A federal judge from the Central District of California has granted summary judgment to Nike, Inc., which had been sued by Oakley Inc., for intentional interference with contractual relations, violation of a California code on unfair competition, breach of implied covenant of good faith and fair dealings. The controversy centered on elite professional golfer Rory McIlroy, who had been under contract to Oakley before Nike signed him to a contract.
In providing the background for the case, the court noted that from 2011 to the present Oliver Hunt served as an attorney for McIlroy. Meanwhile, from 2011 until 2013, Conor Ridge served as McIlroy’s sports agent, and during the times relevant to this litigation possessed a power of attorney and was authorized to enter into agreements on McIlroy’s behalf.
In 2010, Oakley and McIlroy signed a two-year endorsement agreement covering the term January 1, 2011 through December 31, 2012. The contract between Oakley and McIlroy included a “right of first refusal” provision, requiring McIlroy to provide Oakley a right of first refusal regarding any offer received for an endorsement agreement covering the period after the McIlroy-Oakley agreement.
During 2012, McIlroy received offers to enter into commercial relationships with a number of companies, including Nike. Ridge and Hunt were among McIlroy’s representatives in negotiations with Nike. Among Nike’s representatives were John Matterazzo, from Nike’s General Counsel’s office, and Jonathan Banks, a Nike executive. During a telephone conversation on September 12, 2012, Hunt told Matterazzo that McIlroy was free to seriously discuss a potential endorsement agreement with Nike. On September 25, 2012, Nike extended to McIlroy’s representatives a substantial offer under which McIlroy would endorse Nike’s golf products for five years beginning in January 2013, terms to which McIlroy’s representatives agreed in principle.
Nike officials claimed that it had stated to McIlroy’s representatives on numerous occasions over the course of its earlier discussions that it did not want to sign a contract with McIlroy until McIlroy was contractually able to do so. “The number could well exceed 50 times,” Nike claimed.
Ridge ultimately signed an agreement with Nike, including the covenant that McIlroy had no obligations that would prevent him from entering an agreement with Nike.
On December 10, 2012, Oakley sued McIlroy for breach of contract, and Nike for intentional interference with contractual relations, unfair competition, and declaratory relief.
On November 24, 2013, McIlroy and Oakley settled their dispute. Pat McIlvain, Oakley’s vice president of global sports marketing, said in a statement: “We enjoyed an excellent relationship with Rory as an Oakley brand ambassador. He conducted all his engagements on our behalf with energy and professionalism. We recognize that, in his business dealings with us that were the subject matter of this dispute, Rory was represented by his agent.”
Also, in 2013, the relationship between Ridge and McIlroy was terminated. McIlroy subsequently sued Ridge for breach of contract, a case is pending in Commercial Court in Dublin.
Back to the instant case, the court reviewed the requirements for proving an interference with contractual relations claim. In California, “the elements . . . for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” Quelimane Co. v. Stewart Title Guar. Co., 19 Cal. 4th 26, 55, 77 Cal. Rptr. 2d 709, 960 P.2d 513 (1998).
“Here it is only necessary to deal with the third element, pertaining to whether Nike committed intentional acts designed to induce a breach or disruption of the contractual relationship,” wrote the court.
“Quelimane makes clear that liability for intentional interference ‘does not require that the actor’s primary purpose be disruption of the contract.’ 19 Cal. 4th at 56. Instead, a claim will also be viable where the actor knows that the interference is certain or substantially certain to occur as a result of his action. The rule applies, in other words, to an interference that is incidental to the actor’s independent purpose and desire but known to him to be a necessary consequence of his action.
“The fact that this interference with the other’s contract was not desired and was purely incidental in character is, however, a factor to be considered in determining whether the interference is improper. If the actor is not acting criminally nor with fraud or violence or other means wrongful in themselves, but is endeavoring to advance some interest of his own, the fact that he is aware that he will cause interference with the plaintiff’s contract may be regarded as such a minor and incidental consequence and so far removed from the defendant’s objective that as against the plaintiff the interference may be found to be not improper.”
This is where the fact that Nike repeatedly sought information about whether McIlroy was free to enter an endorsement deal comes into play.
“It is similarly undisputed that as soon as Oakley’s right of refusal was mentioned on September 29, 2012, Ridge immediately stated that ‘they’ve [Oakley] told me they’re not going to match and they won’t match.’”
The court continued, “(W)hether that statement was actually true and whether Ridge had given proper notice to Oakley of the Nike offer are issues that Oakley discusses in its briefs, but which do not affect the outcome here. What does matter is that Ridge, the only person in the room with a basis to know, made a factual (not a legal) representation that Oakley had declined to exercise its rights, and Nike had a right to rely on that representation.”
Because Oakley “cannot succeed on an essential element of its intentional interference claim,” the court granted Nike’s motion for summary judgment.
Oakley, Inc. v. Nike, Inc. et al.; C.D. Calif.; SACV 12-2138 JVS (MLG); 2013 U.S. Dist. LEXIS 180991, 12/18/13
