Over at the Technology and Marketing Law Blog, Eric Goldman (Santa Clara) and Venkat Balasubramani (Focal PLLC) are exchanging views about a new decision, Mendenhall v. HanesBrands, Inc. In the case, NFL running back Rashard Mendenhallof the Pittsburgh Steelers signed an endorsement deal for Champion athletic gear. The contract had a morals clause that provided that Hanes could terminate the agreement if Mendenhall did anything that would tend to bring him “into public disrepute, contempt, scandal, or ridicule,” or that would tend “to shock, insult, or offend the majority of the consuming public.” The contact provided that the company’s “decision on all matters arising under [this section] shall be conclusive.”
When the Obama administration reported the death of Osama bin Laden, Mendenhall sent out some controversial tweets noting that bin Laden might not be as bad as pictured because “we’ve only heard one side,” taking Americans to task for celebrating his death, and suggesting that the destruction of the Twin Towers was caused by something other than being hit by aircraft. Not surprisingly, there was substantial public outrage at the remarks, and Hanes terminated the contract with Mendenhall. Mendenhall sued, claiming (among other things) that Hanes terminated him in bad faith.
Factually, as Eric notes, the case has all kinds of sex appeal — terrorists and twitter and NFL players are more fun for students to talk about than flywheels on steam engines. But doctrinally the case seems less interesting. The case involves merely a judgment that Mendenhall has stated a possible claim, so the court did not consider the avalanche of negative publicity that surrounded the tweets. Since Mendenhall denies that he was brought into public disrepute, contempt, scandal, or ridicule, and that he did nothing that would shock, insult, or offend the the majority of consumers, we have to take those as true, no matter how unlikely they may be. This isn’t summary judgment.
The doctrinal point seems to be that although the contract provided that Hanes’s “decision . . . would be conclusive,” that provision is modified by an implied duty of good faith. In other words, Hanes’s good faith determination is conclusive. That’s pretty much the same result as Wood v. Lucy, Lady Duff Gordon. And the legal situation here is actually not (at least for me) as complex and interesting as in the earlier case.
But I’m not so sure that we even need the implied duty of good faith here. The contract does not say, “Hanes can terminate for any time for any reason.” It says, in effect, “Hanes can terminate if you do X, Y, or Z, and our decision that you have done X, Y, or Z, shall be conclusive.” If we were to interpret the agreement to mean that Hanes is free to terminate for any reason, the words of limitation would be read out of the contract. Hanes could terminate for any reason so long as it labeled what it was doing as “X, Y, or Z.” The only way to give effect to all the words in the agreement is to read the “our discretion” clause in pari materia with the lmitations, so that Hanes must at least be required to make some showing that there was, in fact, some public disrepute.
In other words, we can get to the same point, I think, simply by interpreting the terms using our basic tools of interpretation, without having to resort to an “implied” term that the parties deliberately negotiated around.