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Sale of Liverpool complete, but legal dynamics unsettled

Faced with the prospect of losing in a Texas court, former owners Tom Hicks and George Gillett Jr.withdrew the temporary restraining order that they had obtained from Texas Judge Jim Jordan and that had ostensibly blocked the Royal Bank of Scotland (RBS) from selling Liverpool FC to New England Sports Ventures (NESV). A substantive review of the order had been scheduled for Oct. 25; by withdrawing the order prior to a decision on its merits, Hicks and Gillett strategically avoid the prospect of a negative ruling and help to preserve possible legal claims against RBS and NESV.

The withdrawal also removed an unusual conflict of law that had destabilized the sale, which was finalized today for $476 million. After London High Court Judge Christopher Floyd approved the sale, Judge Jordan temporarily blocked it, which left the parties to wonder which nation's law controlled. If the Oct. 25 hearing had occurred, lawyers for RBS would have argued that Hicks and Gillett intentionally failed to inform Judge Jordan of Judge Floyd's decision; if those lawyers were correct, Judge Jordan would have likely dismissed his order "with prejudice," meaning Hicks and Gillett would have been barred from bringing such a claim again in Texas.

While NESV chairman and Red Sox owner John Henry and legions of Liverpool fans now celebrate the club's new ownership, Hicks and Gillett could still file lawsuits against RBS and NESV in the months and even years ahead. Hicks and Gillett insist that the RBS-NESV sale lacked both legal authority and sufficient company approval and was made in fraudulent and deceptive ways. Hicks and Gillett also assert that with a purchase price of $476 million, the sale cost them the hundreds of millions of dollars that they could have pocketed had RBS allowed them to sell Liverpool to another buyer for close to $1 billion. All told, Hicks and Gillett believe they have suffered $1.6 billion in damages.

The prospect of Hicks and Gillett pursuing a successful litigation strategy against RBS and NESV in Great Britain is dim. The London High Court unequivocally found nothing wrong in the RBS-NESV sale and in fact admonished Hicks and Gillett to accept it. While Hicks and Gillett profess a desire to return to the British courts, and while they might obtain new evidence that more favorably portrays their legal arguments, they would still have to overcome two adverse decisions from the London High Court. The odds would be stacked against them.

It is more likely that Hicks and Gillett would turn to courts in Texas, where Hicks resides, and Massachusetts, where NESV is based, to remedy any purported grievances. Both states offer laws that prohibit fraud, breach of contract and similar claims that Hicks and Gillett could allege invalidate actions taken by RBS and NESV. If in fact Hicks and Gillett were denied adequate input in the sale of Liverpool under Massachusetts or Texas law, they could obtain a judgment that contradicts that of the London High Court, thereby leading to a second round of conflicting judgments and choice of law uncertainties. The statutes of limitation for such claims under Massachusetts and Texas laws, moreover, are two to three years, meaning Hicks and Gillett could wait some time to collect evidence and build a case before filing a massive lawsuit in one of those states.

On the other hand, courts in Massachusetts or Texas may be disinclined to interfere with the RBS-NESV transaction now that it has occurred. Generally, courts are more likely to prevent a prospective sales transaction than to reject it ex post facto. Such a rejection in this matter would throw Liverpool into a legal quandary. Then again, Hicks and Gillett could insist that, irrespective of consequences to Liverpool, they are plainly entitled to recovery if they were illegally wronged.

Hicks and Gillett may have another goal in mind by threatening or insinuating a lawsuit: motivating RBS and NESV to agree to a financial settlement that would pay Hicks and Gillett millions to go away and to give up any potential legal claims against RBS and NESV. Keep in mind, even if NESV and RSB are confident in the legality of their actions, they could perceive significant value in gaining a clean and permanent break from Hicks and Gillett; a settlement could also save them millions of dollars in potential legal fees -- millions of dollars that could perhaps be used to sign Liverpool and Red Sox players or otherwise improve those teams.

While the RBS-NESV sale may be complete, the legal dynamics surrounding it appear far from settled.

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.

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