Houston Astros Ownership Files Fraud Lawsuit against Drayton McLane over Botched TV Deal

Houston Baseball Partners, LLC v. McLane Champions, et al., No. 201370769, Harris County, Texas

The wrangling over future broadcasts of Houston Astros games has finally come to blows as the Houston Baseball Partners, LLC ownership group, led by Jim Crane, has filed a lawsuit in Harris County, Texas alleging misrepresentation and fraud.  Specifically, the petition alleges that the Houston Regional Sports Network, of which plaintiff purchased a 40 percent stake, was fraudulently overvalued and that the subscription rates previously being sold by defendants were rejected by Time Warner, Direct TV and AT&T. 

           

“Ultimately, fans of the Houston Astros have been injured because Defendants’ misrepresentations leave plaintiff with an impossible choice: either accept the broken network as is, and deprive thousands of fans the ability to watch Houston Astros games on their televisions, or distribute the games at market rates and take massive losses out of the Houston Astros player payroll – thereby dooming the franchise for years to come”

The Astros had formed the network in 2003, in conjunction with the Houston Rockets ownership, and Comcast later purchased an equity stake in the network in 2010.  Comcast agreed to pay certain monthly fees based on the number of subscribers in a given month for each of several distinct geographic zones. 

Plaintiff claims that Comcast eventually agreed to an “inflated” Zone 1 base rate; however, Comcast retained a “most favored nation” right such that they could reduce their rates if affiliate distributors were not willing to contract at the premium Zone 1 rate.  These “inflated” rates were thereafter incorporated into the Comcast business plan that plaintiff relied upon in negotiating the purchase of the ball club and broadcast network shares in 2011.

In order to prove their case, Houston Baseball Partners will need to prove that the (1) inflated Zone 1 base rates overstated the projected profitability and ultimate value of the Astros’ stake in the network, (2) that these representations were materially false and misleading when they were made, (3) the defendants knew or should have known that the representations were false and misleading, (4) that the false or misleading representations were made with the intent of inducing plaintiff to execute the purchase agreement, (5) that plaintiff relied on these misrepresentations to their detriment, and (6) that plaintiff suffered damages as a result.

Fraud is difficult to prove and initially, it would appear that plaintiff will have some difficulty establishing that the inflated rates were misleading if they were being honored at the time of the purchase.  Presumably, the most favored nation status would have been examined during the due diligence process and the risks that accompanied such a provision would likely have been accounted for in the purchase price.

What is not clear at this point is the correlation between the Astros’ on field performance and the number of subscribers that pay to access the broadcast, especially in light of the dismal performance of the team in 2013. 

Fan Injured in Promotional Horse Race Loses in Lawsuit Against Atlantic League Ball Club

Duncan v. Somerset Patriots Baseball Club, No. A-4279-08T3 (N.J. Super., 2010)

What Happened?

The Somerset Patriots are an independent minor league baseball team established in 1998 and based in Bridgewater, New Jersey.  The Patriots have enjoyed great success, winning the Atlantic League championship in 2001, 2003, 2005, 2008 and 2009 under the guidance of manager and former star reliever Sparky Lyle.  (In fact, the Patriots’ mustachioed mascot, Sparkee, was named after Lyle.)

Daniel Duncan attended the Patriots home game on August 5, 2006, a team whose roster featured the nephews of Hall of Famers Roberto Clemente (Edgard Clemente) and Ryne Sandberg (Jared Sandberg.)  

Duncan entered a random drawing to participate in several promotional events during the game and was selected to take part in the “Monmouth Park Horse Race.”  For this event, sponsored by the famous ocean-side racetrack of the same name, Duncan and a partner were given a horse head to carry (not the Godfather kind) and a bandanna to tie their legs together.  The race, itself, was to take place on the field, starting at home plate and ending at first base.

As Duncan went to take his first step, however, he lost his balance and fell, injuring his knee.  He claimed initially that he slipped on wet grass and did not allege any other defect that would have caused him to fall; however, he later testified at his deposition that he did not actually notice whether the grass was wet.  All of the other eyewitnesses testified the grass was dry.

The trial court dismissed the case, finding that the Patriots were not required to warn Duncan regarding the risks inherent in the three-legged race and that there was no evidence that the field was defective or had been improperly maintained.    

The Appeal

Plaintiff appealed claiming that there was a question of fact as to whether the field was defective and whether the Patriots should have warned him about the dangers he might encounter while taking part in the promotional race.

Who Won the Appeal?

The Somerset Patriots.  The appellate court affirmed the trial court’s dismissal of the injury lawsuit.

Why?

The reviewing court found that Duncan was aware of the hazards inherent in a three-legged race, having just participated in one with his son at a Boy Scout camp-out.  Furthermore they stated that, “walking and running on grass is a common experience, and the risk of doing so with any particular kind of footwear is known equally by the participant and the property owner.”

They felt further that the ball club could have provided warnings but this was balanced by the fact that Duncan voluntarily agreed to compete in the race.  Ultimately, the court held that the Patriots had no duty to warn plaintiff about the potential risks involved in the three-legged race.

Revenue Sharing Deal Cubs Struck with Rooftop Owners Holding Up Wrigley Field Renovations

During the 2013 baseball season, the City of Chicago approved a $500 million plan to renovate Wrigley Field and build an adjacent office building and hotel.  Included in the renovation plan is the proposed construction of a large video board behind the left field bleachers and signs advertising Budweiser behind the right field bleachers.  The Cubs have delayed the start of this project, however, because the owners of the rooftop businesses across from the ballpark have threatened to file a lawsuit against the Cubs because the proposed signage will obstruct the views of the field from their respective rooftop businesses. 

Rooftop Litigation History

Detroit Base-Ball Club v. Deppert, 61 Mich. 63, 27 N.W. 856 (Mich., 1886)

Disputes over neighbors viewing ballgames are nothing new.  In 1885, John Deppert, Jr. constructed a rooftop stand on his barn that overlooked Recreation Park, home to the National League’s Detroit Wolverines, future Hall of Famer Sam Thompson and a rotation featuring the likes of men named Stump Wiedman, Pretzels Getzien and Lady Baldwin.  The Wolverines claimed that they had to pay $3000 per month for rent and that the 50 cent admission fees, helped to offset this cost.  They were thereby “annoyed” by Deppert charging people, between 25 to 100 per game, to watch the games from his property and asked the court to forever ban Deppert from using his property in this manner. 

Recreation Park - Home of the Detroit Wolverines

Deppert countered that the ballgames had ruined the quiet enjoyment of his premises, that ballplayers often trespassed on his land in pursuit of the ball and that he often had to call the police to “quell fights and brawls of the roughs who assemble there to witness the games.”  He further claimed that his viewing stand had passed the city’s building inspection and that he had the legal right to charge admission and sell refreshments. 

The trial court dismissed the Wolverines case and the ball club appealed.  The Supreme Court of Michigan agreed that the Wolverines had no right to control the use of the adjoining property; therefore, Deppert was within his rights to erect a stand on his barn roof and sell refreshments to fans that wanted to watch the game.  Furthermore, there was no evidence that Deppert’s rooftop customers would otherwise have paid the fees to enter Recreation Park.

Similarly, the rooftops of the buildings across the street from Shibe Park were frequently filled with fans wanting a view of the Philadelphia Athletics game action.  While never happy about the situation, Connie Mack was pushed too far in the early 1930s when the rooftop operators started actively poaching fans from the ticket office lines.  Mack responded by building the “Spite Fence,” a solid wall that effectively blocked the view of the field from the buildings across 20^th Street.

Looking north on 20th Street with Spite Fence on left

Lawsuits were filed but the “Spite Fence” remained in place throughout the remainder of the use of Shibe Park, later renamed Connie Mack Stadium.

  

The Current Dispute

Chicago National League Ball Club, Inc. v. Skybox on Waveland, LLC, 1:02-cv-09105 (N.D.IL.)

In this case, the Cubs sued the rooftop owners on December 16, 2002 seeking compensatory damages, disgorgement to the Cubs of the defendants’ profits and a permanent injunction prohibiting the rooftop owners from selling admissions to view live baseball games at Wrigley Field, among other remedies and under several causes of action.  According to the complaint, the Cubs alleged that the defendant rooftop operators “…have unlawfully misappropriated the Cubs’ property, infringed its copyrights and misleadingly associated themselves with the Cubs and Wrigley Field.  By doing so, Defendants have been able to operate multi-million dollar businesses in and atop buildings immediately outside Wrigley Field and unjustly enrich themselves to the tune of millions of dollars each year, while paying the Cubs absolutely nothing.”

In their statement of undisputed facts, the defendants countered that the rooftops had been used to view games since the park opened on April 23, 1914 as home of the Chicago Federal League team and that the Cubs conceded that their present management knew the rooftop businesses were selling admissions since at least the late 1980s. 

In May 1998, the City of Chicago enacted an ordinance authorizing the rooftops to operate as “special clubs,” which allowed them to sell admissions to view Cubs games under city license.  The City wanted their piece of the action and interestingly, the Cubs made no formal objection to the ordinance.  Based on the licensure and lack of any opposition from the Cubs, the rooftop owners made substantial improvements to enhance the experience and to meet new City specifications.

By January 27, 2004, the Cubs had reached a written settlement with owners of 10 of the defendant rooftop businesses which assured that the Cubs “would not erect windscreens or other barriers to obstruct the views of the [settling rooftops]” for a period of 20 years.  The remaining rooftop owners later settled and the case was dismissed on April 8, 2004, just days ahead of the Cubs home opener set for April 12^th.
 

Operative language in para. 7

After the 2004 agreement legitimized their businesses, the rooftop owners made further improvements to the properties.  Long gone are the days that a rooftop experience meant an ice-filled trough of beer and hot dogs made on a single Weber.  The rooftop operations are now sophisticated businesses with luxurious accommodations, enhanced food and beverage service and even electronic ticketing.

  

As a result of the settlement agreement of Cubs’ 2002 lawsuit, the team now has legitimate concerns that a subsequent lawsuit by the rooftop owners to enforce the terms of the contract could ultimately result in the award of monetary damages to the rooftop owners; cause further delays in the commencement of the construction project due to a temporary restraining order; or, be the basis of an injunction preventing the Cubs from erecting the revenue-producing advertising platforms for the remainder of the rooftop revenue sharing agreement.

It is obvious that the rooftop owners need the Cubs more than the Cubs need them; however, the Cubs wanted their piece of the rooftop owners’ profits (estimated to be a payment to the Cubs in the range of $2-$3.5 million annually) and now the Cubs have to deal with the potential that their massive renovation project will be held up by the threat of litigation over the blocking of the rooftop views.