A federal judge from the Southern District of Indiana has denied summary judgment motions from two defendants — a professional baseball league and one of its teams, who were sued by another team and its owner after the plaintiffs were denied the expansion opportunity they were pursuing. In so ruling, the court noted that it was reluctant to rule on the facts of the case this early in the litigation, especially when both sides offer compelling evidence to support their arguments.
The plaintiffs in the case are Washington Frontier League Baseball, LLC (Washington Club) and Stuart A. Williams (Williams), the owner of the Washington Club. The Washington Club is a member club in the Frontier League. The Frontier League is an independent, professional baseball league with 13 teams. Williams is Washington Club’s representative and a director on the Frontier League’s board of directors
One of the other Frontier League members is Rock River Valley Baseball, LLC (Rock River Valley Club), which is owned by W. Chris Hanners (Hanners), a defendant in the case. Bryan Wickline (Wickline), also a defendant in the case, was Rock River Valley Club’s president and representative on Frontier League’s board of directors. Joshua E. Schaub (Schaub) was the owner or managing member of another Frontier League member, the Joliet Slammers, and he was the director for that member team on Frontier League’s board of directors.
The impetus for the dispute occurred in early March 2014 when the City of Kokomo, Indiana contacted the Frontier League to discuss the possibility of placing an expansion team in Kokomo’s to-be-built baseball stadium. On March 10, 2014, Frontier League’s Commissioner Bill Lee (Commissioner Lee), assistant commissioner Steve Tahsler (Tahsler), and one of Frontier League’s directors, Steve Malliet (Malliet), visited Kokomo and met with Mayor Greg Goodnight (Mayor Goodnight), Director of Operations Randy McKay (McKay), and the city engineer to further discuss the opportunity of placing a baseball team in Kokomo. They discussed a lease for the stadium and other related matters.
On March 11, 2014, Malliet summarized the meeting with the city officials for Frontier League’s expansion committee, consisting of Schaub, Pat Salvi, and Clint Brown (Brown). Also on March 11, 2014, Commissioner Lee summarized the meeting for Frontier League’s directors. Then on March 18, 2014, several members of the Frontier League participated in a conference call to discuss the Kokomo expansion opportunity. Hanners, Wickline, Schaub, Williams, and Malliet were among the conference call participants. The consensus from the conference call, allegedly, was that the members would take a unified approach to the Kokomo expansion opportunity rather than bid against each other.
Commissioner Lee asked Williams to assist in preparing a Memorandum of Understanding (MOU) with Kokomo to address the Kokomo expansion opportunity. On March 19, 2014, Commissioner Lee signed the MOU on behalf of the Frontier League, and Kokomo also signed the MOU, which gave both parties the exclusive opportunity to gather more information and conduct further negotiations with one another.
Before the MOU expired, the Kokomo expansion opportunity was discussed at the Frontier League’s board of directors meeting held on March 25, 2014. At the meeting, the directors decided to hold off on any further discussions about who would participate in the Kokomo expansion opportunity until a lease was negotiated with Kokomo. The directors agreed that Brown, owner of the member club in Florence, Kentucky, would pursue the Kokomo expansion opportunity on behalf of the Frontier League and its members under the umbrella of the MOU. Williams assisted Brown whenever asked. While the Frontier League was having discussions with Kokomo about the expansion opportunity, the defendants were allegedly discussing the Kokomo expansion opportunity for themselves.
Following some discussions and negotiations, Brown informed McKay and Commissioner Lee that he was withdrawing from the negotiations between the Frontier League and Kokomo on June 17, 2014. Commissioner Lee called Williams and asked him to pursue the negotiations with Kokomo, and Commissioner Lee encouraged the Kokomo officials to visit Pennsylvania to see Washington Club’s operations.
While the Kokomo officials were arranging a Pennsylvania visit with Williams, Hanners and Wickline met with Commissioner Lee on June 18 and 19, 2014, to ask about the status of the Kokomo expansion opportunity. Commissioner Lee told Hanners and Wickline that Williams was working on the negotiations, and they would need to talk with Williams. Also, on June 19, 2014, Zimmerman met with Hanners, Wickline, and Commissioner Lee, and Commissioner Lee allegedly directed them to first talk with Williams before pursuing Kokomo.
On June 20, 2014, Mayor Goodnight, McKay, and other city officials visited the Washington Club operations in Pennsylvania with Williams. They were impressed with what they saw and were excited to work with Williams, according to the plaintiffs. Then Williams started making arrangements to visit them in Kokomo.
On June 25, 2014, Wickline emailed the Kokomo city engineer, asking to set up a meeting for Hanners with Kokomo officials. The Kokomo city engineer forwarded the request to McKay, who coordinated a meeting with Wickline. Wickline informed McKay that one of Hanners’ partners, Zimmerman, would join them for the meeting.
On June 26, 2014, Hanners, Zimmerman, and Schaub met with McKay in Kokomo to discuss the opportunity of bringing a team there and securing a lease for the baseball stadium.
A week later, the Frontier League’s attorney, Thomas Ysursa (Ysursa), sent a letter to Hanners asking him for an update on Kokomo, informing him that he needed Frontier League’s approval before a lease could be signed, and informing him that after a lease was signed a meeting would be held to determine what other members wanted to join the expansion opportunity. However, before Ysursa could send the requested letter, he received an email from Zimmerman, which included a copy of the lease that was being presented to Kokomo. The proposed lease was between Kokomo and the Rock River Valley Club. Zimmerman informed Ysursa that “we understand and empathize with other owners if they are unsettled about the deal.”
After receiving Zimmerman’s email, Ysursa sent a letter to Hanners later that day asserting that the Kokomo expansion opportunity was an opportunity for the Frontier League to pursue and that if Hanners failed to offer participation in the opportunity to his fellow members, he would be breaching his fiduciary duties. He noted that Hanners should “take no further action of any kind in relation to Kokomo until such time as you provide the League the opportunity to review the lease and you provide an update to the Executive Committee as to the state of your negotiations and your intentions with Kokomo.”
Ysursa spoke with Hanners on July 3, 2014, and asked him to allow the Frontier League to finish the lease negotiations. Hanners stated that he was agreeable but would first have to talk with his people.
On July 7, 2014, the executive committee met to discuss a course of action that assumed Hanners would comply with the Frontier League’s directives and turn over the Kokomo negotiations to the Frontier League. However, Hanners allegedly communicated to Ysursa his plan to be in Kokomo to finalize the negotiations.
The next day, Ysursa sent another letter to Hanners, allegedly, in an effort to resolve the situation. Ysursa explained that the expansion opportunity was always a Frontier League opportunity, and the Frontier League should be permitted to finalize the lease and team membership with Kokomo.
The same day, McKay sent a text message to Commissioner Lee stating that Kokomo had reached an agreement on the lease with Hanners’ group, which would bring a team to Kokomo. McKay allegedly indicated that there was no guarantee it would be a Frontier League team, but Kokomo hoped that it would be.
On July 9, 2014, Ysursa informed Hanners that if he failed to conform to the directives of the Frontier League and the bylaws and his duties, he would be in breach of his fiduciary duties, and “the Frontier League will take all legal and administrative actions it deems appropriate to protect its members and interests.”
On July 11, 2014, Mayor Goodnight emailed Commissioner Lee to inform him that Kokomo was working with Zimmerman and his group. Zimmerman did offer to sell an interest in the Kokomo opportunity to the members of the Frontier League, while at the same time allegedly acknowledging that the Frontier League had always viewed Kokomo as a Frontier League opportunity. Regarding the value of a Kokomo team, Zimmerman informed the Frontier League directors that “we estimate the fair market value of the Kokomo baseball team to be $1,000,000.”
After being denied expansion by the Frontier League, Zimmerman announced in September 2014 that he was bringing a team from the Prospect League, a competitor of the Frontier League, to Kokomo to play at the stadium covered by the Kokomo lease. At the end of September 2014, Wickline resigned as the director of the Rock River Valley Club, a Frontier League team, and on Oct. 17, 2014, the Prospect League announced that Wickline had been named its commissioner.
The amended complaint, which led to this instant decision, was filed on Dec. 2, 2014. Plaintffs Washington Club and Williams sued Michael E. Zimmerman, MKE Baseball, LLC, and MKE Sports & Entertainment, LLC (collectively Zimmerman Defendants), as well as Schaub, Hanners, and Wickline (Frontier League). It alleged claims for breach of fiduciary duty and civil conspiracy to breach fiduciary duties.
The defendants moved for summary judgment.
In its motion to dismiss, the Frontier League advanced two arguments. First, it argued that the derivative claims should be dismissed based on the “business judgment rule,” which creates a rebuttable presumption to uphold the decision of the Frontier League’s special litigation committee (SLC) to not pursue the claims in this action. Second, it argued the claim against the Zimmerman defendants for civil conspiracy to breach fiduciary duties should be dismissed because such a claim is not recognized under Ohio law.
Addressing the first argument, the court concluded “that deference to the business judgment of the SLC is not warranted in this case at the summary judgment stage. The evidence designated by the plaintiffs and cited and discussed above shows that there are serious doubts about the independence of the SLC members and about a thorough investigation being conducted.
“The lack of independence and thorough investigation undermined the integrity of the SLC process and defeated the very purpose for giving an SLC deference. Therefore, the court concludes that summary judgment is not warranted pursuant to the business judgment rule.”
On the second argument, the court found that Indiana law applies to the claim for civil conspiracy to breach fiduciary duties against the defendants. Thus, it determined that “the Frontier League’s argument regarding the civil conspiracy claim does not warrant summary judgment.”
There was only slight variation in the Zimmerman defendants’ motion for summary judgment. Specifically, they argued that “there is no evidence of an underlying breach of fiduciary duties by Hanners and Wickline because the by-laws of the Frontier League allowed them to pursue a second membership in the Frontier League.” The men also alleged that they “openly talked about their interest in pursuing the Kokomo opportunity, and thus, that interest was obvious.”
The plaintiffs countered that “the Kokomo opportunity was a Frontier League opportunity, and Hanners’ personal pursuit of the opportunity with Zimmerman’s help was a breach of fiduciary duties. On the other hand, the Zimmerman defendants steadfastly insist that the Frontier League invited them to pursue the Kokomo opportunity with Hanners personally, without concern for fiduciary duties. Each parties’ position finds some support in the designated evidence. Summary judgment proceedings are not the mechanism by which factual disputes are weighed and resolved. Because there is some evidence to support the parties’ competing positions and the evidence gives rise to factual disputes, the court determines that summary judgment is not appropriate on the claim against the Zimmerman Defendants.
“The plaintiffs have designated sufficient evidence at the summary judgment stage to support their claim for civil conspiracy to breach fiduciary duties against the Zimmerman Defendants.”
Washington Frontier League Baseball, LLC, and Stuart A. Williams v. Michael E. Zimmerman et al.; S.D. Ind.; Case No. 1:14-cv-01862-TWP-DML, 2018 U.S. Dist. LEXIS 88897; 5/29/18
Attorneys of Record: (for plaintiff) John Robert Panico, PANICO LAW LLC, Indianapolis, IN. (for defendants) Melissa A. Macchia, TAFT STETTINIUS & HOLLISTER LLP (Indianapolis), Indianapolis, IN; Michael C. Terrell, TAFT STETTINIUS & HOLLISTER LLP, Indianapolis, IN.
