Orbit Sports LLC v. Taylor

Background

Orbit Sports LLC owns more than 17% of the Minnesota Timberwolves Basketball Limited Partnership, which owns and operates the Minnesota Timberwolves and Minnesota Lynx. Glen Taylor, Taylor Corporation, and Taylor Sports Group, Inc. are also partners; Taylor Sports Group is the general partner, and the agreement gives the general partner exclusive management and control of the partnership.

The partnership agreement defines a “Control Sale” as a sale, exchange, or other disposition by Taylor Group members of partnership interests that includes a majority of all general-partnership interests. It also gives limited partners “Tag-Along Rights,” allowing them to participate in a Control Sale, and gives the Taylor Group “Drag-Along Rights,” allowing it to require other partners to participate in such a sale.

Taylor and his companies entered into an Equity Interest Purchase Agreement with Purple Buyer Holdings, LLC, an entity owned and controlled by Alex Rodriguez and Marc Lore. At a closing scheduled for June 30, 2021, the buyer would acquire a 20% limited-partnership interest. The agreement also granted the buyer a series of Call Options that could later allow it to acquire the remaining partnership interests, including all general-partnership interests. The buyer was not required to exercise any of the options, and each option transaction was subject to required approvals.

Orbit argued that the entire arrangement was a series of related transactions constituting a Control Sale and that its Tag-Along Rights therefore applied to the June 30 closing. Orbit also alleged that the defendants structured the transaction to avoid those rights and thereby breached the implied duty of good faith and fair dealing. Orbit sought declaratory and injunctive relief, specific performance, and monetary damages it alleged would total at least $300 million.

Motion to Dismiss

The court applied Minnesota law because the partnership agreement contained a Minnesota choice-of-law provision. On the breach-of-contract claim, the court focused on whether the June 30 closing involved a Control Sale. It held that the agreement’s references to a “sale,” “exchange,” or “other disposition” required an actual transfer of partnership interests. Granting an option did not transfer the interests because, under Minnesota law as discussed by the court, an option conveys no interest until the option is exercised.

At the June 30 closing, the buyer would acquire only a 20% limited-partnership interest and would receive options to acquire general-partnership interests later. No general-partnership interests would be transferred unless and until the buyer exercised the Second Tranche option and a later closing occurred. The court therefore held that no Control Sale would occur at the June 30 closing.

The court also rejected Orbit’s argument that the initial 20% sale was part of a related series that already constituted a Control Sale. Even if a Control Sale could occur through related transactions, the court said each transaction still had to be a sale, exchange, or other disposition, and granting an option did not meet that requirement.

The court separately concluded that Orbit’s Tag-Along claim failed because the agreement required the Taylor Group not to exercise its Drag-Along Right before the Tag-Along Right could apply. Because any Control Sale would occur, if at all, at a later closing after exercise of the Second Tranche option, the Taylor Group still had time to exercise its Drag-Along Right. The court therefore found it impossible to say that the Taylor Group had failed to exercise that right, which was a necessary condition for Orbit’s Tag-Along claim.

On the good-faith claim, the court held that Orbit had not plausibly alleged that the defendants acted in bad faith. The partnership agreement did not prohibit using options to structure a potential transaction or selling limited-partnership interests before entering into a Control Sale involving general-partnership interests. The court found that the alleged conduct showed, at most, that the defendants structured the deal so a Control Sale would occur later; it did not show that they repudiated the agreement, blocked a condition, extracted a waiver, or otherwise improperly thwarted Orbit’s contractual rights.

Because Orbit’s substantive claims were not plausibly alleged, the court also found no basis for its requests for declaratory or injunctive remedies. The court dismissed the complaint with prejudice, concluding that the central problem was a legal interpretation of the agreement rather than a factual defect that amendment could fix.

Preliminary Injunction and Other Requests

The court separately considered Orbit’s request for a temporary and preliminary injunction. A preliminary injunction is an extraordinary order preserving the status quo before final judgment. The court considered the likelihood of success, irreparable harm, the balance of harms, and the public interest.

The court found that Orbit was not likely to succeed on its claims. It also held that Orbit had not shown irreparable harm because its alleged economic injury could be addressed through damages and because the buyer might never exercise the options that would transfer control. Orbit also had not supported its claim that Taylor would be unable to satisfy a money judgment. The balance of harms did not favor an injunction because delaying the transaction could cause the entire deal to fail, and the public-interest factor did not favor relief because the dispute primarily involved private economic interests.

The court rejected Orbit’s arguments that an advisory board and the designation of Rodriguez and Lore as alternate governors likely violated the partnership agreement. The advisory board was described as advisory only, and an uncontested affidavit stated that alternate governors have no control rights over the teams. The court also denied Orbit’s request for specific performance and its requested expedited briefing schedule and hearing on a summary-judgment motion. The court stated that the defendants’ request to stay discovery was denied as moot and denied Orbit’s request for expedited discovery concerning Taylor’s financial liquidity.

Disposition

Judge Eric C. Tostrud ordered that the defendants’ motion to dismiss was GRANTED. Orbit’s motions for a temporary and preliminary injunction, specific performance, and an expedited briefing schedule and hearing on a summary-judgment motion were DENIED. The action was DISMISSED WITH PREJUDICE, and judgment was ordered to be entered accordingly.