PITTSBURGH – A federal judge has granted a stay in ongoing litigation seeking to settle the score as to the definitive ownership of the National Hockey League’s Pittsburgh Penguins team, while a related state court proceeding plays out.
Wildfire Productions, L.P. first filed suit in the U.S. District Court for the Western District of Pennsylvania on Dec. 27 versus Fenway Sports Group Hockey Co, LLC, Fenway Sports Group and Fenway Sports Group, LLC.
The suit accused majority owners Ron Burkle and Mario Lemieux of “steamrolling” the sale without the input of limited partners.
“Through clandestine back-room maneuvering, Mr. Burkle and Mr. Lemieux are orchestrating an unlawful cash-out for themselves, while steamrolling and freezing out their Limited Partners, including Wildfire,” the complaint says.
Plaintiff Wildfire Productions was one of the original partners that helped Lemieux pull the Penguins out of bankruptcy in 1999. However, the lawsuit alleged that Lemieux and Burkle “thwarted and stonewalled” their attempts to get information about the sale to Fenway Sports Group.
In a statement, the Pittsburgh Penguins said: “This limited partner has been returned almost five times their original investment, and the valuation of their ownership interest increased over twelve times as a result of this transaction…this is a regrettable situation where a single limited partner is claiming rights to which they are not entitled and it has no impact on our transaction with the Fenway Sports Group, who are fully committed to the Penguins winning in Pittsburgh for decades to come.”
In its suit, Wildfire Productions asserted claims for aiding and abetting a breach of fiduciary duty (Count I) and tortious interference with a contractual relationship (Count II).
The National Hockey League moved to intervene and to compel the parties to arbitrate Wildfire’s claims on Feb. 17. That same day, the Fenway defendants moved to compel arbitration, to stay the complaint, or, in the alternative, to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Fenway’s motion to stay requested that the Court stay the within proceeding because of a simultaneous pending action in Delaware state court.
“In its motion to stay, Fenway contends that the Court should stay any further proceedings in this action until the Delaware litigation has concluded, because it would avoid substantial risk of duplicative and contradictory rulings. Wildfire maintains this Court should not stay or abstain under the principles of Colorado River Water Cons. Dist. v. U.S. The NHL had no objection to staying this matter,” Horan stated.
“Under Colorado River, a federal court may abstain (1) If ‘there is a parallel state proceeding that raises substantially identical claims and nearly identical allegations and issues,’ and (2) If ‘extraordinary circumstances’ merit abstention. Wildfire argues that this action and the Delaware litigation are not parallel because the parties are different, the claims are different, and the relief sought is different.”
Horan found that the simultaneous state and federal cases are in fact parallel, since they dealt with the same transaction.
“If the Delaware Court were to determine that Team Lemieux did not breach any of its fiduciary duties and did not breach the partnership agreement, the questions of whether Fenway aided and abetted any fiduciary duty breach or tortiously interfered with the partnership agreement would be resolved,” Horan said.
“Finally, as regard differences in injunctive relief sought, Wildfire’s argument is unavailing as a clear reading of both actions demonstrates that Wildfire is seeking money damages for the alleged harm caused by the conduct of both Fenway and Team Lemieux. Accordingly, this Court finds that the Delaware litigation is sufficiently parallel to this action for purposes of Colorado River abstention.”
Fenway argued that under the second element of Colorado River, extraordinary circumstances warrant abstention following the six factors identified in identified in Moses H. Cone Memorial Hospital v. Mercury Construction Corporation.
These six factors are: (1) Whether the action is in rem (about the disposition of property); (2) The inconvenience of the federal forum; (3) The desirability of avoiding piecemeal litigation; (4) The order in which jurisdiction was obtained; (5) Whether federal or state law controls; and (6) Whether the state court will adequately protect the interests of the parties.
“Here, factor one is neutral as the matter is not in rem. As regards factor two, the federal forum of the Western District of Pennsylvania bears some inconvenience given that it may have not been the appropriate forum for this lawsuit. Under the partnership agreement, Wildfire agreed to litigate ‘any dispute arising out of’ the partnership agreement in the state or federal courts in Delaware. Moreover, Fenway is a Delaware corporation and has expressly consented to transfer of this case to Delaware so that all issues could be addressed and decided in one forum. Therefore, factor two weighs in favor of abstention,” Horan said.
“As regard factor three, the Court observes a clear risk of piecemeal litigation. Each case would be examining contract interpretation and scope of fiduciary duties under Pennsylvania law, which risks inconsistent and contradictory rulings. Further, the NHL and defendants in both cases have moved to compel arbitration, which may ultimately deprive both the Delaware court and this Court of jurisdiction. Moreover, duplicate rulings on identical issues could create complicating factors of res judicata and preclusion issues. Therefore, factor three favors abstention.”
As to the fourth factor, Horan said it fell in favor of abstention.
“Wildfire further maintains the Court is obligated to hear its motion for preliminary injunction and thus supports the exercise and retention of jurisdiction by this Court. Wildfire contends these issues, likelihood of success on the merits and irreparable harm, must be addressed by this Court. However, the preliminary injunction necessarily requires interpretation of the underlying contracts and duties that arise thereunder and would be a critical part of assessing the likelihood of success on the merits,” Horan stated.
“As such, and even as pleaded, the contract and express, implied and fiduciary duties and breaches thereof are central to determining likelihood of success on the merits of this case as to whether Fenway committed any tortious interference with the same. Accordingly, as discussed above, the Delaware litigation and its interpretations of the respective contracts and duties needs to be completed before this Court can delve into the preliminary injunction issues. Therefore, factor four weighs in favor of abstention.”
With regards to the fifth factor, state law applies here, which Horan said favors abstention.
Finally, with regard to factor six, Horan explained that the Delaware court would “adequately protect Wildfire’s interests, because it chose to bring the Delaware litigation in Delaware, pursuant to a Delaware forum selection provision in the partnership agreement, to which it voluntarily agreed…therefore, factor six weighs in favor of abstention.”
“Accordingly, the Court finds that, under the six-factor test, there are sufficient extraordinary circumstances under the second element of Colorado River. Having found that both elements of Colorado River are met, the Court finds that a stay is appropriate in this case, and Fenway’s motion to stay will be granted,” Horan concluded.
“Following consideration of the foregoing, Fenway’s motion to stay is granted. A stay in this matter is hereby entered. Seven days following any disposition of the current pending motions in the Delaware litigation, the parties shall file a joint status report and append any decision by the Delaware Court.”
U.S. District Court for the Western District of Pennsylvania case 2:21-cv-01867
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com