Liverpool sale dispute could hinge on the removal of restraining order

Can a Texas court block a British court from allowing the sale of Liverpool FC to the owners of the Boston Red Sox? If that sounds like a strange question, it's because it concerns a curious mix of conflicts of law, international banking law, and the fate of one of soccer's most storied franchises. It is also a question that could lead to a legal showdown at 7 a.m. Friday, Texas time.

As of now, the ownership and control of Liverpool remain in dispute, with different conclusions reached by courts in Great Britain and Texas and with resulting uncertainty over the enforcement of conflicting judgments. The core dispute centers on an ownership group led by former Texas Rangers owner and Texas native Tom Hicks and his partner George Gillett. The group insists that the Royal Bank of Scotland (RBS) which loaned the group money, and the Liverpool board consisting of chairman Martin Broughton and directors Christian Purslow and Ian Ayre, lack the legal authority to sell Liverpool to the Red Sox-owning New England Sports Ventures (NESV).

As part of the loan agreement, RBS obtained extensive -- but now disputed -- authority over Liverpool's financial decisions. Hicks insists that RBS wrongly prevented his group from selling the team for nearly $1 billion, which would have enabled the group to payback what it owed and pocket significant sale monies. RBS has instead sought to sell the team to NESV for $476 million, a less lucrative amount, but an amount from an ownership group that has guided the Red Sox to two World Series victories. Hicks' group is obligated to repay RBS and another lender, Wells Fargo, $453 million by Friday Oct. 15.

In the past week, Hicks unsuccessfully sought to use the London High Court to block RBS from selling Liverpool. The Texas native then turned to a court in a much more familiar setting. On Wednesday he sought and obtained a temporary restraining order from a Texas State court that, at least according to the Texas court, prevents RBS from selling Liverpool to NESV.

In his application for the order, Hicks charged that RBS deceived him and, despite contractual obligations, did not seek to obtain fair market value of Liverpool. In a move that has struck some RBS supporters as designed to help out the hometown guy, Texas Judge Jim Jordan granted the order. Jordan concluded that he had jurisdiction over the matter, even though Liverpool, its employees, coaches, and staff all play in Great Britain and do not play in the United States -- let alone Texas -- and even though the financier of the team is based in London. A hearing on the temporary order was originally scheduled for Oct. 25 and since rescheduled for Oct. 15.

On the other side of the Atlantic, RBS claims that the Texas decision does not govern a transaction that, its view, lacks any credible connection to Texas. RBS also maintains that in seeking the order, Hicks failed to inform Jordan of crucial pieces of information.

Instead of listening to a Texas court, RBS finds the British court system to be determinative. That is because London High Court Judge Christopher Floyd issued an order today essentially telling RBS to ignore Jordan's temporary restraining order and telling Hicks that he must accept the British court's decision by 4 p.m. London Time (10 a.m. Texas Time) tomorrow.

Treaties between countries often provide insight over how to resolve conflicts of laws among court decisions in different countries. The United States and Great Britain, however, lack a general agreement as to the enforcement of judicial judgments. Treaties are unlikely to answer to solve this particular dispute.

A better source of law may be the wording of the lending agreements between RBS and Hicks' group. Some of the agreements may possess "choice of law" provisions, which dictate which country's laws resolve certain types of disputes. While a choice of law provision would not necessarily prevent another country's court from hearing a dispute, and may not contemplate disputes that trigger temporary restraining orders, it could nonetheless signal whether British or Texas law is determinative. That insight would then be used by both the British and Texas courts to best resolve their conflicting judgments.

Interestingly, at least one of the lending agreements between RBS and Hicks references jurisdiction. The Liverpool Company Articles refer to British courts as having jurisdiction in any winding up or dissolution of the team. The agreement does not, however, expressly state that such law is exclusive.

The best strategy for RBS and NESV is probably to convince Judge Jordan to remove, or decline to extend, the temporary injunction. According to reports, they have hired lawyers in Texas to do just that. Preliminary injunctions are typically difficult to have removed before formal hearings. At a hearing, RBS will likely argue that Hicks sought the restraining order in a deceptive way, since he purportedly neglected to mention to Judge Jordan that there had been a conflicting ruling on this case in England that very morning.

Hicks and his lawyers would have an opportunity to respond. They might argue, for instance, that because RBS did not seek maximum value for its sale, the British ruling derives from fraudulent behavior on the part of RBS. The Uniform Enforcement of Foreign Judgments Act, which Texas has adopted, stipulates that a U.S. court may not uphold a foreign judgment if it arises through fraud.

Hicks' lawyers could also employ arguments that are grounded in public policy, with a key U.S. commercial policy being that owners -- such as Hicks -- are free to sell their companies to whomever they choose and that RBS, a lending institution, should not be able to take Hicks' shoes as owner.

The conflict of law would be removed and the London High court's holding would proceed. The sale of Liverpool to NESV would therefore take place.

In that outcome, Hicks could then try to identify a viable source of appeal for the London High Court's consideration. Given the High Court's clear holdings in favor of RBS, though, it seems unlikely that Hicks would find much support in that approach.

Hicks could also seek a temporary restraining order in Massachusetts, as NESV is based in Boston. By that point, however, a Massachusetts court may be unwilling to interfere with the transaction. It is also unclear that the lending agreements between Hicks and RBS allow for Massachusetts courts to hear contractual disputes.

RBS would then likely seek an appeal in the Texas court system. An appeal could take weeks to be heard. During that time, ownership of Liverpool would be in limbo and Hicks might insist that he is not obligated to repay the loan until the litigation is resolved.

RBS and NESV could instead ignore Judge Jordan's decision to continue the injunction. Doing so, however, could motivate Jordan to find RBS officials, and possibly those of NESV, in contempt of court. Ignoring a judge's order is virtually always a regrettable idea.

There are still two other possibilities:

First, RBS and Hicks could reach a last-second contractual settlement that removes the litigation from British and Texas courts. A settlement would provide closure and certainty. Still, given the impending deadline and the deeply soured relations between RBS and Hicks, a settlement seems unlikely.

Second, Hicks could manage to repay his loan before tomorrow's deadline and thereby retake control of the team. In that situation, however, NESV could then seek a temporary restraining order to block RBS from discharging the loan, which it would be obligated to do if Hicks repays. NESV could maintain that Hicks had wrongfully prevented the sale of Liverpool before his repaying of the loan.

By Friday, we'll know more about how this dizzying sports dispute could be resolved or become even more complex.

Michael McCann is a law professor and Sports Law Institute director at Vermont Law School and the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law. He also teaches a sports law reading group at Yale Law School.