A lawsuit from the Tri-City ValleyCats over the team’s contraction by Major League Baseball will proceed, as a New York Supreme Court decision upholds several claims by the ValleyCats and dismisses others.
In the original lawsuit (No. 650308/2021), filed in January by ValleyCats owner Doug Gladstone against MLB (via the Commissioner) and the Houston Astros, sought in excess of $15 million over the decision to not include the ValleyCats in the final lineup of 120 MiLB teams. Specifically, the ValleyCats are seeking damages based on the diminished value of what had been a National Association Minor League Baseball franchise–specifically, breach of fiduciary duty and tortious interference. But there’s no agreement anymore between the National Association and Major League Baseball, and with MLB moving toward a totally new licensing agreement for the revamped MiLB system, that N.A. franchise has a highly diminished value. The ValleyCats ended up joining MLB Partner League Frontier League.
In a decision issued yesterday in New York County Supreme Court (which, in New York State, is a lower-level court, not the highest court in the state), Justice Barry R. Ostrager will allow part of the case to proceed, while dismissing several causes of action raised by the ValleyCats. Ostrager rejected the causes assuming a contractural relationship between the ValleyCats and MLB or a joint venture between the two (technically, there wasn’t one, though the ‘Cats argued there was an “Implied-in-Fact Contract”) and that MLB violated New York State’s franchisor laws, even though MLB a) didn’t issue the ValleyCats’ franchise and b) is not a franchisor under state law. Also dismissed: a claim that the value of the Houston Astros was enhanced due to the elimination of the ValleyCats as an affiliate.
Moving forward, however, are what could be considered the core of the case: four causes of action (numbers four through eight of the causes), covering areas like tortious interference relating to the ballpark lease with Hudson Valley Community College, the contract between the ValleyCats and the New York-Penn League, the contract between the ValleyCats and the National Association, and the contract between the ValleyCats and ticket holders, which calls for the ValleyCats to provide affiliated major-league games. Basically, the ValleyCats are arguing contraction amounted to several counts of tortious interference. The argument made by MLB and Astros attorneys was that the decision to end the relationship with the National Association was a simple business decision, and that MLB was free to end business relationships as management sees fit. From the decision: “According to defendants, the impacts on Tri-City were merely ‘incidental’ to MLB’s broad restructuring plan, which was put into effect for legitimate economic reasons.” The key graf in allowing the case to proceed:
Applying this standard, and as confirmed in plaintiff’s Memorandum in Opposition (at pp 11- 15), plaintiff has pleaded the elements of tortious interference with contract in a manner sufficient to state claims in the Fifth through Eighth Causes of Action. While the Hudson Valley Community College may not have declared plaintiff in default of the Lease contract, defendants cannot reasonably dispute that plaintiff no longer qualifies as a “short season Class A New York-Pennsylvania professional Baseball League baseball team” as defined by the contract. Thus, the ValleyCats may be evicted from the Stadium at any time, which arguably affects the team’s value and its long-term prospects. Further, the ValleyCats potentially face considerable damages because, in reliance of the repeated renewal of their affiliation contract with the Astros, the ValleyCats incurred significant expenses including, but not limited to, improvements to wireless technology at the Stadium and dugout and renovations to the ValleyCats’ home clubhouse and training facility. (Compl. ¶ 12). The ValleyCats allegedly face difficulty paying for those improvements due to their loss of revenue and team value. (Compl. ¶ 52). Additionally, the ValleyCats entered into various multiyear sponsorship contracts with well-known corporations, including Dunkin’ Brands, Inc., Mohawk Honda, and Valvoline, for promotional advertising at the Stadium based on the team’s affiliation with the Astros and MLB, which agreements the sponsors may choose not to honor.
Ostrager then goes on to rule that it is true that the demise of the NY-Penn League caused the ValleyCats to lose benefits and suffer damages, and that it is true a requirement that the ValleyCats sold tickets based on the assumption that MiLB ball would be played by the team is a “requirement was implied in the contractual bargain” between the team and fans.
The decision by Ostrager also calls into question whether MLB had “economic justification” to contract Minor League Baseball teams, “with the burden remaining on defendants to plead and ultimately prove their affirmative defense.” Indeed, the fact that the ValleyCats were not initially targeted for contract leads Ostrager to further question any economic justification in contracting the team.
MLB and the Astros now have 30 days to prepare an Answer, with a Preliminary Conference scheduled for October 7 to map out how the case proceeds, including topics like discovery and scheduling.