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Attempting to interpret “Jeter Marlins’” latest legal stunt

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Why characterizing the Marlins as a company incorporated in the British Virgin Islands makes more sense than the mainstream media would suggest.

MLB: Miami Marlins-Press Conference Jasen Vinlove-USA TODAY Sports

Recently, the Miami Herald published an article bearing a title fit to cause outrage for all of those who take solace in the Miami Marlins’ misery:

To avoid Miami courtroom, Marlins claim citizenship in the British Virgin Islands

As it made its way into the Twittersphere, Marlins Masochists everywhere scrambled to their keyboards to submit their knee-jerk reactions to reading just the headline.

However, the tactic taken by — as the article and City refers to as — “The Jeter Marlins,” is not completely ludicrous, and is rather reasonable given the circumstances. Humor me, a second-year law student, as we take a shallow dive into an analysis of a classic MLB-jurisdiction case, to which we can analogize the case at bar.

The controversy here comes as a result of Jeffrey Loria’s sale of the Miami Marlins to Derek Jeter. According to a previous Miami Herald article, in the contract between Miami and Jeffrey Loria’s Marlins for the construction of Marlins Park, a “profit-sharing agreement” was included:

“The profit-sharing element of the agreement requiring the Marlins to play in Miami was designed to discourage Loria from “flipping” the team on the heels of increased value from moving into the government-funded stadium. The agreement gave the governments a diminishing share of profits from any sale over the next decade. For the final year of the deal, 2018, Miami-Dade was entitled to about 4 percent of the profits and Miami less than 1 percent.”

Despite the provision, Loria indeed sold the Marlins to Bruce Sherman and Derek Jeter’s “Marlins Teamco,” triggering the profit-sharing agreement. However, after the sale of the team to Marlins Teamco was completed, Jeffrey Loria’s party crunched the numbers, and found that the sale left them $140 million in the hole. Thus, instead of forking over the money pursuant to the profit-sharing agreement, they sought to trigger another part of the contract – a $50 million parachute held in escrow, to be used in the event that there was a fallout between Marlins Teamco and the City.

According to the article, the City didn’t bite. Before they settled for the $50 million, they wanted to make sure that Loria’s party didn’t fudge the calculations to reflect a loss. Per the article, the City’s complaint states:

“seeing the value of the Team quintuple from $250 million in 2008 to a sale of price of $1.2 billion in October 2017, the Loria Marlins expect the County and the City to accept — on faith rather than on any detailed explanation or substantiation — that the Loria Marlins lost over $140 million on the sale.”

If they can prove that Loria actually sold the team at a profit, it seems that they will seek to enforce the terms of the contract and receive the money due to them under the Profit-Sharing clause.

Although until now, they have averred that the dispute is solely between the City, the County, and Loria, it appears now that the Jeter Marlins are looking to dispose of this on their own terms. One more part of the contract to build Marlins Park is an arbitration clause. Arbitration clauses are fairly common, and can be particularly ironclad in some circumstances. Usually when we talk about arbitration in baseball, we are referring to salary arbitration, which is used to determine the salaries of players with service time between two and six years. However, arbitration in general is used to quickly and cheaply dispose of contractual disputes. The Federal Arbitration Act states:

“A written provision in any...contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

Federal Arbitration Act, 9 U.S.C.S. § 2 (2018). Over time, many different decisions have supported a canon to treat agreements to arbitrate under the FAA just like other contractual agreements, and that when parts of the contract are being challenged, the disputes should still be submitted to arbitration. See Rent-A-Center, W., Inc. v. Jackson, (“Thus, a party’s challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate.”)

Part of Marlins Teamco’s plan to get the arbitration agreement enforced entails getting it out of Miami-Dade County. Why? Not because the Eleventh Circuit of Florida isn’t equipped to enforce the agreement itself, but for a different reason. Let’s now sidebar to hear a story about a man named Pete Rose, and his own personal struggles with Major League Baseball.

Rose v. Giamatti, 721 F. Supp. 906 (S.D. Ohio 1989)

Pete Rose gambled on baseball, and in 1989, Commissioner A. Bartlett Giamatti was going to make him pay for it. That year, he scheduled a disciplinary meeting, to punish Rose for allegedly breaking baseball’s most infamous prohibition: wagering on the game.

But Rose, one of the most — if not the most — prolific hitters in baseball, was not going to have his legacy extinguished without a fight. Right after Giamatti announced the initiation of a disciplinary hearing, Rose sued for an injunction against the Commissioner.

Here, it’s important to appreciate the context surrounding the case. Rose was one of the most popular baseball players in the game; especially so in his home state of Ohio. The Commissioner’s Office was well aware of this, and in the interest of removing any “home cooking” that Rose may receive in a lawsuit involving a Cincinnati Reds-fan Judge, Giamatti sought to to remove the case to federal court. In federal court, Rose would not receive such favorable treatment.

Rose knew this too; so he decided to join Major League Baseball and the Cincinnati Reds as parties to the lawsuit in order to quell a federal court’s jurisdiction over him. Essentially, there are two different ways for a federal court to hear a case. For one, if a controversy concerns a “federal question,” it can automatically be heard by a federal court. Otherwise, the only other way to get into federal court is for the parties to be from different states, and the amount of damages at stake to exceed a certain amount. At the time, more than $50,000 had to be at stake.

What was Rose getting at by joining and suing the MLB and his own team? Because the lawsuit didn’t concern a federal question, the only way that Giamatti could get Rose in front of a federal judge was through diversity jursidiction. “The diversity statute has historically been interpreted to require complete diversity of citizenship: ‘...diversity jurisdiction does not exist unless each defendant is a citizen of a different State from each plaintiff’.” Rose v. Giamatti, 721 F. Supp. 906, 911 (S.D. Ohio 1989).

Later in the opinion, the court found that the Cincinnati Reds and the MLB were in fact Ohio residents. Most pertinent to our case involving Derek Jeter, Judge Holschuh found in Rose:

It is undisputed that, for purposes of determining the citizenship of an unincorporated association, an unincorporated association has no citizenship of its own, but is a citizen of every state in which each of its constituent members is a citizen.

Id. at 912. Thus, even though the MLB had 26 different teams around the country, because just two teams - the Reds and the Indians - had home stadiums in Ohio, the association of the MLB was deemed by the Judge to have citizenship in Ohio. Id. at 913. Remember this principle for later. As for the Cincinnati Reds, they were obviously, found to be citizens of Ohio as well. Thus, it would seem that because some of the defendants shared citizenship with Rose, Giamatti would be unable to remove the case to federal court.

Did this carry the day? It did not. Ultimately, the court saw through Rose’s charade, and found that he had no beef worth litigating between the MLB and the Reds. Judge Holschuh reiterated a well-cemented precedent: “a plaintiff cannot defeat a defendant’s right of removal on the basis of diversity of citizenship by the “fraudulent joinder” of a non-diverse defendant against whom the plaintiff has no real cause of action.” Id. The Court ultimately held that Rose’s lawsuits against the Reds and the MLB constituted such fraudulent joinders, therefore releasing them from the lawsuit. That left the controversy solely the province of Rose and Giamatti. Because Giamatti was a citizen of New York, there was indeed diversity in citizenship enough that the case could be removed to federal court.

To make this long story short, Pete Rose will never be in the Hall of Fame.

Coming back full-circle, you can say that Jeter is attempting to pull a “Reverse-Pete Rose here.” As stated in the Miami Herald argument:

If successful, the Marlins’ request would strip the case from a Miami-Dade judge who has already sided with Miami and Miami-Dade in a preliminary ruling rejecting the arbitration that Loria lawyers requested from the outset.

Think about the context in this case. It goes without saying that the Marlins aren’t very popular in Miami right now. The less engaged perceive that Derek Jeter has taken advantage of an already poor situation and made it worse. Although that is not necessarily the truth, and most of his decisions can be reasonably justified, it remains that Derek Jeter may not have much luck in a South Florida court. A preliminary ruling rejecting the arbitration has already been passed down; at this point, if Marlins Teamco can’t strike a settlement with the City, it will go to a trial to determine the propriety of the contract. Think about that: up to six angry Marlins fans may have their chance to decide the team’s fate.

Derek Jeter doesn’t want this to happen; he wants the arbitration agreement to be enforced by a federal court, one figuratively removed from the battleground that is Miami. Thus, Marlins Teamco’s lawyers have alerted the state court to the presence of one of their subsidiaries, “Abernue, Ltd.” Instead of attempting to quell federal diversity jurisdiction — as Rose was trying to do — they are attempting to invoke it. Although the article provides that Marlins Teamco’s counsel is attempting to establish federal jurisdiction under an international Convention, there is also 28 U.S.C.S. § 1332(c)(1) (2018) which states:

“a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business...”

In this way, if they can argue that the incorporation of their subsidiary Abernue grants them citizenship in the British Virgin Isles, they may just come within federal jurisdiction, and removal may be proper. This is concededly a stretch however; as the article suggests, Miami won’t allow Marlins Teamco to base their citizenship on a subsidiary of a subsidiary of a subsidiary without a fight. Although the law governing citizenship of a corporation here is different from that provided by Judge Holschuh in Rose, the basic controversy is similar enough. Don’t discount the significance of just one small subsidiary of Marlins Teamco having foreign citizenship; in Rose, all that was needed to find that the MLB had Ohio citizenship was the fact that two out of their 26 teams played in Ohio. The same could happen here.

Overall, there are a myriad of other far-reaching issues and cases to be analyzed here. Without access to the pleadings and other memoranda involved, it is extremely hard to render a completely accurate picture of the controversy. This analysis was written solely to more accurately characterize what appears to be a cockamamie legal stunt as something that has been done before. The moral of the story here is to not get outraged at far-flung headlines created to get you to click on articles; instead, when you see a headline that provokes your hottest take, you should do your due diligence to discover whether things really are as they seem.