Contracts often contain provisions that permit one party to do something but only if they first get the other party’s consent or approval. This can be an uncomfortable position for the party seeking approval, because they are at the mercy of the approving party. In order to even out the balance-of-power, some contracts may explicitly (or implicitly) state that the approval being sought “may not be unreasonably withheld.” This helps ensure that the approving party must have some legitimate basis for refusing approval.
Determining what constitutes ‘unreasonable’ behavior, however, is often subjective, and can be a source of conflict when the parties disagree. Such is the case with ex-Yankee shortstop Derek Jeter, who is being sued for, among other reasons, his refusal to approve a promotional press release.
The Facts:
Derek Jeter entered into a business relationship with Revolutionwear, Inc. (“RWI”) which manufactures and sells men’s undergarments under the Frigo brand.
As a way to indirectly capitalize on Jeter’s fame, without having him directly endorse Frigo products, he became a co-owner and director of RWI. This arrangement let him effectively endorse RWI without breaching his existing endorsement relationship with Nike.
Under the RWI deal, RWI would be permitted to issue a press release disclosing Jeter’s role “provided [Jeter] approves the press release in advance.“ The venture moved forward, but Jeter continued to refuse to approve the press release announcing it. Without Jeter’s fame to promote the Frigo brand, RWI’s investors lost faith—causing money problems for RWI.
RWI is now suing Jeter and his companies for, among other reasons, Jeter’s ‘unreasonable’ refusal to approve the press release. (Although, the contract language did not explicitly state that approval ‘could not be unreasonably withheld,’ Jeter’s attorneys conceded in court that it was implied that his refusal had to be reasonable.)
RWI suggests that Jeter’s refusal to approve the press release stems from his fears that the RWI relationship would conflict with his deal with Nike: a decidedly ‘unreasonable’ basis, in RWI’s opinion.
Analysis: Attorneys intentionally use vague terms in contracts as a way of trying to address a broad range of events that may be impossible to predict. Attorneys typically use the term “reasonable” in contracts as a way to ensure that the parties behave fairly in their performance under the contract.
In determining what’s reasonable or not in the context of approval, a key consideration is how the rationale for withholding approval relates to purpose of the underlying contract. For example, in a different case, a landlord contended it ‘reasonably’ refused to permit an assignment of a lease because the lease required the space be used as a carwash and the prospective new tenant had no experience in the carwash business.
In Jeter’s case, it would be one matter if he refused to approve the press release because he felt it was inaccurate, or portrayed him poorly. But it’s an entirely different matter if he refused to approve it because he was avoiding his contractual duties after engaging in multiple, conflicting endorsement relationships.
The case is on-going and the facts are still coming out: we must wait to see if this situation this will stain The Captain’s reputation, or if it will all come out in the wash.
Take-aways: If a contract requires that one party needs the other party’s consent to perform some action, the first party should insist that the approval cannot be unreasonably withheld. Alternatively, a good attorney can draft language to minimize the likelihood of dispute over what is (or is not) considered ‘unreasonable’ by, for example: identifying objective criteria which can be used as the basis for approval/disapproval, or including examples of what would be deemed a ‘reasonable’ basis.
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