Former New York Yankees shortstop, Derek Jeter, will go down in history as one of baseball’s all-time greats, but his athletic prowess was of no use yesterday in Delaware Chancery Court.
Jeter failed in his bid July 19 to dismiss claims over his role in promoting a luxury underwear company as a director.
Vice Chancellor Sam Glasscock explained the unique agreement, often called a “reverse-endorsement,” in which Jeter and the company, RevolutionWear (RWI), entered:
Instead of negotiating with Jeter for the right to use his likeness, or hiring his services to promote [the Company], RWI pursued a different strategy: it negotiated to bring Jeter into the Company as an owner and member of the board of directors, so that it could indirectly point to his involvement in a way that, presumably, RWI thought would appear more sincere to the underpants-buying public than would a standard paid endorsement. Jeter and RWI entered a director’s agreement, which imposed contractual duties on the parties and made Jeter a fiduciary for RWI.
As Glasscock points out, however, “RWI had little or no interest in Jeter’s stewardship of the Company; the arrangement was seen by RWI as a marketing ploy.”
While Glasscock found merit in some of the contractual-related counts, RWI did not fare as well on the governance-related claims.
“This case provides a cautionary tale of the mixing of roles in a corporate governance setting,” said Glasscock.
Indeed, Jeter’s contractual obligations under the reverse-endorsement arrangement far exceeded his fiduciary duties as a director. It is for that reason that the court dismissed all but one of the counts related to breach of fiduciary duties.
For any company considering a reverse-endorsement agreement, this should be a cautionary tale. The opinion makes a strong argument for companies to stick to the typical promotional arrangement—that of the paid endorsement.
Mixing a director’s legal obligations under Delaware law with a “marketing ploy” is bound to end badly.
Meanwhile, Jeter, who during his career was known for being a clutch player, will have to wait and see whether he and his team can beat the claims that did survive dismissal at trial.
Read the full story here.
Notify me when updates are available (No standing order will be created).
Put me on standing order
Notify me when new releases are available (no standing order will be created)