McLane Champions, LLC v. Hous. Baseball Partners LLC

671 S.W.3d 907

MCLANE CHAMPIONS, LLC and R. Drayton McLane, Jr., Petitioners,

v.HOUSTON BASEBALL PARTNERS LLC, Respondent

No. 21-0641

Supreme Court of Texas.

Argued October 25, 2022

OPINION DELIVERED: June 30, 2023

Thomas M. Farrell, Houston, Ronald G. Franklin, Charles Bedford Hampton, for Respondent.

Dana M. Seshens, Greg D. Andres, Thomas Francis Hetherington, Andrew Kasner, Houston, Brian M. Burnovski, for Petitioner Comcast Corporation and NBC Universal Media, LLC.

Geoffrey Alan Berg, Bernard Grover Johnson III, Wayne Fisher, Houston, for Petitioner McLane, Junior, R. Drayton.

Charles L. Babcock, Nancy Wells Hamilton, Houston, Harris Huguenard, David J. Beck, Houston, Brett David Kutnick, Dallas, for Petitioner McLane Champions, LLC.

Amy Befeld, E. Lee Parsley, for Amicus Curiae Texans for Lawsuit Reform.

Justice Lehrmann delivered the opinion of the Court, in which Justice Boyd, Justice Devine, Justice Busby, Justice Bland, Justice Huddle, and Justice Young joined.

The Texas Citizens Participation Act provides special procedures allowing parties to obtain early dismissal of meritless claims that implicate the exercise of the rights of free speech, association, and petition. The principal issue in this case, which arises out of the 2011 sale of the Houston Astros, is whether the Act applies to this dispute between private parties to a private business transaction that later generated public interest. The court of appeals assumed that the Act applies, but it held that the plaintiff had met its burden to avoid dismissal and affirmed the trial court's denial of the defendants’ motion to dismiss. We hold that the Act does not apply in the first instance. Accordingly, while we express no opinion on the merits of the plaintiff's claims, we affirm the court of appeals’ judgment.

I. Background

In May 2011, Houston Baseball Partners LLC (Partners), led by Jim Crane, entered into an agreement to purchase the Houston Astros from McLane Champions, LLC (Champions). Surprising as it may seem now, the Astros were struggling both competitively and financially at the time.¹ When Partners purchased the club, the Astros were approximately $200 million in debt and continuing to lose money.

The deal included not only the team, but also the Astros’ interest in a soon-to-be-launched regional sports network. The Astros had formed the Network with the Houston Rockets to broadcast their games and related content to viewers in the Greater Houston area.

In October 2010, a Comcast Corporation affiliate invested $157.5 million to purchase a 22.5% equity interest in the Network, which was scheduled to launch in October 2012. In addition to its substantial financial investment, Comcast agreed to leverage its experience in launching regional sports networks and negotiating with cable and television service providers to help profitably launch the Network. Given the Astros’ financial position, Partners alleges it viewed the club's interest in the Network as the key asset it was acquiring.

The Astros, the Rockets, and Comcast developed a business plan for the Network to project its expected profitability after launch. Affiliate rates—the fees cable and satellite television providers pay a channel for the right to carry it on their cable or satellite service—would primarily drive the Network's revenues. The affiliate rates underlying the business plan divided potential cable and satellite viewers into geographic zones. The plan assumed that cable and satellite providers would pay a higher affiliate rate for viewers living closer to downtown Houston. As a result, the plan's highest rate applied to potential viewers living in the immediate Houston vicinity.

As a starting point, the business plan used the affiliate rates Comcast had agreed to pay as a "market clearing" rate that other providers would also likely pay. Based on these inputs, Partners valued the Network at around $714 million. This meant that the Astros’ interest in the Network was worth around $332 million.

Whether Comcast's affiliate rates were truly market clearing was crucial to the viability of the Network's business plan. Although Comcast had agreed to the rates underpinning the plan, Comcast's agreement also included a "Most Favored Nation" clause. Pursuant to that clause, if the Network signed agreements with other providers at lower affiliate rates, Comcast would be entitled to reduce its own affiliate rates to equal those lower rates. Consequently, less favorable affiliate agreements could have a snowball effect on the Network's revenues, severely undermining the business plan's viability.

Partners focused much of its due diligence on confirming the Network's valuation. Because the affiliate rates formed the foundation for the business plan, Partners asserts that how those rates were calculated—and who proposed them—was critical to assessing the business plan's viability.

Partners alleges that Champions’ investment bank, Allen & Company, informed Partners that Comcast had proposed the input affiliate rates, that Comcast believed those rates were reasonable and achievable, and that Comcast expected the Network would be able to enter into affiliate agreements with other providers at equivalent rates. On April 12, 2011, Partners met with a Comcast executive who purportedly confirmed each of these representations.

Based primarily on its valuation of the Astros’ interest in the Network, Partners agreed to purchase the Astros from Champions for over $615 million. Shortly after signing the Purchase and Sale Agreement in May 2011, Partners assigned all its rights under the agreement to a wholly owned subsidiary—HBP Team Holdings, LLC (Holdings). Champions, Partners, and Holdings also executed an amendment to the purchase agreement defining Holdings as the Purchaser. However, the agreement's indemnity provision identified affiliates, direct owners, and indirect owners of the Purchaser as "Seller Indemnified Parties." Accordingly, Partners remained a Seller Indemnified Party even after the assignment, and Champions agreed to indemnify such parties for breaches of the purchase agreement.

When the Network launched in 2012, it had not signed affiliate agreements with any providers besides Comcast. Those affiliate agreements that Comcast was able to deliver with other providers post-launch contained affiliate rates far below those outlined in the business plan. Accepting those offers would trigger Comcast's Most Favored Nation clause, lowering the affiliate rates it was required to pay. The Network quickly fell into severe financial distress and was unable to pay media-rights fees to the Astros. Comcast filed an involuntary bankruptcy petition against the Network in September 2013.

As the Network collapsed in December 2012, Partners met with Comcast executives to discuss the Network's alarming financial position. At the meeting, a Comcast executive allegedly admitted that Comcast had always known the Network's business plan was unreasonable and had told the Astros as much well before the purchase agreement's closing. In particular, Comcast first revealed its misgivings about the business plan in 2010. Comcast also allegedly revealed that the affiliate rates that formed the foundation for the plan were proposed by the Astros and the Rockets, not Comcast.

In November 2013, Partners sued Comcast, Champions, and Champions’ owner R. Drayton McLane, Jr. for fraud, negligent misrepresentation, and civil conspiracy. Partners also brought breach-of-contract claims against Champions and McLane.² Partners’ fraud and misrepresentation claims are primarily based on the alleged December 2012 revelations that the Astros and the Rockets, not Comcast, originally proposed the affiliate rates and that Comcast and the Astros had always known that the Network's business plan was unreasonable. Comcast removed the case to the bankruptcy court where the Network's involuntary bankruptcy was pending. The bankruptcy court determined that the case should be remanded to state court; over five years after that order was appealed, the district court affirmed and remanded the case.

Within three weeks of remand, Champions moved to dismiss Partners’ claims under the Texas Citizens Participation Act (TCPA). Comcast joined the motion, which also challenged Partners’ standing to sue on the ground that only Holdings had an interest under the purchase agreement. In response, Holdings intervened and filed counterclaims against Champions and third-party claims against Comcast identical to those Partners asserted. The trial court denied the TCPA motion.

The court of appeals affirmed. 627 S.W.3d 398, 405 (Tex. App.—Houston [14th Dist.] 2021). The court of appeals first held that Partners had standing to sue despite its assignment of rights under the purchase agreement to Holdings. Id. at 412. Assuming without deciding that the TCPA applied to Partners’ claims, the court then held that Partners had made a prima facie showing for each of its claims by clear and specific evidence. Id. We granted Champions’ petition for review.³

II. Discussion

In this Court, Champions continues to challenge Partners’ standing, asserts that the TCPA applies to Partners’ claims, and argues that Partners failed to meet its burden to avoid dismissal. We address these issues in turn.

A. Standing

As an initial matter, Champions argues that Partners lacks standing to sue—and the courts thus lack subject matter jurisdiction over Partners’ claims—because Partners assigned all its rights under the purchase agreement to Holdings. Partners responds that Champions is challenging its capacity to sue, not standing in the true constitutional, and jurisdictional, sense of the term.

Lack of constitutional standing deprives the trial court of subject matter jurisdiction. Pike v. Tex. EMC Mgmt., LLC , 610 S.W.3d 763, 773 (Tex. 2020). Because standing is a threshold jurisdictional issue that "is essential to a court's power to decide a case," we address that issue before turning to the...