United States: How To Protect Your Brand From Your Partner's Opinions

Can chefs and restaurateurs escape from agreements with business partners whose subsequent statements or activities threaten to sully their brand? Here's what happened in two recently filed litigations on the issue and some additional protections that business owners could incorporate into agreements.

Presidential hopeful Donald Trump recently sued the companies associated with the well-known chefs Geoffrey Zakarian and Jose Andres. Trump's company claims that the chefs' attempts to disassociate themselves from Trump and his infamously inflammatory remarks about Mexican immigrants breached their agreements to build restaurants in the new Trump International Hotel in The Old Post Office Building in Washington, D.C. Both chefs maintain that Trump's comments entitled them to terminate their deals, with a spokesperson telling the press that "Simply put, Trump's comments made [Andres' company] ThinkFoodGroup's participation in this project impossible and constituted a breach which the landlord, Trump Old Post Office LLC, refused to remedy."

Trump Old Post Office LLC  responded by filing a federal action against Jose Andres's restaurant groups on July 31 and an action in D.C. Superior Court against Geoffrey Zakarian's groups on Aug. 4. Each complaint alleges a breach of the sublease to operate a first-class restaurant in approximately 9,000 square feet of space in the building, a claim against each guarantor for performance of each tenant's obligations and attorneys' fees. The case against Andres was voluntarily dismissed on Aug. 24 citing lack of diversity jurisdiction and no new suit has been filed in state court yet, but Trump's next move remains to be seen.

The restaurant business has become increasingly competitive and media-sensitive, in part as a result of the popularity of food-focused TV programming. High-profile restaurateurs have become public figures who must ensure that their brands remain untarnished by public actions of their prominent investors or co-owners. One way to do this is to include explicit contractual protections that would allow a party to cancel a contract on the basis of public statements or behavior that may place a restaurant project at risk. For example, a so-called "morals clause" would prohibit a party from degrading the value of the restaurant's brand. Another option is a nondisparagement clause, which could prohibit objectionable statements, possibly permitting relief when the relationship goes sour.

Morals clauses play an important role in endorsement deals and entertainment transactions involving public figures. They protect the counterparty when the public figure's behavior in his or her private life reflects negatively on the brand they are chosen to represent by allowing the offended party to terminate an agreement. While currently atypical in restaurant industry contracts, a morals clause could allow a restaurateur to cancel the contract if the owner or CEO of a landlord's operation makes inflammatory statements or engages in disreputable behavior with which the restaurateur wants no association.

In recent news, Brian Williams's morals clause in his contract with NBC affected the network's consideration of his inaccurate representations. NBC's clause says: "If an artist commits any act or becomes involved in any situation or occurrence, which brings artist into public disrepute, contempt, scandal or ridicule, or which justifiably shocks, insults or offends a significant portion of the community or if publicity is given to any such conduct ... the company shall have the right to terminate." Although NBC ultimately determined that suspension was the appropriate punishment, morals clauses are frequently enforced via termination of a contract. Tiger Woods lost several lucrative endorsement deals, including Gillette, in the wake of the public learning about his marital infidelity; many of Los Angeles Laker guard Kobe Bryant's sponsorships, including McDonald's, were not renewed after he was charged with rape; Kate Moss' cocaine habit cost her the H&M endorsement; and Michael Phelps was kicked off the Wheaties box when the news reported that he had been photographed smoking marijuana. In the Trump cases against Andres and Zakarian, a morals clause would give each of the restaurateurs the opportunity to abandon the contract on the legal grounds that Trump had breached the morals clause by making his offensive remarks.

Another contractual clause that could provide restaurateurs an exit from an agreement is a nondisparagement clause, which would restrain a party from making statements or engaging in actions that negatively impact the restaurateur's reputation, products, services, management or employees. Most often appearing in settlement agreements and executive employment agreements, nondisparagement clauses are a powerful method of protecting a restaurant or restaurateur's reputation. Unlike morals clauses, which typically define the prohibited conduct very specifically, nondisparagement clauses typically define the triggering statements in more general terms. In the event of dispute, this could create the potential for freedom of speech and First Amendment arguments, which are beyond the scope of this article. But one recent dispute highlights how restaurant owners may use a nondisparagement clause to protect their businesses.

In Conant v. Alto 53 LLC, 880 N.Y.S.2d 223 (N.Y. Sup. Dec. 10, 2008), Scott Conant, the former executive chef at two Manhattan restaurants, L'Impero and Alto, was accused of violating the nondisparagement clause of the separation agreement that he signed when he parted ways with the his former business partner, Christopher Cannon and the Alto 53 restaurant group, to open his new restaurant, Scarpetta, in the meatpacking district of Manhattan. The separation agreement provided for a payout to Conant for his ownership in the L'Impero and Alto restaurants, and included a broad nondisparagement clause in which the parties mutually agreed not to "denigrate, disparage, criticize, defame or make any false or derogatory statements ... including without limitation any statement, oral or written, which portrays the other in an unfavorable light or subjects it to scorn, obloquy or ridicule or which would in any way adversely reflect upon or affect the party's goodwill or business reputation, or reflect upon the legal liability or responsibility with respect to the separation." Id. at *1. Cannon claimed that Conant breached the clause by calling the operation "highly frenetic and almost spastic" in interviews about his split with the group that appeared in The New York Observer, New York Restaurant Insider and The New York Post, among other publications. Cannon claimed that these comments terminated the separation agreement and relieved Cannon of his contractual obligation to make any further payments to Conant. Id. at *4. While the court did not have enough factual information to make a final determination about whether the statements constituted a breach of this nondisparagement clause, it did advise that for the statements to constitute a material breach justifying termination of further contractual obligations, Cannon would have to show that he had suffered economic damage as a result of Conant's statements. Id. at *9. In theory, if Andres or Zakarian could show that they suffered a consequential financial loss from Trump's public statements about Mexican immigrants because, for instance, all Mexican restaurant workers went on strike or refused to carry out their contracts as a result of Trump's comments, they would have strong arguments for terminating the contract with Trump under a nondisparagement clause.

Finally, there are other practical ways in which businesses and people in the public eye can protect themselves. Even if neither of these types of clauses were present in the contracts for the restaurants at the Old Post Office Building, the parties could have included some type of simple agreement to coordinate all press releases and public statements that could affect the business. Of course, as the Trump examples show, there may be public statements or actions that are so notorious or provocative that they effectively force the issue, regardless of what contract protections exist. Whenever chefs or their investors enter the celebrity realm, they may want to consider borrowing legal concepts and protections developed in the world of entertainment. Entertainment law firms are adept at negotiating morals clauses, nondisparagement clauses and simple agreements to coordinate public statements. Such protections are increasingly vital to avoiding the devastating effect that notorious public comments can have on the success of expensive and high-profile restaurant business ventures.

Previously published by Law 360, New York.

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This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

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