Wildfire Prods. v. Team Lemieux LLC

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WILDFIRE PRODUCTIONS, L.P.,Plaintiff, v. TEAM LEMIEUX LLC and LEMIEUX GROUP, L.P.,Defendants.

C. A. No. 2021-1072-PAF

Court of Chancery of Delaware

June 29, 2022

Date Submitted: March 23, 2022

Jon E Abramczyk, Sabrina M. Hendershot, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Daniel H. Shapira Robert M. Barnes, Daniel J. Stuart, MARCUS & SHAPIRA LLP Pittsburgh, Pennsylvania; Attorneys for Plaintiff Wildfire Productions, L.P.

Kurt M. Heyman, Jamie L. Brown, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Patricia L. Glaser, Craig H Marcus, Nathaniel Wright, GLASER WEIL HOWARD AVCHEN & SHAPIRO LLP, Los Angeles, California; Attorneys for Defendants Team Lemieux LLC and Lemieux Group, L.P.

Ryan M. Lindsay, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Attorneys for Intervenor National Hockey League.

MEMORANDUM OPINION

FIORAVANTI, Vice Chancellor In December 2021, the controlling owners of the Pittsburgh Penguins (the "Team"), a member of the National Hockey League (the "NHL"), agreed to transfer a controlling ownership interest in the Team to another investor group. A minority owner of the Team asserted a variety of claims in this court challenging the transaction. The defendants-the transferors of the controlling interest-and the NHL-which has intervened-contend that the plaintiff's claims must be arbitrated before the NHL Commissioner (the "Commissioner"). The court agrees with the defendants and the NHL. Accordingly, the plaintiff's claims are dismissed in favor of arbitration.

I. BACKGROUND

The facts recited in this Memorandum Opinion are drawn from the Verified Complaint (the "Complaint"),^[1] documents integral thereto, and materials submitted by the parties.

A. The NHL and the Governing Agreements

The NHL is a joint venture consisting of thirty-two member clubs (the "Member Clubs"), including the Team.^[2] All of the Member Clubs are signatories to the NHL Constitution.^[3] The NHL Constitution provides that each Member Club "accepts and agrees to abide by the foregoing Constitution and each and every alteration, amendment and repeal thereof duly made."^[4] The Commissioner serves as the Chief Executive Officer of the NHL and is "charged with protecting the integrity of the game of professional hockey and preserving public confidence in the League."^[5] The NHL Constitution grants the Commissioner all powers that may be "necessary or appropriate" to fulfill his or her responsibilities.^[6] The Commissioner has "the authority to interpret . . . the provisions of the Constitution . . . and League rules and resolutions, and their application and enforcement."^[7] Most important to the pending motions, Article 6.3(b)(1) provides that the Commissioner "shall have full and exclusive jurisdiction and authority to arbitrate and resolve . . . any dispute that involves . . . two or more holders of an ownership interest in a Member Club of the League."^[8]

The NHL requires all direct and indirect owners of Member Clubs to execute a Consent Agreement with the NHL whereby they "agree to be bound by and adhere to all of the terms and provisions of . . . the NHL Constitution," including mandatory arbitration.^[9] Thus, all owners and partners of all Member Clubs hold their interests subject to the provisions of the NHL Constitution.

Defendant Lemieux Group, L.P. ("Lemieux LP") is a Pennsylvania limited partnership that owned and operated the Pittsburgh Penguins at the time this action was filed.^[10] Defendant Team Lemieux, LLC ("Lemieux GP," and with Lemieux LP, the "Defendants") is the sole general partner of Lemieux LP.^[11] Plaintiff Wildfire Productions, L.P. ("Plaintiff" or "Wildfire") is a limited partner in Lemieux LP.^[12]

When Wildfire acquired its membership interest in Lemieux LP in 1999, it executed two agreements contemporaneously. First, it executed a Consent Agreement with the NHL dated September 1, 1999 (the "1999 Consent Agreement").^[13] The 1999 Consent Agreement memorialized, inter alia, the NHL's consent to the transaction whereby Plaintiff acquired its interest in Lemieux LP.^[14]Pursuant to the 1999 Consent Agreement, and in exchange for the NHL's consent to Plaintiff's acquisition of its interest in Lemieux LP, Plaintiff agreed "to be bound by and adhere to all of the terms and provisions of . . . the NHL Constitution."^[15] The 1999 Consent Agreement also provides that "[a]ny dispute . . . relating to the subject matter hereof . . . shall be deemed to be a dispute which shall be resolved in accordance with Section 6.3 of the NHL Constitution,"^[16] i.e., arbitration before the Commissioner. Section 12(g) of the 1999 Consent Agreement states that

in the event of any conflict or ambiguity between any term or provision contained in this Agreement and any term or provision of any Transaction Document, the terms of this Agreement shall control and all such conflicts or ambiguities shall be resolved in a manner that will provide the NHL with the maximum protection that may be afforded to it.^[17]

Defendants and the NHL are also signatories to the 1999 Consent Agreement, which is governed by New York law.^[18]

Concurrent with their execution of the 1999 Consent Agreement, Wildfire and the Defendants also executed an Amended and Restated Limited Partnership Agreement (the "1999 Partnership Agreement").^[19] Thereafter, during October 2007, the parties executed a Second Amended and Restated Limited Partnership Agreement (the "2007 Partnership Agreement," and with the 1999 Partnership Agreement, the "Partnership Agreements").^[20] The Partnership Agreements cross- reference the 1999 Consent Agreement.^[21] The NHL is not a signatory to either the 1999 Partnership Agreement or the 2007 Partnership Agreement.

The Partnership Agreements are governed by Pennsylvania law,^[22] and designate Delaware as the venue for disputes between the parties to that agreement. They provide that: "each party hereby agrees that any dispute arising out of this Agreement or the consummation of the transactions contemplated hereby shall be heard in the state or Federal courts situated in Delaware . . . ."^[23]

At the time it executed the 2007 Partnership Agreement, Wildfire contemporaneously executed another Consent Agreement (the "2007 Consent Agreement").^[24] Both the 2007 Partnership Agreement and the 2007 Consent Agreement expressly affirm the continued validity of the 1999 Consent Agreement. For example, Section 2 of the 2007 Consent Agreement states that "[e]xcept as expressly set forth herein" the provisions of the 1999 Consent Agreement "shall remain in full force and effect."^[25] Section 17.2 of the 2007 Partnership Agreement provides that a "Partner shall be individually liable to the Partnership for . . . any breach of the NHL Consent by the Partner" and defines "NHL Consent" as the "Consent Agreement by and among the National Hockey League, Lemieux Group LP, Team Lemieux LLC and each of the Limited Partners, dated as of September 1, 1999."^[26] Wildfire, the Defendants, and the NHL are signatories to the 2007 Consent Agreement.

B. The Challenged Transaction

The Complaint challenges a two-step transaction that would result in Fenway Sports Group ("FSG") obtaining control and a majority ownership interest in the Team. In the first step, on December 31, 2021, two wholly owned subsidiaries of FSG purchased a controlling interest in Lemieux GP from entities owned and controlled by Ron Burkle and Mario Lemieux. FSG, through its acquisition of a controlling interest in Lemieux GP, consequently obtained control of Lemieux LP and the Team.

In the second step of the transaction, FSG will acquire certain limited partner interests in Lemieux Group, which, together with FSG's ownership interest in Lemieux LP through Lemieux GP, will give FSG majority ownership of Lemieux LP, and thus, the Team. Following the consummation of the second step of the transaction, although FSG will have obtained control and a majority ownership interest in Lemieux LP, each of Wildfire, Lemieux GP, and Lemieux LP will continue to hold an ownership interest in the Team.

Wildfire alleges that FSG's acquisition of a controlling interest in Lemieux GP (and thus, FSG's control of Lemieux LP and the Team), violates the 2007 Partnership Agreement, which governs the partnership among members of Lemieux LP. Wildfire asserts that FSG's purportedly invalid acquisition of a controlling interest in Lemieux GP wrongly leaves Wildfire, as a continuing limited partner in Lemieux LP, subject to the "whims" of FSG.^[27] Wildfire therefore seeks a variety of relief, including a declaration that FSG's acquisition of a controlling interest in Lemieux GP is null and void.

C. Procedural History

Plaintiff filed its Complaint challenging the acquisition on December 9, 2021. Count I seeks a declaratory judgment that the sale is null and void under the terms of the 2007 Partnership Agreement. Count II alleges that Lemieux GP breached its fiduciary duties to Plaintiff. Count III asserts a claim for breach of the covenant of good faith and fair dealing under Pennsylvania law. Count IV asserts a claim for breach of the 2007 Partnership Agreement, which is governed by Pennsylvania law.

Defendants have moved to dismiss the Complaint under Court of Chancery Rule 12(b)(1) for lack of subject matter jurisdiction. Alternatively, Defendants have moved to dismiss Counts II and III under Rule 12(b)(6) for failure to state a claim upon which relief can be granted.

The NHL, which intervened on March 21, 2022, has moved to compel arbitration of this action. The NHL has made clear that it takes no position on the merits of the dispute between Wildfire and the Defendants. Instead, the NHL has intervened solely to enforce its...