A federal judge from the Middle District of Tennessee has denied a sports agency’s motion for summary judgment in a case in which a professional golfer and the sports agency that previously represented him became entangled in a legal dispute after the golfer left the agency. In so ruling, the court noted that more discovery was needed to decide the case and that the defendant’s motion was incomplete.
Plaintiff Troy Merritt is a professional golfer living in Meridian, Idaho. Shortly after he finished college in 2008, Merritt hired Peter Webb as his manager. Aside from an 18-month period when Webb was subject to a non-compete clause, Peter Webb has been Merritt’s manager for his entire golf career. On Nov. 23, 2014, Merritt signed a marketing representation agreement (the “Agreement”) with the agency where Peter Webb was then employed, 1 Degree Sports Management (“1 Degree”).
Through the Agreement, Merritt retained 1 Degree as his “manager and agent” to serve as his “exclusive representative worldwide in negotiating and managing income-producing activities on [his] behalf.” The Agreement makes no reference to Peter Webb. As compensation for the services provided by 1 Degree, the Agreement provides that Merritt will pay commissions of varying amounts (12-20 percent depending on the category) to 1 Degree for money earned from contracts “negotiated (in full or in part), secured (in full or in part), or managed (in full or in part)” for the contractual term of the opportunities secured by 1 Degree. The Agreement further requires that Merritt pay a 15 percent commission on any income-producing opportunities that were initially negotiated, secured, or managed by 1 Degree, but renewed or renegotiated by a third party after the termination of the Agreement. This is referred to in the Agreement as a “perpetual fifteen (15 percent) commission.” The Agreement requires that Merritt pay all amounts owed to 1 Degree within 15 days of receiving “commissionable income.”
Between Nov. 23, 2014 and Oct. 31, 2016, 1 Degree negotiated or renewed income-producing contracts on behalf of Merritt with the following companies: Adams, Titleist/FootJoy, TaylorMade, Sligo, California Pizza Kitchen, Acushnet Company, World Fuel Services Corporation, EZ Links / teeoff.com, Galvin Green, MGM Resorts International Operations, Inc., and Wilson Sporting Goods Company.
The defendants claim they are owed commission payments on the contracts for Acushnet Company, Wilson Sporting Goods, World Fuel Services Corporation, EZ Links Golf, LLC / TeeOff.com, Galvin Green, and MGM Resorts International Operations, Inc. Merritt claims that 1 Degree agreed not to charge commission for the 2017 World Fuel contract because he had already paid a 20 percent commission on this contract to another sports management agency. In an April 24, 2017 email exchange between Merritt’s agent, Peter Webb, and Alan Bullington, CEO of 1 Degree, Bullington said that he recalled discussing World Fuel, but did not recall agreeing to 100 percent of the commission going to the other sports management agency. He stated in the email that he would, nevertheless, not charge Merritt commissions for the World Fuel Contract until 2018.
1 Degree operated as a sports management company until Oct. 31, 2016. On Sept. 23, 2016, 1 Degree and the law firm McAngus, Goudelock & Courie, LLC created a new company called MGC Sports LLC (“MGC Sports”). MGC Sports is owned jointly by 1 Degree (49.999 percent) and the law firm (50.001 percent). The newly created company, MGC Sports, took over operations from 1 Degree on Nov. 1, 2016.
Although 1 Degree continued to exist as a legal entity, it “continued operations solely as 1 Degree through October 31, 2016.” On Nov. 1, 2016, MGC Sports took over payroll for 1 Degree and all employees of 1 Degree became employees of MGC Sports. Essentially, MGC Sports carried on the usual business of 1 Degree. Peter Webb continued to negotiate and manage Troy Merritt’s equipment and corporate endorsement deals after Nov. 1, 2016, while he was working for MGC Sports.
On Dec. 9, 2016, after working as an employee of MGC Sports for about five weeks, Peter Webb resigned. Shortly thereafter, on Dec. 14, 2016, Troy Merritt called Alan Bullington and asked to be released early from the Agreement, so he could continue to work with Peter Webb. Bullington agreed to release Merritt from the Agreement subject to the post-termination payment obligations set forth in Section 2 of the Agreement.
Following the phone conversation, Bullington sent an email to Merritt:
“Per our conversation earlier this morning I am writing to confirm that you would like to terminate your management agreement dated November 23, 2014 (“the Agreement”). While the Agreement is not set to expire until December 31, 2017, I will agree to an effective termination date of December 31, 2016. Above all else, I want you and Courtney to be comfortable with your management situation. I know you and your family have been through an extraordinarily difficult situation with your uncle, and we definitely don’t want to cause you or Courtney any additional stress. Your only post termination obligations will be those set forth in Section 2 of the Agreement, and I’m happy to coordinate fulfillment of those obligations with you, Courtney or Peter as payments become due. Just let me know who you would like me to communicate with moving forward. I wish you the best of luck on and off the course and hope your family has a wonderful Christmas.”
Merritt responded to the email the next day: “I do wish to terminate my Management Agreement. We will work in partnership to abide by Section 2 in the Agreement. We can coordinate through Peter Webb as payments come due. Thank you again for everything that you’ve done for us.”
On Jan. 1, 2017, MGC Sports sent an invoice for $15,800 to Merritt reflecting certain commissions earned in 2016. Merritt paid the invoice. On April 13, 2017, MGC Sports invoiced Merritt $1,800 for commission on certain payments received in 2017. Merritt paid the invoice. On Oct. 10 and Nov. 10, 2017, MGC Sports sent Merritt invoices for $70,425 for commission on payments in 2017. Merritt has not paid these invoices and disputed the World Fuel charges, as well as the right of MGC Sports to collect payments under the Agreement.
On Oct.13, 2017, Merritt sued, alleging breach of contract and requesting a declaratory judgment defining the parties’ obligations under the Agreement. Specifically, Merritt asked that the Court declare: (1) MGC Sports cannot enforce the compensation terms of the Agreement because it is not a party to the Agreement; (2) Merritt is excused from performance under the Agreement due to 1 Degree’s material breach of the contract when it improperly assigned the Agreement to MGC Sports without written consent; (3) that any assignment of the contract is null and void; (4) that compensation is limited to the term of the Agreement only — Dec. 31, 2017 – and that no compensation by Merritt shall be required beyond the Dec. 31, 2017, date of termination contained in the agreement; (5) that any perpetual compensation obligations in the Agreement are voidable or unenforceable; or (6) that Merritt is not obligated to pay commission to MGC Sports or 1 Degree on the corporate endorsement contract with World Fuel Services. The defendants filed a counterclaim alleging breach of contract, quantum merit, punitive damages, and requesting attorneys’ fees. They also requested a declaratory judgment that Merritt is obligated to continue to pay commissions to 1 Degree or MGC Sports.
The defendants moved for summary judgment asking the court to dismiss Merritt’s amended complaint and to grant judgment as a matter of law for the defendants as to all claims alleged in their counterclaim.
The court first addressed the plaintiff’s claim that the defendants materially breached the Agreement by assigning the Agreement to MGC Sports without his consent and that this breach excuses his performance under the Agreement. The defendants argue 1 Degree did not breach the Agreement because it did not assign any duties under the Agreement, only the right to receive payment. The defendants filed a counterclaim that Merritt breached the Agreement by not paying required commissions.
The defendants conceded that 1 Degree assigned its rights under the contract to MGC Sports. However, they claim that 1 Degree did not delegate any duties. “The evidence indicates otherwise,” wrote the court. “Though 1 Degree continued to exist as a legal entity, the evidence indicates that MGC Sports took over the business operations of 1 Degree. With no evidence to the contrary, the Court finds employees of MGC Sports performed duties for which 1 Degree was contractually obligated. This demonstrates that 1 Degree delegated its duties under the contract to MGC Sports.”
This made the fact that the Agreement contained an anti-assignment clause pertinent. It spelled out that the “agreement cannot be assigned without prior written consent of both parties.”
Furthermore, “the anti-assignment clause in the agreement and common law regarding the assignability of personal services contracts prohibits delegation of duties under the Agreement without consent. See Fleet Bus. Credit, LLC, 2008 Tenn. App. LEXIS 379, 2008 WL 2579231 at *5 (citing Edgewood, 223 S.W.2d at 215); Restatement (Second) of Contracts § 322 (1981). Accordingly, 1 Degree’s delegation of its duties under the Agreement was a breach of contract. Neither party has presented evidence or argument regarding the materiality of the alleged breach. The distinction between a material and an immaterial breach is not insignificant. A material breach on the part of 1 Degree would relieve Merritt of his performance under the Agreement, while an immaterial breach would allow Merritt to sue for any damages caused, but he would still be bound to continue performance under the contract. Because the parties have not briefed the issue of materiality, the Court cannot determine whether the breach was a material breach.”
Next , the court turned to the efficacy of a “perpetual obligation,” which the plaintiff correctly argues are “disfavored” by the Tennessee courts. However, in the instant case, “the contract language is clear that the payment obligation extends so long as Merritt receives income from ‘income producing opportunities’ initially negotiated by 1 DeThe Court finds the compensation provision clearly evidences the parties’ intention to create a payment obligation for so long as Merritt receives income from opportunities originally negotiated by 1 Degree and is, therefore, not an unenforceable perpetual agreement.”gree.
The court went on to dismiss the other element of the defendants’ summary judgment motion.
Merritt v. MGC Sports LLC et al; M.D. Tenn.; 2019 U.S. Dist. LEXIS 129564, NO. 3:17-cv-01372; 8/2/19
Attorneys of Record: For Troy Merritt, Plaintiff, Counter Defendant, Counter Plaintiff: Christopher P Graham, Rory R. Jones, Jones Gledhill Fuhrman Gourley, P.A., Boise, ID.; William J. Carver, Kramer Rayson LLP, Knoxville, TN. For MGC Sports LLC, Defendant, Counter Plaintiff: David E. Long, Richard C. Mangelsdorf , Jr., McAngus, Goudelock & Courie, LLC, Knoxville, TN.