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How NASL's New Lawsuit vs. U.S. Soccer Compares, Contrasts to Federal One

NASL has come at U.S. Soccer with another lawsuit, singling out members of the federation's board of directors.

The ongoing legal battle between the North American Soccer League and the U.S. Soccer Federation entered the New York state court system this week. In an aggressively worded complaint, NASL has sued U.S. Soccer president Sunil Gulati, Major League Soccer commissioner Don Garber and 13 other members–but not every remaining one–of the U.S. Soccer Board of Directors.

NASL contends that U.S. Soccer board members have unlawfully breached their fiduciary duties of care, loyalty and obedience to U.S. Soccer and the professional soccer leagues it governs. The board members did so, NASL insists, by rigging the process in which leagues are classified. The alleged rigging allowed the board to favor those leagues in which members are professionally associated and through which members gain financially. In turn (so the theory goes), board members have conspired to dispatch NASL “to either obscurity or extinction.” NASL demands that a court award damages and also enjoin the board from any further action that could harm NASL. That the lawsuit comes just days before U.S. Soccer's presidential election adds yet another wrinkle into an increasingly heated battle.

Here's a closer look at the case:

NASL’s state lawsuit in the context of its federal lawsuit

Thematically, NASL’s new lawsuit is an extension of the ongoing federal lawsuit between NASL and U.S. Soccer. As explained more fully in otherPlanetFútbol articles, NASL argues that U.S. Soccer and three alleged co-conspirators—MLS, Soccer United Marketing and United Soccer League—have unlawfully conspired to block NASL from competing with MLS at the Division I level and USL at the Division II level.

So far, at least, NASL’s federal lawsuit hasn’t proven successful. Last fall, Judge Margo Brodie of the U.S. District Court for the Eastern District of New York denied NASL’s petition for a preliminary injunction. The injunction would have blocked U.S. Soccer from downgrading NASL and denying it Division II sanctioning and, NASL contends, keep NASL from going out of business.

Judge Brodie reasoned that while U.S. Soccer had clearly harmed NASL in denying it a chance to compete, such harm wasn’t caused by unlawful conduct. To that end, she concluded that by imposing various restrictions on how soccer leagues compete, U.S. Soccer had complied with its core legal duty to maximize the quality of soccer in the U.S. and Canada.

To illustrate, soccer fans and broadcasters arguably expect a true “Division I” or “top” soccer league to have teams that are dispersed across the country rather than limited to certain regions, and that play in stadia seating at least 15,000 fans. These and other restrictions excluded NASL from its preferred classification and thus prevented NASL from competing as a credible alternative for soccer fans. At the same time, Judge Brodie agreed that these restrictions were sufficiently reasonable restraints on competition in order to provide soccer fans with an attractive product.

NASL has appealed Judge Brodie’s ruling to the U.S. Court of Appeals for the Second Circuit. A three-judge panel of Judges Barrington Parker, Jr., Richard Wesley and Denny Chin is reviewing the appeal (if Judges Parker and Chin sound familiar, it may be because they ruled against Tom Brady in the Deflategate case).

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Turning to the New York lawsuit

In the meantime, NASL hopes that a New York trial court will see the relevant issues in a more favorable light.

In its 69-page complaint authored by attorneys Jean-Marie Atamian and Jordan Sagalowsky of the law firm Mayer Brown, NASL stresses that U.S. Soccer has disfavored it from the start. They also assert that U.S. Soccer has a history of hatching anti-competitive measures to disadvantage NASL.

Part of NASL’s plea to the courts is based on its model of doing business and how that model differs from those of other U.S. soccer leagues. NASL consists of independent, individually owned teams—much like teams in the NFL or NBA. In contrast, MLS and USL are more centrally run. NASL highlights how its model should enhance team-to-team competition and thus offer higher quality of play and faster innovation than either MLS or USL. As NASL stresses, teams in a de-centralized sports league are less likely to conspire in anti-competitive ways since their financial interests inherently diverge. Along those lines, the more competitive the business model, the more likely its product (in this context professional soccer) should grow and modernize.

NASL’s legal argument also emphasizes the U.S. Soccer Board of Directors’ vote on Sept. 1, 2017 to revoke NASL’s Division II status for 2018. NASL alleges that this vote reflects board members “run[ing] roughshod over a member organization which [they] are duty-bound to serve in a faithful manner.” From this vantage point, board members harmed the ability of NASL “to thrive commercially and to promote the growth of U.S. soccer as a competitive, top-tier professional league.”

To bolster this argument, NASL depicts board members as inherently conflicted in their ability to objectively classify soccer leagues. These members, NASL contends, have “flagrantly disregarded” their legal obligations to avoid troubling conflicts.

To that end, NASL’s complaint highlights Gulati, the board’s president. As detailed in the complaint, Gulati served as deputy commissioner of MLS in the 1990s. He later became President of Robert Kraft’s Kraft Sports Group, which operates the New England Revolution MLS franchise. Kraft was recently named honorary chairman of the USA's joint bid committee with Mexico and Canada in an effort to host the 2026 FIFA World Cup. NASL contends that U.S. Soccer executive leadership—most notably president Gulati—pushed for Kraft’s appointment. These alleged entanglements, NASL reasons, place Gulati in an “extraordinarily self-interested position” where he is financially motivated to advance the interests of MLS over those of NASL.

Further, NASL contends, U.S. Soccer has not adequately adhered to FIFA Statutes that require U.S. Soccer (and other national soccer organizations under FIFA’s purview) to “ensure that its own rules and regulations are drafted independently and free from any form of interference” and to remain “duty-bound to avoid conflicts of interest in its official decision-making processes.”

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U.S. Soccer will fight back in court

In the coming weeks, Gulati and his co-defendants will answer NASL’s complaint. The answer will surely deny NASL’s allegations and frame them as illogical.

The U.S. Soccer board members at the center of the allegations will also raise certain defenses. Among possible ones are those that depict NASL’s state complaint as too similar to its ongoing federal litigation against U.S. Soccer. On one hand, the federal complaint is grounded in federal antitrust law and names U.S. Soccer as the defendant, whereas the state complaint is grounded in New York law on governing boards and names U.S. Soccer board members as co-defendants. On the other hand, the two complaints draw on much the same set of facts and assert similar legal theories. If Gulati and his co-defendants convinced the New York court that the cases are too similar, then the court might conclude it ought to be stopped from ruling on a set of issues that are already under review in a federal court.

The co-defendants’ answer might also allude to Judge Brodie’s reasoning that the while the board acted in ways that disadvantaged NASL and advantaged MLS, its actions were arguably designed to maximize American and Canadian fan interest in the highest level of soccer.

In addition, the 15 co-defendants might draw attention to the fact that NASL declined to include the entire 17-member board as co-defendants. One notable omission was John Motta, who serves on the board as an adult council representative and who was supportive of NASL obtaining its desired sanctioning. While NASL was under no legal obligation to include Motta, the co-defendants may openly wonder how NASL could depict the board as so dysfunctional and corrupt and yet not include every board member as a co-defendant. The co-defendants might assert that NASL cherry-picked the defendants based on whether each supported or opposed NASL.

Michael McCann is SI’s legal analyst. He is also an attorney and the Associate Dean for Academic Affairs at the University of New Hampshire School of Law, and co-author with Ed O'Bannon of the forthcoming book Court Justice: The Inside Story of My Battle Against the NCAA.