Wildfire Productions, L.P. v. Team Lemieux LLC and Lemiux Group, L.P.

Citation: Not availableDocket: C.A. No. 2021-1072-PAF

Court: Court of Chancery of Delaware; June 29, 2022; Delaware; State Appellate Court

Original Court Document: View Document

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In a legal dispute involving Wildfire Productions, L.P. as the plaintiff against Team Lemieux LLC and Lemieux Group, L.P. as defendants, the Delaware Court of Chancery ruled that claims regarding the transfer of controlling ownership interest in the Pittsburgh Penguins must be arbitrated. The NHL, which intervened in the case, supported the defendants' position, citing that the plaintiff's claims fall under the jurisdiction of the NHL Commissioner as outlined in the NHL Constitution. The Constitution mandates that all member clubs, including the Penguins, adhere to its provisions, which include a clause granting the Commissioner exclusive authority to arbitrate disputes among owners of member clubs. Consequently, the court dismissed the plaintiff's claims, directing them to arbitration as specified in the governing agreements.

Defendant Lemieux Group, L.P. ("Lemieux LP") is a Pennsylvania limited partnership that owned the Pittsburgh Penguins at the time this action was initiated. Team Lemieux, LLC ("Lemieux GP") serves as the sole general partner of Lemieux LP, collectively referred to as "Defendants." Plaintiff Wildfire Productions, L.P. ("Wildfire") is a limited partner in Lemieux LP. Upon acquiring its membership interest in Lemieux LP in 1999, Wildfire entered into a Consent Agreement with the NHL, known as the 1999 Consent Agreement, which granted the NHL's consent for Wildfire’s acquisition and required adherence to the NHL Constitution. Disputes arising under this agreement are to be resolved through arbitration before the Commissioner, as outlined in Section 6.3 of the NHL Constitution. Section 12(g) of the 1999 Consent Agreement establishes that it prevails over conflicting terms in any Transaction Document, aiming to maximize protection for the NHL.

In conjunction with the 1999 Consent Agreement, Wildfire and the Defendants executed the Amended and Restated Limited Partnership Agreement (the "1999 Partnership Agreement"). Subsequently, in October 2007, they executed the Second Amended and Restated Limited Partnership Agreement (the "2007 Partnership Agreement"), with both Partnership Agreements cross-referencing the 1999 Consent Agreement. The NHL is not a party to the Partnership Agreements, which are governed by Pennsylvania law and specify Delaware as the venue for disputes. The 2007 Partnership Agreement includes a provision that holds partners individually liable for breaches of the NHL Consent, defined as the 1999 Consent Agreement. The 2007 Consent Agreement, executed concurrently with the 2007 Partnership Agreement, reaffirms the validity of the 1999 Consent Agreement, stating that its provisions remain effective, except as expressly modified. All parties, including Wildfire, the Defendants, and the NHL, signed the 2007 Consent Agreement.

The Complaint challenges a two-step transaction allowing Fenway Sports Group (FSG) to gain control and a majority ownership interest in the Team. The first step involved FSG's acquisition of a controlling interest in Lemieux GP from Ron Burkle and Mario Lemieux on December 31, 2021, which granted FSG control of Lemieux LP and the Team. In the second step, FSG plans to acquire additional limited partner interests in Lemieux Group, solidifying its majority ownership of Lemieux LP. Despite FSG's control, Wildfire, Lemieux GP, and Lemieux LP will retain ownership interests in the Team. Wildfire claims that FSG's acquisition violates the 2007 Partnership Agreement and seeks a declaration that this acquisition is null and void, arguing it leaves Wildfire subject to FSG's discretion.

The procedural history indicates that Wildfire filed the Complaint on December 9, 2021, with four counts: Count I seeks a declaratory judgment to invalidate the sale; Count II alleges breach of fiduciary duties by Lemieux GP; Count III claims breach of the covenant of good faith and fair dealing under Pennsylvania law; and Count IV asserts breach of the 2007 Partnership Agreement. Defendants have moved to dismiss the Complaint based on a lack of subject matter jurisdiction and failure to state a claim. The NHL intervened to compel arbitration but does not take a position on the case's merits.

Regarding the analysis, a motion to dismiss based on an arbitration clause challenges the court's subject matter jurisdiction and is reviewed under Court of Chancery Rule 12(b)(1). The burden is on the Plaintiff to establish jurisdiction, and the court may reference documents outside the complaint. The arbitration agreements do not invoke the Delaware Uniform Arbitration Act, thus the Federal Arbitration Act (FAA) governs, which requires applying state law principles for determining whether the parties agreed to arbitrate.

The Federal Arbitration Act (FAA) promotes a liberal federal policy favoring arbitration, which is also supported by Delaware, Pennsylvania, and New York public policies advocating for dispute resolution through arbitration. Courts generally interpret arbitration clauses broadly, fostering a strong presumption in favor of arbitration unless there is clear evidence that the clause does not encompass the dispute at hand. This presumption is particularly strong when the arbitration clause is broadly worded, covering disputes "relating to" or "arising out of" specific matters.

The NHL argues for compelled arbitration based on provisions in the NHL Constitution and the 1999 Consent Agreement. Article 6.3(b) of the NHL Constitution grants the Commissioner exclusive authority to arbitrate disputes among ownership interest holders in Member Clubs and those affecting League policy. The NHL Commissioner has invoked this authority regarding Wildfire’s claims, which involve disputes between ownership interest holders of the Pittsburgh Penguins. Wildfire, a limited partner in Lemieux LP, contests ownership interest transfers involving Lemieux GP and Lemieux LP, and this dispute is recognized as detrimental to the NHL's interests and policies by the Commissioner.

The NHL cites the case Commodore Trust v. Predators Holdings, LLC as precedent for compelling arbitration under Article 6.3(b) of its Constitution. The Tennessee Chancery Court determined that indirect owners of the Nashville Predators were required to submit their claims to the Commissioner for arbitration, based on their consent agreements, which bound them to the NHL Constitution’s arbitration provisions. The court concluded that the plaintiffs’ indirect ownership constituted an "ownership interest" per Article 3.5 of the NHL Constitution, thus mandating arbitration for claims that could harm the NHL's interests. Similarly, Wildfire, having signed the 1999 Consent Agreement to acquire an ownership interest in the Penguins, confirmed its obligation to adhere to the NHL Constitution, including its arbitration clauses in subsequent agreements. The NHL asserts that both Articles 6.3(b)(1) and 6.3(b)(5) require Wildfire to arbitrate its claims due to its ownership status and the potential detrimental impact of the claims on the NHL. Additionally, Section 12(a) of the 1999 Consent Agreement is invoked by the NHL to compel arbitration, asserting that any disputes among the Acquiring Parties, including Wildfire, must be resolved under Section 6.3 of the NHL Constitution. Wildfire disputes this interpretation, claiming its current claims are outside the 1999 agreement's subject matter, while the NHL contends that Wildfire's understanding contradicts the agreement's clear language.

The NHL references the Commodore Trust case, which involved an arbitration requirement for disputes related to the owners' consent agreement of the Predators. The court determined that the agreement's "subject matter" included ongoing operations of the Club, compelling arbitration before the Commissioner for claims tied to these operations. The NHL contends that Section 12(a) of the 1999 Consent Agreement similarly mandates arbitration for Wildfire’s claims, as they pertain to ongoing operations of the Team beyond the original ownership transaction. Wildfire's claims focus on whether FSG legitimately acquired control of Lemieux GP, affecting control and voting rights within the Team's operations. The implications of this dispute extend to the Team's relations with the NHL and other stakeholders.

Wildfire argues that the 2007 Partnership Agreement should govern the case instead of the NHL Constitution or the 1999 Consent Agreement. It presents three reasons: first, the 2007 Agreement designates Delaware as the exclusive venue for disputes and is fully integrated; second, it claims NHL approval of the Partnership Agreements; and third, while the NHL required the inclusion of certain provisions from the 1999 Consent Agreement in the 2007 Agreement, it notably omitted an arbitration clause.

Wildfire asserts that the exclusive forum provision in the 2007 Partnership Agreement permits it to pursue disputes in Delaware courts, claiming this agreement supersedes the arbitration clauses in the 1999 Consent Agreement and the NHL Constitution. The relevant dispute resolution clause requires that all disputes be resolved in Delaware courts, and parties waive their right to a jury trial, with any challenge to this provision constituting a material breach.

However, Wildfire's argument is flawed because the 2007 Partnership Agreement binds only the parties to it, which does not include the NHL. Both the NHL and Wildfire are parties to the 1999 and 2007 Consent Agreements, which mandate arbitration for specific disputes. Contract law dictates that a contract cannot be modified without the agreement of all parties involved. Thus, a later contract's forum-selection clause cannot supersede an earlier agreement's terms if not all parties to the earlier contract consented to the later one.

The 2007 Partnership Agreement does not negate the NHL's right to arbitrate disputes as established in the NHL Constitution and the 1999 Consent Agreement. The 2007 Consent Agreement, signed concurrently with the Partnership Agreement, affirms that it does not amend any provisions of the 1999 Consent Agreement, which includes Wildfire's obligation to adhere to the NHL Constitution and arbitrate disputes before the Commissioner. These agreements were conditions for the NHL's consent to Wildfire's ownership interest in the team.

Wildfire contends that the NHL should be bound by the 2007 Partnership Agreement despite not being a party to it, arguing that the NHL's approval of both the 1999 and 2007 agreements implies obligation under the Mandatory Dispute Resolution Clause. However, Wildfire fails to provide evidence or authority supporting its claim that the NHL's approval extends to the terms of the agreements. The NHL counters that its approval was limited to the transaction itself, not the specific terms, as clarified in Section 7(h) of the 2007 Consent Agreement, which states the NHL does not bear independent obligations under the Transaction Documents.

Furthermore, Wildfire asserts that the exclusive forum provision governs the dispute since arbitration was intentionally excluded from the 2007 Partnership Agreement. The NHL argues against this interpretation, citing Section 17.1 of the 2007 Partnership Agreement, which reflects specific provisions required by the NHL, without indicating a waiver of its right to demand arbitration.

Wildfire also invokes the equitable doctrine of estoppel to bind the NHL to the agreement’s terms. This doctrine can enforce a forum selection provision against non-signatories if they have a close relationship to the agreement and the claim arises from that relationship. However, courts must be cautious when applying estoppel to ensure it does not undermine established contract principles.

When assessing whether a non-signatory has accepted a contract, courts evaluate two criteria: (i) if the non-signatory received a direct benefit from the agreement, and (ii) if the non-signatory has a close relationship with a signatory that led the signatory to agree to a forum selection clause on behalf of the non-signatory. Benefits can be pecuniary or non-pecuniary, but the non-signatory must have actually received them; mere contemplation of a benefit is insufficient. Courts exercise caution when extending forum-selection clauses to non-signatories due to significant due process considerations.

In the case at hand, Wildfire's argument that the NHL waived its right to enforce arbitration requirements based on a partnership agreement to which the NHL is not a party is flawed. Under Pennsylvania law, waiving arbitration rights should not be inferred lightly and requires showing that one party gained an undue advantage or caused prejudice to another. Wildfire did not demonstrate such circumstances, and its waiver claim lacks merit. The NHL is not pursuing claims against Wildfire in another jurisdiction, and the cases cited by Wildfire do not support the application of equitable estoppel to bind a party to terms of a contract it did not sign. A similar estoppel argument was rejected in a related case, reinforcing that only defined "Parties" are subject to forum selection clauses.

Non-signatories can be held to a forum selection clause if their agreement includes only a consent to jurisdiction provision. In *River Valley Ingredients, LLC v. Am. Proteins, Inc.*, the court recognized an exclusive forum provision binding a non-signatory. Similar rulings occurred in *BE&K Eng’g Co. LLC v. RockTenn CP, LLC* and *Armour*, where non-signatories were subjected to contractual forum provisions under equitable estoppel principles. However, the court found that simply being a third-party beneficiary or closely related entity does not obligate a non-signatory to such clauses, particularly if they did not agree to the terms.

In the context of *Wildfire*, the argument for binding the NHL to a forum selection clause from a contract it did not sign was rejected. Wildfire's position contradicted explicit arbitration requirements established in prior agreements, including the 1999 Consent Agreement and subsequent owners’ consent agreements. The court emphasized that equitable estoppel cannot be invoked to alter contractual obligations when a separate agreement with a broad arbitration provision exists, as this would undermine the parties' freedom to contract and the principle that contracts must be honored as written. The court ultimately ruled against applying equitable estoppel to override Wildfire's express contractual terms with the NHL, reaffirming the need to harmonize agreements rather than seek hypothetical conflicts.

In TR Inv’rs, LLC v. Genger, the court emphasized that it will not alter contractual agreements based on equitable considerations, citing precedents where equity cannot rewrite contracts to shield parties from their negligence or when they have waived certain rights. The court clarified that the NHL Constitution and the Consent Agreements grant the Commissioner the discretion to arbitrate disputes involving league members, but do not require arbitration in all cases. Specifically, the Commissioner can choose not to arbitrate, allowing disputes to be settled according to existing agreements and applicable law. The 2007 Partnership Agreement designates Delaware courts as the exclusive forum for disputes that fall outside the arbitration scope or if the Commissioner opts out of arbitration. However, since the Commissioner has decided to arbitrate the claims in the current case, this choice does not negate the venue clause of the Partnership Agreement. The arbitration provisions of the NHL's governing documents take precedence over the agreement's forum selection, as accepted by the parties involved. Additionally, any conflicts or ambiguities in the Consent Agreements must be resolved in favor of the NHL, as stated in the Conflicts Clause of the 1999 Consent Agreement.

In cases of conflict between the Consent Agreement and the 1999 Partnership Agreement, the terms of the Consent Agreement will prevail, ensuring maximum protection for the NHL. This principle is reiterated in the 2007 Consent Agreement. The plaintiff contends that the Venue Clause in the 2007 Partnership Agreement takes precedence over the arbitration clause in the NHL Constitution and the Consent Agreements. However, the court finds that both the Venue Clause and the arbitration clauses can coexist. If they could not coexist, Section 12(g) of the 1999 Consent Agreement mandates that any conflict be resolved in favor of arbitration. The court references *Karish v. SI International, Inc.*, where a similar conflicts clause led to an arbitration ruling, suggesting applicable reasoning in the current case.

Additionally, Wildfire's challenge to the Commissioner’s impartiality is deemed premature and unconvincing. Wildfire argues that the Commissioner cannot be trusted due to perceived bias stemming from NHL support for the Proposed Transaction, and suggests only a Delaware judge has the necessary expertise for the claims. However, established legal precedent indicates that challenges to an arbitrator’s qualifications or impartiality should only be made after arbitration concludes, as seen in cases involving both the NFL and NHL Commissioners. Thus, Wildfire's arguments do not undermine the Commissioner’s jurisdiction in this arbitration.

Challenges to the Commissioner’s qualifications or impartiality are deemed premature, as Wildfire was aware of the claimed biases before the arbitrator's selection and cannot now contest them. Legal precedents, including Nat’l Hockey League Players’ Ass’n v. Bettman and Nat’l Football League Mgmt. Council v. Nat’l Football League Players Ass’n, support the rejection of such challenges when the parties have prior notice of the alleged biases and consented to arbitration under those conditions. Wildfire has signed multiple consent agreements since 1999, agreeing to arbitrate disputes exclusively before the Commissioner. Its argument regarding the Commissioner’s impartiality linked to the NHL Board of Governors approving FSG’s acquisition of Lemieux LP is unconvincing, especially since Wildfire did not raise concerns about the transaction before the vote, despite having prior knowledge of FSG's plans. The Board's vote does not indicate any prejudgment by the Commissioner regarding Wildfire’s claims. Furthermore, Wildfire's assertion that the Commissioner is unqualified is unsupported; he has nearly 30 years of experience and has managed various significant NHL transactions and disputes, further validating his qualifications to arbitrate this matter.

The NHL Commissioner is deemed well-qualified to arbitrate disputes involving the NHL and its member clubs, as acknowledged by ownership interests in Member Clubs like Wildfire and the Defendants. The NHL Constitution’s dispute resolution provisions, particularly Article 6.3(b)(5), reflect the Member Clubs' recognition of the importance of maintaining autonomy over the league’s internal affairs. Courts have historically refrained from intervening in the business operations of professional sports organizations to avoid disrupting league autonomy, as demonstrated in cases like Oakland Raiders v. NFL and others. Wildfire's claims, which pertain to the operations of an NHL member club, fall within the Commissioner’s purview. Therefore, Wildfire's claims that the Commissioner lacks neutrality or qualification are insufficient to challenge his exclusive jurisdiction. The NHL's motion to compel arbitration before the Commissioner is granted, leading to the dismissal of the action under Court of Chancery Rule 12(b)(1).