Where the NASL vs. USSF lawsuit now stands

Thoughts on where we stand #NASL v. #USSF:

The ongoing NASL v. USSF lawsuit hit its first key point on Tuesday with the parties arguing whether the NASL should be granted a preliminary injunction, which would grant it Division 2 status pending a full trial. The injunction, NASL says, would allow it to continue operations while the trial on the alleged USSF Sherman Act violations proceeds. It should be noted that USSF has filed a motion to dismiss the entire matter. Briefing on that issue is scheduled to begin later this month, with a hearing presumably in late December (have copy of schedule).

As to the motion for a preliminary injunction: The court took argument from both sides for nearly three hours. A review of the transcript shows a judge, while not versed in U.S. Soccer, who proved to be a very impressive member of the bench. She asked very probing questions of each side, and was able to keep order between two feuding sides.

NASL of course alleges that without D2 status, they will not be able to survive. That is not enough to justify a preliminary injunction, though. A further hurdle still is that the Judge determined that this is a “mandatory injunction.” Meaning that NASL is asking the court to give them something they don’t currently have, as opposed to preventing someone from taking away something they currently have. Because of that, the hurdle NASL has to clear is significantly higher. They need to show that they are clearly entitled to the relief, that they are significantly likely to prove their case at trial. So let’s take a look at where things stand. Again this is simply my opinion of how the parties did and what the Judge is thinking.

After reviewing the pleadings, Judge Brodie made some preliminary findings. It should be noted these are preliminary, and as she mentioned, her mind could be changed based on the arguments made by the parties. Jeffery Kessler argued for the NASL. Two attorneys (Christopher Yates and Russell Sauer), argued for USSF.

MARKET POWER:

The Court agreed with NASL that USSF has control over the relevant market forces. Meaning that the court agrees that D1 and D2, and USSF’s control over sanctioning of those, constitutes “market power.” Neither party disputed this, so we move on.

IRREPARABLE HARM/EXTREME OR SERIOUS HARDSHIP

In order to prevail, NASL will have to show that USSF actions cause irreperable harm and extreme/serious hardship. She found that by losing D2, NASL would be irreparably harmed. This isn’t a surprise, and isn’t really in dispute. Going to D3 will case some harm.

It isn’t clear, however, that NASL has proven that harm is “extreme and serious.” There isn’t much case law on the subject. And after all, as NASL pointed out themselves, something could happen which causes NASL it to lose fans that never return, but if it were only a small percentage, it wouldn’t necessarily be extreme and serious.

To this point, NASL pointed to the declarations from current and prospective owners saying that D3 would cause them to fail. USSF pointed out that NASL did not supply any financial documentation, analysis or the like. The Judge pushed USSF on why declaration from NASL owners wasn’t enough. USSF responded by saying they would supply additional documentation. One document in support of USSF’s position was financial information that NASL teams lost an average of $5 million in 2016, which they argue cuts against the extreme/serious hardship, since they are already unsustainable. I’m not sure whether the Judge completely bought that, but it was an interesting point.

One thing the Judge did NOT buy is the USSF argument that since USL was able to thrive in D3 that NASL could too. The judge stated that USL started there, whereas NASL is being relegated, essentially. That was definitely a point in NASL’s favor.

USSF argued more to the fact that NASL’s hardship is their own doing (“self-inflicted harm”), which seems like a more favorable argument. That is where the financials regarding their teams losing $5 million on average come into play. To me, the judge still wasn’t completely buying that, but again, USSF is filing additional documentation so this is a bit up in the air.

BALANCE OF HARDSHIPS

The court found balance of hardships tips to NASL, but only just, so that may not be enough under the higher standard for a mandatory injunction.

This basically means in comparing the hardships of the parties, should the court rule in favor of one side over the other, the court agreed that the hardship of being dropped to D3 slightly outweighs the hardship of USSF being delegitimized as a sanctioning body.

Again: It’s very important to note that the judge said she did not find overwhelmingly for NASL here. We are talking like 52/48. That may not be enough to get over the high hurdle. The parties spent quite a bit of time arguing this, but not sure her mind was changed.

PROFESSIONAL LEAGUE STANDARDS

The parties spent SIGNIFICANT time arguing about the Professional League Standards (PLS). These are things like number of teams, time zones, and financial requirements.

Again, the Judge found as a preliminary matter NASL meets first burden (USSF has relevant market power via it’s sanctioning authority). The Judge also found, as a preliminary matter, that USSF showed the PLS are pro competitive, meaning there that there are good reason for standards they set.

Now, to rebut that, NASL must show USSF could use less restrictive standards to meet goals (growing the game of soccer in the US).

At this point the parties mostly focused on PLS being pro competitive and less restrictive standards. Kessler argued that they aren’t pro competitive at all AND that less restrictive standards that could be imposed to achieve goals (drug testing, concussion protocols).

KEY: The Judge was NOT impressed with argument from NASL that USSF does not have rights to impose PLS. Kessler repeatedly walked the line of arguing that USSF doesn’t have the right to impose standards at all, as opposed to arguing USSF’s decisions as to imposing PLS as they do were discriminatory and designed to restrain trade/hurt NASL. The Judge repeatedly pressed him on this argument, and he basically backed down each time under pressure. The argument that USSF, through its association with FIFA, cannot impose standards on U.S. Soccer and its members is just not going to fly with this Judge for purposes of issuing a preliminary injunction. The Judge also pointed out that the PLS don’t prevent another league from joining D1, assuming they meet the standards. NOTE: there is a 2016 letter from USSF offering to assist NASL in reaching D1, and also offering provisional D1 status. I was surprised USSF didn’t bring that up; missed opportunity for them.

AGREEMENT/CONSPIRACY

Where NASL found more fertile ground, and where the Judge was much more interested, is whether USSF/MLS/SUM are conspiring to restrain trade via the standards they implement and the way the impose them. This is arguably the most important element, because if you can’t establish this element, you can’t really get in the door. Based on the pleadings of the parties, and the evidence before the Court, the Judge clearly thinks there is “smoke.” BUT, she wasn’t sure that NASL had presented enough evidence to meet their burden.

Kessler argued a number of things here.

First: NASL argued that USSF is, by its affiliation with MLS through SUM, in agreement to conspire to restrain trade. This seemed a bridge too far for the Judge. There is ample case law supporting the argument that more is required than an affiliation to prove an agreement/conspiracy to restrain trade, and the Judge pressed Kessler hard on this point. As USSF pointed out, it would be all but impossible for USSF to operate at all, since members of the board have to come from soccer community, and they have some interest, whether financial or otherwise. The Judge was definitely persuaded by this argument. Give the point to USSF here.

Second: Regarding the “smoke,” the Judge seemed more interested in whether there was a conflict of interest based on the agreement between MLS/SUM/USSF. Kessler spent quite a bit of time arguing that even though various members recuse themselves from discussions on PLS and Division sanctioning, the mere fact that people like Don Garber are on the board means they can directly or indirectly influence members. The judge pressed USSF on this point and again, they did a decent job of outlining that since people from the soccer community comprise USSF, it would be impossible to function without them. They argued recusal was enough, and that there was a NASL owner on the board (Steve Malik, North Carolina FC). I think the Judge was leaning towards USSF here, though their standards for dealing with conflicts (and how the Board is comprised) is open to scrutiny.

Third: Kessler argued the USSF financial interest in SUM was a massive conflict of interest, and due to those financial ties, USSF is so reliant on that agreement that they will always favor MLS over other parties. The parties argued over the amount (NASL says USSF gets 30% of SUM; USSF says less than 20%), but the SUM contract is under seal, so can’t really analyze which way the Judge is going. It seems like a fairly potent argument to me for NASL.

Fourth: Kessler argued (and the Judge was persuaded by) the proposed changing of standards in 2015, as NASL was applying for D1, shows discriminatory intent. Basically, whenever NASL was trying to move up, the standards would change. The 2015 standards were never imposed, but the Judge definitely found it questionable. The court also seemed persuaded by the NASL argument that up until recently, MLS required waivers D1 (stadium size). And an interesting argument to me that NASL made was that when MLS started, they only started w/eight teams and required waivers (and went from 10 to 8 teams). So NASL is essentially arguing, “why can’t we start out as D1 in the same way MLS did back in 1996?”

Regarding the Conspiracy/Agreement to restrain trade, it’s clear there is no specific agreement between parties (USSF/MLS/SUM) to restrain trade against NASL. No actual contract/email/whistleblower. At least not in the pleadings before the court. That of course is not the only way to prove a conspiracy. And it doesn’t mean that evidence isn’t out there. According to the Judge, there is “smoke.” But that is merely an inference that can be drawn, not evidence.

NASL is arguing that the mere fact that USSF/MLS/SUM are in bed is enough. Essentially, a “walking conspiracy.” But the USSF did good job of explaining that away for the most part, and the Judge was persuaded with their argument why these parties being involved with each other cannot be a conspiracy, per se.

BOTTOM LINE

Bottom line for USSF: Since NASL has not shown a concerted effort (conspiracy) to restrain trade, and therefore are unlikely to prevail at trial, granting injunction would harm USSF, since it would defang them as governing body, notwithstanding harm to NASL by not getting D2. PLS are a necessary and proper to govern and grow the game of soccer. NASL’s issues are by and large self-inflicted, and as such they cannot use those issues to show an extreme/serious harm.

Bottom line for NASL: Whether by agreement or not, USSF and MLS through SUM, have conspired to restrain trade by setting unreasonable standards, and imposing them in a discriminatory manner. Being relegated to Division 3 will kill them as an entity; as such they will suffer such extreme/serious harm such that an injunction is necessary while they pursue the lawsuit. Additionally, the harm to them by not getting D2 outweighs the harm to USSF by being unable to fully regulate the standards. Additionally, those standards are not the least burdensome way to achieve the goals of USSF to grow soccer in the US.

HOW WILL THE JUDGE RULE

This is a close case. Very close. The biggest hurdle for NASL is their inability, based on the evidence presented, to show a conspiracy/agreement to restrain trade. It asks the Court to draw an inference it clearly isn’t totally confortable making, especially in light of the higher standard NASL has to reach. The Judge may have some concerns about how USSF has conducted itself, but I’m not sure if that’s enough. NASL may uncover a smoking gun in the discovery process, but I would be surprised to see the Judge issue a mandatory injunction based on, what USSF could argue, is a fishing expedition. Again, NASL has to show a substantial likelihood of success on the merits. In other words: They are considerably more likely to succeed than fail.

I think the Judge is persuaded by the harm that will be suffered by NASL if this injunction isn’t granted. The question on that score is whether the Court agrees NASL will suffer an extreme/serious hardship (not of their own making). One other thing: Does the court find that USSF’s use and application of, the PLS are too restrictive and discriminatory in application? If she does, that, combined with a finding of extreme harm, may allow her to give more weight to those elements to overcome the concerns about the lack of evidence regarding a conspiracy.

Sorry to fence-sit, but I honestly think the case is just that close. If pushed to choose, I lean towards NASL coming up just short in obtaining the injunction. A ruling is expected at any time, likely Friday. The Judge could take additional time if the additional pleadings filed by NASL and USSF after the hearing raise concerns.