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Monday, February 19, 2007
I Want to Be Like Mike, Except in Bankruptcy Court
Last week, the U.S. Bankruptcy court overseeing the bankruptcy of Worldcom, Inc., dealt a blow to Michael Jordan in his effort to collect on unpaid endorsement fees, concluding that Jordan had failed to take mitigation efforts after Worldcom went under. See In re Worldcom, Inc., 2007 WL 446735 (Bkrtcy. S.D.N.Y., Feb 13, 2007).
Jordan had signed on as spokesman for MCI, then Worldcom, endorsing products like the pictured 10-minute phone card:
In addition to a $5 million signing bonus, the Agreement provided an annual base compensation of $2 million for Jordan. . . . The Agreement provided that Jordan was to make himself available for four days, not to exceed four hours per day, during each contract year to produce television commercials and print advertising and for promotional appearances. The parties agreed that the advertising and promotional materials would be submitted to Jordan for his approval, which could not be unreasonably withheld, fourteen days prior to their release to the general public. From 1995 to 2000, Jordan appeared in several television commercials and a large number of print ads for MCI.After Worldcom filed for bankruptcy in 2002, Jordan eventually sought payments of "$8 million--seeking $2 million for each of the payments that were due in June of 2002, 2003, 2004, and 2005."
The case itself turns on a number of bankruptcy law issues, such as whether Jordan was an employee or an independent contractor (the court ruled the latter) or whether Jordan had no obligation to mitigate his damages as a "lost volume seller."
The interesting part of the opinion is the court's discussion of Jordan's failure to mitigate his damages by seeking additional endorsements to cover the period after Worldcom went under. According to the court,
Jordan's agent, David Falk . . . , testified that "there might have been twenty more companies that in theory might have wanted to sign him" but that Jordan and his representatives wanted to avoid diluting his image.Jordan's financial and business manager, Curtis Polk, admitted that
Jordan did not return to the endorsement marketplace to try and replace the revenue he was to be paid under the Agreement. . . . Polk explained that Jordan did not wish to expand his "pitchman efforts with new relationships" because of his primary goal of becoming the owner of an NBA team.Jordan argued that his pursuit of NBA ownership relieved him of an obligation to mitigate damages by seeking other endorsement opportunities. The court didn't buy it:
In short, the argument that Jordan acted reasonably by focusing solely on his efforts to become an NBA team owner is a red herring. It may have been reasonable for Jordan to focus on becoming an NBA team owner in the scope of Jordan's overall future desires but that does not mean it can support a determination that he was relieved of his obligation to mitigate damages in response to MCI's rejection of the Agreement.