Francisco Mejia and the Legal Limits of Brand Contracts by Sheryl Ring April 16, 2018 Back in 2016, Phillies third baseman Maikel Franco signed a contract with a company called Fantex. The terms were fairly simple: for a payment of $4.35 million, Franco agreed to pay Fantex 10% of all of his future earnings. Fantex would also be allowed to sell its “share” of Franco to investors, thereby generating additional revenues. Franco and Andrew Heaney were the pioneers, signing “brand” contracts with Fantex back before they were fashionable. At the time, a friend of mine asked me what I thought of the deal, and I surprised him by panning it. “Just wait for the lawsuit this type of deal will generate,” I said. Evidently, that wait is now over. On February 21, 2018, Indians catcher (and potentially third baseman and left fielder) of the future Francisco Mejia filed a lawsuit against a company called Big League Advance Fund I, LP. You can read the complaint here, plus BLA’s answer and counterclaim here. So what is this about? Evidently, Mejia signed three contracts with BLA, which guaranteed him a $360,000 payment in exchange for 10% of his career earnings. If this sounds like Franco’s Fantex deal, you’re mostly right — but Mejia says there were some red flags with BLA which make this contract unconscionable. According to Mejia’s Complaint, Defendant BLA’s business plan involves utilizing various “runners” who approach up and coming baseball players in areas such as the Dominican Republic. These runners (usually former baseball players) advise prospects that Defendant BLA will advance them considerable sums of money, to be repaid by a percentage of the player’s future earnings. The prospects are generally young, uneducated and unsophisticated. Few speak English. Most, if not all, come from very modest families who are struggling financially. According to Mejia, BLA approached him when his mother was very ill and struggling with medical bills. The contracts were signed, says Mejia, without a translator, and BLA even paid for Mejia’s lawyer just so the contract could state Mejia had the advice of counsel. Mejia says that BLA employees showed up at his house unannounced to collect a payment of about $10,000 after Mejia made the big leagues and threatened to bar him from playing if he didn’t pay. And, according to the Complaint, given Mejia is projected to earn over $100 million in the major leagues, BLA stands to recover over $10,000,000 against a $360,000 investment, which Mejia says is unconscionable. If you’re interested in seeing the contract, it’s available here. That’s the third one Mejia signed — the one that’s the subject of the lawsuit. So what does “unconscionable” mean, anyway? This is another of those legal terms that has made it into regular jargon despite having a pretty specialized meaning. A contract is considered “unconscionable” when it is so one-sided and unfair that no reasonable person would have entered into it. There are two kinds of unconscionability. Procedural unconscionability concerns the actual negotiation and execution of the contract. So, for example, if a person held a gun to your head and ordered you to sign away 10%of your earnings, that contract would be procedurally unconscionable. On the other hand, substantive unconscionability concerns the terms of the contract itself. So, if your bank, as a term of your mortgage, required a kidney, half of your liver, and a lung as compensation for any default, that term would be substantively unconscionable. Unconscionability can be found where a person signs a contract under duress, or by virtue of fraud, or a disparity in bargaining power so great that upholding the contract would be unfair, or where a contract is signed in violation of the law or public policy. Now, Mejia is basically asking the court to throw out his deals with BLA. And it’s not hard to see why: if he becomes the star many expect, 10% of his earnings would represent a lot of money. But finding a contract unconscionable is really hard, because courts tend to take a wary view of setting aside contracts. Delaware, whose law applies here per the terms of the contract, is even more cautious than most, holding that even a disparity in bargaining power isn’t enough. As one court explained in a case called Graham v. State Farm, [M]ere disparity between the bargaining power of parties to a contract will not support a finding of unconscionability. A court must find that the party with superior bargaining power used it to take unfair advantage of his weaker counterpart. And that’s hard to do, especially in Delaware. One Delaware court explained that contracts in that state are found unconscionable only with “extreme reluctance” because [t]he notion that a court can and will review contracts for fairness is apt for good reason to strike us as dangerous, subjecting negotiated bargains to the loosely constrained review of the judicial process. Under normal circumstances, this would appear to undermine Mejia’s case to the point that I’d simply end the analysis right here; however, there are two facts which make this suit a bit more complicated than it might appear. As already noted, Mejia has alleged that BLA hired a lawyer for him — and paid that attorney to advise him — solely so that it could put in the contract that he had the benefit of counsel. If that’s true, that goes beyond a disparity in bargaining power and into active manipulation and deception of Mejia by BLA. Now, BLA doesn’t seem on the surface to be a fly-by-night organization; its staff and board are a who’s who of baseball bigwigs, including CEO Michael Schwimer, himself a former major leaguer, and Paul DePodesta, a former front-office executive. And BLA, for its part, denies Mejia’s allegations of wrongdoing in its answer, saying, for instance, that there was no interpreter because “the signing was conducted in Spanish.” And it’s worth noting that the contract is in Spanish, too, so the language barrier isn’t as big of a problem as the Complaint makes it out to be. But the biggest red flag appears to be the counterclaim filed by BLA against Mejia — and, more precisely, the reason for that counterclaim. BLA’s counterclaim alleges that Mejia violated the contracts between them by even disclosing their existence because the contracts are confidential by their own terms. From same: 12. Pursuant to Section 5 of the Third Brand Agreement, entitled “Confidential Information,” Mejia and BLA agreed “not to disclose any Confidential Information of the other Party, or any part or parts thereof, to any . . . individuals . . . .” Compl. Ex. A, Section 5.2. Mejia and BLA also agreed “to undertake whatever action is necessary . . . to prevent or remedy any breach of such Party’s confidentiality obligations . . . .” Id. 13. Under the Third Brand Agreement, “Confidential Information” includes “the existence of and terms of this [Third Brand] Agreement and the Prior Agreements [between Mejia and BLA].” Compl. Ex. A. Section 5.1. 14. The existence of and the specific terms of the Third Brand Agreement are BLA’s confidential, proprietary, sensitive, and/or commercially valuable information and entitled to protection under the Third Brand Agreement and the laws of the state of Delaware. A contract which states that its very existence is confidential is legally dubious. The terms of a contract can of course be confidential depending on what information the relevant parties want protected and the nature of the agreement. But there are limitations. Among those limitations is that the confidentiality provision can’t be overbroad or unreasonable, can’t be designed to set a trap for the other party, and can’t protect something that isn’t actually confidential. And it seems unlikely that a company which makes public its practice of exchanging cash for future player earnings can say that the mere existence of a contract made pursuant to its public business practices is reasonably confidential. It seems improbable that a court would find that confidential at all. BLA, in its counterclaim, is asking not only for money from Mejia for breaching the confidentiality agreement, but also for an order from the Court barring Mejia from mentioning the BLA contracts ever again, in any context. But the fact that BLA is even trying this speaks volumes — and not in a favorable way for BLA. If anything, a finder of fact is likely to look at BLA’s tactic as evidence of the disparity in bargaining power between it and Mejia at the time the contract was made; after all, if everything is as above-board as BLA says, why all the secrecy? Now, I would understand if BLA was simply trying to protect the terms of the agreement. But arguing that the existence of the agreement itself is confidential simply doesn’t seem lawful in this context. And the more BLA pushes it, the more they may make Mejia’s argument for them.