- Lester Munson, Legal Analyst
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Former SuperSonics owner Howard Schultz filed a lawsuit in federal court in Seattle on Tuesday, seeking to undo his sale of the franchise to a group of Oklahoma City businessmen. Schultz sold the team, he says in the suit, only after the Oklahoma group promised to keep the team in Seattle. Now, according to the suit, it is clear the Oklahoma group's statements about staying in the Northwest were "false from the moment they were made."
Schultz and his attorney, Richard Yarmuth, assert "principles of law and equity do not permit [the Oklahoma group] to continue to own the property it fraudulently obtained."
The unusual suit raises significant legal questions. Here are some of the questions and their answers:
Q: Schultz sold the team in 2006 and collected $350 million. How can he now say the sale must be unwound? Does he have any chance of success?
A: Yes, he does have some chance of success. The lawsuit relies on damning e-mails written by Clay Bennett and others in the Oklahoma group which indicate they never intended to stay in Seattle. Schultz and Yarmuth are relying on legal principles that might work. The key legal terms in the suit are "fraud," "voidable" and "constructive trust." The e-mails indicate Bennett's group was misrepresenting its intentions and could easily qualify as proof of "fraud." Two days before the sale, in a highly damaging e-mail, Bennett told one of his partners if an arena deal was eventually sealed in Seattle, they could do a "sweet flip" and just sell the team and leave Seattle.
A fraudulent sale can be "voidable," although the legal requirements are stiff. And the "constructive trust" sought by Schultz and Yarmuth is a brilliant idea that will give the judge a mechanism to take the team from Bennett and permit its sale to a Seattle-area buyer. When Bennett and his lawyers read the lawsuit, they will realize they face serious difficulty answering what Schultz and Yarmuth have put together.
Q: Schultz has been reviled in Seattle since he sold the team. Isn't this just a public relations stunt to allow Schultz to improve his public image?
A: The lawsuit is more than a public relations stunt. The allegations against Bennett and his group are serious and seem to indicate a fraud at the time of the sale. The chronology of the e-mails is compelling evidence that will allow Schultz to push Bennett and his group into a bad corner. If it were a PR stunt, both Schultz and Yarmuth would be holding press conferences and making dramatic statements. Neither would comment to ESPN.com beyond what is said in the lawsuit. The language of the suit is lean and spare. If anything, it understates the case. Their conduct and their lawsuit are clear indications they are serious about their allegations and their attempt to undo the sale.
Q: How will Bennett and his group respond?
A: They will demand a quick dismissal, hoping to bring it to an end before it becomes an obstacle to their relocation to Oklahoma City, which was approved Friday by the NBA. In motions to dismiss, they will claim American law does not permit a court to void a sale. And Bennett likely will argue his e-mails are innocent and have been misconstrued. He will also list all the efforts he made to build a new arena for the Sonics in the Seattle area. He hired an architect, he hired lobbyists and he put together a scheme for an area in suburban Renton, Wash.
His lawyers will also argue too much time has elapsed since the sale, and it is now impossible for a judge and a receiver to take control of the team and sell it to someone else. But it is unlikely Bennett will succeed in obtaining a quick dismissal. He will then argue that if the sale is indeed voided, he would deserve a significant return on his investment in the team.
He will claim that it is worth much more than the $350 million that he paid for the Sonics and the WNBA's Storm in 2006. (Bennett has since sold the Storm to a group of Seattle investors for $10 million.)
Q: When will we know who wins?
A: The critical point in the lawsuit will come when Schultz asks the court for a preliminary injunction. Injunctions are the most drastic thing a civil court can do, and the requirements for an injunction are demanding. In his court papers, Schultz demands an injunction that will prevent Bennett and his group from "taking any action that would interfere with the court's ability" to void the sale. The judge will face a difficult decision at this point in the litigation process. If Schultz persuades the judge to grant the injunction, he will be on his way to a remarkable victory, a triumph that is without precedent in the sports industry.
Q: What's in this for Schultz? Does he want to take another stab at running an NBA team?
A: Schultz insists he is not interested in money and is interested only in keeping the Sonics in Seattle. He is not asking the court to return the team to him. He wants the court to take a series of actions that will deliver the team to "an honest buyer who desires to keep the Sonics in Seattle." It is a highly unusual request for a judge. If Schultz succeeds in proving the fraudulent intentions of Bennett and his partners, the judge will be presiding over a sale, maybe even an auction, of the Sonics. It will be a complicated situation, highly unusual for a federal judge, who must evaluate possible offers and work for approval of the sale by the NBA and commissioner David Stern.
Q: How does Schultz's suit relate to the city of Seattle's lawsuit to bind Bennett to the KeyArena lease, which is scheduled to go to trial June 16?
A: Both lawsuits are in the same courthouse and could easily end up before the same judge. The lease litigation led to the discovery of the damning e-mails that are the basis for Schultz's case. The cases, added together, present Bennett with serious problems. Both jeopardize his bid to move the team to Oklahoma City. If he loses the lease case, he can still try to buy his way out of the lease by increasing his offer beyond the $26 million bid that the city rejected. If he offered $50 million or a bit more, the city would likely be obligated to give it serious consideration. Even if the city were to reach a buyout agreement with Bennett before the six-day trial begins in June, the Sonics owner will still need to deal with Schultz's suit. If Bennett loses the Schultz case, he loses the franchise.
If either suit is successful in postponing the Sonics' move beyond the start of the 2008-09 season, according to the NBA Constitution, Bennett's group will need to reapply for relocation before the NBA Board of Governors.
Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.
Howard Schultz's legal bid to undo the sale of the Sonics is more than a PR stunt, and it should concern Clay Bennett, writes Lester Munson.