Wednesday, October 13, 2010

Hicks & Gillett File Suit in Texas to Disrupt Liverpool Sale - Is there Jurisdiction?

Liverpool Football Club supporters hold banners outside the High Court, in London October 12, 2010. The judge will make his ruling in the high court case about the ownership of Liverpool Football Club at 0930 GMT on Wednesday, the judge said on Tuesday.   REUTERS/Stefan Wermuth  (BRITAIN - Tags: BUSINESS SPORT SOCCER)

The past few weeks have been a bit of a roller coaster ride for fans of Liverpool Football Club. There's been plenty of articles for detailing the ownership saga at Liverpool, and for the sake of time I won't rehash the recent events except to say that earlier today it appeared that all hurdles in England had been cleared and that John Henry and New England Sports Ventures would become owners of Liverpool, pushing out Tom Hicks and George Gillett. However, in a last attempt to either foil the sale or get more money out of the club, Hicks and Gillett have filed a civil lawsuit in the District Court of Dallas County, Texas, 160th Judicial District, and have obtained a Temporary Restraining Order from said court.

Before I delve into the pleadings and related law in an effort to give Liverpool fans in particular and football fans in general an idea of what's going on, here's the disclaimer:

While I am licensed to practice law in the State of Texas nothing in this article is intended as or should be read as legal advice. Nothing in this article creates an attorney-client relationship between the author and any reader. Furthermore, this article is not written for or intended to serve as an attorney advertisement.

Now that we've gotten that out of the way, time to start making sense of these proceedings. (Please forgive any spelling or grammar mistakes since time and not proofreading is my priority here.)

My initial idea was to tackle all the issues presented by this lawsuit in one article, but then realized it would be better to break the different aspects of these proceedings down into a series of articles. Since everyone is questioning whether a Texas court has the authority to stop the sale of Liverpool to John Henry and NESV, I'm going to address the issue of court jurisdiction and, to a lesser extent, venue in this article.

In response to some of the comments both on and offline, I feel the need to point out that in the United States, anyone can file a lawsuit, no matter how valid that lawsuit ends up proving. At this stage in the proceedings, the Court doesn't really care about the validity of the plaintiffs' claims and allegations - there are several procedural steps that have to occur before the court starts examining the legal validity of the lawsuit. Keep in mind that something like 90% of the lawsuits filed in the United States never reach trial, they are either resolved in pre-trial motions, like summary judgment, or settled. Finally, do not think of the Texas Court, by issuing the temporary restraining order, as overruling the English Court. All the Texas Court looked at was a narrow range of criteria that is needed for it to issue a temporary restraining order. To be blunt, at this point in the process in Texas, the Texas Court really doesn't care what has happened in the English Court System - it will care, but that will be down the road in the procedural process the parties will have to travel.

Please keep in mind that when I worked in civil litigation, I always approached issues by examining my opponent's strongest issue(s) and creating something of a worst case scenario that I had to fight against in order to win. In this article, and in future articles, I might not always paint the kind of picture that Liverpool fans want to see, but please don't take that as my personal opinion or feelings on this matter. Also, keep in mind that in lawsuits, earlier procedural matters tend to favor the plaintiff but as the matter progresses the procedural playing field starts to shift in favor of the defendant. What this means is that it is not easy to get a case "dismissed" quickly.

The general rule is that if you file a lawsuit against somebody you have to file said lawsuit either: (1) where the defendent is located, (2) where the property in dispute is located, or (3) where the acts or omissions giving rise to the lawsuit occurred.

On the face of the pleadings, only one party to this lawsuit has clear contacts with Texas, that is Kop Investment, one of the plaintiffs, which has its principal place of business in Texas. Courts in Texas have what is called personal jurisdiction over persons or entities that have "continuous and systematic contacts with Texas." I know, that phrase is rather vague.

Probably the best way to explain what these "contacts" are is to point out what the defendants' in this case can do to fight jurisdiction. Before filing anything else, including an answer, the defendants can fight Texas court jurisdiction by filing a "Special Appearance," in which they argue that there is no personal jurisdiction because:

(1) defendants are not Texas residents;

(2) defendants have not had minimum contacts with Texas; and

(3) even if the defendants had some contact with Texas, traditional notions of fair play and substantial justice would be offended if the court exercised jurisdiction over the defendants.

Clearly, the defendants are not Texas residents so . . . What does "minimum contacts" mean? What are traditional notions of fair play and substantial justice? Well, there are no bright line rules or definitions to be applied in determining what these terms mean. Instead, it is resolved on a case by case basis.

Based solely on the pleadings, the Royal Bank of Scotland and NESV have business contacts with Texas and Martin Broughton attended meetings in Dallas concerning Liverpool FC. Is this enough to establish minimum contacts? Courts and judges are territorial and they don't like limiting their power. Depending on how these issues are fleshed out, I could see a scenario or two where the Court finds that there are minimum contacts that enable it to exercise jurisdiction over the defendants. It doesn't help that in arguing that there are not minimum contacts, the defendants are forced into the unenviable task of having to prove a negative.

One of the first things I learned in my Civil Procedure class in law school was that most procedural disputes, and many substantive disputes, are resolved by the court balancing and weighing different interests. In determining the issue of whether the exercise of jurisdiction over the defendants is fair or unfair, the court weighs the interests of its state/community, the plaintiffs' interests, the defendants' interests, and the resulting costs/burdens. The reality is that when a Texas Court finds that minimum contacts exist for it to exercise jurisdiction, it will rarely find that doing so is unfair to the defendants. The seeming finality of the legal proceedings in England would likely lead the Texas court towards leaning in the plaintiffs' favor on this issue.

So, yes, under Texas law, a Texas court can have jurisdiction over this dispute. So, what does that mean? What happens if the defendants ignore the temporary restraining order and move forward with the sale?

They can be found in contempt of court, which, in this case, means the defendants could be facing fines, possibly substantial fines. Since NESV and the Royal Bank of Scotland do business in the United States, it's highly unlikely that they will ignore the temporary restraining order.

So, what happens if the Texas court finds it has jurisdiction? Expect the defendants to file a motion to remove these proceedings to the United States District Court. This issue will most likely be the topic of my next article in this series.

Since this discussion of the jurisdictional issue, which please remember is a procedural issue, isn't the most positive from the perspective of Liverpool fans, I want to try to end on a more positive note for Liverpool fans.

It's highly unlikely that this lawsuit will stop the sale of Liverpool to John Henry and NESV. It may slow that process down and it may result in more money being thrown in the direction of Hicks and Gillett, but it the end Liverpool should be free of those two.


Kaye said...

This is fantastically helpful. Thanks so much! I'll pass this along to my LFC friends. Cheers from Boston, MA.

OSI said...

Very useful, mate, and much appreciated. as a fellow blogspotter i'll be watching your blog with interest (although as a Dallas native, i'll have to overlook your Dynamo connections...)


Unknown said...
This comment has been removed by the author.
Unknown said...

I have doubts.
How can a district court order a restraining order against the permissions given by a high court?

if a case is filed at one place, how can the same be fought at equal or lower level in another jurisdiction?

The representative of Hicks has said that it is against the Liverpool fans and Martin personally. Since, the sale is not the subject matter, how can a restraining order be obtained for it?

Lastly, how can someone plea saying torturous acts were committed by Martin at the meeting in Dallas? I mean how can a statement be more vague.
But I still don't get how a district court over-rules a high court and that a restraining order is obtained for something which is not subject matter to the case.

Sipu said...

How about the fact that Hicks had already submitted to English jurisdiction over the same subject-matter and had in fact made substantive claims for injunctions in the English proceedings? Surely that is a material issue in deciding jurisdiction and which is the most appropriate venue. In fact, the TRO appears to be in direct conflict with Justice Floyd's refusal to grant any relief on Hick's prayers in the English proceedings.

Brian Zygo said...

Darsh & Sipu:

Those are arguments that the defendants can make when they respond to this suit, but under Texas (& US) law, anyone can file a lawsuit, no matter how strong or valid. Then there is a process, sometimes long and tedious, for the case to go through before the court dismisses all or some of that lawsuit. To be blunt, at this stage in the process, the Texas Court doesn't care about what the English Court did, it might later, but not right now. And don't think of this as the Texas court overruling the English Court.

Sipu said...

While the Texas Court may not care what the English Court had ordered at this stage, the English Court can always issue an anti-suit injunction to restrain Hicks from proceeding in the US. This could be the subject of the further proceedings in the English Court at 2pm today GMT