Orbit Sports LLC v. Taylor

546 F.Supp.3d 832

ORBIT SPORTS LLC, Plaintiff,

v.Glen TAYLOR, Taylor Corporation, and Taylor Sports Group, Inc., Defendants.

File No. 21-cv-1289 (ECT/TNL)

United States District Court, D. Minnesota.

Signed July 1, 2021

Michael M. Krauss and Peter Kieselbach, Greenberg Traurig, LLP, Minneapolis, MN; Paul Hans Schafhauser, Greenberg Traurig, LLP, Florham Park, NJ, for Plaintiff Orbit Sports LLC.

Alain M. Baudry, Courtland C. Merrill, and Lauren F. Schoeberl, Saul Ewing Arnstein & Lehr, LLP, Minneapolis, MN, for Defendants Glen Taylor, Taylor Corporation, and Taylor Sports Group, Inc.

OPINION AND ORDER

Eric C. Tostrud, United States District Judge

Defendant Glen Taylor, together with Taylor Corporation and Taylor Sports Group, Inc.—two companies that he controls—are the principal owners of the Minnesota Timberwolves and Minnesota Lynx professional basketball teams. Recently, Taylor announced that he would transition ownership of the teams to Purple Buyer Holdings, LLC, a company controlled by Alex Rodriguez and Marc Lore. The way the deal is structured, Taylor and his companies will sell a 20% ownership share of the teams at a closing scheduled for June 30, 2021 (or shortly thereafter). At that closing, Taylor will also extend a series of standing offers—known as "Call Options"—that Rodriguez and Lore may or may not accept later to acquire a controlling interest in the teams.

Plaintiff Orbit Sports, LLC currently owns a minority share of the teams. In this lawsuit, Orbit claims that: (1) the proposed transaction with Rodriguez and Lore violates the Partnership Agreement that it entered into with Taylor when it invested in the teams, and (2) Taylor violated his duty to deal with Orbit in good faith. Orbit has moved for a preliminary injunction that would either put a stop to the June 30 closing or else require Taylor to deposit the proceeds of the June 30 sale into an escrow account while this case proceeds. Taylor and his companies responded by filing a motion to dismiss Orbit's Complaint entirely.

The outcome of these motions largely comes down to one question: whether the sale set to occur on June 30 counts as a "Control Sale" under the Parties’ written Partnership Agreement. As explained in detail below, it does not. As of June 30, there will be no definitive agreement to transfer a controlling interest in the teams to Rodriguez and Lore. This conclusion undermines the remaining arguments Orbit raises about the terms of the Partnership Agreement. And Orbit has not plausibly alleged that, in structuring the deal the way he did, Taylor acted in bad faith. Defendants’ motion to dismiss will therefore be granted, and Orbit's claims will be dismissed with prejudice. It is appropriate to deny Orbit's motion for a preliminary injunction for separate, independent reasons. Setting aside the fact that Orbit is not likely to succeed on the merits of its claims, it has not shown that it will suffer irreparable harm if the closing goes forward, and neither the balance of the equities nor the public interest favors an injunction.

I¹

A

The Parties in this case are all partners in the Minnesota Timberwolves Basketball Limited Partnership, the business entity that owns and operates the Minnesota Timberwolves and Minnesota Lynx professional basketball teams. The governing Limited Partnership Agreement divides ownership interests in the Partnership between a General Partner and a collection of Limited Partners. Compl. ¶ 35, Ex. A at 1 ("Partnership Agreement") [ECF Nos. 1, 4-1]. The General Partner has "exclusive management and control of the business of the Partnership, and all decisions regarding the management and affairs of the Partnership shall be made by the General Partner." Partnership Agreement § 7.1. This includes the power to "perform any and all acts ... necessary, customary, or incidental to the acquisition, ownership, operation, administration, and management" of the teams and to "take any and all actions it deems necessary or prudent to comply with [National Basketball Association ("NBA")] Regulations." Id. § 7.1(a)–(b). The role of a Limited Partner is, unsurprisingly, limited. A Limited Partner has the right to receive a pro rata share of the Partnership's income (as well as the duty to absorb a pro rata share of its losses) based on the percentage of the Partnership that it owns. See id. §§ 6.1–6.3, 6.6. With a few exceptions not relevant here, however, "no Limited Partner shall have the right to participate or interfere in the management or control of the Partnership business." Id. § 9.3.

When the Partnership Agreement first took effect in 1994, there were only two Partners, both of which are business entities that Taylor controls. Defendant Taylor Sports Group, Inc. was (and still is) the General Partner. Id. § 4.1. Defendant Taylor Corporation was the sole Limited Partner. Id. § 4.2.

Over the years, the Limited Partnership pool has expanded. As relevant here, in 2016, Orbit became a Limited Partner when it invested and acquired a minority ownership interest. Compl. ¶ 3. Its total ownership share is now more than 17% of the Partnership. Id. ¶ 40. This makes it the largest non-Taylor Limited Partner. Id.

At the center of this dispute are restrictions that the Partnership Agreement places on a Partner's ability to transfer its partnership interests. In general, no Partner—General or Limited—may "Transfer² or assign all or any part of [its] Partnership Interest except in accordance with" the Partnership Agreement. Partnership Agreement § 10.1. When Orbit became a Limited Partner in 2016, the Partners added—allegedly at Orbit's insistence—two new and related transfer restrictions. Compl. ¶¶ 3–4. These restrictions apply when a member or members of the "Taylor Group," which includes all three Taylor Defendants, decide to enter into a "Control Sale." See Partnership Agreement §§ 10.7(a), 10.8(a). A Control Sale is

a sale, exchange or other disposition (for cash or property with a discernible cash value) by one or more members of the Taylor Group, in a single transaction or series of related transactions, to any Person who is not a member of the Taylor Group, of Partnership Interests which includes a majority of all the General Partnership Interests[.]

Id. § 1.9C.

Both of the newly added transfer restrictions address what happens to the ownership interests of Limited Partners in the event of a Control Sale. The first restrictions, governed by section 10.8 of the Partnership Agreement, are known as "Drag-Along Rights." They essentially allow the Taylor Group to force other Limited Partners to sell some or all of their partnership interests in a Control Sale:

Subject to Section 10.1, if one or more members of the Taylor Group (which includes one or more persons that collectively own, directly or indirectly, a majority of the General Partnership Interests), desires to approve or consummate a Change in Control^{[3 ]} (a "Drag-Along Sale"), such members of the Taylor Group (the "Offering Group"), shall have the right (the "Drag-Along Right") to require each of the other Partners (each, a "Dragged Partner"), to approve and participate in the Drag-Along Sale on and pursuant to the terms and conditions set forth in this Section 10.8 and on the same terms and for the same price that the Offering Group will participate .... If the Drag-Along Right is timely and properly exercised by the Offering Group, each Dragged Partner shall vote all of his, or its Partnership Interests or give written consent with respect thereto, including consenting to the admission of the prospective buyer as a General Partner or, as the case may be, sell all of his, or its Partnership Interests and take all such other action with respect to the Drag-Along Sale, as in any case shall be reasonably directed by the Offering Group to effect the Drag-Along Sale[.]

Id. § 10.8(a). The Taylor Group has "not less than fifteen (15) days prior to the consummation date of the Drag-Along Sale" to exercise its Drag-Along Rights. Id. § 10.8(b). To do so, it must send the Limited Partners a written "Drag-Along Notice" that "set[s] forth in reasonable detail the name or names of the proposed purchaser ..., the Partnership Interest to be sold (directly or indirectly) by the [Taylor] Group, the purchase price and other material terms and conditions of the Drag-Along Sale and the anticipated closing date." Id. If it wants, the Taylor Group can require Limited Partners to "sell all of their Partnership Interests." Id. But even if the Taylor Group does not so require, a Limited Partner can still "elect to sell all (but not less than all) of its Partnership Interests." Id. § 10(b)(i). And the provision incorporates one other significant protection for Limited Partners: if the prospective purchaser is not willing to purchase all of the Partnership Interests that a Limited Partner elects to sell, then the Taylor Group must purchase the excess interests itself. Id. § 10(b)(ii), (iv).

The second type of transfer restrictions, governed by section 10.7 of the Partnership Agreement, are known as "Tag-Along Rights." These rights are essentially the converse of Drag-Along Rights in that they allow Limited Partners to compel the Taylor Group to let them participate in a Control Sale:

Subject to Section 10.1, in the event that one or more members of the Taylor Group (which includes one or more persons that collectively own, directly or indirectly, a majority of the General Partnership Interests) proposes to enter into a Control Sale (such participating members of the Taylor Group, collectively the "Selling Partner"), and the Selling Partner does not exercise the Drag-Along Right (defined below) with respect to such sale (the "Tag-Along Sale"), then each Limited Partner (the "Tag-Along Partners") shall have the right (the "Tag-Along Right") to elect to participate in such Tag-Along Sale on and pursuant to the terms and conditions set forth in this Section 10.7 at the same price and on the same other

...