NFL: A Different Type of Play (Part 1)

(Blog written by: Jay Lewis)

On March 11, 2011, the National Football League’s (“NFL”) Collective Bargaining Agreement (“CBA”) expired between the players’ association (NFLPA) and the individual league owners.  The CBA sets rules for free agency, player compensation, the salary cap and player benefits. Although such price-fixing and restraint on employment violates United States antitrust law, courts have carved out exceptions to the law based upon the uniqueness of the NFL and non-statutory labor exemptions.  Because the players were unionized, the NFL was exempt from antitrust liability. 

After extensive negotiations, the NFLPA and the owners failed to extend the CBA resulting in the expiration of the salary cap and restrictions on player movement.  To prevent the 2011 season moving forward without salary restrictions, the owners agreed to lockout the players’ union until a new CBA is in place.

In response to the lockout the NFLPA decertified or dissolved the union.  Decertification eliminates the non-statutory labor exemption and clears the way for individual players to file suit against the NFL and owners for antitrust violations.  The players filed on March 11, 2011, in Minnesota Federal District Court.

Tom Brady, Drew Brees, Peyton Manning, and other NFL players have brought a class action complaint against the NFL and the individual franchises.  (Brady v. NFL, Case no. 11-cv-639 D. Minn. 2011).  The players have moved for an injunction against the league to prevent a lockout and anticompetitive restrictions on player contracts.   Judge Susan Nelson will hear the Preliminary Injunction on April 6, 2011. 

Kraft vs. Starbucks: The Beginning To The End (2)

Two months after Kraft denied Starbucks’ offer, Starbucks accused Kraft of materially breaching the contract and informed Kraft that it would be terminating the contract effective March 1, 2011, unless Kraft “cured the alleged breaches within 30 days,” resulting in Kraft’s filing a complaint and motion for preliminary injunction. (Complaint, ¶ 58). In its complaint, Kraft alleged that Starbucks made misleading statements to the press, its investors and Kraft’s customers by “falsely maligning Kraft’s performance” in order to avoid the amount of money that Starbucks would be obligated to pay Kraft for its material breach of the business contract. (Complaint, ¶ 1).

Kraft argued that Starbucks’ breach allegations lacked merit because Kraft’s overall performance under the contract and its “effective in promoting Starbucks Products ha[d] been outstanding by any reasonable measure,” and that Starbucks’ attempt to terminate the contract without complying with its disputed resolution provisions was improper. (Complaint, ¶ 61, 67). Further, Kraft argued that Starbucks’ issuance of a press release impugning Kraft’s performance was misleading and caused an interference with Kraft’s customer relationships. (Complaint, ¶ 76).

Kraft’s argument that it would suffer irreparable harm if injunction was not granted was as follows: 1) Kraft would lose its right to arbitration, 2) Starbucks would continue to publicize the purported termination of its contract with Kraft thereby confusing the market, and 3) Kraft would have no adequate remedy at law, and “money simply [would] not be able to compensate Kraft for the damage that will ensue to its business and reputation.” (Complaint, ¶ 131).

Kraft vs. Starbucks: The Beginning To The End

Kraft Foods filed a complaint and motion for preliminary injunction relief against Starbucks in attempt to protect its twelve-year relationship with the Coffee Company and to provisionally restrain Starbucks from acting on its purported termination of the contract with Kraft. Kraft Foods Global, Inc. v. Starbucks Corporation, Case Number 7:10-cv-09085 S.D.N.Y.).

Under the contract, Starbucks manufactured and supplied the Starbucks branded products to Kraft, and Kraft owned the exclusive right to sell, market and distribute certain packaged Starbucks roasted whole bean and ground coffee to Kraft’s customer base of grocery stores and other retail food outlets. This contract between the parties had an initial term that would expire in 2014 and an automatic renewal for successive ten-year terms.

In 2010, Starbucks decided that it wanted to take over Kraft’s portion of the business and sought to terminate its contract with Kraft. Pursuant to the contract, Starbucks had the express right to terminate its relationship with Kraft as long as it 1) provided 180 days’ advance notice, and 2) compensated Kraft for the loss of its rights under the contract in an amount tied to fair market value of the business. Starbucks gave notice to Kraft and offered $750 million in exchange for a consensual termination of the contract to which Kraft declined alleging that $750 was not the fair market value of its business. (Agreement, ¶ 5).

Injunctions under the Commodity Exchange Act (part 2)

(Blog written by: Jay Lewis)

In Simmons, a Complaint for Injunctive Relief and a Motion for a Statutory Restraining Order were brought under Section 6c(a) of the Commodity Exchange Act (the “Act”), 7 U.S.C. §6c(a) (2006).  The Act allows U.S. district courts to grant ex parte restraining orders, to freeze assets, and prohibit any person from destroying records. (7 U.S.C. §13a-1 (2006)).  Under the Act, restraining orders may be issued whenever it appears that any person has engaged in a practice constituting a violation of the Act.  (Memorandum p 25, citing CFTC v Clothier, 788 F. Supp. 490, 492-3 (D. Kan. 1992)).  A prima facie case of illegality is sufficient under the Act eliminating the need for proof of irreparable injury or inadequacy of other remedies otherwise required in private actions seeking injunctions. (Memorandum p 27, citing NRLB v Aerovox Corp., 389 F. 2d 475, 477 (4th Cir. 1967). Additionally, a preliminary injunction pursuant to the Act may be granted without bond. (7 U.S.C. §13a-1(b) (2006)).

 

On February 11, 2011, Chief U.S. District Judge Robert Conrad signed an Order finding that:

·        The Court has jurisdiction over the parties and subject matter pursuant to Section 6c of the Act and venue is proper under 6c(e).

·        The Court found good cause to believe that the named Defendants engaged in acts that violated the Act.

·        The named Relief Defendants received assets as a result of Defendants’ acts and have been unjustly enriched.

·        Immediate and irreparable damage to the Court’s ability to grant effective final relief in the form of monetary redress will occur unless the Defendants and Relief Defendants are immediately restrained and enjoined.

·        The Court found good cause to freeze assets controlled by Defendants and Relief Defendants.

·        The Court found good case to prohibit Defendants from denying Commission representatives access to books and records.

·        The Court found good cause to order repatriation of assets controlled by Defendants and Relief Defendants.

·        The Court found good cause for expedited discovery.

·        The Court also weighed the equities and considered the Commission’s likelihood of success in its claims, and as a result, found that it is in the public’s interest to issue a restraining order.

 

As a result of the findings above, the Judge ordered the following:

·        The Defendants were ordered not to transfer, dissipate, or dispose of assets.

·        The Judge ordered any financial or brokerage institutions, business entity, or others controlling the Defendants’ assets to prohibit the Defendants from removing any such assets and to deny Defendants access to safe deposit boxes.

·        Judge Conrad also required businesses to provide expedited discovery to the CFTC in the form of account numbers, account balances, account dates, and safe deposit box numbers.

·        The Judge ordered Defendants to provide full accounting for all accounts inside and outside the United States within 10 days of the Order.

·        The Defendants are also ordered to transfer all assets from outside the United States to inside the United States.

·        The Judge ordered that any and all of the Defendants’ business records may not be destroyed.

·        CFTC is allowed to inspect and copy all of Defendants’ books and records.

·        CFTC is allowed to conduct expedited discovery- they may take depositions with only 5 days notice.

·        Pursuant to the Act, CFTC is not required to post a bond.

 

As of February 23, 2011, discovery in this case has been stayed pending the Keith F. Simmons criminal case.

 

Injunctions under the Commodity Exchange Act (part 1)

(Blog written by: Jay Lewis)

 

In United States Commodity Futures Trading Commission (“CFTC”) v. Simmons et. al., (Case Number 3:11-cv-00023 W.D.N.C.), CFTC filed a Motion for Preliminary Injunction against a plethora of defendants including Keith F. Simmons and Black Diamond Capital Solutions, L.L.C. for their roles in an alleged Ponzi scheme.  The Complaint was filed on January 13, 2011.

 

CFTC alleges that starting in April 2007 until Simmons’ arrest in December 2009 $35 million was fraudulently solicited from more than 240 individuals and businesses. (Complaint, ¶ 2).  The Defendants in Simmons obtained investments with promises of remarkable returns using a forex trading system. (Complaint, ¶ 4).  Forex is short-hand for foreign exchange market, an over-the-counter market used to exchange one national currency for another.  The forex was created to assist corporations transacting business overseas to pay each other in their respective currencies, but is now dominated by speculators.  Mark Levinson, Guide to Financial Markets pp 14-36 (4th ed., The Economist 2006).

 

In Simmons, the Defendants persuaded investors they had developed an advanced computerized trading system created by a group of software developers.  (Plaintiff’s Memorandum in Support of its Motion for a Statutory Restraining Order, p 10).  They enticed investors with promotional materials claiming a track record of exceptional returns. (Memorandum p 11).  But according to the CFTC allegations no such system ever existed, and the Defendants never traded a dime of investors’ money in the forex market.  (Memorandum pp 9-16).  Instead, CFTC alleges the investments went to pay for the Defendants’ real estate purchases, cars and lavish trips. (Memorandum pp 14-15). 

 

However, once investors started demanding their returns on investment or attempted to withdraw principal, the whole system crumbles and the schemers are left making excuses.  CFTC alleges that starting in March of 2009 the Defendants created fanciful reasons as to why the investors were unable to receive any payments. (Complaint ¶¶ 8-9)  To keep investors placated, they altered existing bank statements by fraudulently multiplying actual assets ten-fold.  (Memorandum p 20).  CFTC alleges the Defendants claimed agencies froze Black Diamond’s accounts to conduct investigations, that banking restrictions limited the payouts, and that “a non-existent German liquidity provider by the name of Klaus” was planning to buy out Black Diamond.  (Complaint ¶ 9).  Allegedly these frauds were still perpetuated even as the Defendants failed to pay their own employees.  (Memorandum pp 18-24).  By December of 2009 it was obvious to the investors they had been scammed and the FBI arrested Keith F. Simmons for his role in the fraud.

Amaretto v. Ozimals: Non-opposition to the entry of a preliminary injunction

A TRO lasts for a very short amount of time, usually only ten days. So, it wasn’t surprising that after the Court granted its motion for a TRO Amaretto moved for a preliminary injunction, which can last indefinitely. However, what was unexpected is that Defendant Ozimals filed a Statement of Non-Opposition to Amaretto’s request for a preliminary injunction. Ozimals filed a complaint for copyright infringement against Amaretto in the United States District Court for the Northern District of Alabama. Thus, Ozimals believed that the parties were well beyond the DMCA notification activity and didn’t object to Amaretto’s service provider being enjoined from acting on Ozimal’s takedown notice. While it didn’t oppose the entry of a preliminary injunction, Ozimals requested that the Court vacate the injunction hearing. In its Statement of Non-Opposition, Amaretto expressed its concerns that conducing a hearing would be an inefficient use of judicial resources. Amaretto also feared that a hearing would cause the Court to rule on the likelihood of success on the merits “on an extremely abbreviated schedule and without the opportunity for full briefing or evidentiary submissions by the parties, or even any discovery at all by the parties.” (Defendant Ozimals, Inc.’s Response and Statement of Non-Opposition to Plaintiff Amaretto Ranch Breedables, LLC’s Motion for Preliminary Injunction; Request to Vacate Hearing, p. 2). The Court entered the preliminary injunction as unopposed and vacated the hearing. Ozimals’ decision not to oppose Amaretto’s motion for a preliminary injunction was tactical. If an evidentiary hearing was held on the injunction, there was a risk that the Court could make various findings against Ozimals, which could ultimately be detrimental in its copyright infringement action. Thus, Ozimals determined that would it be better to yield to the entry of a preliminary injunction, barring Amaretto’s service provider from taking down offending material on its website, in order to maximize its chances of ultimate success.