Jeter Endorsement Dispute Examines Role As a Director of Apparel Company

Throughout the parties' discussions and Jeter's eventual role as a director of RWI, Jeter was under a sponsorship contract with Nike. According to RWI, in entering into the relationship it had relied on Jeter's agents' alleged representation that the proposed relationship between Jeter and RWI was “carved-out” from his Nike contract.

On March 23, 2011, Jeter and RWI executed a memorandum of agreement for service upon the board of directors. The director agreement included a provision allowing RWI to disclose Jeter as a director of the company, but requiring that all press releases first receive Jeter's approval. The director agreement also specifically excluded any endorsement or marketing obligation.

Following his appointment as a director, Jeter took care to ensure that he abided by his obligations to Nike. For example, he made efforts to shift the marketing strategy of the product, telling RWI that he would not publicly announce his role as a director unless RWI changed the product from a “sports undergarment” to a “fashion undergarment.” Despite RWI's efforts to accommodate his requests, Jeter's agents informed RWI that he would not publicly disclose his position with the company and demanded that RWI stop issuing any press releases discussing Jeter's role. In an email to RWI in November 2013, Jeter's agent explained that due to the contract with Nike, there would be no mention of Jeter's “presence in the marketplace,” leading RWI to claim that Jeter had misrepresented the terms of his Nike contract.

In November 2015, Jeter sued in Delaware Chancery Court seeking a declaration that he fully complied with his director agreement. Jeter later filed a motion to dismiss RWI's counterclaim for breach of fiduciary duties. In considering the motion to dismiss, the court explained that in order for RWI's counterclaim to withstand the motion, the chancery court must find that Jeter breached the fiduciary duty of loyalty (on account of the exculpatory clause in the company's certificate of incorporation, barring claims for monetary liability against directors for breaches of the duty of care). The court explained that the duty of loyalty encompasses the duty to act in good faith, and therefore applies to a director's actions taken in bad faith.

Looking specifically at Jeter's representations to investors that he would publicly disclose his role with the company, the chancery court found that RWI sufficiently pleaded a claim that Jeter “acted with a purpose other than that of advancing the best interests of the company.” RWI's claim boiled down to the fact that Jeter, while acting as a fiduciary, made statements that were knowingly false and caused investors to invest in the company. The court did not discuss the duty of disclosure (a derivative of the duties of care and loyalty), perhaps because the misstatements were made to investors before they were stockholders and not in solicitation of a stockholder action.

The chancery court dismissed RWI's further allegations regarding Jeter's breach of fiduciary duty. The court acknowledged that while Jeter's actions (such as attempting to alter the marketing strategy for the product) may have constituted a breach of contract under the director agreement, his fiduciary duties must be considered separately from the contract. The company's expectations of Jeter extended beyond the scope of his fiduciary duties and thus any actions in conflict with those expectations were not inherently in conflict with his duties as a director. Out of the seven manners in which RWI alleged Jeter to have acted in bad faith in violation of his duty of loyalty, the chancery court found only one viable claim.

The court observed that this case “illustrates the potential difficulties in the fiduciary context when a corporation expects its directors to perform acts outside of their traditional fiduciary role.” In Jeter's case, the corporation entered into a director contract with the intention that the individual's role be that of promoter, in addition to that of director. Arguably, the corporation here wanted a famous face more than it wanted an active member of its board. The court's conclusion, however, makes clear that the court will interpret a director's fiduciary duties as separate from those established by the contract if those duties, like publicity or promotion, extend beyond the scope of established fiduciary principles.

Conclusion

Jeter's case highlights the challenges associated with creating contractual obligations for a director beyond those associated with standard fiduciary duties. If a director's actions conflict with his contractual obligations, such actions do not also conflict with his fiduciary duties merely by virtue of he or she being a director. While a director with a famous face may contribute marketing value, he or she remains a director and will not necessarily have a fiduciary duty to fulfill distinct obligations provided for in any additional contract.

But Jeter's case signals a willingness to allow breach of fiduciary duty claims in the context of statements made by directors or officers during fundraising activities. While the case involved statements made to potential investors as related to an underlying director agreement, the chancery court's analysis suggests that even without such external agreement, corporations may be able to bring breach of fiduciary duty claims against directors or officers relating to their allegedly false or misleading statements made during fundraising activities. Given the reasoning applied in Jeter , celebrity directors and officers would be wise to act solely with the purpose of advancing the best interests of the corporation during such fundraising.

Richard Birns is a New York-based partner of Gibson, Dunn & Crutcher and co-chair of the firm's sports law practice group. Benyamin Ross is a Los Angeles-based partner of the firm. He advises companies, private equity and venture capital firms, and individuals across a wide range of industries, focusing on mergers and acquisitions, joint ventures and strategic partnerships. Andria Montoya is a Los Angeles-based associate with the firm. She practices in the firm's corporate department.