Court Refuses to Dismiss Claim in Celebrity Endorsement Lawsuit

A federal judge for the North Carolina District Court has refused to dismiss a suit brought by professional football player Rashard Mendenhall, who filed a breach of contract claim against Hanesbrands, Inc. Rashard Mendenhall v. Hanesbrands, Inc., No. 1:11CV570 (M.D.N.C., filed April 12, 2012). In May 2008, Mendenhall entered into a multi-year endorsement agreement with Hanesbrands under which he agreed to promote certain Hanesbrands' products sold under the Champion trademark. The endorsement agreement contained a "morals clause" that permitted Hanesbrands to terminate the agreement if Mendenhall became involved in any situation or occurrence tending to bring him "into public disrepute, contempt, scandal, or ridicule, or tending to shock, insult or offend the majority of the consuming public or any protected class or group thereof." The clause stated that Hanesbrands' decision on all matters arising under this provision was conclusive.

Mendenhall frequently used Twitter to express his opinions on current events and social issues, an activity that Hanesbrands never had an issue with previously. The day following the announcement of Osama bin Laden's death, Mendenhall stated on Twitter that this was something that should not be celebrated and questioned whether the collapse of the twin towers was really caused by hijacked planes. Days later, in response to the negative reaction his comments received, Mendenhall issued an explanation in which he defended his comments regarding bin Laden's death but apologized for any unintentional harm he caused. Soon after, Hanesbrands declared their intention to terminate the endorsement agreement. The company issued a public statement maintaining that it strongly disagreed with Mendenhall's comments, that such comments were inconsistent with the values of the Champion brand and that it was consequently ending its business relationship with Mendenhall.

Mendenhall filed suit against Hanesbrands in response, claiming that the termination was unreasonable and contrary to the course of dealing between the parties with regard to his prior use of Twitter to express his opinions, both controversial and uncontroversial, and that as a result, Hanesbrands breached the contract. Hanesbrands filed a motion to dismiss on the pleadings, asserting that the breach of control claim failed as a matter of law under the express terms of the contract. The court ruled that Hanesbrands could not terminate the agreement with Mendenhall under the morals clause simply because it disagreed with his comments, as the contract includes an implied covenant of good faith and fair dealing which requires parties not to act arbitrarily or irrationally in exercising their discretion. Further, the court found that because Hanesbrands could not provide uncontested evidence in its pleadings proving the negative public backlash, a ruling of summary judgment would not be appropriate. Mendenhall disputed the authenticity of the negative news reports and provided evidence of positive public responses as well. The court ruled that further factual development regarding the public's response was necessary before it could dismiss the claim.

Standard morals clauses in endorsement contracts that encompass a celebrity's Twitter comments may soon be viewed as too broad. The court's decision in this case may play a role in determining how such clauses are negotiated and drafted in the future, including whether to make exceptions with respect to comments made on Twitter and the standard of proof required for triggering termination.

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