NHL Wins in Coyotes Bankruptcy Litigation

July 14, 2009 by Arizona Law Channel  
Filed under Legal News

(AM Law Daily) The Coyotes and the team's owners (repped by Squire, Sanders & Dempsey) filed for bankruptcy last month and announced they had struck an agreement to sell the franchise to Balsillie, owner of the company behind the BlackBerry and a Canadian hockey fanatic who has twice tried to bring a seventh hockey franchise to Canada.

The NHL, repped by Skadden, Arps, Slate, Meagher & Flom (one of two go-to firms for the NHL along with Proskauer Rose), objected to the sale, saying the Coyotes never gave the league a heads-up and were violating league rules that required teams to get permission from other owners to relocate.

So, for the first time, a federal judge had to answer the question: Could a sports team use the asset sale procedures of bankruptcy court to sidestep league rules about franchise relocation?

On one side stood Basillie, the Coyotes current owners and the committee of unsecured creditors, which backed the Balsillie deal because of its immediacy and its hefty $212.5 million price tag. They argued that league rules limiting franchise relocation violated antitrust law.

On the other stood the NHL, the other three major U.S. sports leagues and the city of Glendale, Az., which said it stood to lose more than $700 million if the team backed out of its 30-year lease to play in its stadium.

Objections in an amicus brief filed by the NHL and the other leagues were especially strenuous. The leagues argued a sale to Balsillie would "wreak havoc" on sports leagues and kick start a cascade of unhappy owners filing for bankruptcy and selling their teams to prospective owners with intentions to relocate the franchise.

(The National Basketball Association and Major League Baseball used in-house counsel, while the National Football League retained their regular counsel at Covington & Burling for the brief. Dale Schian of Schian Walker in Phoenix also represented the leagues in the brief.)

The court record doesn't show a case that matches the issues in this one, according to Judge Redfield T. Baum, the bankruptcy judge overseeing the case in Arizona.

In the 1980s, Oakland Raiders owner Al Davis moved the team to Los Angeles over the NFL's objections, leading to more moves like the Colts' transfer from Baltimore to Indianapolis and basketball's Clippers from San Diego to L.A. in 1984. In those cases, the courts essentially upheld the moves, ruling that league limits on franchise movement didn't automatically violate antitrust rules.

But at that time, the leagues didn't have detailed bylaws governing franchise relocation to fall back on. They've since written them, including a requirement that the league and three-fourths of team owners approve any move. In blocking the Balsillie deal Monday, Baum sent a clear signal that such rules do not violate antitrust laws, according to outside experts and lawyers on the case.

A ruling in favor of Balsillie would have "opened the door for team owners and prospective buyers to use the bankruptcy process to circumvent league rules," says Michael McCann an associate professor at Vermont Law School and a frequent contributor to the popular Sports Law Blog.

Judge Baum has ordered that an auction be held in September for bidders to make new offers, as long as they agree to keep it in Glendale, according to court records and this write-up in the New York Times. If that auction fails to produce a suitable bidder, the leagues have proposed that the judge order a second auction so owners wishing to relocate the team could bid.

(Balsillie says he plans to bid again, and his spokesman has argued that Baum's ruling was not a complete refutation of his bid. The court, for instance, rejected the bid in part because its closing date of June 29 did not give parties enough time to review it.)

As for Proskauer, the law firm where NHL commissioner Gary Bettman used to practice, sources familiar with the matter say the firm has been involved behind the scenes even though they haven't made an official appearance in the case.

LBn host Scott Drake talks with Michael McCann. McCann is Sports Illustrated's legal analyst.

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