By Elizabeth J. Goldstein
Special to the Legal
The case between Prince and a perfume company had not been going well. The action arose from a celebrity endorsement deal with the company for a perfume named after Prince’s album, “3121.” Prince had failed to appear in court when ordered to do so after his lawyer had withdrawn from the case. This led to a default judgment against him and his affiliated companies. Now, the only thing left for Prince to litigate was how much he and his affiliate companies were going to have to pay in damages.
Last week it was reported that a court ordered Prince to pay almost $4 million to the perfume company. The $4 million relates to out-of-pocket expenses that the perfume company paid to develop the product. Prince was not a party to the contract, but signed an inducement letter that was incorporated into the endorsement agreement. In the letter, Prince promised to promote the perfume during his next concert tour. This is a fraud case, but it teaches an important point about the strategic use of repudiation of a contract.
On Dec. 1, 2006, Prince signed the inducement letter. The very next day, Prince informed the perfume maker that he would not give interviews for the launch party or provide a photo for the press release announcing the product. Thus, Prince argued that all of the defendant’s out-of-pocket expenses after Dec. 2, 2006, could not be based upon the perfume maker’s reliance upon Prince’s promises to promote the fragrance. The court, however, found that because Prince’s company, which licensed Prince's name, likeness and “3121” album title and mark in connection with the fragrance products, had continually reassured the perfume company after Dec. 2, 2006, that Prince would in fact assist in the promotion of the perfume, that date was not an appropriate cut-off date for the perfume maker’s damages. Thus, the court awarded the full $4 million claimed by the perfume company for its out-of-pocket expenses.
When we represent clients, it is often our first instinct to try to get them to act reasonably when they are in the wrong. Following this instinct, we try to assure the other party that our client will meet its contractual obligations. In hindsight, Prince would have been better off if he and his affiliated companies communicated clearly and decisively to the perfume company the decision to repudiate the contract.
The next time you are dealing with a client whom you believe may ultimately not live up to the client’s end of the bargain, you should consider whether repudiation or rescission would be a more optimal strategy than seeking to reassure the other party that your client will meet its contractual obligations. Strategic use of repudiation or rescission may lessen the ultimate amount of damages your client will pay in the future. Reviewing Prince’s actions in the perfume deal and in the lawsuit, it does not seem like Prince uses a great deal of forethought and strategy in addressing the business issues in his life. This lack of planning and strategy has led to some expensive mistakes in the case at hand. It looks like Prince will not be partying like it is 1999 anytime soon.
Elizabeth J. Goldstein is a member of the business group at Dilworth Paxson. Readers can contact Goldstein via email and follow her on Twitter.
This posting is for informational purposes and should not be construed or interpreted as either legal advice on any matter or as in any way creating an attorney-client relationship.
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