Zigomanis v. 2156775 Ontario Inc. (D’angelo Brands)

By way of this case, a celebrity's endorsement contract was cancelled solely because of his nude photo scandal. The private life of a celebrity must not affect the contracts entered into by him in his professional capacity, if he is honouring the contracts as per the agreed terms.
CITATION2016 ONSC 7053
COURTOntario Supreme Court of Justice
JUDGES/CORAMJustice Stinson
DATE OF JUDGEMENT14.11.2016

Introduction

In today’s society, the instant a celebrity has a scandalous moment; it becomes public in the blink of an eye. Many athletes have missed their endorsements based on socially unacceptable behavior. However, this is not always fair to the celebrity, who might not have any idea that their personal-life choices could lead to the end of an endorsement contract. Zigomanis’ case is no different wherein the Court actually made a distinction between the private life of an individual and his public appearance.

Facts

The facts of the case are as follows: In May 2011, 2156775 Ontario Inc., carrying on business as D’Angelo Brands, entered into a promotional contract with professional hockey player Michael Zigomanis in connection with the marketing and promotion of an energy drink brand known as Cheetah Power Surge. The contract provided that Mr. Zigomanis would receive periodic payments in the minimum amount of $200,000 over four years, provided he exercised unilateral extension options available to him. The “morals clause” in the contract, clause 10(b)(iii), read in material part that D’Angelo could terminate the contract if the “athlete commits any act which shocks, insults, or offends the community, or which has the effect of ridiculing public morals and decency”.

In February 2012, the defendant terminated the contract, citing two reasons: Mr. Zigomanis had been demoted to a minor league team, causing a loss of cachet for Cheetah Power Surge; and that he had been the subject of major media coverage arising from a so-called “nude photo scandal”, which did not shed a good light on the product and violated the morals clause.

Mr Zigomanis asserted that the defendant wrongfully terminated their contract and sued for the unpaid balance of the income he would have received over the remainder of the contract term and the renewal, totaling $162,500. The defendant, on the other hand, contended that it had cause to terminate. Initially, it counterclaimed for the payments it made under the contract, totaling $37,500, but during an argument at trial, it abandoned its counterclaim.

Issues

The main issues in the case were:

  1. Whether or not the defendant was entitled to rescind the contract.
  2. Whether or not the defendant was entitled to terminate the contract under the “morals clause” contained in s. 10(b)(iii).
  3. What were the plaintiff’s damages?

Contentions of the Plaintiff (Mr Zigomanis)

The plaintiff’s case was founded on the contents of the contract and he contended that he met his obligations as set out in the contract.

  1. In any event, he relied on the contract terms relating to a written notice of default, the requirement for a 30-day cure period and the absence of any notice complaining of alleged non-performance of his obligations;
  2. In relation to the photographs, he argued that, since he did not post them, he committed no breach of the so-called “morals clause” contained in s. 10(b)(iii);
  3. The defendant waived any right to terminate when it continued to pay him after the “photo scandal” broke.

Contentions of the Defendant (D’Angelo)

The defendant argued that it was entitled to rescind or terminate the contract because:

  1. Mr. Zigomanis failed to perform his role on the Boston trip;
  2. He did not respond to its requests to participate in subsequent events; and,
  3. The “nude photo scandal” meant that Mr. Zigomanis could not function as a brand ambassador for Cheetah Power Surge energy drink and by itself gave it grounds for termination under the morals clause.

Summary of court decision and judgment

It was held that according to the terms of the contract, Mr. Zigomanis agreed to promote D’Angelo’s product, not serve as a brand ambassador. In that way, the defendant received much of what it bargained for. For an innocent contracting party to have a right to rescind based on repudiation by the other side, the innocent party must not be deprived of substantially all of the benefit it was to receive under the contract. Thus, the repudiation/rescission argument failed. Additionally, the trial judge also held that the morals clause was not offended by the private transmission of nude photographs within a relationship, and that, in any event, this act occurred before the contract was entered into and the morals clause was not retrospective. 

In other words, the Court held that the defendant wrongly terminated the contract between the parties and ordered the defendant to pay the plaintiff damages of $162,500 plus pre-judgment interest. D’Angelo, dissatisfied with the decision, appealed that decision in the Court of Appeal for Ontario but the same was dismissed, and thus, the Trial Court’s judgment prevailed.

Analysis

Over the past 10 years, athletes such as Michael Vick, Maria Sharapova, Lance Armstrong, and Ryan Lochte all lost their endorsement deals after public scandals forced brands to disassociate themselves from the celebrities. At the end of the day, the company looks at how the celebrities’ conduct will affect their brand’s image and financial status and this affects how companies design their contracts with them. Hence, there is a need for stricter morality clauses between them and it is important that the athlete be protected from wrongful terminations.

In the light of such issues, the Court has subjectively analyzed those matters that happen in one’s personal life when vague terms in the contract do not provide for a remedy. By imposing such a subjective factor-based test the Court has rightly determined whether an athlete should be terminated and provided better protection and fairness. It is also clear from the Court’s reasoning that it will not condone past behaviors of an individual unless the contractual terms expressly indicate that those past behaviors are within the scope of the morality clause. The method in which the Court has perfectly analyzed each and every piece of evidence is really appreciable.

Conclusion

This case is significant because it rightly demonstrates how Courts may interpret “morality” clauses or other similar clauses regarding the behavior and actions of a person found in a contract. In the era of social media and networking, the Court has reiterated the need for developments in the law regarding the expectations of privacy. Although this case is specific to an NHL hockey player advertising contract, the analysis shown by the Court is useful for any practitioners who may be dealing with contracts containing clauses of “good character”, “integrity”, “fitness”, “competence” and/or other intangible human characteristics.