DETROIT (CN) – A sports management company’s contract with NASCAR driver Kurt Busch is not enforceable because of a conflict of interest but that does not mean the driver is entitled to damages against his former agent, a federal judge ruled Wednesday.
In 2017, Troy, Michigan agency Sports Management Network sued Busch, a Daytona 500 winner, in federal court alleging that he had violated the terms of a modified agreement to pay to the firm 10 percent of his revenue until 2018 after the driver parted ways with the company in 2016. The management company claimed that under the agreement, it had invoiced Busch for $930,000 but he had refused to pay that fee and an additional $540,000. It made a damages claim of $1.4 million.
In a counterclaim, Busch said he was owed $1.3 million in damages because the company “improperly advantaged themselves” and other clients, including his former employers Penske Racing and Andretti Autosport, at his expense. John Caponigro, an attorney but also the founder and CEO of Sports Management Network, failed to look out for his interests during negotiations for certain contracts, Busch claimed.
On Wednesday, U.S. District Judge Arthur Tarnow in Michigan granted in part Busch’s motion to throw out the claims at the summary judgment stage, ruling that the modification of his contract from a flat-rate annual fee to a percentage-based contract violated the state’s regulations on professional ethics and therefore the company could not enforce it.
“It required John Caponigro to split his loyalty between his client [Busch] and his company, between his client and his company’s clients, and between his client and his law firm’s clients. The court need not rule on whether all these conflicts were even waivable, because no one ever asked Busch for informed consent,” the 31-page ruling states.
Because Caponigro was acting as both a sports agent and an attorney he should have made sure that Busch understood what he was “giving up by becoming a client of his boss’s attorney” when the agreement was modified, Tarnow wrote.
Sports Management Network “failed to provide his client with a meaningful choice on whether such conflicts were permissible,” Tarnow added.
But that did not mean that Busch was entitled to damages for breach of contract or legal malpractice because the driver had only speculated that Caponigro and the management company could have pushed harder for his share of sponsorship money or more money from racing, the judge wrote. Without more evidence, he was not entitled to claim for damages, the court found.
Attorneys for both sides did not immediately respond Thursday to a request for comment.