Minor League Club Scores Win in Contraction Lawsuit

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Major League Baseball’s move to strip 40 minor league teams of affiliations is central to a recent ruling by New York County Justice (Judge) Barry Ostrager. On Aug. 24, the judge partially denied a motion to dismiss a lawsuit brought by the Tri-City ValleyCats, against their former parent club, the Houston Astros, and MLB.

Judge Ostrager’s order paves the way for ValleyCats’ attorneys to seek potentially invasive discovery requests of MLB, including the sharing of sensitive emails and the taking of sworn testimony. And while many of the team’s claims were dismissed, they may be eligible for compensation due to lost stadium investments and damage to sponsors.

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The ValleyCats, which joined the independent Frontier League in 2021 after playing in the recently disbanded Class A New York Penn League, sued in January, a month after the now defunct Staten Island Yankees sued the New York Yankees and MLB. Both teams are litigating before Judge Ostrager and both are represented by prominent sports attorney James Quinn of Berg & Androphy. In the early 1990s, Quinn successfully represented NFL players in litigating for free agency.

Judge Ostrager’s ruling details the relationship between the ValleyCats and MLB—a relationship the judge termed “successful, in terms of the sport and the revenue it generated.” He underscored how the ValleyCats won multiple NY Penn League championships and how 81 ValleyCats players, including Jose Altuve and George Springer, went on to big league careers. The judge, a former commercial litigator at Simpson Thacher & Bartlett, also highlighted MLB and the Astros thriving financially with the ValleyCats as part of their community.

“Despite this success,” Judge Ostrager wrote, MLB restructured the minors in the fall of 2020. The changes involved, among other things, the ending of contractual relationships. Teams like the ValleyCats lost affiliations, forcing them to apply to join independent leagues. The restructuring also expanded MLB’s power over minor league owners.

The ValleyCats demand at least $15 million in damages reflecting, in part, the team’s reliance on the Astros’ “alleged encouragement” to renovate facilities and improve wireless technology at Joseph Bruno Stadium. The ValleyCats also cite losses of sponsorship agreements and ticket revenue resulting from the vanquished affiliation. Further, it details disruptions to its lease with the stadium’s owner, Hudson Valley Community College.

Judge Ostrager dismissed six of the ValleyCats’ 10 claims. The dismissed claims concern the contractual relationship between the ValleyCats, MLB and the Astros.

While the ValleyCats insist that MLB induced them into believing their relationship would extend into the 2020s, the relevant contract unambiguously expired in 2020. There was no “obligation to maintain the affiliation in perpetuity.” Stated differently, neither MLB nor the Astros “owed” the ValleyCats once the contract ended. Also, the ValleyCats weren’t in a franchise-franchisor relationship with MLB or the Astros; in 1992, the team’s current owner purchased the ballclub from a previous owner. Traditionally, minor league teams signed two-year affiliation agreements with major league clubs to provide players, who are employees of the major league team.

Judge Ostrager was more persuaded by ValleyCats’ claims of tortious interference with third parties, including Hudson Valley Community College, the NY Penn League, the National Association of Professional Baseball Leagues (“MiLB”) and ticket holders. To that end, the judge reasoned there are plausible arguments that MLB and the Astros: (1) knew the ValleyCats possessed these contracts and (2) engaged in intentional and improper acts to spark breaches.

Take the lease, for instance. It permits the ValleyCats to use the ballpark “for play by a short season Class A New York-Pennsylvania professional Baseball League baseball team.” That condition can no longer be met—a point with real-world implications, the judge stressed, since “the ValleyCats may be evicted from the stadium at any time.”

As to the ValleyCats’ NY Penn League contract, it contemplated “affiliated” games—another unreachable condition. Likewise, the ValleyCats maintain they lost benefits from an extinguished relationship with MiLB. The ValleyCats are also in breach with ticket holders who paid to watch “affiliated professional minor league baseball games.” Multiyear sponsorship contracts with Dunkin’ Brands, Inc., Mohawk Honda and Valvoline, the judge added, are similarly at risk of breach.

In court filings, MLB insists the restructuring reflected legitimate economic reasons and that any adverse impacts on the ValleyCats were merely “incidental.” Judge Ostrager wasn’t persuaded (at least at the motion to dismiss stage). He reasoned that, given MLB and Astros’ financial success, more analysis is warranted.

The judge also found some support for the ValleyCats’ insistence that MLB and the Astros “procured a breach of the various ValleyCats contracts.” Judge Ostrager observed that the ValleyCats relied on MLB publicly releasing a list of teams—including the ValleyCats—that would remain affiliated. Believing they were safe, the ValleyCats invested in their club.

A partially favorable ruling on a motion to dismiss doesn’t mean that the ValleyCats will win the litigation. However, it advances four of the team’s claims. The further the case goes, the more likely it will compel MLB to disclose information it prefers to safeguard. MLB might thus be inclined to offer the ValleyCats favorable settlement terms.

Other minor league owners are watching. If MLB settles with the ValleyCats (and/or the Staten Island Yankees), it could incentivize other teams to sue and attempt to extract settlements. But MLB, one minor league owner tells Sportico, is “working with the cities who lost a team to bring baseball back in some other form.” To the extent those efforts succeed, MLB will more likely keep potential grievances out of court.

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