Underwear Deal Will Send Jeter to Court

     (CN) – Baseball legend Derek Jeter must face fraud-related counterclaims from the underwear company he formerly co-owned, the Delaware Court of Chancery ruled.
     RevolutionWear Inc., which is based in New York City, made a deal with the longtime New York Yankees shortstop to market its Frigo underwear brand, according to court records.
     Instead of a standard endorsement contract, the parties allowed Jeter to own 15 percent of the company.
     “Consumers are more impressed if a well-respected celebrity or famous athlete is actually part of the business, as a board member, and co-founder and invests his/her own money, time and effort into the company,” RevolutionWear stated in its counterclaim.
     Before the deal was finalized, Jeter’s representatives talked with RevolutionWear about a “carve-out” in the contract to avoid a conflict with his Nike endorsement deal.
     The RevolutionWear agreement allowed the company to promote Jeter’s status as co-owner, as long as Jeter approved the press release. Also, the deal did not require Jeter to endorse Frigo underwear.
     According to the company, Jeter refused to disclose his role as co-owner unless RevolutionWear changed Frigo from a “sports undergarment” to a “fashion undergarment,” to preserve Jeter’s relationship with Nike.
     RevolutionWear also claimed that Jeter tried to reduce the company’s value so he could take control of it.
     In July 2015, Jeter’s directorship with RevolutionWear ended. He sued the company that fall, seeking a declaration that he complied with the director agreement.
     RevolutionWear filed three counterclaims alleging fraud, one for breach of fiduciary duty, and two for breach of the implied covenant of good faith and fair dealing.
     On July 19, the Delaware Court of Chancery refused to dismiss one of the two good-faith counterclaims.
     “To the extent Jeter refused to approve the proposed press release because of its potential conflict with his Nike contract, his refusal frustrated the overall purpose of the director agreement as determined at the time of contract, contradicts his representation concerning a carve-out, and is therefore conceivably unreasonable,” Vice Chancellor Sam Glasscock III wrote in a 40-page opinion.
     The judge did, however, dismiss a second good-faith counterclaim stemming from Jeter not disclosing his role in the company at a product launch party.
     “The parties’ agreement makes clear, in fact, that Jeter does not have a duty to promote the company or its products, beyond not unreasonably interfering with the specified press release addressed above,” Glasscock wrote.
     Jeter must also face RevolutionWear’s counterclaims of fraudulent concealment and fraudulent inducement, but not a third counterclaim of fraud.
     “While RWI’s fraud claims appear weakened by various admissions in its pleadings, RWI nonetheless sufficiently alleges that Jeter’s representations regarding his Nike contract were false,” Glasscock wrote. “Specifically, RWI points to [Jeter agent Casey] Close’s representation in his November 2013 email that Jeter’s ‘presence in the marketplace’ could not be disclosed due to his Nike contract.”
     Jeter must also face a counterclaim for breach of fiduciary duty.
     While Glasscock dismissed most of RevolutionWear’s allegations in this category, he allowed the company to pursue its claims regarding Jeter’s alleged representations to investors that he would disclose his role in the company.
     “Jeter, while acting as a fiduciary to the company, made statements that were knowingly false and caused investors to invest in the company,” the judge wrote. “After discovering the falsity of Jeter’s statements, investors lost faith in the company, thereby limiting the company’s ability to raise capital.”
     In his 20-year career with the New York Yankees, Jeter notched 3,465 hits and won five World Series championships.

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