No Fat Lady Yet: Tidbits from the Balsillie/NHL Ruling

Not Yet Needed in a Phoenix Courtroom

I spent some time this morning (on my coffee break, relax everybody) looking at what Judge Redfield T. Baum had to say about the Phoenix Coyotes bankruptcy proceedings (Odin Mercer at Five for Howling has posted a link to a copy of Judge Baum’s ruling.)

Much will be made of this ruling – and properly so – as a huge victory for those intent on keeping the Coyotes in Phoenix (including the Coyotes’ fans, the NHL and one Gary Bettman).  Any result that has the effect of delaying an auction and preserving – however temporarily – the status quo concerning relocation rights, transfer fees and the NHL’s procedures in respect of these matters has to be seen as a loss for Balsillie’s side.  This is so for many reasons, not the least of which is that Balsillie has lost the advantage of surprise at this point;  with the status quo preserved and the relocation train stuck in the station, the NHL has gained an opportunity to organize a competing ownership proposal, one that addresses the league’s concerns and (you can bet your sweet ass) does precious little boat rocking in terms of territorial rights, franchise relocation, etc.

My initial sense, though, upon going through this ruling, is that the victory is far from complete for the NHL forces.  In particular, it seems likely to me that:

  1. The drama is far from played out in Phoenix as a result of this ruling; and
  2. Lawyers for MLSE will be sitting Brian Burke and the Directors down and giving them some unwelcome news:  specifically, they’ll be telling the Leafs’ brass that it probably won’t be long before they have neighbours of one variety or another.

The NHL can’t reject Jim Balsillie as an owner.

As to the first point, regarding the change of ownership issue alone (i.e. transfer of the team to Balsillie’s company PSE, absent any consideration of the league’s geographic restrictions essentially requiring the Coyotes to stay in Phoenix), Judge Baum has ruled as follows (at p.8 of the ruling):

Significant to the court here regarding the objection to the transfer of ownership of the Phoenix Coyotes is the fact that in 2006 the NHL approved PSE [a holding company controlled by Balsillie] to become a member of the NHL.  The court has the firm sense that if the only issue here was PSE purchasing the Phoenix Coyotes [no relocation term] there would be no objection from the NHL.  The law implies in every contract a covenant of good faith and fair dealing.  Even when one party retains, by virtue of the contract, a right of approval or disapproval or a discretionary power over the right of the other, such powers must be exercised within the parameters of the duty of good faith (citation omitted)…Absent some showing by the NHL that there have been material changes in PSE’s circumstances since 2006, it appears to the court that the NHL can not object or withhold its consent to PSE becoming the controlling owner of the Phoenix Coyotes.  Therefore and based upon this record, the court concludes that the NHL can not declare a default solely due to the change in ownership terms of the APA.

This would seem to be a very powerful signal from the court that Balsillie can’t be rejected in good faith by the NHL as an owner, provided that he comes up with an offer for the team that otherwise would conform with the bankruptcy code.  As I see it, in this portion of his ruling, the judge has signalled that the race is on – he’s telling the NHL to get its alleged competing bidders together and get them to the table with their best offers, because Mr. Balsillie – if he wants to – can buy this team.  The judge is telling the NHL, “You can’t say Mr. Balsillie is an unacceptable owner.  You’ve already accepted him in principle into your club.”

What’s the big deal about that, you might ask; Balsillie wants a team in Hamilton, not a team in Phoenix. If he can’t move the team, he won’t want to buy it, right?  Well, maybe – but maybe not.