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National Hockey League v. Moyes

United States District Court, D. Arizona

November 12, 2015

National Hockey League, Plaintiff,
v.
Jerry Moyes, et al., Defendants.

ORDER

Honorable G. Murray Snow United States District Judge

Pending before the Court are the Parties’ Cross Motions for Summary and Partial Summary Judgment. Also pending is the Report and Recommendation (“R & R”) of United States Bankruptcy Judge Redfield T. Baum, which recommends that Defendants’ Motion be granted in part and denied in part and that Plaintiff’s Motion be denied. (Doc. 98.) Plaintiff National Hockey League (the “NHL”) made timely objections to Judge Baum’s R & R (Doc. 107), to which Defendants (“the Moyes Parties”) responded (Doc. 110). For the following reasons, the R & R is accepted in part, Defendants’ Motion is granted in part and denied in part, and Plaintiff’s Motion is granted in part and denied in part.

BACKGROUND

In September 2006, Jerry Moyes, Vickie Moyes, and the Jerry and Vickie Moyes Family Trust (collectively “the Moyes Parties”) became the controlling owners of the Coyotes professional hockey team and the Coyotes’ hockey arena in Glendale, AZ through their ownership of a series of limited liability companies.[1] (A89-90, A166.)[2] On September 27, 2006, the Moyes Parties entered into two agreements with the NHL: a Consent Agreement and a Guaranty. (A90, A166.) The Consent Agreement bound the Moyes Parties, the Coyotes, and all entities under their control with an ownership interest in the Coyotes to the NHL Constitution and Bylaws. (A92.) The Consent Agreement further required the Coyotes to stay in Arizona for at least seven years and stated that any transfer of ownership interest or relocation of the Coyotes must comply with the NHL transfer or relocation procedures. (A16, 420.) Under the Guaranty, the Moyes Parties agreed that they would be liable for the Coyotes’ losses for up to $30 million, which was later reduced to $15 million by agreement. (A8-11, A92.)

By summer of 2008, “[the Moyes Parties] had advanced over $300 million to operate the Phoenix Coyotes, ” an ailing franchise which had “sustained annual financial losses in excess of $36 million in 2006, 2007, and 2008.” In re Dewey Ranch Hockey, LLC, 406 B.R. 30, 33-34 (Bankr. D. Ariz. 2009) [hereinafter Dewey Ranch I]. The Coyotes’ annual financial statements from 2004 until 2008 each “contain a statement by the certified public accountants that the financial statements ‘raise[d] substantial doubt as to the Company’s ability to continue as a going concern.’” In re Dewey Ranch Hockey, LLC, 414 B.R. 577, 579-80 (Bankr. D. Ariz. 2009) [hereinafter Dewey Ranch II]. “At the request of the Moyes group, the NHL began advancing funds for the operations in August 2008.” Dewey Ranch I, 406 B.R. at 33-34. Beginning in autumn of 2008, the Moyes Parties held various meetings with the NHL, Glendale, and others in an attempt to resolve the Coyotes’ financial problems. Id. at 34. The Moyes Parties and the NHL agreed that they would seek a buyer for the Coyotes and that the NHL would finance the Coyotes’ losses until the sale. (A2; A156.)

In 2008 and 2009, without the NHL’s knowledge, the Moyes Parties began discussions to sell the team to James Balsillie who wanted to relocate the Coyotes to Hamilton, Ontario, Canada. (A158, A168.) When the NHL learned of these negotiations, the NHL told the Moyes Parties to stop negotiating because the NHL would not allow the Coyotes to relocate. (A23.) The Moyes Parties nevertheless executed an Asset Purchase Agreement (“APA”) to sell the Coyotes to Balsillie and relocate the team to Hamilton. (A3089.) The APA required authorization from a bankruptcy court before the sale could be finalized. (A97-100.) The Moyes Parties then caused the companies that owned the Coyotes and that managed the arena to file for Chapter 11 bankruptcy. (A241, A260-61, A414.) Two days later, the Moyes Parties caused the debtor companies to file an adversarial antitrust suit against the NHL, which they later voluntarily dismissed. (A144.) The NHL and the City of Glendale, Arizona objected to the proposed sale to Balsillie, which was not approved by the bankruptcy court. (A171.)

During the bankruptcy proceeding, the NHL submitted a bid to purchase the Coyotes for $140 million. (A171; A261.) Defendants objected, and the bankruptcy court denied this initial bid without prejudice because it failed to equally distribute the Coyotes’ assets to all creditors. (Id.) Specifically, NHL’s initial bid proposed to pay in full all of the Coyotes’ creditors except the Moyes Parties, who were the principal creditors of the Coyotes, and Wayne Gretzky (“Gretzky”), the Coyotes’ head coach. (Id.) An equal distribution, as mandated by the law, would have substantially benefited the Moyes Parties and Gretzky. (Id.)

The NHL then submitted a second restructured bid to the bankruptcy court. The NHL represented to the bankruptcy court that the economics of this second bid were the same but that the structure was slightly different. (A301.) Specifically, the second bid provided that the NHL would purchase the Coyotes from the Moyes Parties for $128.4 million and purchase approximately $11.6 million of the Coyotes’ unsecured claims (the two amounts totaling $140 million, the amount the NHL had initially offered to pay the Moyes Parties to purchase the Coyotes). (A366.) The Moyes Parties objected and the bankruptcy court rejected the second bid, but at a status conference held on October 26, 2009, the parties conferred during a recess and reached an agreement. (A2253.) The NHL would purchase the team for $128.4 million and would purchase the unsecured claims for $11.6 million, both the NHL and the Moyes Parties would reserve all rights and defenses regarding the Guaranty, and the Moyes Parties’ liability under the Guaranty would be capped at $15 million. (A2255-56.) Gretzky did not object to the sale under these terms. (A1494-95.) On November 2, 2009, the court entered a Stipulated Order Approving Amended and Clarified Bid, accepting the second bid on the agreed upon terms. (A1488.)

On March 5, 2010, the NHL sued the Moyes Parties in New York state court. The NHL makes claims against the Moyes Parties: (1) for aiding and abetting the breach of fiduciary duty owed by the Coyotes to the NHL, (2) for breach of the Consent Agreement, and (3) as a guarantor under the Guaranty. (Complaint, Doc. 1 at 31-36.) The NHL’s claims fall into four categories of damages: (1) the operating losses that the NHL incurred after purchasing the Franchise, (2) the NHL’s attorneys’ fees and expenses incurred during the bankruptcy proceedings, as well as those incurred after purchasing the Franchise, (3) the amounts the Coyotes owed to the unsecured creditors, which claims were guaranteed by the Moyes Parties and purchased by the NHL as part of its acquisition of the Coyotes, and (4) the amounts owed to Wayne Gretzky and not paid by the Coyotes, which were also guaranteed by the Moyes Parties. (R & R, Doc. 98 at 2.)

The suit was removed to the Southern District of New York and then transferred to this Court as a more convenient forum pursuant to 28 U.S.C. § 1404(a). (Doc. 1.) On September 15, 2010, this Court referred this suit to the bankruptcy court pursuant to General Order 01-15 of this District because this suit was related to the bankruptcy proceeding of the entities that owned the Coyotes. (Doc. 66.)

On January 21, 2015, after determining that the NHL’s claims are Stern claims requiring disposition by a federal district court, the bankruptcy court entered the current R & R with its accompanying conclusions of law. See Stern v. Marshall, 131 S.Ct. 2594, 2603 (2011) (recognizing certain counterclaims as core proceedings within the definition of 11 U.S.C. § 157(b)(2)(C), but holding that bankruptcy courts do not have jurisdiction to enter final judgments on all such claims); Executive Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165, 2173 (2014) (holding that Stern claims may be disposed of in bankruptcy court in the same manner as non-core proceedings-that is, the bankruptcy court must submit findings of fact and conclusions of law to the district court to be reviewed de novo).

The bankruptcy court, in its R & R, proposed the following conclusions of law:

1. The bankruptcy preemption doctrine precludes the NHL from recovering any of its attorney’s fees and expenses incurred prior to November 2, 2009.
2. Under the Agreements, the NHL is entitled to recover its attorney’s fees and costs incurred after November 2, 2009.
3. The NHL paid the unsecured creditors at or prior to the November 2, 2009 closing and, therefore, there are no unpaid debts of the Coyotes to support the NHL’s claim against Moyes under the Agreements.
4. Based upon the uncontested evidence and representations before the bankruptcy court, the NHL is judicially estopped from claiming that the unsecured debts have not been paid.
5. The NHL’s claim against Moyes for the unpaid amounts owed Gretzky [is] barred by the doctrine of judicial estoppel.
6. The NHL’s claims for its post acquisition losses are not recoverable because the losses were not foreseeable when the contracts were made and the express terms of the Agreements do not apply to those losses.
7. The bankruptcy preemption doctrine precludes the NHL’s claim for damages for aiding and abetting a breach of fiduciary duty.

(Doc. 98 at 13.)

The bankruptcy court also recommends that this Court hold that the NHL’s claims for attorneys’ fees and expenses incurred before November 2, 2009 are barred by judicial estoppel and that “any claims by the NHL based upon negotiations, failing to disclose such negotiations, agreeing to sell and relocate the Coyotes through the bankruptcy process, and the filing of the antitrust adversary action in the bankruptcy court are all barred by the bankruptcy preemption doctrine.” (Id. at 5.)

The R & R would grant summary judgment to the Moyes Parties on “all of the NHL’s claim[s] except for its claim for attorney’s fees and expenses incurred after November 2, 2009, which claim must be tried to a jury, pursuant to the NHL’s demand for a jury trial.” (Id. at 14.)

The NHL objected to all of Judge Baum’s conclusions of law, except for the conclusion that the NHL is entitled to recover its attorney’s fees and costs incurred after November 2, 2009. (Doc. 107.)

DISCUSSION

I. Legal Standard

The bankruptcy court has submitted proposed findings of fact and conclusions of law, which this Court reviews de novo before entering judgment. Stern, 131 S.Ct. at 2603; Executive Benefits, 134 S.Ct. at 2173.

The Court grants summary judgment when the movant “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In making this determination, the Court views the evidence “in a light most favorable to the non-moving party.” Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995). Where the parties have filed cross-motions for summary judgment, the Court “evaluate[s] each motion independently, ‘giving the nonmoving party in each instance the benefit of all reasonable inferences.’” Lenz v. Universal Music Corp., 2015 WL 5315388, at *2 (9th Cir. Sept. 14, 2015) (quoting ACLU v. City of Las Vegas, 333 F.3d 1092, 1097 (9th Cir.2003)). “[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

The party opposing summary judgment “may not rest upon the mere allegations or denials of [the party’s] pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995). Substantive law determines which facts are material, and “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the genuine factual issues “can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.” Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (quoting Anderson, 477 U.S. at 250).

II. Analysis

The NHL makes claims against Moyes (1) for aiding and abetting a breach of fiduciary duty owed by the Coyotes to the NHL (Count III of the Complaint), (2) for breach of the Consent Agreement (Counts I and II), and (3) for obligations under the Guaranty (Counts IV and V). (Complaint, Doc. 1 at 31-36.)

A. Aiding and Abetting a Breach of Fiduciary Duty (Count III)

Count III of the Complaint, aiding and abetting a breach of fiduciary duty, alleges that “Moyes caused the Coyotes to violate its fiduciary duty . . . by secretly negotiating with Balsillie and his agents for the sale of the Coyotes in violation of the NHL Constitution and Bylaws; by having his representative lie to the NHL Commissioner about the status of any pending discussions to sell the Club, by directing the Coyotes and its affiliated holding companies to file bankruptcy; by agreeing to a purported sale and relocation of the Coyotes without notifying or seeking the approval of the NHL; and by suing the NHL to invalidate the transfer restrictions contained in the Consent Agreement, and in the NHL Constitution and Bylaws.” (Id. at ¶ 78.) Plaintiff alleges that “Jerry Moyes acted maliciously in aiding and abetting the Coyotes’ breach of fiduciary duties by acting deliberately with knowledge of the NHL’s rights and with an intent to interfere with those rights.” (Id. at ¶ 82.)

The bankruptcy court concluded that “[t]he bankruptcy preemption doctrine precludes the NHL’s claim for damages for aiding and abetting a breach of fiduciary duty.” (Doc. 235 at 13.) This Court reviews that conclusion de novo and adopts the bankruptcy court’s recommendation with respect to the tort claim only.

“The Supremacy Clause provides a clear rule that federal law ‘shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.’” Arizona v. United States, 132 S.Ct. 2492, 2500 (2012) (quoting U.S. Const. art. VI, cl. 2). “Under this principle, Congress has the power to preempt state law.” Id. An analysis of the scope of bankruptcy preemption begins with the presumption that state law will not be preempted. See Pac. Gas & Elec. Co. v. California ex rel. California Dept. of Toxic Substances Control, 350 F.3d 932, 943 (9th Cir. 2003). “[T]he purpose of Congress is the ultimate touchstone in every pre-emption case.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996).

Federal law can preempt state law in three ways: express preemption, field preemption, and conflict preemption. See Arizona, 132 S.Ct. at 2500-01. In the absence of express statutory language indicating preemption, “[s]tate law must also give way to federal law in at least two . . . circumstances.” Id. at 2501. “First, the States are precluded from regulating conduct in a field that Congress, acting within its proper authority, has determined must be regulated by its exclusive governance.” Id. “The intent to displace state law altogether can be inferred from a framework of regulation ‘so pervasive . . . that Congress left no room for the States to supplement it’ or where there is a ‘federal interest . . . so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject.’” Id. (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). “Second, state laws are preempted when they conflict with federal law.” Id. Conflict preemption occurs where “compliance with both federal and state regulations is a physical impossibility, ” id. (quoting Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143 (1963)), as well as “where the challenged state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’” Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).

Where state law tort claims call into question whether a bankruptcy was filed for an improper purpose or in bad faith, these claims are preempted by federal bankruptcy law, “a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject.” MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 913 (9th Cir. 1996) (quoting Fidelity Federal Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 152-53 (1982)). “[T]he adjustment of rights and duties within the bankruptcy process itself is uniquely and exclusively federal. It is very unlikely that Congress intended to permit the superimposition of state remedies on the many activities that might be undertaken in the management of the bankruptcy process.” Id. at 914. “Debtors filing bankruptcy petitions are subject to a requirement of good faith, and violations of that requirement can result in the imposition of sanctions.” Gonzales v. Parks, 830 F.2d 1033, 1035-36 (9th Cir. 1987). These sanctions constitute “an implicit rejection of other penalties, including the kind of substantial damage awards that might be available in state court tort suits.” Id. at 1036.

In Astor Holdings, Inc. v. Roski, 325 F.Supp.2d 251, 262 (S.D.N.Y. 2003), the plaintiff sued for aiding and abetting a breach of fiduciary duty, alleging “that the defendant induced a third party to file for bankruptcy, harming the plaintiff.” Relying on the Ninth Circuit decision in MSR Exploration and emphasizing the “broad scope of bankruptcy preemption, ” the court concluded that any misuse of the bankruptcy process is “governed exclusively” by the Bankruptcy Code, and thus “claims . . . requiring a finding that [a bankruptcy was filed] in bad faith or for an improper purpose, as measured by the standards of New York tort law, are therefore barred.” Id. at 262-63.

Even where the state law claim is brought against a non-bankruptcy party, rather than the debtor, a claim “that could have been made, and for which a remedy is provided, under the Bankruptcy Code cannot be the subject of regulation by state statutory or common-law remedies.” Id. at 262. An aiding and abetting claim for inducing a third party to file bankruptcy would necessarily question “whether [the bankruptcy] petition had been filed in ‘good faith’ within the meaning of the Bankruptcy Code, ” and doing so would contravene “the principle that no authorized proceeding in bankruptcy can be questioned in a state court or used as the basis for the assertion of a tort claim in state court against any defendant.” Choy v. Redland Ins. Co., 127 Cal.Rptr.2d 94, 103 (2002) (qtd. in Astor Holdings, 325 F.Supp.2d at 262). “[E]ven slight incursions and disruptions brought about by state malicious prosecution actions” infringe upon the “uniquely and exclusively federal” bankruptcy process. MSR Exploration, 74 F.3d at 914.

Here, the NHL alleges tortious conduct relating to an attempted unauthorized sale of the Coyotes by means of filing bankruptcy. This amounts to an assertion that the bankruptcy filing was for an improper purpose or in bad faith. To the extent that the NHL alleges that the Moyes Parties aided and abetted a breach of fiduciary duty by causing the ...


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