.2d 577 (1973); Davis v. National Mortgage Corp., 320 F.2d 90, 91-92 (2d Cir. 1963); 6 J. Moore, Federal Practice j] 55.07 (2d ed. 1974) and cases cited. See also Fed.R.Civ.P. 8(d). Punitive damages are clearly not liquidated or computable and there is no basis at all here to award the amount set forth in the complaint. See Bass v. Hoagland, 172 F.2d 205, 209 (5th Cir.), cert. denied, 338 U.S. 816, 70 S.Ct. 57, 94 L.Ed. 494 (1949). The plaintiffs are really not requesting compensatory dam.ages but rather rescission and are simply seeking the recovery of the amounts paid for their stock. This is an appropriate remedy under sections 10(b) and 17, Chris-Craft Indus., Inc. v. Piper Aircraft Corp., 480 F.2d 341, 391 (2d Cir.), cert. denied, 414 U.S. 910, 94 S.Ct. 232, 38 L.Ed.2d 148 (1973). We assume that the plaintiffs will tender back the securities obtained and therefore that no determination of their value, if any, is necessary. The determination of the amount paid by the plaintiffs for the securities is easily made and presents none of the difficulties provoked by the punitive damage question herein discussed.

Ill

A more difficult question remains. Did the district court abuse its discretion in striking the answer and directing the entry of the default judgment? There is no doubt but that the sanction of judgment by default, although most severe, is within the discretion of the trial judge. Trans World Airlines, Inc. v. Hughes, 332 F.2d 602, 614 (2d Cir. 1964) ; Gill v. Stolow, 240 F.2d 669, 670 (2d Cir. 1957); 8 C. Wright & A. Miller, Federal Practice & Procedure § 2284 (1970). The appellees urge now that, in exercising its discretion, the district court need not have found that the conduct of the defendants was willful, and that, in any event, there was enough in the record before the court to demonstrate that the defendants acted willfully and that no evidentiary hearing on this issue was necessary. The appellees do concede, however, that such a hearing would possibly have been advantageous to the court.

If the Rule presently required ... a showing [of willfulness], then a hearing

The argument that willful refusal to obey an order to respond to interrogatories or to appear for a deposition is not a necessary prerequisite to the imposition of any sanction under Rule 37 is premised on the position that the 1970 amendments to Rule 37 eliminated from the Rule the term “willful,” which had previously been employed to characterize the conduct which would trigger the sanctions of the Rule. We do not accept this argument. The 1970 amendments were intended to authorize the court, where it deemed appropriate, to impose more flexible and softer sanctions for Rule 37 violations than theretofore provided. However, there was no intent to eliminate the willfulness element when the harsh sanction of the dismissal of a complaint or the striking of an answer was ordered. This is made clear in the note of the Advisory Committee on the Rules. The Committee stated:

Two related changes are made in subdivision (d): the permissible sanctions are broadened to include such orders “as are just”; and the requirement that the failure to appear or respond be “wilful” is eliminated. Although Rule 37(d) in terms provides for only three sanctions, all rather severe, the courts have interpreted it as permitting softer sanctions than those which it sets forth. . . . The rule is changed to provide the greater flexibility as to sanctions which the cases show is needed.
The resulting flexibility as to sanctions eliminates any need to retain the requirement that the failure to appear
(d) Failure of Party to Attend or Serve Answers. If a party or an officer or
or respond be “wilful.” “Wilfullness” continues to play a role, along with various other factors, in the choice of sanctions. Thus, the scheme conforms to Rule 37(b) as construed by the Supreme Court in Societe Internationale v. Rogers, [57 U. S. 197, 208 [78 S.Ct. 1087, 2 L.Ed.2d 1255] (1958).

Notes of Advisory Committee on Rules, 28 U.S.C.A. Rule 37, at 45, 47 (Supp.1974) (citations omitted).

There is no question but that dismissal of a pleading is the most drastic sanction provided by the Rule. Judge Sterry Waterman has commented:

If the cause has not gone to trial and it is before a Court of Appeals following an order of dismissal, or a contempt conviction, the reviewing court, before affirming the use of these drastic sanctions permissible under Rule 37, will scrutinize the situation out of which the sanction order arose. The contempt sanction, though wicked-sounding, is not nearly as drastic a sanction as dismissal. It only leads to a fine or a possible jail sentence — its use does not result in the termination of a litigant’s cause of action.

An Appellate Judge’s Approach When Reviewing District Court Sanctions Imposed for the Purpose of Insuring Com-plaince with Pretrial Orders, 29 F.R.D. 420, 423 (1962).

The Rule has constitutional limitations which were noted in Mr. Justice Harlan’s opinion for the Court in So-ciete Internationale v. Rogers, 357 U.S. 197, 209, 78 S.Ct. 1087, 1094, 2 L.Ed.2d 1255 (1958), in which he stated:

managing agent of a party wilfully fails to appear before tlie officer who is to take his deposition, after being served with a proper notice, or fails to serve answers to interrogatories submitted under Rule 33, after proper service of such interrogatories, the court on motion and notice may strike out all or any part of any pleading of that party, or dismiss the action or proceeding or any part thereof, or enter a judgment by default against that party, (emphasis added.)
The provisions of Rule 37 which are here involved must be read in light of the provisions of the Fifth Amendment that no person shall be deprived of property without due process of law, and more particularly against the opinions of this Court in Hovey v. Elliott, 167 U.S. 409 [17 S.Ct. 841, 42 L.Ed. 215] and Hammond Packing Co. v. Arkansas, 212 U.S. 322 [29 S.Ct. 370, 53 L.Ed. 530]. These decisions establish that there are constitutional limitations upon the power of courts, even in aid of their own valid processes, to dismiss an action without affording a party the opportunity for a hearing on the merits of his cause. The authors of Rule 37 were well aware of these constitutional considerations. See Notes of Advisory Committee on Rules, Rule 37, 28 U.S.C. (1952 ed.), p.4325.

On the record before it, the Court decided

that Rule 37 should not be construed to authorize dismissal of this complaint because of petitioner’s noncompliance with a pretrial production order when it has been established that failure to comply has been due to inability, and not to willfulness, bad faith,- or any fault of petitioner.
Deponent believes that Mr. Koegel tried in good faith to furnish the requisite information. However, his files are in such disarray and he has been involved in so many complicated transactions that it was difficult, if not impossible, for him to fully satisfy the plaintiffs’ attorneys.

357 U.S. at 212, 78 S.Ct. at 1096 (footnote omitted).

• [8] We conclude that the challenged order below is only sustainable if it has been demonstrated that the defendants’ failure to comply was in fact due to willfulness, bad faith or fault and not to an inability to comply. Societe Internationale v. Rogers, supra, 357 U.S. at 212, 78 S.Ct. 1087; Dorsey v. Academy Moving & Storage, Inc., 423 F.2d 858, 860 (5th Cir. 1970); 4A. J. Moore, Federal Practice fí 37.05, at 37-95 (2d ed. 1973); 8C. Wright & A. Miller, supra, § 2284, at 766

The record before us reveals a prolonged and bitter pretrial controversy ranging over an 18-month period. The following stages emerge as crucial. On June 21st, the district court issued the order which was, in effect, a confirmation of the report of Magistrate Goettel, in which he had recommended that the answer be stricken unless- the defendants supplied responses to the four items omitted from the lengthy list of questions propounded by the plaintiffs. It is noted again that the report, although finding a failure on the part of the defendants to cooperate with their own counsel, specifically deferred the question of willfulness to a later date. The report, standing alone, would therefore not support a finding of any deliberate refusal to respond to interrogatories which would justify the sanction imposed. Koegel never made a personal appearance before the Magistrate from which the latter might have been able to derive a conclusion that Koegel was acting willfully in failing to respond to the interrogatories. By the time the June 21st order was entered, Koegel’s counsel had sought permission to be relieved. There is nothing in the record to support any finding of willfulness prior to June 21st.

After the June 21st order, the scenario becomes more complex. On June 27th, Judge Lasker held a conference in his chambers which was attended by Koegel’s original but estranged counsel, Koegel’s personal counsel, who appeared on his behalf although not retained to represent him in this action, and counsel for the plaintiffs. On June 28th, Judge Lasker wrote to Koegel advising him of the conference and that he had two matters pending before him which affected Koegel personally: the motion to strike the answer and enter a default judgment, as well as the motion by his counsel to withdraw. The letter advised Koe-gel that the judge had deferred the return date of the June 13th motion until July 27th; he noted that he was aware that Koegel would be abroad until July 17th. The trial judge gave Koegel until July 20th to supply an affidavit in relation to the motion of counsel to withdraw and further stated that, barring strong evidence in the affidavit, the motion would be granted. On the assumption that the motion would be granted, he instructed Koegel to take steps to retain counsel on the motion to strike. He further stated that, after July 27, 1973, he would be prepared to forthwith determine the motion to strike “regardless of whether any attorney has appeared on your behalf.”

The only response received by Judge Lasker was a letter from Koegel’s personal attorney dated July 19, 1973 to the effect that he had discussed the matter with Koegel on July 17th on his return to America, and that Koegel’s financial position was such that he was unable to retain counsel “on such short notice.” With respect to the interrogatories, Koe-gel’s stance was that his former attorneys had already received enough records to respond, and that, since Flora Mir was in a Chapter XI proceeding, most if not all of the information sought was a matter of record. With respect to the examination, Koegel’s view was that he had been ready to appear but that the date had been frequently adjourned, and that he was never given sufficient notice of adjourned dates. The letter eonclud-ed with a request for a hearing so that Koegel might testify and prove his arguments by documentary evidence.

On August 2nd, the motion by plaintiffs to strike the answer was granted and the order of August 22nd followed. No appearance by defendants was made either on the motion or in the interim period before the order issued.

The appellants now claim that-the August 22nd order constituted an abuse of discretion since Judge Lasker’s order made no explicit finding that the conduct of the defendants was willful and further failed to find that the interrogatories in question were in fact material to the merits of the litigation. We consider the materiality question to be frivolous. The posture of the defendants has continually been, not that the interrogatories were irrelevant, but either that counsel had been supplied with the information necessary to answer them, or that more time was needed to respond. Since the interrogatories relate to financial transactions between Flora Mir and Koegel and between Flora Mir and its subsidiaries, and in view of the wide-ranging charges in the complaint, it would be difficult to conceive how they were not pertinent. The argument was not strongly urged below and on appeal it is gossamer.

The willfulness argument, however, has more substance. There was no articulation in the August 22nd order of a standard of willfulness and no finding that the defendants had acted willfully. The order was based, not on evidence produced at a hearing, but rather on the affidavits of counsel for the plaintiffs, as well as the failure of the defendants to comply with the June 21st order, or to respond to the motion, and the failure of Koegel to appear for the June 7th examination.

Although it is not possible to determine what standard the court employed, the record before the judge was one of seeming callousness and intransigence on the part of Koegel. The court’s letter of June 28th instructing Koegel to respond by affidavit before July 20th was not even given to Koegel until July 17th, and the response was a letter from private counsel but no affidavit from Koegel. No appearances had been made and judicial patience and forbearance were understandably exhausted. On the other hand, Koegel had requested a hearing, the court had relieved his counsel and knew of his problems in obtaining new counsel, the default judgment to be entered was substantial and the four interrogatories left unanswered were limited compared to the large number proposed.

We need not agonize over this because the terminal stage of the pretrial skirmish provides a clear case of judicial abuse of discretion which warrants reversal and remand.

IV

Defendants finally did retain new counsel, who filed a notice of appearance dated August 16, 1973, and on September 14th they moved under Fed.R.Civ.P. 60(b) to vacate the order of August 22, 1973. The moving papers on this mo-

tion included an affidavit of Koegel in which he swore to the following:

1) That he did not receive the court’s letter of June 28th nor was he aware of its contents until he returned to the United States from South America on July 17, 1973; that thereafter he made continuing efforts to retain counsel, but that the attorneys whom he contacted were discouraged by his prior counsel from representing him.

2) That he was never served with the court’s order of June 21, 1973 directing further answers to the four items and was never made aware of the contents of such order until after retention of new counsel in late August, 1973; that previous counsel had been given sufficient material to answer the four items, including all the books and records of Flora Mir pertaining to its relationship with David I. Koegel Enterprises, Inc.; that previous counsel had asserted an attorney’s lien on the records and had refused to turn them over to his present counsel.

3) That he was prepared to attend the deposition of David I. Koegel Enterprises, Inc. on the date set for the original examination but was advised that it had been adjourned and was never notified to appear on any subsequent date.

In addition to the affidavit of Koegel, his former counsel also submitted an affidavit on the motion as amicus curiae. In view of the strained relationship which existed between them, this affidavit is, in our view, particularly significant. While it does recite the repeated unfruitful efforts of counsel to secure Koegel’s cooperation in obtaining the answers to the interrogatories, the affidavit does not directly state that Koegel was made aware of either the June 21st order or the adjourned examination of June 7th. The deponent further admits the assertion of an attorney’s lien on Koegel’s books and records until present counsel had arranged payment for services. There is an emphatic denial that prospective counsel were discouraged from appearing on behalf of Koegel, but also an admission that two or three telephone calls had been received from attorneys whom Koegel had contacted. In fact, the affidavit alleges that there are meritorious defenses to the action and that inquiring counsel were so advised, and the court below was urged to permit Koegel, with new counsel, to try the case on the merits. Moreover, the affidavit states:

Judge Lasker, without any hearing, denied the Rule 60(b) motion to vacate by an order dated January 25, 1974, in which he concluded that the defendants’ repeated failures to cooperate in plaintiffs’ requests for discovery failed to demonstrate “the good faith effort contemplated by the Federal Rules.”

The affidavits submitted by Koegel personally, by his new counsel and by his former counsel created, in our view, material issues of fact which could not have been properly resolved without an evidentiary hearing. As Chief Judge Kaufman indicated in Dopp v. Franklin National Bank, 461 F.2d 873, 879 (2d Cir. 1972), generally a judge should not resolve factual disputes on affidavits or depositions, for then he is merely showing a preference for “ ‘one piece of paper to another’.” This is particularly true here where the motion sought to be vacated under Rule 37 involved the dismissal of an answer and the entry of a default judgment in a large sum in an action in which it has been urged by both old and new counsel that meritorious defenses exist. As we have previously indicated, due process constitutional considerations underlie Rule 37 dispositions. We consider the failure of the court here to conduct an evidentiary hearing in order to determine the question of defendants’ willfulness an abuse of discretion.

It is true that Koegel had repeatedly failed to respond or to appear, but the papers before the court on the Rule 60(b) motion for the first time, in affidavit form, presented the other side of the story. Prior to this point, the plaintiffs’ efforts to procure an examination of Koegel Enterprises or a response to interrogatories had been portrayed to be as arduous as Hercules’ pursuit of the Erymanthian boar or the Lernaean hydra. The affidavits then before the court depicted Koegel as a victim of the neglect of disaffected counsel, unaware of the crucial orders we have recounted, ready and able to comply and also seeking an evidentiary hearing to establish his bona fides. If counsel rather than the client were at fault and if serious efforts to obtain new counsel had been made under the handicaps described, then the order entering the default judgment was an abuse of discretion. See Vindigni v. Meyer, 441 F.2d 376 (2d Cir. 1971); Patterson v. C.I.T. Corp., 352 F.2d 333 (10th Cir. 1965); United Sheeplined Clothing Co. v. Arctic Fur Cap Corp., 165 F.Supp. 193 (S.D.N.Y.1958). See also Dorsey v. Academy Moving & Storage Co., supra; Von Der Heydt v. Rogers, 102 U.S.App.D.C. 114, 251 F.2d 17 (1958) (per curiam). The matter could not be determined on the basis of conflicting and competing affidavits. We are in no better or worse position than the district court was in the absence of the evidence which a hearing could produce to determine whether or not Koegel’s claims were credible. This position is not sufficiently secure to support the drastic action taken.

We are persuaded that the proper resolution is to reverse the order denying the Rule 60(b) motion and remand for an evidentiary hearing so that appropriate findings may be made consonant with the due process standards we have discussed. In the event that the court adheres to its initial conclusion and does not direct the action to proceed on the merits, then the default judgment to be entered must be consistent with Part II of this opinion.

Reversed and remanded.

      . Rule 37(b) provides in pertinent part:
      (b) Failure to comply with order.
      (2) Sanctions by court in which action is pending. If a party or an officer, director, or managing agent of a party or a person designated under Rule 30(b)(6) or 31(a) to testify on behalf of a party fails to obey an order to provide or permit discovery, including an order made under subdivision (a) of this rule or Rule 35, the court in which the action is pending may make such orders in regard to the failure as are just, and among others the following:
      (C) An order striking out pleadings or parts thereof, or staying further proceedings until tlie order is obeyed, or dismissing tbe action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party
      Rule 37(d) provides as follows :
      (d) Failure of party to attend at own deposition or serve answers to interrogatories or respond to request for inspection. If a party or an officer, director, or managing agent of a party or a person designated under Rule 30(b)(6) or 31(a) to testify on behalf of a party fails (1) to appear before tbe officer who is to take his deposition, after being served with a proper notice, or (2) to serve answers or objections to interrogatories submitted under Rule 33, after proper service of the interrogatories, or (3) to serve a written response to a request for inspection submitted under Rule 34, after proper service of the request, the court in which the action is pending on motion may make such orders in regard to the failure as are just, and among others it may take any action authorized under paragraphs (A), (B), and (O) of subdivision (b) (2) of this rule. In lieu of any order or in addition thereto, the court shall require the party failing to act or the attorney advising him or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.
      The failure to act described in this subdivision may not be excused on the ground that the discovery sought is objectionable unless the party failing to act has applied for a protective order as provided by Rule 26(e).

      . Rule 37(b)(2)(C) permits a court to strike a pleading if a party fails to obey an order of the court to provide discovery. Rule 37(d) allows a court to impose the same sanction whenever a party fails to appear at a scheduled deposition or to serve answers to interrogatories. See footnote 1 supra. Subsection (d) does not require as preconditions to the striking of an answer that a court order be entered imposing a duty to appear at a deposition or to respond to interrogatories and that the order be disobeyed, in contrast with subsection (b). However, the reference in subsection (d) to a failure to respond to interrogatories does not. cover the submission of some but not all answers, or the submission of all answers, some of which are inadequate. Rather, it contemplates only a serious or total failure to respond. The insufficient submissions just mentioned are to be remedied by an application to the court for an order compelling complete discovery. 80. Wright & A. Miller, Federal Practice & Procedure § 2291, at 809-10 (1970). If that,order is disobeyed, the sanctions of subsection (b) then apply.
      In this case, subsection (d) clearly applied to the failure of Koegel to appear at the June 7th deposition. It would appear that the failure of the defendants to respond to four items in the interrogatories was not covered by subsection (d) in light of the limitations on that subsection just mentioned. However, subsection (b) was applicable once defendants’ failed to obey the court order which subsection (b) requires, here the order of June 21st. While the appropriate remedial provisions were therefore invoked in this case, the question still remains whether or not the ultimate sanction was justified on the facts presented.

      . Appellees state in their brief on this appeal : possibly would have been advantageous to the court in order to observe the demean- or of the defendant and to determine whether his default has been willful or not. But with the removal of tills requirement from Rule 37, there was no need for yet another hearing and there was more than enough before Judge Lasker . . . to enable him to make a decision.

      . Prior to the 1970 revision, Rule 37 (d) provided as follows:

      . Societe Internationale v. Rogers dealt with the imposition of a sanction under subsection (b) of Rule 37. However, the restrictions imposed upon courts by this case clearly extend to the entire Rule, as the language quoted above indicates. Thus, when the Advisory Committee on the Rules, in discussing the revised subsection (d), stated that the scheme of the subsection “conforms to Rule 37(b) as construed by the Supreme Court” in So-ciete, it obviously intended to indicate that the willfulness required by that case as a prerequisite to the imposition of the ultimate sanction of striking a pleading must be found before that sanction could be imposed under subsection (d). See 8C. Wright & A. Miller, Federal Practice & Procedure § 2291, at 811-13 (1970).

      . Appellants argue on this appeal that no sanctions could be imposed under Rule 37 with respect to the failure of Koegel to appear at the deposition of Koegel Enterprises. Rule 37(d) provides that a court may strike a pleading of a party to the case if the “party . . . fails (1) to appear before the officer who is to take his deposition . ” The contention is made that since the deposition of June 7th was to be the deposition of Koegel Enterprises, which is not a party to this case, subsection (d) does not apply. It is true that Koegel, a party, failed to appear at the deposition of Koegel Enterprises, a non-party. However, it is clear that Koegel Enterprises was the alter ego of Koegel. The answers of the defendants to the interrogatories revealed that Koegel and his wife were the officers, directors and sole stockholders of Koegel Enterprises. Plaintiffs’ counsel, in his affidavit accompanying the motion to strike of June 13, 1973, stated that counsel for defendants had informed him that Koegel was the manager of the affairs of Koegel Enterprises and the only person who could testify regarding its business transactions. At her deposition, Mrs. Koegel apparently affirmed this position.' The record reveals that the parties to this case acted throughout upon the assumption that Koegel Enterprises was the alter ego of Koegel himself. Under the circumstances, we believe that the failure of Koe-gel to appear at the deposition of June 7tli, not because lie disputed the position that only he could testify with respect to the affairs of Koegel Enterprises but because he was allegedly never informed that the deposition was to take place, did fall within Rule 37(d). In light of the virtual identity of interest between Koegel and Koegel Enterprises and Koegel’s position of complete control over the corporation, the failure of Koegel Enterprises to appear at the deposition could properly be considered to be the failure of the party Koegel to appear at his deposition. See International Controls Corp. v. Vesco, 490 F.2d 1334, 1349-1351 (2d Cir.), cert. denied, 94 S.Ct. 2644, 41 L.Ed.2d 236, 94 S.Ct. 2644 (1974) ; cf. Foreign Credit Corp. v. Aetna Cas. & Sur. Co., 276 F.Supp. 791, 794 (S.D.N.Y.1967) ; Erone Corp. v. Skouras Theatres Corp., 22 F.R.D. 494, 498 (S.D.N.Y.1958).

      . It should be observed that the notice to take the deposition of David I. Koegel Enterprises, Inc. dated April 10, 1973 contains an indication that the notice was sent to both defendants’ original counsel and the offices of Koegel Enterprises. However, the deposition, scheduled under the April 10th notice for May 15, was adjourned to June 7 by a stipulation which was signed only by the attorneys for the plaintiffs and defendants. There is no indication on the face of the stipulation that a copy of it was ever sent to Koegel personally or to Koegel Enterprises.


source: Caselaw Access Project

author: SNEED, Circuit Judge.

license: Public Domain

text:
    HMH PUBLISHING CO., INC., a Delaware corporation, and Playboy Clubs International, Inc., a Delaware corporation, Appellees, v. Victor BRINCAT, Appellant.
    No. 72-1728.
    United States Court of Appeals, Ninth Circuit.
    Aug. 15, 1974.
    As Modified on Denial of Rehearing Nov. 20, 1974.

      Timothy J. Ward (argued), Burlin-game, Cal., for appellant.
    Michael L. Shakman (argued), of De-voe, Shadur, Plotkin, Krupp & Miller, Chicago, 111., for appellees.
   OPINION

Before BROWNING and SNEED, Circuit Judges, and SHARP, District Judge.

SNEED, Circuit Judge.

The present appeal attacks a judgment entered by the United States District Court for the Northern District of California in which it was held that appellant’s use of the terms “Playboy” and “Bunny” in conjunction with his various businesses constituted trademark infringement and unfair competition. HMH Publishing Co., Inc. and Playboy Clubs International, Inc., a wholly owned subsidiary (hereinafter referred to collectively as HMH), are Delaware corporations with their offices and principal places of business in Chicago, Illinois. Victor Brincat, an individual, is a resident of the State of California. Jurisdiction of the district court was founded upon 28 U.S.C. §§ 1338 and 1332.

HMH Publishing Co., Inc. is the publisher of Playboy magazine and the owner of federal trademark registrations for the marks “Playboy” and “Bunny” as trade and service marks. 3 In addition to its publishing business, HMH has, directly or through subsidiary and related companies, engaged in a wide variety of other business activities under the mark “Playboy.” Playboy Clubs International, Inc., under a controlled license from HMH, franchises others to use the marks of HMH in such areas as the operation of nightclubs, hotels, and resort-hotels.

Since 1967, appellant has operated five unincorporated businesses in or near San Mateo, California under the name Playboy. These businesses have marketed a variety of automotive products and services including dune buggies (four-wheel sports vehicles which are usally constructed from Volkswagen frame and drive components with a fiberglass body), dune buggy bodies and accessories, automobile upholstery, automobile body repairs and service, and automobile towing.

The trial court found that prior to appellant’s first use of the term “Playboy” in 1967, HMH had been publicly associated with automotive products, and especially with sports and pleasure vehicles. In reaching this conclusion, the court evaluated not only evidence of advertising by HMH of its own marks prior to 1967, but also evidence of extensive automotive advertising which Playboy magazine had carried and its publication of numerous articles about automobiles and their related goods. In addition, the court gave weight to the fact that many major manufacturers regarded an association with Playboy as a viable means of marketing their products.

Having found that the mark “Playboy” had become associated in the public mind with automobiles and automotive products, and having found that appellant adopted the name “Playboy” with the intent of trading upon HMH’s goodwill,, the court enjoined appellant’s use of that name in connection with his various businesses. In so doing, the court concluded that appellant had violated both the provisions of the Lanham Act, 15 U.S.C. § 1051 et seq., and the applicable California law, Cal.Bus. and Professions Code § 14330. In addition to injunctive relief, the court awarded costs and reasonable attorneys’ fees to HMH.

Trademark infringement is a peculiarly complex area of the law. Its hallmarks are doctrinal confusion, conflicting results, and judicial prolixity. The source of this difficulty is that each case involves an effort to achieve three distinct objectives which, to a degree, are in conflict. These are: (1) to protect consumers from being misled as to the enterprise, or enterprises, from which the goods or services emanate or with which they are associated; (2) to prevent an impairment of the value of the enterprise which owns the trademark; and (3) to achieve these ends in a manner consistent with the objectives of free competition. The third objective dictates a degree of restraint in the pursuit of the first two; the second can be pushed beyond the reasonable needs of the first; and each requires for its proper implementation the exercise of judicial intuition supported, to the extent possible, by relevant facts. This ease is no different from its kind, and we approach it with a keen awareness of its difficulty and our peril.

I.

HMH’s fundamental contention is that appellant’s use of the name “Playboy” is likely to cause confusion on the part of consumers with respect to appellee’s “sponsorship” of the products and/or services offered by appellant to the public. This being so, HMH asserts that there has been a violation of the Lan-ham Act, and in particular the provisions qf Section 32(1), 15 U.S.C. § 1114(1). As currently enacted, this section permits the owner of a registered mark to maintain a civil action against any person who, without the consent of the registrant uses:

in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; . . .

15 U.S.C. § 1114(1).

Appellee’s interpretation of the Lanham Act is correct. Although the Trademark Act of 1905 and, at least in the view of some courts, the 1946 version of the Lanham Act did not afford the registrant protection from sponsorship confusion, the judicial and legislative history of the post-1946 period set forth in the margin clearly indicates that a likelihood of confusion as to sponsorship may be a ground for a valid cause of action under the present Act.

II.

The issue before us, therefore, is whether appellant’s activities created a sufficient probability that there would be confusion as to HMH’s sponsorship of his products so that HMH is properly entitled to recover under the Act. Inasmuch as the facts are not in dispute, the issue is an appropriate one for this Court to resolve. See, e.g. HMH Publishing Co., Inc. v. Lambert, 482 F.2d 595, 599 (9th Cir., 1973); Carter-Wallace, Inc. v. Procter & Gamble Co., 434 F.2d 794, 799 (9th Cir., 1970); Sleeper Lounge Co. v. Bell Manufacturing Co., 253 F.2d 720 (9th Cir. 1958).

We commence by emphasizing that the mere possibility that the public will be confused with respect to HMH’s sponsorship of appellant’s products is not enough. There must exist a likelihood that such confusion will result. See, e.g. Carter-Wallace, Inc. v. Procter & Gamble Co., supra, 434 F.2d at 804.

Next it is necessary to observe that while the existence of a likelihood of confusion is dependent upon the facts of each particular case, Fleischmann Distilling Corp. v. Maier Brewing Co., 314 F.2d 149, 160 (9th Cir., 1963), the courts have selected certain factors as having special relevance to a proper resolution of this issue. These include:

. visual, verbal and intellective similarity; the class of goods in question ; the marketing channels; the intent of defendant; evidence of actual confusion; and the strength or weakness of the marks in question.

Carter-Wallace, Inc. v. Procter & Gamble Co., supra, 434 F.2d at 800. See also K-S-H Plastics, Inc. v. Carolite, Inc., 408 F.2d 54, 57 (9th Cir.), cert. denied 396 U.S. 825, 90 S.Ct. 69, 24 L.Ed.2d 76 (1969); Paul Sachs Originals Co. v. Sachs, 325 F.2d 212, 214 (9th Cir., 1963); Sleeper Lounge Co. v. Bell Manufacturing Co., supra, 253 F.2d at 722-723; G. D. Searle & Co. v. MDX Purity Pharmacies, Inc., 275 F.Supp. 524, 530 (C.D.Cal.1967).

Turning to the last-mentioned of these factors, the strength or weakness of the mark in question, we believe that, contrary to the strong assertions of HMH, the term “playboy” as applied to HMH’s products is neither fanciful nor arbitrary. Compare Polaroid Corp. v. Polaraid, Inc., 319 F.2d 830 (7th Cir., 1963); Sunbeam Lighting Co. v. Sunbeam Corp., 183 F.2d 969 (9th Cir., 1950), cert. denied 340 U.S. 920, 71 S.Ct. 357, 95 L.Ed. 665 (1951); Stork Restaurant v. Sahati, 166 F.2d 348 (9th Cir., 1948). The word “playboy” was firmly established in the English language long prior to its use by HMH and has historically carried with it strong connotations of wealth, urbanity and sophistication. As such, it has a natural attraction for any enterprise which caters to the interests of men; and it is not improbable that this fact influenced HMH’s adoption of the term for its trademark. However, the mere registration of the word “playboy” as a trademark can not entitle.the registrant to capture the entire commercial utility of such a widely known concept.

We share the view that a businessman should not be permitted to

. pluck a word with favorable connotations for his goods or services out of the general vocabulary and appropriate it to his exclusive use no matter how much effort and money he may expend in the attempt.

Esquire, Inc. v. Esquire Slipper Manufacturing Co., 243 F.2d 540, 543 (1st Cir., 1957).

It is true however, that the expenditure of efforts and money may re-suit in the development of a “secondary meaning” even though the original mark is weak. 3 Callman, Unfair Competition, Trademarks and Monopolies, § 77.1 (3rd ed. 1969). That is, the originally weak mark may come to be associated with the registrant’s products to such an extent that the purchasing public generally believes that a product which bears that mark is in some fashion connected with the products of the registrant. Should this occur, the use of such a word or phrase by another can result in a likelihood of confusion. See, e.g., Everest & Jennings, Inc. v. E. & J. Manufacturing Co., 263 F.2d 254 (9th Cir., 1958), cert. denied 360 U.S. 902, 79 S.Ct. 1284, 3 L.Ed.2d 1254 (1959).

HMH asserts that it has established a secondary meaning for its mark “Playboy” in the automotive field. To support this assertion it introduced extensive evidence of its promotional advertising, and resulting commercial success, in marketing its. own products. And, more to the point, it also made a showing that emphasized the extent to which automobile manufacturers advertised in Playboy magazine and the scope of promotional activities in which HMH’s marks have been used to assist the marketing efforts of certain automobile manufacturers.

We accept the proposition that, with respect to the products which it in fact distributes, HMH has been successful in creating a secondary meaning for the term “Playboy.” See, e.g., HMH Publishing Co. Inc. v. Turbyfill, 330 F.Supp. 830 (N.D.Fla.1971). However, in so doing we hasten to add that a “large expenditure of money does not of itself create legally protectable rights.” Smith v. Chanel, Inc., 402 F.2d 562, 568 (9th Cir., 1968). See also Carter-Wallace, Inc. v. Procter & Gamble Co., supra, 434 F.2d at 800. Moreover, it must be borne in mind that extensive advertising in and of itself does not assure the existence of a likelihood of confusion. See Sears, Roebuck & Co. v. Allstates Trailer Rental, Inc., 188 F.Supp. 170 (D.Md.1960).

These admonitions are particularly appropriate in determining whether HMH’s mark has acquired a secondary meaning with respect to automobiles and automotive products. Heavy advertising by automobile manufacturers in Playboy magazine standing alone does not establish the likelihood of confusion as to sponsorship. See, e.g., Triangle Publications, Inc. v. Rohrlich, 167 F.2d 969 (2d Cir., 1948), overruled on other grounds, Monsanto Chemical Co. v. Perfect Fit Products Manufacturing Co., 349 F.2d 389 (2d Cir., 1965); Triangle Publications, Inc. v. Standard Plastic Products, 241 F.Supp. 613, 616, (E.D.Pa.1965); Time, Inc. v. Life Television Corp., 123 F.Supp. 470, 478 (D.Minn.1954); Esquire, Inc. v. Maira, 101 F.Supp. 398, 400-402 (M.D.Pa.1951). But see Esquire v. Esquire Slipper Manufacturing Co., supra 243 F.2d at 544. While it does tend to indicate that automobile manufacturers believe the readers of Playboy to comprise a large segment of the population which is likely to purchase their products, this is not the same as a showing that the public is likely to be confused as to HMH’s sponsorship of the automobiles so advertised.

Somewhat more persuasive in establishing a secondary meaning with respect to automobiles and automotive products is HMH’s use of its marks in conjunction with promotional activities engaged in by certain automobile manufacturers who have advertised in Playboy. These promotional “tie-ins” do tend to create an association between HMH and the products which it actively aids in marketing. However, they do not dictate the resolution of the ultimate issue of this case — viz. whether, upon seeing the appellant’s products, the public will be likely to assume that they have been endorsed by HMH.

Bearing on the proper resolution of this issue is the fact that there has been no showing of actual confusion on the part of the public. Although such a showing is not necessary, see, e.g., Mershon Co. v. Pachmayr, 220 F.2d 879 (9th Cir., 1955), it would be determinative in many instances. Strongly suggesting no likelihood of confusion with respect to HMH’s sponsorship of appellant’s activities in upholstering, automotive repairs and service, and automobile towing is the fact that the record contains no indication that HMH has had any connection with these types of businesses. We also must remember that the appellant, in adopting the term “Playboy,” neither utilized the same style of print as HMH nor did he use HMH’s familiar Rabbit Head logo. Cf. HMH Publishing Co. Inc. v. Turbyfill, supra.

Were the above considerations the only ones fairly suggested by the record of this case, we would be inclined to hold that HMH had failed to establish a likelihood of confusion as to sponsorship of either the appellant’s dune buggies or his other businesses. Such secondary meaning as exists in the automotive area in our opinion would not be enough to lead to the conclusion that the required likelihood of confusion was present.

However, the district court found that in adopting the name “Playboy,” and using it in conjunction with HMH’s mark “Bunny,” appellant intended to exploit HMH’s goodwill and reputation. As a general rule, the plaintiff in an action for trademark infringement is not required to prove the defendant’s intent. However, where such intent has been shown, the “inference of likelihood of confusion is readily drawn,” Fleischmann Distilling Corp. v. Maier Brewing Co., supra, 314 F.2d at 158, because the alleged infringer has indicated by his actions an expectation that such confusion will indeed be created. See, e.g., National Van Lines v. Dean, 237 F.2d 688, 692 (9th Cir., 1956). In effect, such a finding shifts the burden to the defendant to show that his efforts have proven unsuccessful. My-T-Fine Corp. v. Samuels, 69 F.2d 76, 77 (2d Cir., 1934). See also National Lead Co. v. Wolfe, 223 F.2d 195 (9th Cir., 1955).

Our review of the record reveals that the district court’s findings on the issue of wrongful intent are not clearly erroneous. In view of this finding, and our concomitant inability to find that the appellant has sustained his burden of proving that his efforts to confuse were unsuccessful, we believe the district court was correct in issuing an injunction under the Act. We so hold.

III.

Were we to have approached this case from the standpoint of the California law of unfair competition, our result would have been the same. Cal.Civil Code § 3369. See, e.g., Schwartz v. Slenderella Systems of California, 43 Cal.2d 107, 271 P.2d 857 (1954); Jackson v. Universal International Pictures, 36 Cal.2d 116, 222 P.2d 433 (1950); Eastern Columbia v. Waldman, 30 Cal.2d 268, 181 P.2d 865 (1947); Academy of Motion Picture Arts and Sciences v. Benson, 15 Cal.2d 685, 104 P.2d 650 (1940); Ball v. American Trial Lawyers’ Ass’n, 14 Cal.App.3d 289, 92 Cal. Rptr. 228 (1971); MacSweeney Enterprises, Inc. v. Tarantino, 235 Cal.App.2d 549, 45 Cal.Rptr. 546 (1965); Industrial Photo Service v. Kelly, 198 Cal.App.2d 665, 17 Cal.Rptr. 907 (1961). Although we recognize the possibility that HMH may have more extensive rights under California’s antidilution statute, Cal. Bus. & Professions Code § 14330, in the absence of an authoritative pronouncement by the California courts on the scope of this section we offer no comment on its applicability to the facts before us.

IY.

Appellant also attacks that portion of the judgment which awarded HMH reasonable attorneys’ fees. Although such an award may have been proper under prior authority, see, e.g., Friend v. H. A. Friend & Co., 416 F.2d 526 (9th Cir. 1969); National Van Lines v. Dean, supra, this Court has since reconsidered the issue in Pachmayr Gun Works v. Olin Mathieson Chemical Corp., 502 F.2d 802 (9th Cir., 1974) and concluded that attorney’s fees are not recoverable in an action of the type presently before us. Nor do we feel that the facts warrant the application of this Court’s historic equity power to make such an award. See Maier Brewing Co. v. Fleischmann Distilling Corp., 359 F.2d 156, 164 (9th Cir., 1966) (en banc), aff’d 386 U.S. 714, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967). Thus, the award of attorneys’ fees must be reversed.

We have examined appellant’s other assignments of error, and find them to be without merit. The judgment is, therefore,

Affirmed in part and reversed in part.

       Honorable Morell 14. Sharp, District Judge, Western District of Washington, sitting by designation.

      . HMH Publishing Co., Inc. v. Brincat, 342 F.Supp. 1275 (N.D.Cal.1972).

      . For additional background information regarding HMH’s activities in California, see HMH Publishing Co., Inc. v. Lambert, 482 F.2d 595 (9th Cir., 1973) ; HMH Publishing Co., Inc. v. Brincat, supra; HMH Publishing Co., Inc. v. Hale, 156 F.Supp. 594 (N.D.Cal., 1957). Bee generally, Turner v. HMH Publishing Co., Inc., 380 F.2d 224 (5th Cir.), cert. denied, 389 U.S. 1006, 88 S.Ct. 566, 19 L.Ed.2d 601 (1967) ; HMH Publishing Co., Inc. v. Turbyfill, 330 F.Supp. 830 (N.D.Fla.1971) ; HMH Publishing Co., Inc. v. Playboy Records, Inc., 161 F.Supp. 540 (N.D.Ill.1958).

      . As found by the district court, these activities have included uses of the mark “Playboy” in connection with:
      . . . a model agency (first used in 1956), television program production (first used in 1960), film production (first used in 1960), book publishing division (first used prior to 1963), a products division which sells hard and soft goods (including a variety of products such as keys, key chains, wallets, jewelry and clothing) (first used prior to 1964), a movie theatre (first used in 1964) and a limousine service (first used in 1969).
      342 F.Supp. at 1277.

      . As of the date of the district court’s opinion, franchised Playboy Clubs were located in fifteen cities throughout the United States as well as in Montreal, Canada and London, England. On January 1, 1965, a Playboy Club was opened in Los Angeles, California and on November 3, 1965, in San Francisco, California. Both have operated - continuously since their inception. Playboy Club Motels and Hotels are operated in Jamaica, British West Indies, Lake Geneva, Wisconsin and Chicago, Illinois.

      . These five businesses were run under the names: (1) Playboy Auto Manufacturing Company; (2) Playboy Manufacturing Company ; (3) Playboy Fiberglass Manufacturing Company; (4) Playboy Auto Upholstery Company; and (5) Playboy Body Shop.

      . The trial court’s finding of intent was based on three gounds. First, there was evidence of the fact that appellant had been in Playboy Clubs and read Playboy magazine prior to his adoption of the term “Playboy” for his businesses. Second, there was evi-dente that appellant had contacted a trademark attorney in mid-1968 and had been advised against the use of the Playboy mark on his products. Third, there was evidence that in conjunction with his towing service, appellant had used the mark “Playboy” with the mark “Bunny,” and that only HMH had previously used these two marks together.

      . As originally enacted, the Trademark Act of 1905, 33 Stat. 724 et seq., created a cause of action only where the infringing mark was on “[goods] of the same descriptive properties” as those marketed by the owner of • the trademark. While sponsorship confusion could give rise to a cause of action under the more general theory of unfair competition, the Act afforded the owner of the mark no such protection. See, e. g., Triangle Publications, Inc. v. Rohrlich, 167 F.2d 969 (2d Cir., 1948), overruled on other grounds, Monsanto Chemical Co. v. Perfect Fit Products Mfg. Co., 349 F.2d 389, 391 (2d Cir., 1965) ; Hanson v. Triangle Publications, Inc., 163 F.2d 74 (8th Cir.), cert. denied, 332 U.S. 855, 68 S.Ct. 387, 92 L.Ed. 424 (1948). Cf. Esquire, Inc. v. Maira, 101 F.Supp. 398 (M.D.Pa.1951).
      With the passage of the Lanham Act of 1946, 60 Stat. 427, as amended, 15 U.S.C. § 1051 et seq. Congress shifted the standard to encompass activities which were “likely to cause confusion or mistake or to deceive purchasers as to the source or origin of such goods or services,” c. 540, Title VI, § 32, 60 Stat. 437. Thus, an infringement could be found and prohibited under federal law even though goods of different descriptive properties were involved and though, in consequence, the parties were not in direct competition. See, e. g., Sears, Roebuck & Co. v. Johnson, 219 F.2d 590 (3d Cir., 1955) ; Pure Foods, Inc. v. Minute Maid Corp., 214 F.2d 792 (5th Cir., 1954) ; Admiral Corp. v. Penco, Inc., 203 F.2d 517 (2d Cir., 1953), overruled on other grounds, Monsanto Chemical Co. v. Perfect Fit Products Mfg. Co., supra.

      Although a number of courts apparently adopted the view that sponsorship confusion was outside the ambit of the Act, see, e. g. Time, Inc. v. Life Television Corp., 123 F.Supp. 470, 478 n. 10 (D.Minn.1954) ; Conde Nast Publications, Inc. v. Vogue School of Fashion Modelling, Inc., 105 F.Supp. 325 (S.D.N.Y.1952), this court defined the appropriate inquiry in much broader terms — i. e. whether the average consumer would be likely to believe that the infringer’s products “had some connection” with those of the registrant, Fleischmann Distilling Corp. v. Maier Brewing Co., 314 F.2d 149, 155 (9th Cir., 1963). See also Esquire, Inc. v. Esquire Slipper Mfg. Co., 243 F.2d 540 (1st Cir., 1957).
      The 1962 amendments to the Lanham Act deleted the requirement that there be confusion “as to the source or origin of the goods or services.” Pub.L.No.87-772, § 17, 76 Stat. 773 (1962). While the legislative history does little to clarify the congressional intent, see, e. g., S.Rep.No.2107, 87th Cong., 2d Sess. (1962), the literal language of the current Act is sufficiently broad to unequivocally embrace a cause of action based on confusion as to commercial sponsorship. See, e. g., HMH Publishing Co., Inc. v. Lambert, 482 F.2d 595 (9th Cir., 1973) ; Smith v. Chanel, Inc., 402 F.2d 562, 563 (9th Cir., 1968). Bee also Communications Satellite Corp. v. Comcet, Inc., 429 F.2d 1245, 1252 (4th Cir., 1970). But see Dresser Industries, Inc. v. Heraeus Engelhard Vacuum, Inc., 395 F.2d 457, 462 (3d Cir., 1968).

      . Thus, in addition to noting the use of the term as the “title of a popular man’s magazine dealing with fashions entertainment, etc. . . .,” Wentworth & Flexner, Dictionary of American Slang 396 (Supp. ed., 1967) defined “playboy” as:
      a man of any age who is noted for an ostentatious social life, esp. one who is often seen in public with different women, usu. at expensive places of entertainment. 1931: “Hendrik the playboy” Queen, Dutch Shoe, 104 .... The term always implies wealth, edueatoin, social standing, and sophistication, (empha'sis in original).

      . In this regard, the district court found that for many years prior to appellant’s first use of the term Playboy, HMH had (a) enjoyed large revenues/profits from the publication of Playboy magazine, the operation of Playboy Clubs and the sale of Playboy Club Keys; (b) expended large sums of money to promote the magazine, its clubs and the sale of its keys; (c) mailed millions of pieces of advertising literature to solicit the purchase of keys; and (d) sold millions of copies of Playboy magazine each month. 342 F.Supp. at 1277-1278.

      . The district court found that HMH had become publicly identified and associated with automobiles and their related products, especially in the area' of sports or pleasure vehicles, from the following data:
      (a) Playboy magazine ran approximately 180 pages of automobile advertising in the years 1960-1967 and derived approximately $4,036,282 [sic] in revenues from such advertising. The automotive advertising run in Playboy magazine in said period heavily emphasized sports and pleasure vehicles. As examples, advertisements were run for such vehicles as Austin Ilealy, M.G.....
      (b) Among all American monthly magazines Playboy ranked third in the amount of automotive advertising run in 1967.

        (c) In addition, prior to September 1967 Playboy magazine published numerous articles and other editorial materials related to automobiles. Said articles heavily emphasized sport and pleasure vehicles.
      342 F.Supp. 1278-1279. Evidence was also introduced that manufacturers who had advertised in Playboy magazine had on occasion hired “Playboy Playmates” or “Playboy Bunnies” to make personal appearances at automobile dealerships in order to promote their products.

      . See supra at n. 6.

      . This shifting of the burden has been most succinctly stated in the following fashion:
      But when [the intent to confuse] appears, we think that it has an important procedural result; the late comer who deliberately copies the dress of his competitors already in the field, must at least prove that his effort has been futile. . . .
      He may indeed succeed in showing that it was; that, however bad his purpose, it will fail in execution; if he does, he will win .... But such an intent raises a presumption that customers will be deceived.
      My-T-Fine Corp. v. Samuels, supra 69 F.2d at 77.

      . It should be noted, however, that the evidence of such intent was somewhat weak. For example, in its findings the district court placed some reliance upon appellant’s prior knowledge of Playboy magazine and the Playboy Clubs. It is our view that this factor is relevant only in in its negative implications — i. e. where the absence of such knowledge can be shown, the existence of intent is more difficult to establish.

      . The extent to which the inquiry concerning the existence of confusion is either eliminated or reduced in significance by this statute remains unclear. However, there has been some suggestion that the dilution statute is merely a codification of existing law. See Ball v. American Trial Lawyers’ Ass’n, supra.


author: HASTINGS, Senior Circuit Judge.

text:
    Robert BURTON and Curtis B. Clark, Co-Partners, d/b/a Insco, Plaintiffs-Appellees, v. HITACHI AMERICA, LTD., a New York Corporation, Defendant-Appellant.
    No. 74-1125.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 18, 1974.
    Decided Oct. 18, 1974.

      R. -Dickey Hamilton, Stephen J. Bis-geier, Chicago, 111., for defendant-appellant.
    David P. List, Merle L. Royce, II, Chicago, 111., for plaintiffs-appellees.
    Before HASTINGS, Senior Circuit Judge, and PELL and TONE, Circuit Judges.
   HASTINGS, Senior Circuit Judge.

Plaintiffs Burton and Clark had an oral agreement, implemented by letters, with defendant Hitachi to sell Hitachi Japanese electric motors in an exclusive sales territory in Illinois. After an original complaint had been filed, together with a third party action, two counterclaims and an interminable amount of legal skirmishing, this matter was finally submitted for trial by jury some three years later on an amended complaint in three counts charging breach of contract, tortious interference with a contractual relationship, for hiring plaintiffs’ partner and salesman, Mahoney, and for conspiracy resulting in the termination of their agency agreement four months after it had begun. Defendant filed a counterclaim based upon fraud.

The jury found for plaintiffs on Count I (charging breach of contract) and awarded damages in the amounts of $27,000 for actual outlays and $35,000 for loss of profits. On Counts II and III together (charging tortious interference and conspiracy), the jury again found for plaintiffs and awarded damages in the amounts of $27,000 for actual outlays, $35,000 for loss of profits and $50,000 for punitive damages. On motion of defendant, the trial court directed a remittitur of $27,000 on Count I (actual outlays), which plaintiffs accepted, leaving a total amount of $147,000 damages awarded plaintiff, upon which judgment was entered. The jury found against defendant and for plaintiffs on defendant’s counterclaim and defendant took nothing thereunder.

Defendant appeals only from the final judgment of $147,000 for damages and costs and from the denial of its post-trial motions for further relief. Defendant does not appeal from the final adverse judgment on its counterclaim.

In substance, the issues raised on this appeal challenge the sufficiency of the evidence to warrant the jury’s having found a breach of contract, tortious inducement of breach of contract, conspiracy, and the amount of damages assessed. It is also charged that certain instructions given the jury were misleading and erroneous.

The tangled skein of docket entries and pre-trial proceedings almost defies description. Jurisdiction in the trial court was based upon diversity of citizenship. The substantive law of Illinois governs. Most of the acute questions relating to the sufficiency of the evidence may be clarified by a rather full statement of the facts. No special interrogatories were submitted to the jury.

From our careful consideration of the record as a whole we have concluded that basically the following is a narrative of the factual situation which the jury would have been fully justified in finding from the evidence adduced in this case.

Plaintiffs Robert J. Burton and Curtis B. Clark were co-partners and owners of an electrical wholesale supply business, under the firm name of Princeton Electric Supply Company (Princeton Electric), with its principal place of business in Princeton, Illinois. Defendant Hitachi America, Ltd. (Hitachi), is a subsidiary of a Japanese corporation, and is incorporated under the laws of New York with an established place of business in Indianapolis, Indiana. From Indianapolis, Hitachi was engaged in the business of attempting to sell Japanese electric motors in Illinois and elsewhere. Darwin Mitchell served Hitachi as national sales manager of its electric motor division in Indianapolis, and had as his regional sales manager Russell Der-derian. Mitchell and Derderian were and had been residents of Indiana.

In August 1969, Burton learned from one of Princeton Electric’s customers, Champion Pneumatic, that Hitachi’s man Derderian had called them inquiring whether they would be interested in purchasing Hitachi motors. The customer asked Burton whether he would be interested in marketing Hitachi motors or in a franchise through Princeton Electric. Burton then contacted Der-derian by telephone and the call led to several preliminary meetings of plaintiffs with Mitchell and Derderian. These meetings culminated in the determination of plaintiffs to form a separate agency. William Mahoney, a salesman for Westinghouse, and Thomas Jolley, a salesman for Reliance Electric, were to. join the sales agency, with Mahoney to be in charge.

Since Princeton Electric had certain established customers who might adversely react to their sale of foreign-made motors, plaintiffs, under assumed names, executed a new and separate partnership agreement under the firm name of Insco. Mitchell was advised of this arrangement by Burton and made no objection.

During this interim period Burton made sales calls on two of his old manufacturing customers in Princeton, Champion Pneumatic and Princeton Air Compressors. Using quotations furnished by Derderian, Burton secured three purchase orders from them for a combined total of more than $700,000 worth of Hitachi motors.

In a meeting of plaintiffs and Maho-ney with Mitchell and Derderian on November 24, 1969, the proposed Insco plan was presented and discussed. Mitchell agreed to grant Insco an exclusive sales territory encompassing all of Illinois north of Highway 36. Commissions to be paid Insco were discussed, resulting in an agreement to pay what would probably amount to an average commission rate of five per cent. Plaintiffs advised Mitchell that they had estimated it would cost them $50,000 a year to operate the proposed agency and requested an agreement for a specific length of time in order to be assured that they would have sufficient time to recoup their investment and conduct a profitable enterprise. Mitchell agreed that this was a reasonable estimate and said that “it had been his experience that it took two years to get something like this up and rolling.” Mitchell assured plaintiffs that they should not be concerned about the length of the agreement because “the Japanese were very honorable people” and that he would not put the length of time of the agreement in writing because Hitachi was an honorable company and that their relationship “would be like a marriage and last forever” and, further, that this relationship was “a matter of mutual trust between the parties.” This line of assurance by Hitachi appears throughout subsequent proceedings between the parties, in which Mitchell reiterated that “the Japanese were honorable people, but this would be an affront to them to ask them to put it down [in writing],” and that plaintiffs “would have nothing to worry about.” At the end of this meeting plaintiffs gave Mitchell the three large purchase orders which were accepted by Mitchell with enthusiastic comment.

The parties next talked in Princeton on December 9, 1969, and met Jolley. Further sales discussions ensued and Burton asked Mitchell for a five-year agreement. Mitchell responded as before and also said he would have to discuss it with Hitachi. On December 11, 1969, Derderian wrote to Clark to confirm the interim agreement reached on December 9 that “for approximately six months” certain base prices mentioned would be in force, and to confirm Insco’s appointment as exclusive sales representative for Hitachi.

At plaintiffs’ request all parties concerned met in Indianapolis on January 14, 1970. Plaintiffs presented a letter prepared by their attorneys to Derderi-an providing, inter alia, that Insco’s appointment would be for a five-year term. The letter was shown to Mitchell who again responded as before that, in substance, the Japanese were honorable people and would consider it a personal affront to put this proposal in writing, but he said he could assure them that this relationship was based on mutual trust and would last forever. Burton replied, in closing the discussion, that “ ‘Forever’ was pretty good terms [and] I guess we would have to accept it.”

After this meeting on January 14, plaintiffs secured a bank loan for the purpose of financing Insco. The three sales orders were accepted by the bank as collateral for the extension of a line of credit in the amount of $3,800 per month. In February, Mahoney signed the Insco partnership agreement, receiving a 25 per cent interest in the profits and losses of the partnership, and subsequently became liable on the partnership ' loans from the bank. Jolley started to work for Insco in February 1970 at an annual salary of $14,000. Mahoney began work the second week in April at a $15,000 annual salary and was in charge of the operation of the business.

During the four-month period from April 1970 to August 1970, when both Mahoney and Jolley were active in Insco, together they made between 400 and 500 first sales calls and approximately a thousand repeat calls on customers. Considerable progress was made in laying the ground for future sales orders. In June 1970, a conference between those interested in Insco led to optimistic projections of about three million dollars in sales, although no new business had been closed nor had any new motors been shipped under the original three large orders.

At this time Insco developed an immediate cash flow problem and its bank demanded additional capitalization of the business if the bank was to continue its line of credit. Clark then arranged to sell 25 per cent of Insco to his friend Toohey in return for a loan of $25,000 which was to be repaid out of Insco’s first net profits.

About June 15, 1970, Mitchell and Derderian met at lunch with Jolley. They inquired whether the purchasing authorities at Champion Pneumatic or Princeton Air Compressor had an interest in Insco and Jolley replied in the negative. Jolley was then asked whether Mahoney was a partner in Insco and Jolley replied in the affirmative, although he said he did not know the extent of such interest.

About July 15, 1970, Mahoney telephoned Mitchell to ask whether Hitachi would be interested in hiring him and stated, inter alia, that Insco’s note at the bank was going to be called. Mitchell requested that Mahoney send a resume and Mahoney complied. At about the same time and without revealing his approach to Mitchell, Mahoney did suggest to plaintiffs that he might go to work for Hitachi and spend most of his time in Illinois with Insco receiving the commissions and Hitachi paying his salary. This was rejected as being ridiculous.

On July 31, 1970, Mitchell and Maho-ney met in Indianapolis. The outcome was that Hitachi hired Mahoney. They discussed various accounts that Mahoney could sell in Insco’s territory, with Ma-honey stating that “Insco should be permitted to continue its sales efforts in the territory specified and, of course, get the commissions due.” Plaintiffs first learned about these negotiations on August 7, 1970, when Mahoney advised Clark of his decision to join Hitachi. Mahoney refused to discuss the matter further with Burton and advised Burton that Hitachi’s lawyer had stated that he could disregard the Insco partnership agreement. In the interim, Mahoney had unsuccessfully attempted to determine whether the Toohey proposed $25,000 loan had been consummated. Accordingly, on August 7, 1970, Maho-ney terminated his employment with In-sco and accepted employment with Hitachi. Subsequent efforts by all the interested parties to compose their differences failed.

Earlier in the month and unknown to plaintiffs, Derderian called Princeton Air Compressors and requested it to reissue its purchase order so that it was made out directly to Hitachi instead of its agent, Insco. This was accomplished and the contract was so reissued, Der-derian representing that it was financially unrealistic for Insco to handle it. The changed purchase order was received by Hitachi on September 21, 1970. For some undisclosed reason, it was back dated to August. 3, 1970, four days before Mahoney accepted Mitchell’s employment offer.

Clark wrote to Mitchell September 28, 1970, complaining about rumors of Ma-honey’s switching orders to Hitachi and the disparaging remarks about plaintiffs’ financial condition. Hitachi responded by Mitchell’s letter of' September 30, 1970, denying the charges and terminating Insco’s sales agency. Shortly before this time, Jolley refused an offer by Hitachi for employment in Cincinnati.

During the time that Insco represented Hitachi it made motor sales in the total amount of $4,200. After the Insco sales agency was terminated, Hitachi made new motor sales in Insco’s territory in the total amount of $13,741 before it finally gave up its attempts to sell electric motors nationally, about April or May 1972. Hitachi’s efforts in Illinois during this period were minimal. .It further appears that the two Champion Pneumatic orders were never consummated. One was cancelled because Hitachi failed to send necessary electric motor samples for testing and the other because of its failure to secure engineering approval. The order of Princeton Air Compressors was only partially filled and was wiped out in its subsequent bankruptcy proceedings.

On the issue of whether plaintiffs had an enforceable contract, defendant contends that any such claim is barred by the Illinois Statute of Frauds. Under the facts of this case we find no merit in this, contention. Defendant also argues that plaintiffs’ claim for breach of contract is barred by the doctrine of mutuality. We need not reach this interesting aspect of the law of contracts, since the Supreme Court of Illinois long ago ruled that a contract is not voidable for lack of mutuality unless the contract is otherwise devoid of consideration. Armstrong Paint and Varnish Works v. Continental Can Co., 301 Ill. 102, 108, 133 N.E. 711 (1921). See also Consolidated Laboratories, Inc., v. Shandon Scientific Co., 7 Cir., 413 F.2d 208, 212-213 (1969). It is clear to us that plaintiffs provided ample consideration for the contract in question.

We pause to refer to a well considered decision of our court, ably authored by our Brother Sprecher, P. S. & E. Inc. v. Selastomer Detroit, Inc., 7 Cir., 470 F.2d 125, 127-129 (1972). There, an oral agreement, later reduced to writing, granted plaintiff an exclusive selling agency contract for certain of defendant’s products. The contract failed to fix a time for its duration and called for continual performance. Applying Illinois law,' our court held that such a contract is ordinarily terminable at the will of either party, but that this conclusion did not end the matter. Relying upon a prior decision in Fargo Glass & Paint Co. v. Globe American Corp., 7 Cir. 161 F.2d 811, 813 (1947), we held that regardless of whether the exclusive selling agency contract was terminable at will, the agent was entitled to damages if, as a result of termination of the contract by the principal during the period of development of the market for the new product, the agent incurred expense and devoted time and labor in the matter of the agency without being afforded a sufficient opportunity to recoup from the undertaking. The court also noted that the Illinois Supreme Court has subscribed to the rule that “Every contract implies good faith and fair dealing between the parties to it .” 470 F.2d at 128. On whether the question of duration was properly for the jury, the court said:

“The plaintiff here is entitled to its jury trial. When the plaintiff has presented all of its evidence, the trial court can then determine whether the agreement between the parties was absolutely indefinite as to duration and terminable at will as a matter of law, or whether the proof is sufficient to permit the jury to determine that question as a matter of fact. But in any event, the jury must determine, regardless of whether the contract was terminable at will, whether the plaintiff suffered damages as the result of incurring expense and devoting time and labor in the matter of the agency without being afforded a sufficient opportunity to recoup from the undertaking, as required by Fargo.” Id. at 129.

In the instant case, in contrast to Selastomer, it is reasonable to con-, elude that plaintiffs had a written contract “for approximately six months,” as hereinabove set out. With reliable authority, it could also be reasonably contended that such written agreement was extended by oral representations that it would have a duration of at least the development period of two years. Yet, under Selastomer, it is not necessary to have an agreement for a specific duration to permit recovery for expenses incurred. Without further detailing the evidence, we are convinced that it was sufficient to warrant the jury in awarding plaintiffs the sum of $27,000 for their actual outlays on Counts II and III. Bad faith in terminating plaintiffs’ agreement after four months was present and we so hold. This judgment for $27,000 should be upheld.

However, even though damages may be recoverable for expenses incurred prior to contract termination, this is not necessarily to say that damages for loss of profits may be recoverable. Here, the jury not only granted duplicitous awards of $35,000 for lost profits, but the damages granted were indeed too speculative to be recoverable. As we held in a prior case, applying Illinois law: “Damages must not be speculative or probable and they must be proved with a reasonable degree of certainty. [Citing cases.]” Classic Bowl, Inc. v. A M F Pinspotters, Inc., 7 Cir., 403 F.2d 463, 467 (1968). The evidence produced by the plaintiffs here was inadequate. These awards totaling $70,000 for loss of profits must be set aside.

We now consider the award of $50,000 on Counts II and III as punitive damages for tortious interference and conspiracy.

In Hannigan v. Sears, Roebuck and Co., 7 Cir., 410 F.2d 285, 291, cert. denied, 396 U.S. 902, 90 S.Ct. 214, 24 L.Ed.2d 178 (1969), applying Illinois law, we held that “The traditional elements of the tort of inducing breach of contract are: (1) an existing contract between the plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) an intentional unjustified inducement to breach the contract; (4) a subsequent breach by the third party; and (5) resulting damage to the plaintiff. [Citing cases.]” In the instant case there was an existing contract of employment between plaintiffs and . Mahoney, i. e., a salary of $15,000 per annum and a 25 per cent interest in the partnership, as the managing partner. It is undisputed that Mitchell knew of this arrangement. Mitchell not only encouraged Ma-honey to work for Hitachi, but increased his salary offer when Mahoney declined the first offer; Mitchell knew that Insco was in need of additional capitalization prior to his first offer to Mahoney. There was a subsequent breach by Ma-honey and the subsequent loss to Insco of the heart of its sales program. The jury could reasonably have concluded from these and other related factors that the purpose of this inducement was to give Hitachi the benefit of Insco’s development of the territory.

In National Gas Appliance Corp. v. Manitowoc Company, 7 Cir., 311 F.2d 896, 900-901 (1963), also cited in Han-nigan, supra, we held in substance that when two parties act with the malicious intention to drive a plaintiff out of business that, under Illinois law, this could be sufficient to support a verdict charging unlawful conspiracy to injure plaintiff’s business; and, further, that an actual unlawful agreement need not be proved but may be inferred from the evidence of more than a coincidental sequence of events.

In Hannigan, supra, we addressed ourselves to the question of punitive damages. We held that under Illinois law where the “wrongful act complained of is characterized by wantonness, malice, oppression or circumstances of aggravation,” punitive damages are within the discretion of the jury and trial court; they may be utilized to punish the wrongdoer and to deter others; and need not bear a- proportional relationship to actual damages. 410 F.2d at 293-294. See also Gass v. Gamble-Skogmo, Inc., 7 Cir., 357 F.2d 215, 220-221, cert. denied, 384 U.S. 943, 86 S.Ct. 1464, 16 L.Ed.2d 541, (1966); Bucher v. Krause, 7 Cir., 200 F.2d 576 (1952), cert. denied, 345 U.S. 997, 73 S.Ct. 1114, 97 L.Ed. 1404 (1953).

We are satisfied from the record here, as we were in Hannigan, that Hitachi’s intentionally coercive and oppressive conduct warranted the assessment of punitive damages in the instant case, and that the sum of $50,000 though generous, was not excessive, and was well within the discretion of the jury and the trial court. Further, we have concluded that the jury was warranted in being unpersuaded by the several “affirmative defenses” tendered by the defendant.

Finally, we have considered the various objections to certain instructions given to the jury. Under our disposition of this appeal and on consideration of the instructions as a whole, we find no reversible error in this respect.

Without further prolonging this opinion, in light of the foregoing, we hold that (1) the award of $35,000 damages for loss of profits on Count I be reversed; (2) the award of $35,000 for loss of profits on Counts II and III be reversed; (3) the award of $27,000 damages for actual outlays and the award of $50,000 for punitive damages, both under Counts II and III, be affirmed; and (4) that the plaintiffs recover their costs from defendant. It is further ordered that this cause be remanded to the district court with instructions to enter judgment herein consistent with this opinion.

Affirmed in part; reversed in part.

Remanded.