United States Bankruptcy Court for the Southern District of New York - 361 B.R. 675
In the 2007 case of In re Worldcom, Inc., the US Bankruptcy Court for the Southern District of New York ruled on a contract dispute between a telecommunications company and basketball star Michael Jordan. This case involved determining damages for a breached contract due to the nondelivery of services. Jordan had entered into an endorsement agreement with WorldCom which granted them a 10-year license to use his name and image to promote their products.
The agreement guaranteed Jordan a $5 million signing bonus and $2 million in annual compensation. WorldCom filed for bankruptcy protection in 2002 and later rejected the agreement. Jordan filed a claim for $8 million for breach of contract. WorldCom argued that the claim should be reduced to $4 million.
The court awarded Jordan $5.6 million in damages based on the difference between the market value of his endorsement services ($6.4 million) and the contracted price ($2 million) along with incidental damages. They rejected his claim for consequential damages related to lost profits from other endorsement opportunities. This case emphasizes the concept of damages for a breached contract due to nondelivery of services, which are based on the difference between the market price and contract price, as well as any incidental and consequential damages.
The case involves a dispute between Michael Jordan and WorldCom, Inc. over unpaid compensation for promoting MCI's products and services. Jordan claims $8 million, while MCI argues it should be reduced to $4 million due to Jordan's failure to mitigate damages. The court must determine the amount of the claim based on the compensation provided by the contract, without acceleration, for one year following the filing of the bankruptcy petition or the date on which the employer directed the employee to terminate performance under the contract, plus any unpaid compensation due under the contract. The parties seek summary judgment, with Jordan arguing he was an independent contractor, while MCI argues he was an employee under section 502(b)(7) of the bankruptcy code. The court granted summary judgment to Jordan, denying MCI's objection to the Claim, ruling that section 502(b)(7) does not apply to Jordan's Agreement. The court discussed the doctrine of avoidable consequences, which requires the breaching party to prove that damages could have been avoided or mitigated. Jordan cannot be considered a lost volume seller of endorsement services because evidence shows that he lacked the subjective intent to take on additional endorsements. Therefore, he has a duty to mitigate damages. The duty to mitigate damages requires the claimant to use reasonable diligence in finding other suitable employment. Jordan's argument that MCI must show he could have entered into a "substantially similar" endorsement contract to mitigate damages is not valid in this case.
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