By Zachary Zagger

Law360 (December 4, 2020, 11:10 PM EST ) The owner of the New York Yankees' affiliate on Staten Island has hit the Major League Baseball team and the league with a $20 million lawsuit after the minor league outfit folded as part of a systemwide contraction, a dispute that may signal cases to come in other communities in danger of losing their beloved ballclubs.

Nostalgic Partners LLC alleged in a New York state court complaint filed Thursday that it purchased the Minor League Baseball team in 2011 on the promise that it would continue its affiliation with the New York Yankees and play in the successful New York-Penn League, a short-season minor league.

However, Nostalgic said it learned last month that the Yankees were dropping their affiliation with the Staten Island Yankees, which the company said makes it impossible for the minor league team to continue in operation. The move comes after MLB chose not to renew its agreement with MiLB to operate affiliated minor league clubs as part of a "takeover" and contraction of the minor league system.

"Defendants can gleefully play the bully, but established law makes them liable for this bullying conduct," Nostalgic said in its complaint. "Indeed, Defendants' current efforts to take over MiLB, and enrich themselves in the process, are in direct violation of numerous promises that they made to the SI Yankees in the past."

The case is the first of what could be several lawsuits from ownership groups or communities with minor league teams that could be downsized after MLB did not renew the so-called Professional Baseball Agreement. The move came as part of a plan floated last year to cut 42 minor league teams, or 25% of those affiliated with MLB.

MLB is reportedly set to let teams know their status later this month.

"A lot of communities and minor league owners set up teams in specific places, the Staten Island Yankees being the classic example, in part on reliance of the affiliation of the major league club," said Bob Boland, who teaches sports labor and contracts at Penn State University and Penn State Law. 

Boland said ownership groups or communities invested in their minor league team under the promise of a continued affiliation under estoppel or even under laws in some states protecting government or municipal investments if the money went into the team or the team's stadium.

But the suits are not just about getting damages, he said.

"I think there is a real battle for survival of certain clubs, certain ballparks and certain markets," Boland said. "I think that there will be a contraction at some point and there will be damages. Consequently, some will take the money and run. But right now, there is still a battle for what that ultimately is in terms of cost and whether there are some teams that are so beloved and so important and so invested in" that they can't be cut.

Nostalgic said the New York Yankees, which used to own the minor league team, sold it in 2011 while promising that the major league team would continue its affiliation and touting the New York-Penn League as one of the most profitable and successful of the minor leagues.

While Nostalgic has continued to run the team appropriately and even pay for repairs to the field at Richmond County Bank Ballpark, the New York Yankees and MLB have "engaged in anything but good faith," the complaint said. Instead, the owner alleges MLB has taken "unilateral and unauthorized actions to effectively dissolve" the NYPL and the Staten Island Yankees' MLB affiliation, moves that the New York Yankees supported.

Nostalgic said it first learned about losing the Yankees affiliation in a press release from the MLB team announcing its minor league affiliates for next season that included four teams but not the Staten Island Yankees.

The suit brings claims for breach of contract, promissory estoppel and for violations of a New York law regulating the sales of franchises, saying Nostalgic had a right to notice of termination of a franchise agreement. Without continued affiliation with the MLB club and the players the big league club provides, the Staten Island Yankees cannot remain viable, the complaint said.

"Defendants' false promises and unlawful conduct have caused the SI Yankees significant harm, in that they have destroyed the SI Yankees' business model and doomed the SI Yankees to oblivion," the complaint alleged.

MLB declined to comment on the lawsuit, instead citing its efforts to save several teams in communities across the country.

The league is creating wood bat leagues for college players to showcase their skills for MLB with some of the minor league teams that were likely on the chopping block. The MLB Draft League, for example, will include four of the Staten Island Yankees' former NYPL rivals form Pennsylvania, Ohio and West Virginia. College baseball players use metal bats that react differently from the wood bats used in professional baseball, which MLB scouts have complained makes it harder to evaluate talent.

Experts say the contraction of the minor league system has to do with containing costs of player development and giving MLB more direct control. The move also comes after MLB was unable to completely dismiss a class action in California federal court alleging it was paying minor league ballplayers starvation wages. The U.S. Supreme Court in October declined to hear MLB's challenge.

"The plan for baseball to close down the number of franchises, and therefore the number of cities that have active teams, obviously has a profound effect on those cities, not just the ballplayers," said commercial litigator Adam Glazer, a partner at Schoenberg Finkel Beederman Bell Glazer LLC. "It is going to cause those communities to take a close look at what they can do about it."

More than 100 congressional lawmakers have already come out against MLB's contraction plans, but that was before MLB's wood bat league had come to light. Several lawmakers from Ohio and West Virginia have since praised MLB for retaining former NYPL teams like the Mahoning Valley Scrappers and the West Virginia Black Bears as part of those efforts.

But for teams and communities still on the chopping block, they may have only one strike left. Although Nostalgic has said it will cease operations and seek damages, Boland said others may be in a different position. 

Glazer added that if the Staten Island Yankees' suit "has any success, I can't imagine that any of the other affected teams would not include a suit as part of their strategy, in addition to lobbying Congress."

Nostalgic is represented by James W. Quinn, Michael M. Fay and Emily Burgess of Berg & Androphy and by David J. Lender and Zachary A. Schreiber of Weil Gotshal & Manges LLP.

Counsel information for the defendants was not immediately available. 

The case is Nostalgic Partners LLC v. New York Yankees Partnership et al., case number 656724/2020, in the Supreme Court of the State of New York, County of New York, Commercial Division.

--Editing by Jill Coffey.
 

For a reprint of this article, please contact reprints@law360.com.