On Wednesday, the Court of Chancery of Delaware granted the NHL’s motion to compel arbitration and dismiss a lawsuit brought by Wildfire Productions. Wildfire is a motion picture and tape distribution company that, through its relationship with Team Lemieux (a partnership led by Mario Lemieux and Ron Burkle), has owned a minority stake in the Penguins.
In two lawsuits—one brought in a Pennsylvania federal court and the other in Delaware—Wildfire insists that Team Lemieux breached its fiduciary duties in negotiating the sale of the team to Fenway Sports Group. The gist of Wildfire’s argument is that its representatives were wrongfully excluded from sale negotiations.
The NHL moved to intervene in the litigation on grounds that the sparring parties had contractually assented to mandatory arbitration as a means of resolving ownership-level disputes. Paul A. Fioravanti, Jr., vice chancellor (judge) of the Court of Chancery, agreed with the NHL. He explained his reasoning in a June 29 order obtained by Sportico.
Fioravanti emphasized that the NHL Constitution, a contract between NHL teams (owners) and the league, leaves little wiggle room in determining if Bettman is the appropriate arbitrator. Article 6.3(b) states that the commissioner enjoys “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; . . . and any dispute involving a Member Club . . . that in the opinion of the Commissioner is detrimental to the best interests of the League or professional hockey or involves or affects League policy.”
Fioravanti also noted that when Wildfire obtained an ownership interest in 1999, it entered into a consent agreement with the NHL. The agreement stated that Wildfire agreed “to be bound by and adhere to all of the terms and provisions of . . . the NHL Constitution.”
The NHL’s desire to move ownership disputes out of court and before the commissioner is standard operating procedure. Other major pro leagues employ similar provisions.
Leagues dislike owners airing their grievances in public forums. Litigation is largely public, with court filings often downloadable to journalists and other interested parties. Arbitration, in contrast, is conducted in private and mostly shielded from media scrutiny. Litigation is also controlled by a judge, who is narrowly charged with addressing the specific legal dispute at hand. League arbitration, meanwhile, is controlled by the commissioner, who has greater expertise on league matters and can weigh how the dispute impacts the league’s business operations as well as relations between and among franchises.
Arbitration provisions have aided other leagues. Two years ago, the NFL convinced a federal judge to move a dispute between Daniel Snyder and three limited partners of the Washington Commanders to an arbitration proceeding controlled by Commissioner Roger Goodell.
Still, arbitration provisions don’t guarantee that all ownership disputes stay out of the courts. Respective ownership stakes in the Los Angeles Chargers and the Baltimore Orioles are currently at issue in lawsuits brought by warring children of owners. Also, the NFL and St. Louis recently resolved a multiyear litigation—with owners openly feuding—over the Rams’ relocation to Los Angeles with a $790 million settlement.
The other lawsuit in the Penguins litigation remains on the docket. In March, Pennsylvania federal Judge Marilyn Horan stayed that case pending resolution of the Delaware dispute. Expect the NHL to maintain that the Pennsylvania lawsuit should be dismissed to Bettman as well.