From the Delaware Court of Chancery

This case provides a cautionary tale of the mixing of roles in a corporate governance setting. The Defendant and Counterclaimant is RevolutionWear, Inc. (“RWI” or the “Company”), manufacturer of a high-technology undergarment, which it distributes under the FRIGO® brand (“FRIGO”).  The Company wished to use the marketing power of the endorsement of a well-known athlete, Derek Jeter, to enhance sales of FRIGO. Instead of negotiating with Jeter for the right to use his likeness, or hiring his services to promote FRIGO, RWI pursued a different strategy: it negotiated to bring Jeter into the Company as an owner and member of the board of directors, so that it could indirectly point to his involvement in a way that, presumably, RWI thought would appear more sincere to the underpants-buying public than would a standard paid endorsement. Jeter and RWI entered a director’s agreement, which imposed contractual duties on the parties and made Jeter a fiduciary for RWI. I understand, in light of the counterclaims, that RWI had little or no interest in Jeter’s stewardship of the Company; the arrangement was seen by RWI as a marketing ploy. In furtherance of that interest, RWI alleges that it required certain representations from Jeter: that he would consent to public promotion of the fact that he was a director, investor in, and “founder” of RWI, and that such would not conflict with a promotional contract Jeter had with the Nike sportswear company. Jeter and his agents, according to RWI, made such representations, which were material to RWI entering the director’s agreement, and on which representations RWI relied in creating and funding a marketing strategy. Jeter also made similar representations to investors on behalf of RWI. According to the counterclaims, however, Jeter’s representations were false: either he misrepresented the Nike contract or for other reasons was unwilling to allow RWI to publicize his involvement with the Company. Jeter also attempted to influence Company decisions; in other words, he acted like a “real” board member, but for allegedly self serving reasons. The counterclaims, accordingly, seek to impose damages for fraud and breach of contract, as well as breach of fiduciary duty. Jeter has moved to dismiss the counterclaims; the results are mixed.