April 16, 2012
Terminating an NFL Player's Endorsement Agreement for Polemic Tweets May Be Contract Breach--Mendenhall v. Hanes
[Post by Venkat Balasubramani, with comments from Eric]
Mendenhall v. Hanesbrands, 2012 WL 1230743 (M.D.N.C.; Apr. 12, 2012)
This case has it all: Twitter, a pro football player, terrorism, Osama bin Laden and contract law geekiness!
Background: Rashard Mendenhall plays professional football as a running back for the Pittsburgh Steelers. Mendenhall entered into an endorsement contract with Hanesbrands, which owns the Champion brand. The agreement between Hanesbrands and Mendenhall had a “morals clause,” which originally said that Hanesbrands could terminate the agreement if Mendenhall was arrested, charged with, or indicted for a felony or a crime involving moral turpitude. This clause was later amended to provide that Hanesbrands could terminate the agreement if, in addition to being charged with or indicted for a crime, Mendenhall:
[Became] involved in any situation or occurrence . . . tending to bring Mendenhall into public disrepute, contempt, scandal, or ridicule, or tending to shock, insult, or offend the majority of the consuming public . . . . [Hanesbrands’] decision on all matters arising under [this section] shall be conclusive.
Mendenhall’s Tweets: Mendenhall is an avid user of Twitter (@R_Mendenhall) and describes himself as a “Conversationalist and Professional Athlete.” [Eric's note: sadly, the conversation stopped pretty much right after Mendelhall sued Hanes; his last post is from July.] In the wake of President Obama’s announcement of Osama bin Laden’s assassination, Mendenhall posted a series of Tweets decrying the joy that people expressed about this incident (a link to the first tweet in the series):
What kind of person celebrates death? It’s amazing how people can HATE a man they never even heard speak. We’ve only heard one side . . .
Not surprisingly, Mendenhall’s tweets generated a negative reaction. Mendenhall issued an explanation, saying that he was encouraging people to think; his tweets were meant to “generate conversation.”
Hanesbrands issued a public statement to ESPN distancing itself from Mendenhall’s statements and saying that his statements were inconsistent with the Champion brand. It said it was terminating the endorsement contract. Mendenhall sued, asserting that Hanesbrands’ termination was a breach.
The Court’s analysis: Hanesbrands says the contract vested it with discretion to terminate the agreement, and this decision shouldn’t be second guessed by the court. The court disagrees and says that this discretion is constrained by Hanesbrand’s duty of good faith and fair dealing. (The court doesn’t explicitly say that the contract would suffer from illusoriness if Hanesbrand could terminate it for any reason, but this is the same reasoning we’ve seen in other agreements that give one party a free hand to alter the terms.)
Does Mendenhall get past the good faith hurdle—can he show that Hanesbrands’ actions were unreasonable or in bad faith? At the pleading stage, the court says yes: and points to Hanesbrands initial public statement said that it “disagreed” with Mendenhall’s statements. In contrast, the agreement requires that Mendenhall make a statement that brings him into disrepute or shocks the majority of consuming public.
Hanesbrands responded that there was no dispute Mendenhall’s statements caused a public outcry and this backlash justified its termination of the agreement. The court says there is a factual dispute about the extent of the backlash. Mendenhall submitted evidence that although many people freaked out, he received supportive tweets and some people even changed their minds, thanking Mendenhall for making them think about the situation.
Celebrities and athletes getting into hot water over incendiary tweets that are sent in the heat of the moment. Sound familiar?
I do think there’s more to the story here, though. I don’t deal with morals clauses with much frequency, but it’s interesting to see that even a morals clause has to be constrained by some standard. If the brand reserves for itself the right to freely terminate the contract any time the endorser says something the brand disagrees with, this raises the problem of the contract being illusory.
Unlike the government, which has to comply with First Amendment constraints, private employers and brands can freely restrict the speech of their employees or endorsers. (Employers have to deal with NLRB guidelines, but those were not implicated here.) The challenge is to come up with a standard that doesn’t tie the hands of the brand but at the same time provides some metric that is not totally subjective and does not give the brand unbridled discretion.
Mendenhall’s path to victory will not be an easy one. He has a pretty tough hurdle to prove that either (1) Hanesbrands tolerated his own previous statements and this established some sort of course-of-dealing, or (2) Hanesbrands tolerated similar statements of other endorsers. As to the underlying issue of whether his tweets were offensive to a large segment of the population, the parties will probably both present competing evidence, but Hanesbrands probably has a lot to drawn on from an evidentiary standpoint here. (It's unclear as to whether use of the term "majority" in the agreement will come back to haunt Hanesbrands.)
In the meantime, Tweeters beware. We don't need another cautionary tale to remind us that the ability to instantly publish our often emotional reactions to the current goings on is a double edged sword, but regardless of how it plays out, this case serves that purpose.
I love love LOVE this case! It's an instant Contract Law classic. I could see the opinion, or its facts, appearing in Contract Law casebooks and courses throughout the country. In addition to the star power/pro sports angle, it's a rich springboard for intellectual pursuits:
* the value of endorsement contracts. There is significant literature questioning whether endorsement contracts are profitable for advertisers. See, e.g., AdAge, Celebrities in Advertising Are Almost Always a Big Waste of Money. When the endorsement arrangement does work out financially, I wonder if being controversial subtracts, or enhances, the endorser's value? It brings to mind the maxim "there's no such thing as bad press." Did Mendenhall's endorsement become less financially valuable after all of the press coverage he got--or more?
In Tiger Woods' case, it could be argued that Tiger Woods' brand fell so hard so fast that it instantly tainted any other brands it touched. Perhaps that's true, but his case was exceptional because he had manufactured a strong "good guy" brand before the ugly dirt got publicized. Here, I wonder if Rashard had such a strong brand that he had as far to fall...and if not, if the enhanced public recognition he got from the controversy outweighed any negative associations in consumers' minds.
* how to negotiate a morals clause in the Twitter age. When I taught 1L Contracts in 2005, I gave students a three-part skills exercise involving negotiating a morals clause. (See this page for links to the exercises and my writeups). My hypothetical was based on Tiger Woods before we learned about his sexual predilections. Tiger's ultimate fall from grace really closed the circle for those students. Thanks for the extra help with the pedagogy, Tiger!
I thought the skills exercise was effective for a number of reasons, including the fact it required students to think about how to describe normal social interactions in words. Students soon realized how our everyday foibles could have massive financial impact in the context of an endorsement agreement. I hope this lesson served them well as lawyers, because the financial downsides of our foibles applies even to us non-celebrities.
The Twitter overlay puts even more pressure on drafters of morals clauses. I love Twitter, but one of its downsides is that very smart people make ill-advised posts in the heat of the moment. (I'm not saying Rashard's posts were ill-advised--see below).
Recall, for example, how Aflac terminated Gilbert Gottfried for his tweets about the Japanese tsunami--his jokes were insensitive but timely, perhaps the most toxic brew (i.e., the same jokes told a few months later might have been less controversial, but partially because they would be divorced from the context). Or recall Ashton Kutcher's ill-timed and ill-informed remarks about the Penn State sexual abuse scandal, that were enough to temporarily kibosh Kutcher's otherwise irrepressible tweeting and induce him to get a spokesperson to handle tweeting for him.
Inevitably, celebrities' tweeting in near-real-time on current events will result in train wrecks. Without a buffer/editor to insulate the celebrity, the celebrity's direct access to his/her audience + Twitter's low-friction posting + working at Internet speed = trouble. Attorneys representing celebrities negotiating morals clauses should incorporate a "Twitter exception" to the clauses, i.e., give the celebrities a free pass for being themselves on Twitter, because that's what's going to happen no matter what the contract says. This may sound like a clause advertisers would strenuously resist, but perhaps they shouldn't. Twitter is often a big part of the celebrity's flywheel of public visibility and the value the celebrity brings to the contract, so advertisers need to give celebrities breathing room to keep tweeting to keep that flywheel turning and deliver the value sought by the advertiser.
* can endorsement contracts draft around the "implied covenant of good faith and fair dealing"? Recall that the contract clause says "[Hanesbrands’] decision on all matters arising under [this section] shall be conclusive." This raises the issue of whether the implied covenant of good faith and fair dealing can be contractually waived. (Ken Adams has covered that issue several times, somewhat inconclusively: see, e.g., 1, 2, 3). Hanes surely thought it had been waived. If Hanes lacked that unilateral discretion, the contract clause (almost certainly the product of spirited negotiation) raises some interesting evidentiary questions--most obviously, how either party could prove/disprove that Mendenhall did something "tending to shock, insult, or offend the majority of the consuming public." (Emphasis added). Does a party need to do some kind of large-scale sampling survey to establish the "majority" threshold? That sounds expensive.
[UPDATE: Frank Snyder has more to say about the lack of doctrinal novelty in this case.]
* political orthodoxy and terrorism. At the core of this case--superficially about pro football players and sports jerseys--is one of the most burning political and philosophical questions of this decade: was the United States' killing of Osama bin Laden legitimate and ethical? The government's PR machine did a wonderful job of demonizing bin Laden for a decade, so perhaps not surprisingly a consensus/orthodoxy emerged: of course it was justifiable to kill bin Laden because he was the face of evil.
To Mendenhall's credit, he challenged this orthodoxy and prompted some hard questions about the US government's own conduct and our own emotional response to bin Laden's death. One way of reading the court's opinion is that it wanted to know more about Hanes' condemnation of Mendenhall for asking tough and probing questions, however contrarian they may be.
I think it's this extra layer that makes it an especially wonderful teaching case. Getting students to question their assumptions about bin Laden's death, and its implications for an otherwise garden-variety commercial dispute, could yield some powerful pedagogical payoffs.
Venkat's Follow-up Comments
As always, Eric's comments raise a bunch of interesting questions.
The suggestion to build in a "Twitter exception" to a morals clause is a good one, but is sure to encounter stiff resistance from any advertiser or brand. In fact, even raising the issue could send up red-flags and result in pushback. The whole point of a morals clause is for the brand to make the call when things take a short or long-term turn for the worse.
As Eric notes, Mendenhall raised questions about the orthodoxy, and did so in a pretty even-keeled way. Should he take a financial hit because people reacted negatively? For better or worse, this is what being a brand spokesperson is all about. You no longer get to weigh in freely on current affairs and have to be careful about what you say. Everyone pretty much agrees there was strong negative reaction to the tweets. I don't know that it makes much sense to have either side quantify this or conduct an expensive survey. I also don't know whether it makes sense for Hanesbrands to have to meet some numerical threshold to make its case. The tie should go to the brand, and not the athlete or celebrity. (It's worth noting that the data is readily available and it would be fairly easy to categorize every single online reaction to Mendenhall's tweets.)
Unless the trial is scheduled to take place in Berkeley (California), Mendenhall is unlikely to receive any help in front of the jury, who will be colored by their own views in determining whether Mendenhall's tweets were "shocking, insulting, or offensive to a majority of the consuming public."
I wonder what the prospects are for the parties to make up. How likely is it that we see an act of contrition on Mendenhall's part after which the parties resume their relationship? This assumes that Mendenhall is open to this, and it's quite possible that he's not willing to publicly apologize or retract his statements. Judging from his statement in the wake of the controversy, the answer may well be no. On the other hand, maybe Hanesbrands does not need a public apology. Perhaps our memories are, like our attention spans, getting shorter. It's possible that the public may have already forgotten about this incident.