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  • Delaware Court of Chancery Dismisses Most Fiduciary Duty Breach Counterclaims Against Star Athlete Director 
     
    07/25/2016
    On July 19, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed most (but not all) breach of fiduciary duty counterclaims asserted by a sports apparel startup against its former director, Yankees baseball great Derek Jeter.  Jeter v. RevolutionWear, Inc., C.A. No. 11706-VCG (Del. Ch. Ct. Jul. 19, 2016).  The decision highlights that directorial fiduciary duties cannot be expanded by contract.  Specifically, the Court held that Jeter’s alleged contravention of certain marketing-related obligations that were part of his director agreement with the company, RevolutionWear, Inc. (“RWI”), did state a claim for breach of fiduciary duty because such contractual obligations “do not alter the fiduciary obligations of the director” even though they “may give rise to breach-of-contract claims.” 

    RWI, a developer and marketer of men’s undergarments, brought Jeter onto its board of directors as part of a “reverse-endorsement” marketing strategy, whereby celebrities and athletes join companies as directors and stakeholders instead of merely endorsing their products as paid spokespersons.  Jeter entered into a director agreement with RWI, which required him to make media appearances as a “substantial owner, co-founder and director” of the company and allow the company to otherwise publicize that role.  During negotiations, Jeter, through his agents, allegedly misrepresented that the terms of his long-standing promotional relationship with Nike expressly permitted him to fulfill his obligations to RWI.  However, during the course of his tenure as an RWI director, Jeter allegedly refused to allow RWI to issue press releases discussing his role at the company and leveraged his position to have the company redesign and market RWI’s undergarments as fashion products, rather than athletic products, to preserve his separate relationship with Nike. 

    The case was brought by Jeter and affiliated entities against RWI seeking a declaration that Jeter had complied with his director agreement.  RWI asserted counterclaims for breaches of fiduciary duty, as well as fraud and breach of the implied covenant of good faith and fair dealing.  The Court denied Jeter’s motion to dismiss as to the fraud claims and part of the implied covenant claims, but dismissed most of the fiduciary duty claims. 

    As to the fiduciary duty claims, the Court found that Jeter’s alleged conduct, though (as alleged) not in the best interests of the company, did not implicate his fiduciary duties as a director, noting that “Jeter’s contractual obligations have enlarged the Company’s expectations of [him] beyond his fiduciary obligations.”  RWI, however, did not completely strike out on its fiduciary duty counterclaims.  The Court denied Jeter’s motion to dismiss with respect to one of RWI’s counterclaims for breach of fiduciary duties, finding RWI’s allegations that Jeter knowingly misled RWI investors about his willingness to publicize his role with the company, sufficient to state a claim.    
    CATEGORY: Fiduciary Duties

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