Today I read an interesting article published by the ABAJournal.
The ABAJournal article asks an interesting question (all politics aside):
“If Trump sues Bannon for violating a nondisclosure agreement, what are his damages?”
Again, all politics aside, the article presents interesting questions that comes up in business transactions: when faced with entering a business relationship should you enter into a non-disclosure agreement? (NDA)
What if the NDA contains a non-disparagement clause? Can you even enforce it if breached? If so, what are your damages?
Going back to the ABAJournal Article, one legal scholar quoted in the ABAJournal article opined that such a lawsuit would be problematic, given damages are speculative (my paraphrase). University of Arizona law professor Jane Roberta Bambauer stated:
“It’s difficult for litigants to claim large damages when the nature of the award is that they expected to be less embarrassed (as opposed to NDA cases involving trade secrets and other financially valuable pieces of information that the protected party expected to exploit himself)”
Regardless of the damages argument, in general, such agreements are enforceable. That was the opinion of Yale Law Professor Stephen L. Carter who stated:
“We can put aside nondisparagement clauses buried in the boilerplate of consumer contracts, which companies sometimes try to use to prevent those who buy their products from posting negative reviews. Most courts have understandably held such clauses unenforceable,”…“But when non-disparagement clauses are included in employment contracts or separation agreements, they are enforced more or less routinely.”
Non-Disparagement Clauses…With a Penalty?
Would you sign a non-disparagement clause with a penalty attached to it in the event of breach?
A few years ago an interesting story emerged regarding a non-disparagement clause involving a settlement entered into by the City of Lansing.
As a lawyer, if I was approving my client’s signature on the City of Lansing Settlement agreement, I’d want to be sure that my client fully understood what constitutes “disparagement”
What is Disparagement?
Michigan courts have held that “disparagement” is plain in its meaning. It is not ambiguous. Therefore, when signing a non-disparagement clause you can have some reasonable certainty in your conduct.
Often times as part of a confidential settlement agreement, the parties to a dispute will agree not to “disparage” each other.
Disparage – as you will see below – has a fairly common meaning.
‘Disparagement’ is ‘a false and injurious statement that discredits or detracts from the reputation of another’s property, product, or business.’ Black’s Law Dictionary (7th ed. 1999).
stated another way:
(1) To speak of in a slighting or disrespectful way; belittle. (2) To
reduce esteem or rank.’ . . . American Heritage Dictionary (4th Ed. 2000)
2. Michigan Case Law Concerning “Non-Disparagement Agreements”
Rarely have I ever seen a non-disparagement clause become an issue. In fact, a review of Michigan case law supports this – I found only a handful of cases in Michigan where the parties litigated over one party’s alleged “disparagement” after a settlement agreement was entered.
One such case was the 2011 case of Sohal v. Mich. State Univ. Bd. of Trs. & Davoren Chick M.D., 2011 Mich. App. LEXIS 915, *12-14, 2011 WL 1879728 (Mich. Ct. App. May 17, 2011).)
There the Court held: “the term “disparage” in the non-disparagement clause is not ambiguous. While plaintiff attempts to ascribe several “reasonable” meanings to the term “disparage,” and thus the non-disparagement clause, the term fairly admits of but one interpretation.” Citing Meagher v Wayne State Univ, 222 Mich App 700, 722; 565 NW2d 401 (1997).
As the Court noted, “Other state courts have determined that the term “disparage” in non-disparagement clauses of settlement agreements are unambiguous.” (citations omitted).
In closing – non-disparagement clauses are standard clauses (but not universally used). Courts have consistently held that “Disparage” is a plainly understood term. It isn’t an ambiguous term.
Disparagement clauses may be enforceable. Most often, I would presume they would at least serve the purpose of deterring a party from speaking disreputably after a settlement is signed. However a good question to ask before entering into the agreement; unless you have a stipulated damages provision, how will you calculate damages in the event of a breach?
Questions? Comments?
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Jeshua Lauka's Business and Real Estate Law Blog 