Calling ‘Dibs’ through Endorsement Deals: The Surprising Twist on Intentional Interference

May 1, 2015 | Agents, Contract

By Katherine Simone
 
In July 2014, the Pittsburgh Steelers’ wide receiver Antonio Brown (“Brown”) left his former agency, Jay Z’s Roc Nation, to go back to his old agent, Drew Rosenhaus of Rosenhaus Sports Representation (“RSR”). On November 8, 2014, Brown, as many professional athletes do, signed an endorsement contract with Exclusive Supplements, Inc. (“ESI”), a marketer, distributer, and seller of dietary and other nutritional supplements and products. The contract contained a non-competition clause, which stated:
 
“[Brown] will not enter into any endorsement agreements, or any other agreements, with any companies who compete, either directly or indirectly, in the supplements industry, with [ESI] or whose products compete, either directly or indirectly, with any of [ESI’s] products.”
 
Under the endorsement deal, Brown made personal appearances, had a social media presence, and allowed ESI to use his name and likeness while promoting their products. On March 18, 2015, Brown represented BioRhthym, a brand of ESI, at The Arnold Fitness EXPO Competition.
 
However, on March 22, 2015, Glukos Company, Inc. (“Glukos”), a sports nutrition brand that positions itself as an alternative to Gatorade, placed a picture of Brown on the home page of its website accompanied by the title “Antonio Brown is on Team Glukos”. Soon after that, Glukos put out a press release stating that it had entered into an endorsement deal with Brown. Glukos planned to use Brown in point-of-sale and digital ads and possibly on packaging.
 
One day later, ESI filed a complaint in the U.S. District Court for the Western District of Pennsylvania for Intentional Interference with a Contractual Relationship, naming Glukos and RSR as the defendants. It soon removed RSR and added KCB Sports Marketing (“KCB”), who, while not legally affiliated with RSR, handled the endorsement deal for Brown, in addition to endorsement deals for other RSR athletes. Jason Rosenhaus commented that RSR was not involved in nor had actual knowledge of the transaction. Brown himself was not included as a defendant in the case because, according to an ESI attorney, he was misled by his representatives in signing the contract with Glukos.
 
The complaint asked for damages totaling over $75,000 and an emergency temporary restraining order. U.S. District Judge Cathy Bisson quickly denied the restraining order on the grounds that ESI needed to file an affidavit in support of its allegations and, while it claimed to have done so in its complaint, no such documents were filed with the court.[2]
 
At common law in Pennsylvania, a defendant is liable to pay damages in tort for actions intended to interfere with the plaintiff’s contractual relations with a third party by inducing or otherwise causing the third person not to perform the contract. The Restatement (Second) of Torts is the governing law in this case. Under the Restatement, to prevail on the claim, the plaintiff must prove four elements: (1) that a valid contract existed between the complainant and a third party, (2) an intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship (3) the absence of a privilege or justification on the part of the defendant, and (4) that plaintiff was injured by the defendant’s actions. In an intentional interference claim, the burden is on the plaintiff to prove the elements of the claim rather than on the defendant to prove that its acts were privileged or justified.
 
In this case, the existence of a valid contract between Brown and ESI at the time Brown entered into the agreement with Glukos is likely not going to be in dispute. Unless the court finds that Brown had successfully initiated termination of the contract before signing with Glukos, these contracts are standard in the industry and there is likely no issue with its validity.
 
As far as any injuries to ESI, Judge Bisson questioned whether Brown had initiated the termination of the contract with ESI. Since the contract between ESI and Brown is an at-will contract that is terminable “upon 30 days notice”, the court seems to be questioning whether or not there is still a valid contract that exists between Brown and ESI. If there is not, then ESI’s claim for damages will be limited because the non-competition clause does not survive termination of the contract.[3]
 
To meet the second element (an intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship), ESI must show that Glukos and KCB acted through wrongful means, i.e. intentionally and improperly, by having Brown sign the endorsement deal with Glukos. Since there is no formula for determining improper conduct under analysis of an intentional interference claim, this element must be analyzed on a case-by-case basis. To help with analysis, courts often give consideration to the following factors: (a) the nature of the actor’s conduct; (b) the actor’s motive; (c) the interests of the others with which the actor’s conduct interferes; (d) the interests sought to be advanced by the actor; (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other; (f) the proximity or remoteness of the actor’s conduct to the interference; and (g) the relations between the parties.
 
One factor the court may consider is the circumstances under which Brown signed the Glukos contract and whether or not they were considered oppressive or fraudulent. It may also look at how Glukos’s acquisition of Brown has affected and will continue to affect ESI’s profitability of its own contract with Brown. It may also look at the implications of enforcing or not enforcing the non-competition clause and what affect they will have on future tortious interference cases.
 
The third element of the tort, however, may get Glukos, alone, off the hook. If it was privileged or justified in interfering with the ESI contract, ESI will not succeed in this case. In Pennsylvania, it is recognized that competitors, in certain circumstances, may be privileged to interfere with the contractual relationships of other competitors. In order to encourage competition in business, a party who has an existing contractual relationship with another party may be subject to interference by a third party. Specifically, “[o]ne who intentionally causes a third person…not to continue an existing contract terminable at will does not interfere improperly with the other’s relation if: (a) the relation concerns a matter involved in the competition between the actor and the other; (b) the actor does not employ wrongful means; (c) his action does not create or continue an unlawful restraint of trade; and (d) his purpose is at least in part to advance his interest in competing with the other” (emphasis added).
 
Here, both ESI and Glukos are in the business of selling and promoting dietary, nutritional, and supplemental products.
 
Comment e to section 768 of the Restatement describes conduct that constitutes “wrongful means”:
 
“If the actor employs wrongful means, he is not justified under the rule stated in this Section. The predatory means discussed in § 767, Comment c, physical violence, fraud, civil suits and criminal prosecutions, are all wrongful in the situation covered by this Section.”
 
Courts relying on this comment have required a plaintiff to show that the defendant took part in conduct that is actionable outside of an intentional interference claim. This privilege has also been called the “gist of the action” doctrine and is frequently available to tortious interference claims. An article in The Legal Intelligencer expanded on this point:
 
“If the conduct at issue is only improper because of a contract between the parties, then the only viable claim (the gist of the action) is for breach of that contract, and no tortious interference claim can proceed, even if the defendant’s conduct interfered with another contract between the plaintiff and a third party.”
 
Here, Brown entering into an endorsement deal with Glukos was not improper as a separate and independent cause of action. It was only considered improper under the umbrella of the intentional interference claim because Brown was already under contract with ESI and was subject to the non-competition clause. Had he not been under contract with ESI, there would be no cause of action.
 
As for the third element, Glukos’s (and KCB’s) involvement in Brown’s second endorsement contract does not result in an unlawful restraint on trade. Not having Brown as an athlete representative will not restrict the selling of ESI’s products.
 
Lastly, Glukos’s interest in signing Brown to represent it can be construed as wholly advancing its interest with competing against not just ESI, but all nutrition and supplement industry competitors. Unfortunately for KCB, this means it may stand alone in the tortious interference action while Glukos could only be liable for breach of contract.
 
Excluive Supplements, Inc. v. Glukos Company, Inc., et al., No, 15-399 (W.D. Penn. filed March 24, 2015).
 
Katherine earned her J.D. from Northern Kentucky University. She currently works in labor and employment relations with a focus on collective bargaining agreements. She may be reached at katasimone@gmail.com
 
[2] Judge Bisson, expanding on the importance of the affidavit(s), wrote: “Rule 65(b) of the Federal Rules of Civil Procedure provides that a court can only issue a temporary restraining order if “specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition.”
 
[3] “The Court also finds it noteworthy that Plaintiff’s complaint and briefing lack any indication as to whether Mr. Brown has initiated the termination provisions of the contract. See Doc. 1-2 (“This Agreement is terminable at will by either party upon 30 days notice.”). While Plaintiff dedicates a portion of its brief to the notion that the “at will” termination provision of its contract with Mr. Brown is not truly “at will” due to the inclusion of a non-competition provision, suspiciously absent from this discussion is a clear answer on whether the contract is still in effect. The Court notes, however, that given that the contract is terminable at will, and that the non-compete language, on its face, terminates with the contract (as it contains no survivability language), the Court is puzzled by how Mr. Brown could possibly have any continuing obligation not to compete following the termination of his contract.”


 

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