The Marlins Are Claiming to Be British

I love the Miami Marlins. I love them because I love baseball and thinking about baseball. I also love them, though, because I love the law and thinking about the law. At this moment in history, no source is more dependable for simultaneously providing raw material on both fronts — baseball and the law — than the Miami Marlins. Whatever that organization’s flaws, they are not uninteresting.

I’ve written here on multiple occasions about the lawsuit the City of Miami and County of Miami-Dade has filed against Jeffrey Loria for purportedly denying them what they believe they are due of the net proceeds from the $1.2 billion sale of the Miami Marlins to the Derek Jeter/Bruce Sherman ownership group.

Surprisingly, the case now offers a new twist — specifically, the Marlins have suggested that the dispute should be heard by an arbitrator, not state court. And to do that, the Marlins are claiming to be a citizen of… the British Virgin Islands.

For the record, the Marlins in question aren’t Jeffrey Loria’s Marlins. It’s the Jeter/Sherman ownership group, which was included as a defendant in Miami’s lawsuit because they are, legally, a necessary party for reasons too complex to explain right now. The Marlins filed what is called a “Notice of Removal,” moving the case automatically from state court to federal court. Miami and Miami-Dade then filed a “Motion to Remand,” asking the federal court to send the case back to state court because it was improperly removed.

That’s a mouthful, and we’re getting deep into federal civil procedure here, but we can summarize it as follows. Think of a case like a baton for a moment. When one court (the state court) has the baton, the defendant can pass the baton to a federal court, but only if the federal court has jurisdiction — that is, the authority to hold the baton in the first place. If it’s not permissible to file a case in federal court in the first place, it’s probably not permissible to move it there after it’s been filed. If that happens, the plaintiff can then ask the federal court to send the case back, taking the baton away from the federal court and giving it back to the state court. It’s a process that is time-consuming, and, if done incorrectly, can be very messy. (I’ve actually been involved in a few of these disputes, most notably this one, which helpfully provides the law in greater detail if you’re interested.)

So the question here is twofold: are the Marlins, in fact, a citizen of the British Virgin Islands? And, if so, does that entitle them to move the case to federal court?*

*The technical, and correct, term is “remove,” not “move.” But this is not a law journal, and I want this to be understandable. So “move” it is. Also, what follows is a very oversimplified explanation of really technical stuff. If you want greater depth, here’s the official Judge’s guide to this topic.

As to the first question, here’s how the Marlins explained it:

Abernue Ltd., one corporation (of many) that owns a piece of Marlins Holdings LLC, is incorporated in the British Virgin Islands. Marlins Holdings LLC owns Marlins Funding. Marlins Funding owns Marlins Teamco. Marlins Teamco was formed last year by Jeter and majority owner Bruce Sherman and the other partners in order to purchase the team from Loria. “Accordingly, Marlins Teamco is a citizen of the British Virgin Islands,” the Marlins claimed in their court filing.

Now, anything is possible in contested litigation; however, I think that the Marlins’ attorneys here are unlikely to convince the court. Let’s start with the obvious. There’s the fact that Abernue, Ltd. isn’t a party to the lawsuit, nor is Marlins Holdings LLC. Marlins Teamco is, so the Marlins are arguing that the citizenship of a co-owner of the parent company of the defendant is sufficient to make the defendant a citizen of that country. That appears to miss the mark in terms of civil procedure.

Here’s why. The law is very clear that a limited liability company is a separate legal entity from its owners or members. Now it is true that an LLC is, for purposes of what is called diversity jurisdiction, a citizen of every place where one of its members is a citizen. But Abernue isn’t a member of Marlins Teamco — it’s a member of Marlins Teamco’s parent company. And Marlins Teamco’s parent company is a U.S. citizen. So, legally, the Marlins probably aren’t a citizen of the British Virgin Islands.

But even if the Marlins were a citizen of the British Virgin Islands, their basis for federal jurisdiction is pretty shaky. Under a law called the New York Convention, international arbitration agreements belong in federal court. And remember that I mentioned in my initial write-up of the Marlins’ stadium dispute that this particular contract does have an arbitration clause. Now, courts have interpreted the New York Convention very broadly. In a case called Beiser v. Weyler, the court said as much: “[i]n allowing removal whenever the arbitration clause could conceivably impact the disposition of the case, we make it easy, not hard, for defendants to remove. But we conclude that easy removal is exactly what Congress intended in [the convention].” This is true even where the contract with the arbitration agreement is never signed.

Whether the New York Convention applies is governed by a test used often by the Eleventh Circuit, which is pretty much the most pro-arbitration forum you’ll find. As explained in a case called Escobar v. Celebration Cruise, the New York Convention applies where (1) “the agreement is in writing within the meaning of the [New York] Convention”; (2) “the agreement provides for arbitration in the territory of a signatory of the [New York] Convention”; (3) “the agreement arises out of a legal relationship, whether contractual or not, which is considered commercial”; and (4) one of the parties to the agreement is not an American citizen.

That fourth element is, I think, the sticking point here. Courts interpret it as met if “a party to the agreement is not an American citizen, or that the commercial relationship has some reasonable relation with one or more foreign states.” Just as I don’t see how Marlins Teamco is legally a foreign citizen, I also can’t see this contract as having a reasonable relation with the British Virgin Islands (or any other foreign country). First of all, the contract on which the suit is based was between a pair of American municipalities and an American company, with an agreement in arbitrate in the United States. And second, Abernue is an entity that isn’t even a party to the contract, and any interest it does have was assumed after it was signed. There’s no reasonable way that, when the contract was signed, any party “envisaged performance abroad.”

Now, Miami also argues that the state court already ruled the arbitration clause was invalid. But a federal court isn’t likely to hold itself bound by that decision, because the federal case law requires it to presume the clause is valid.

So why are the Marlins doing this? As a practical matter, as much as the new ownership group has said they’re not involved in the dispute with Miami, the truth is that discovery of Loria’s books would likely be damaging for the new owners, as well, particularly if they want to keep the team’s financial status private. And the best way to avoid that is arbitration. The state court already found the arbitration clause unenforceable, and they can’t remove the case to federal court on any other jurisdictional basis — there’s no diversity, no other federal question, and the arbitration clause itself isn’t enough. So this gambit is what’s left.

If nothing else, the Jeter/Sherman group is benefiting Loria here — it buys him time and makes this litigation a lot more expensive and risky for Miami even if remand decisions are hard to appeal. And if a federal court were to decide to play it safe and send the case to arbitration, Miami’s case becomes a lot worse. That said, this is a really risky play for Jeter/Sherman, because if Miami wins its remand motion (and I think it legally should on the merits), the statute allows for the court to order Jeter’s group to pay Miami’s attorney fees.