Wednesday, August 27, 2008

Maryland Court of Appeals Quotes Jerry Seinfeld, Rules in Favor of Tom Clancy on Fiduciary Duty Claim

In an interesting juxtaposition of pop culture icons, the Maryland Court of Appeals cited Jerry Seinfeld in an opinion ruling in favor of novelist Tom Clancy. The case is Clancy v. King (opinion available here), decided August 26, 2008. In the case, Tom Clancy’s ex-wife (King) sued Clancy when Clancy decided to remove his name from the “Op-Center” series of books to which he had licensed his name. The Circuit Court for Calvert County had ruled in favor of ex-wife King issuing a declaratory judgment that Clancy’s removal of his name from the series was a breach of his fiduciary duty to King and the partnership. The Court of Special Appeals affirmed but remanded to the Circuit Court for Calvert County, Maryland for some clarification. Before any such clarification by the Circuit Court could occur, the Court of Appeals granted Certiorari and reversed.

The Court of Appeals held that while Clancy’s actions would have been a breach of fiduciary duty under typical circumstances, those actions were not a breach of fiduciary duty because of language in the partnership agreement that limited Clancy’s duties. In so holding, the Court determined that parties to a partnership can agree to limit their duties to one another and that their agreement would be analyzed under contract law and not under traditional partnership law.

In discussing the contract law issue, the Court found that Clancy’s actions were limited only by good faith, and not the broader fiduciary duties usually enforced against partners. The Court’s discussion of good faith led the Court to the 1996 “The Wig Master” episode of Seinfeld. Specifically, the Court (at footnote 27) referred to the episode as follows:

Jerry Seinfeld, perhaps an unlikely legal illustrator, once epitomized the duty of good faith in contract. In an episode of his television show, Jerry's character purchased a jacket at a men's clothing shop. The terms of the contract permitted Jerry to return the item for refund at his discretion. When Jerry attempted to return the jacket after an unrelated personal quarrel with the salesman, the following discussion took place.

Jerry: Excuse me, I'd like to return this jacket.
Clerk: Certainly. May I ask why?
Jerry: For spite.
Clerk: Spite?
Jerry: That's right. I don't care for the salesman that sold it to me.
Clerk: I don't think you can return an item for spite.
Jerry: What do you mean?
Clerk: Well, if there was some problem with the garment. If it were unsatisfactory in some way, then we could do it for you, but I'm afraid spite doesn't fit into any of our conditions for a refund.
Jerry: That's ridiculous, I want to return it. What's the difference what the reason is?
Clerk: Let me speak with the manager . . . excuse me . .. Bob! (walks over to the manager and whispers)
Bob: What seems to be the problem?
Jerry : Well, I want to return this jacket and she asked me why and I said for spite and now she won't take it back.
Bob: That's true. You can't return an item based purely on spite.
Jerry: Well, so fine then . . . then I don't want it and then that's why I'm returning it.
Bob: Well you already said spite so . . . .
Jerry: But I changed my mind.
Bob: No, you said spite. Too late.
Seinfeld: The Wig Master (NBC original television broadcast 4 April 1996).

In attempting to exercise his contractual discretion out of "spite," Jerry breached his duty to act in good faith towards the other party to the contract. Jerry would have been authorized to return the jacket if, in his good faith opinion, it did not fit or was not an attractive jacket. He may not return the jacket, however, for the sole purpose of denying to the other party the value of the contract. Jerry's post hoc rationalization that he was returning the jacket because he did not "want it" was rejected properly by Bob as not credible.

The Court’s sense of humor is refreshing, and serves to illustrate that the Court is made up of people just like everyone else who draw on all of their experiences in making reasoned judgments. Of course, Ms. King and her counsel probably aren’t laughing….

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