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.
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