October 22, 2009
Marcus Jordan: A Pair of Shoes, Family Ties and a University's Exclusive Contract
A pair of shoes could end up costing the University of Central Florida nearly $3 million.
UCF promised Marcus Jordan, son of NBA legend Michael Jordan, that he could wear his father's Nike Air Jordan brand for the Knights' basketball team this season.
The problem? UCF has an exclusive $3 million, six-year contract with adidas that requires all coaches and athletes to use the company's shoes, apparel and game equipment.
And now UCF and adidas are at an impasse, leaving an 18-year-old freshman with a famous father caught in the middle.
"When I was being recruited, we talked about it," Marcus Jordan said. "They said they had talked to the adidas people, and it wasn't going to be a problem. I think everybody understands how big of a deal it is for my family."
The deal has strained the relationship between UCF and one of its most important business partners, complicating current contract-renewal negotiations. The university's agreement with the company expires in 2010.
Contrary to a report last week by AOL Fanhouse, adidas officials told the Orlando Sentinel they have not reached an agreement with UCF yet about Jordan's shoes.
"There is no compromise, and the contract is currently under review," adidas spokeswoman Andrea Corso said. "We are in negotiations for a future relationship regarding the broader UCF athletic program. What I can say is that these relationships are based upon agreed deliverables for both parties."
UCF Athletics Association released a statement indicating it hopes to extend its 5-year-old relationship with adidas.
"At this time, we are working with adidas in determining how this unique set of circumstances will work for both parties," the statement said. "We made adidas aware of this unique situation during contract-renewal discussions. There is a great deal of respect for the adidas brand and the partnership."
UCF's contract with adidas represents about 1.4 percent of the UCF Athletics Association's projected income this year.
UCF is negotiating a new deal with adidas that is tentatively expected to be worth $3million and last up to six years. UCF would receive all its merchandise from adidas free under the new proposed contract, a change from the current deal that calls for UCF to buy some items from adidas at wholesale prices.
Nike has not expressed interest in taking over the UCF shoe contract, with the company well-represented in the Florida market thanks to agreements with the University of Florida, Florida State and Miami.
In the worst-possible scenario, UCF risks losing its current adidas contract's worth and being forced to buy its own clothing, shoes and equipment at full price for all 15 of its sports.
Marcus Jordan, the young man in the middle of this controversy, said he never meant to offend anyone.
"It's a level of importance with the Jordan brand and my family," he said. "It's no disrespect to adidas. I have a high level of respect for adidas, but I'm going to be wearing Jordan shoes. I'm wearing the adidas uniform, and all my other UCF gear is adidas, but the shoes are going to be Jordan brand."
Dan Drane, an assistant professor of sports management at the University of Southern Mississippi, said it's hard to imagine Marcus Jordan would be able to wear anything besides Nikes.
"Whether it's right or wrong, Michael Jordan's sons will always be compared to and associated with him," Drane said. "It would be very difficult for them to be associated with a company other than the one that was so supportive of their father's career."
Drane said the shoe controversy goes beyond adidas simply wanting UCF to honor its contract.
"It's a pretty deep issue that touches on a student's legal right to wear whatever they feel is best for them," Drane said. "In the end, this might end up being bigger than just a battle between adidas and Nike."
[Meredith R. Miller]
Update on Franken Amendment: Jamie Leigh Jones interview
We previously mentioned the "Franken Amendment" to the 2010 Defense Appropriations bill, which would withhold defense contracts from companies like Halliburton if their contracts restrict employees from suing in court for claims such as sexual assault, battery and discrimination.
Jamie Leigh Jones and her attorney appeared on the Rachel Maddow Show last night to tell ther story, and speak in support of the amendment. If you are interested in this development, it is worth watching:
[Meredith R. Miller]
October 21, 2009
Was Carrie Prejean Unjustly Enriched? (Nudge Nudge Wink Wink)
You'll undoubtedly recall that, back in May, we mentioned that Miss California USA (aka Donald Trump) might terminate then-Miss California Carrie Prejean for breach of contract. Prejean was in fact de-crowned, and she sued the pageant organizers for a whole host of things, including discrimination based on her anti-gay marriage stance and violation of her privacy when a representative acknowledged publicly that she had breast implants. The franchise wasted no time with a countersuit and, according to CNN, one of the claims seeks to recover some $5000 the pageant organizers loaned Prejean for the breast implant surgery - pursuant to an oral agreement between the parties.
Some stories, even contracts profs can't make up. This ugly tale of caution is one of them.
[Meredith R. Miller]
October 20, 2009
Executive Compensation Mystery at Sotheby's
The New York Times reports that the Sotheby's auction house has refused to provide government regulators with information on bonuses paid to Sotheby's executives. Sotheby's justifies this refusal by pointing out that if that information were to become public, its arch-rival Christie's, could use it to lure executives away from Sotheby's by offering still more lucrative compensation. In correspondence with the SEC, posted here, Sotheby's pointed out that its "chief competitor" -- i.e., Christie's -- is a private corporation not subject to disclosure rules.
This news fascinates me for three reasons:
1. Sotheby's and Christie's are undoubtedly at the top of the heap in the art dealing industry. Based on my circle of acquaintances, which includes many unemployed or underemployed artists, art curators and art experts, it seems likely to me that Sotheby's and Christie's benefit from being in a buyer's market when it comes to hiring executives. If both companies under-compensated their executives, where would those executives go? And if they left, so what? Couldn't Sotheby's and Christie's easily find highly competent replacements who would work on paint fumes just for the honor of getting those great auction houses on their resumes?
2. But even if I'm wrong about that, if Christie's were really interested in luring executives away from Sotheby's, couldn't they just ask the executives about what sort of compensation package it would take to motivate them to move? Is there a number one rule of Sotheby's Club that you don't talk about Sotheby's Club?
3. In any case, didn't Sotheby's waive its right to whine about the hassles of disclosure when it went public?
October 19, 2009
Contracts Limerick of the Week: Market Street Associates v. Frey
There has been a lot of interest on the blog lately in the topic of contracts law and morality, e.g. here and here. Our comments section has been unusually active, which is terrific. A recent comment got me to thinking about Market Street Associates v. Frey.
That case involved a lease agreement between GE Pension Trust (GE) and Market Street Associates (MSA) as the assignee of JC Penny. The lease had a provision that allowed MSA to seek a loan from GE for the purpose of improving the property. If GE refused, MSA had an option to buy the property for the original purchase price plus 6% annual interest.
MSA offered to repurchase the property from GE, but GE demanded $3 million, which MSA thought was too much. MSA then requested financing, and when GE refused on the ground that it was not offering loans in amounts less than $7 million, MSA demanded the sale of the property pursuant to the lease provision. Under the terms of the lease, MSA would have been entitled to buy the property for about $1 million. GE claimed that because MSA had failed to remind it of the option in the lease, MSA had acted in bad faith.
The district court granted summary judgment to GE, finding that under the doctrine of good faith or simply as a matter of contract interpretation, MSA had a duty to remind GE of the option provision. This led Judge Posner to a lengthy rumination on the nature of terms such as “good faith” in contract law. Not surprisingly, Judge Posner does not find these terms very useful. However, he was able to explain the value of the doctrine of good faith in economic terms, and that permitted him to find that in fact MSA's conduct might well have violated the duty to act in good faith.
For Posner, what we call the duty of good faith is really just about reducing transactions costs by creating a disincentive to sharp practices in the course of performance. Sharp practices, says Judge Posner, are perfectly fine when negotiating a deal, but once the parties enter into an agreement, they are now in a “cooperative relationship” in which each lowers her guard. The doctrine of good faith thus protects against opportunistic behavior that can arise in the context of the sort of bilateral monopoly that can develop after the parties have committed themselves to a contractual relationship.
As many commentators on the blog have pointed out, there are many reasons to doubt that the moralizing tone underlying terms such as “good faith” could or should be eliminated from contracts law. But even assuming we were to attempt to understand contracts law entirely in terms of transactions costs, Posner’s position remains highly dubious.
First, at least since the Restatement (2d) and the UCC, contracts law has been sensitive to the difficulty of attempting to pinpoint the moment at which a threshold from a pre-contractual to a post-contractual relationship has been crossed. Parties continue to negotiate and change deals as they go. There is thus little reason to suspect that parties immediately let down their guards once they have entered into a cooperative relationship.
Second, if sharp practices increase transactions costs, then they do so regardless of when they occur. A party that engages in sharp practices will get a reputation for doing so. Other parties dealing with that party will be cautious and will engage in extra diligence that will complicate negotiations and may ultimately prevent many deals from occurring because a fundamental mistrust cannot be overcome satisfactorily.
Finally, if one is really interested in reducing transactions costs, then hold sophisticated, well-resourced parties to the terms of the agreements they sign. If GE wants a provision requiring notice before its contractual partner triggers its option to purchase, it can very easily write that duty to notify into the contract. A party like GE should have no recourse to a doctrine like good faith when it had the means and the ability to protect its own interests in both the pre- and the post-contractual moments.
Still, Posner opinions are always stimulating and thus Limerickworthy:
Market Street Associates v. Frey
“Don’t get moralistic with me,”
Said Judge Posner to trustee, GE.
“Though when I hear ‘good faith,’
I reach for my . . . Wraith.
Opportunists ain’t my cup o’ tea.”
Jon & Kate Plus Attorneys
Many regular readers have written to complain about the blog's non-existent coverage of the greatest drama of the 21st century thus far, the War of the Gosselins. The truth is, we were barred from writing about "other reality television programs" under the terms of various letters of intent that we had entered into with reality television production companies interested in pitching shows that centered on our blog and our rivalries with other law blogs. Sadly enough, television viewers will now never see that drama.
We were able to overcome the initial obstacle that the camera crews kept on falling asleep while filming the "action shots," which consisted of us eating ding dongs, sipping coffee and Mountain Dew while composing blog posts and chortling as we flamed our various nemeses. But when the focus groups that viewed the pilot for our show also fell asleep, each production company in turn told us "we should do lunch some time." Whatever that means.
So, to get you up to speed. CNN.com reports the following: Jon and Kate are separated. TLC, the channel that brought us "Jon & Kate Plus 8," decided to continue with a show that focused on Kate's "journey as a single mother." Jon pulled the plug on that by denying TLC access to his home, expressing concern [get this!] for his children. You can watch Jon and his central-casting-provided attorney on Larry King Live here. It will really be a shame if "Kate Plus 8" never appears. As the advance publicity shot provided here indicates, Kate will inspire other mothers of multiples with her tips on keeping in shape while pregnant through hoola hoop exercises and rhythmic gymnastics.
TLC is fighting back, alleging that Jon has violated his contract with the network by giving unauthorized television interviews. TLC alleges damages of $30,000, but Jon, through his attorney, challenges the enforceability of the contract and also argues that the contract was terminated when TLC decided to replace "Jon & Kate Plus 8" with "Kate Plus 8."
Both Jon and Kate intend to continue their television careers, and I think the title of this post provides a name for their next reality television series.