Marketing materials and intentional misrepresentation: a word of warning for marketers and celebrity athlete promoters.

Moorman, Anita M.

Introduction

The Tenth Circuit Court of Appeals recently held in Donner v. Nicklaus (2015) that Jack Nicklaus and Jack Nicklaus Golf Club, LLC could be sued for intentional misrepresentation for statements included in the marketing and promotional materials for a new (but now defunct) golf development in Utah. This case should serve as a strong reminder for sport marketing professionals that marketing materials intended to induce consumers to purchase or invest must always be accurate and truthful.

Facts

In 2002, the Mount Holly Club L.L.C. (Mount Holly) set out to develop an exclusive private ski and golf resort in Utah. The club's showcase would be a golf course designed by legendary golfer Jack Nicklaus. Beginning in 2006, the developer worked with Nicklaus to develop the golf course and market the club. As part of their marketing efforts, the developer entered into a contract with Nicklaus' golf-course design company. The design company agreed to build the golf course and Mount Holly obtained the right to use the Nicklaus brand including trademark rights and the name and phrase "Jack Nicklaus Golf Club" and the Golden Bear logo. In exchange for his involvement, Mount Holly issued Nicklaus an "honorary Founder Membership" in the club. Mount Holly then further expanded its relationship with Nicklaus by entering into a licensing agreement with another company of his, Nicklaus Golf, LLC. The licensing agreement allowed the developer to use the Nicklaus brand to advertise and promote membership in the golf club and the development. Nicklaus joined the developer to solicit investors, lending his name in exchange for mil lions of dollars. Nicklaus' participation allegedly led Jeffrey and Judee Donner to invest $1.5 million in the development to purchase a charter membership. Unfortunately, Mount Holly's parent company went bankrupt and Mount Holly was not able to build the golf course or development. The Donners settled with the developer's parent company in its bankruptcy proceedings and sued Jack Nicklaus and Jack Nicklaus Golf Club, LLC for intentional misrepresentation connected to Nicklaus' membership status with the club and financial interest in the development. The district court held that the Donners had not adequately alleged claims involving intentional misrepresentation and the Donners appealed to the Tenth Circuit Court of Appeals.

The Court's Decision

The Donners claimed that Jack Nicklaus and Nicklaus Golf made multiple false statements including that (1) Nicklaus is a "charter member" of Mount Holly and, (2) as a charter member, paid the $1.5 million purchase price for that membership. The court of appeals reviewed two key marketing materials--a press release and a brochure.

1. The Press Release

The press release was issued by the developer and Nicklaus Golf. This document highlighted Nicklaus' involvement and included a quotation by Nicklaus, reflecting his enthusiastic decision to become a "founding charter member:" "When I walked Mt. Holly Club, I was so captured by its potential [that] I thought through all 18 holes. In fact, I have been so impressed with the club and its management team that I became a founding charter member" (Donner v. Nicklaus, 2015, p. 863).

2. The Brochure

After issuing the press release, the developer and the defendants created a full-color marketing brochure titled: "Mt. Holly Club and Jack Nicklaus Invite You to Become a Charter Member." Below this invitation was a quotation from Nicklaus: "Mt. Holly Club enjoys the ideal alpine setting. I knew from my first visit there that we had been given a canvas on which to design a truly spectacular golf course. I am so impressed with the Mt. Holly Club and its management team that I became a founding charter member. I look forward to seeing you there." (Donner v. Nicklaus, p. 863). Immediately following that statement, the brochure stated that Charter Memberships can be acquired for a $1.5 million entry fee.

The court of appeals examined the key elements of a claim for misrepresentation, which includes: a representation about a material fact; that was false; that the defendant knew was false or recklessly made without enough knowledge; to induce another party to act; and the other party acted in reasonable reliance and without knowing of the falsity; to that party's injury (Utah v. Apotex Corp., 2012, p. 80).

The court of appeals agreed with the Donners that the Donners' complaint adequately alleged that Nicklaus misrepresented that he was a "charter member" and by implication had paid the $1.5 million purchase price for that membership. Nicklaus' representation was allegedly false because he was not a "charter" member (he was in fact an "honorary founding" member) and had not paid $1.5 million to Mount Holly. The court of appeals concluded that a fact-finder could reasonably distinguish between "an honorary founding member" and a "charter member" costing $1.5 million. Nicklaus also argued that his statements about his "impressions" of Mount Holly development in the press release and brochure were expressions of opinion not fact, and while the court agreed that his impressions of the management may indeed be his opinion, the statements that those impressions lead him to become a charter member were statements of fact that went beyond mere opinion. "Though 'charter membership' and 'founding membership' may ordinarily be synonymous, the price difference (free vs. $1.5 million) could have struck the Donners as significant" (Donner v. Nicklaus, p. 870). The court of appeals determined that the Donners had adequately alleged intentional misrepresentation of Nicklaus' membership status and, thus, reversed the district court's dismissal of that claim.

It is important to note that the practical effect of the court of appeals' decision is to permit the Donners to continue to pursue their claims against Nicklaus. For example, the court of appeals did not determine that Nicklaus did in fact intentionally misrepresent his membership status, only that the Donners have pleaded enough facts to create a question of fact for a jury to evaluate whether Nicklaus' conduct and representations meet the legal standard for misrepresentation.

Implications for Sport Marketers

Sport marketers will naturally strive to describe their products, services, and affiliations in the most positive light possible. However, all communications with consumers must be accurate, complete, and truthful to avoid claims such as intentional misrepresentation. Exaggerated or extravagant claims are called "sales puffing" and normally are not actionable as misrepresentations because they are subjective opinions rather than objective statements of fact. For example, the statements in the marketing brochures describing the development as "the ideal alpine setting" or a "truly spectacular golf course" would normally be treated as sales puffing and not the kind of statements that a consumer would take literally. However, when the statements relate to specific facts that a reasonable consumer would find material to his or her purchase decision, the sales puffing exception no longer applies. Another interesting twist in this case was Nicklaus' role essentially as a co-developer of the golf project. Nicklaus' relationship with Mount Holly clearly went beyond that of a normal celebrity endorsement. As a celebrity endorser, the endorser oftentimes would only be expressing his or her authentic experience or satisfaction with the product or service rather than making specific factual claims considered material to the consumer's purchase decision. (Moorman, 2006; Sharp, Moorman, & Claussen, 2014). In this instance, both the development company and Jack Nicklaus were active participants in developing the language used in the marketing materials and had a shared responsibility for the accuracy and truthfulness of the marketing materials.

References

Donner v. Nicklaus, 778 F.3d 857 (10th Cir. 2015).

Moorman, A. (2006). False advertising and celebrity endorsements: Where's my script? Sport Marketing Quarterly, 15, 111-113.

Sharp, L., Moorman, A., & Claussen, C. (2014). Sport law: A managerial approach; Achieving a competitive advantage (3rd ed.). Phoenix, AZ: Holocomb-Hathaway Publishing.

Utah v. Apotex Corp., 282 P.3d 66 (Utah 2012).

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Anita M. Moorman, JD, is a professor of sport administration in the Department of Health & Sport Sciences at the University of Louisville. Her research interests include civil rights issues in sport and the intersection of good marketing practices in sport law. She may be contacted at amm@louisville.edu