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Washington Frontier League Baseball, LLC v. Zimmerman

United States District Court, S.D. Indiana, Indianapolis Division

September 14, 2016



          TANYA WALTON PRATT, JUDGE United States District Court Southern District

         This matter is before the Court on Motions to Dismiss filed by Defendants Michael E. Zimmerman (“Zimmerman”), MKE Baseball, LLC and MKE Sports & Entertainment, LLC (collectively, “the Zimmerman Defendants”) (Filing No. 80), Defendant Joshua E. Schaub (“Schaub”) (Filing No. 95), and Defendants W. Chris Hanners (“Hanners”) and Bryan Wickline (“Wickline”) (Filing No. 103). This is the third round of motions to dismiss in this derivative action lawsuit filed by Plaintiffs Washington Frontier League Baseball, LLC (“Washington Club”) and Stuart A. Williams (“Williams”) after the Zimmerman Defendants secured a baseball expansion opportunity that Washington Club and Williams had been pursuing. For the following reasons, the Court grants in part and denies in part the Zimmerman Defendants' motion, grants Schaub's motion, and denies Hanners and Wickline's motion.

         I. BACKGROUND

         The following facts are not necessarily objectively true; but, as required when reviewing a motion to dismiss, the Court accepts as true all factual allegations in the Second Amended Complaint and draws all inferences in favor of Washington Club and Williams. See Bielanski v. County of Kane, 550 F.3d 632, 633 (7th Cir. 2008).

         Williams, his wife, and another investor are the owners of Washington Club, which is a member club in the Frontier League. Frontier League is an independent, professional baseball league with thirteen teams. Each Frontier League member has a team that plays in the Frontier League. Each Frontier League member helps fund a travel team that plays in the Frontier League so that there are an even number of teams to balance out the playing schedule.

         Frontier League is a not-for-profit corporation organized under Ohio law and has its principal place of business in Illinois. Frontier League's board of directors is comprised of a representative from each of the member clubs within Frontier League. Williams is Washington Club's representative and therefore serves as a director on Frontier League's board of directors.

         One of the other Frontier League members is Rock River Valley Baseball, LLC (the “Rock River Valley Club”), which is owned by Hanners. Wickline was Rock River Valley Club's president and representative on Frontier League's board of directors. Schaub was the owner or managing member of another Frontier League member, the Joliet Slammers, and he was the director for that member team on Frontier League's board of directors.

         In early March 2014, the City of Kokomo, Indiana contacted Frontier League to discuss the possibility of placing an expansion team in Kokomo's to-be-built baseball stadium. On March 10, 2014, Frontier League's Commissioner Bill Lee, assistant commissioner Steve Tahsler, and one of Frontier League's directors, Steve Malliet, visited Kokomo and met with the mayor, director of operations, and city engineer to further discuss the opportunity. They discussed a lease for the stadium and other related matters.

         On March 11, 2014, Malliet summarized the meeting with the city officials for Frontier League's expansion committee, consisting of Schaub, Pat Salvi, and Clint Brown. Also on March 11, Commissioner Lee summarized the meeting for Frontier League's directors. Then on March 18, 2014, several members of Frontier League participated in a conference call to discuss the Kokomo expansion opportunity. Hanners, Wickline, Schaub, Williams, and Malliet were among the call participants. The consensus from the conference call was that the members would take a unified approach to the Kokomo expansion opportunity rather than bid against each other.

         Commissioner Lee asked Williams to assist in preparing a Memorandum of Understanding (“MOU”) with Kokomo to address the Kokomo expansion opportunity. On March 19, 2014, Commissioner Lee signed the MOU on behalf of Frontier League and Kokomo also signed the MOU, which gave both parties the exclusive opportunity to gather more information and conduct further negotiations with one another. The MOU expired by its own terms on May 18, 2014.

         Before the expiration of the MOU, the Kokomo expansion opportunity was discussed at Frontier League's board of directors meeting held on March 25, 2014. At the meeting, the directors decided to hold off on any further discussions about who would participate in the Kokomo expansion opportunity until a lease was negotiated with Kokomo. The directors agreed that Clint Brown (“Brown”), owner of the member club in Florence, Kentucky, would pursue the Kokomo expansion opportunity on behalf of Frontier League and its members under the umbrella of the March 19, 2014 MOU. Williams assisted Brown whenever asked. While Frontier League was having discussions with Kokomo about the expansion opportunity, the Defendants were discussing the Kokomo expansion opportunity for themselves.

         On June 17, 2014, Brown informed Commissioner Lee that he was withdrawing from the negotiations between Frontier League and Kokomo. Commissioner Lee called Williams and asked him to pursue the negotiations with Kokomo, and Commissioner Lee encouraged Kokomo officials to visit Pennsylvania to see the Washington Club operations.

         While Kokomo officials were arranging a trip with Williams, Hanners and Wickline met with Commissioner Lee on June 18, 2014 to ask about the status of the Kokomo expansion opportunity. Commissioner Lee told Hanners and Wickline that Williams was working on the negotiations, and they would need to talk with Williams. On June 19, 2014, Commissioner Lee told Hanners, Wickline, and Zimmerman the same thing about Williams and Kokomo when they met to discuss placing a Frontier League team in the Milwaukee area. Then on June 20, 2014, Kokomo Mayor Goodnight, Randy McKay (“McKay”), and other city officials visited the Washington Club operations in Pennsylvania with Williams and were excited to work with Williams.

         On June 25, 2014, Wickline emailed the Kokomo city engineer, asking to set up a meeting with Hanners. This request was without authorization from, or the knowledge of, Frontier League and conflicted with Frontier League's unified approach to the Kokomo expansion opportunity. The Kokomo city engineer forwarded the request to McKay, who coordinated a meeting with Wickline. Wickline informed McKay that one of Hanners' partners, Zimmerman, would join them for the meeting.

         On June 26, 2014, Wickline emailed McKay to let him know that Hanners would arrive for the meeting around 1:00 p.m. and Zimmerman would arrive closer to 2:00 p.m. McKay emailed Williams to let him know that he had been contacted by a Rock River Valley Club representative and would be meeting with them to discuss a team in Kokomo. McKay informed Williams that he would tell them that Kokomo is working with Williams and would hopefully be entering into a lease agreement. Williams responded with an email expressing appreciation for being informed.

         Williams then immediately called Commissioner Lee and said that he would not visit Kokomo to discuss Frontier League's expansion into Kokomo unless Frontier League spoke with Hanners. Commissioner Lee informed Williams that he was unaware of Hanners' planned meeting with Kokomo officials and that Williams should assume Hanners would not meet with Kokomo unless Commissioner Lee told Williams differently. Commissioner Lee did not inform Williams differently.

         Also on June 26, 2014, Kokomo officials met with Hanners and Zimmerman as well as Schaub to discuss the Kokomo expansion opportunity. Hanners and Schaub brought Zimmerman into discussions with Kokomo and provided him with access and information that he otherwise would not have had. During the meeting, McKay exchanged text messages with Commissioner Lee, which confirmed that Schaub, Hanners, and Zimmerman were meeting with Kokomo. Commissioner Lee encouraged McKay not to finalize anything until after he talked with Williams, to which McKay agreed.

         On Sunday, June 29, 2014, Williams visited Kokomo. Williams perceived that the city officials' attitude toward him had changed since their visit to his Washington Club operation. In preparation for the June 29, 2014 visit, Williams had expressed his intention of finalizing the lease, but during his visit to Kokomo, Williams realized that McKay was not interested in discussing the lease. Mayor Goodnight arrived late and provided a short tour of the city but did not discuss the expansion opportunity. Then on Monday, June 30, 2014, Mayor Goodnight called Commissioner Lee to tell him that Kokomo had decided to work with Hanners and his partners.

         On July 2, 2014, two days after Mayor Goodnight called Commissioner Lee, Frontier League's executive committee held a conference call to discuss the Kokomo expansion opportunity. Williams expressed his belief that the Rock River Valley Club was soon going to close on a lease with Kokomo, and he wanted the executive committee to direct the Rock River Valley Club not to enter a lease until after the executive committee could review the lease and allow other Frontier League members to join the lease.

         The executive committee asked Frontier League's attorney, Thomas Ysursa (“Ysursa”), to send a letter to Hanners asking him for an update on Kokomo, informing him that he needed Frontier League's approval before a lease could be signed, and informing him that after a lease was signed a meeting would be held to determine what other members wanted to join the expansion opportunity. Before Ysursa could send the requested letter, he received an email from Zimmerman on July 2, 2014, which included a copy of the lease that was being presented to Kokomo. The proposed lease was between Kokomo and Rock River Valley Baseball, LLC. In his email, Zimmerman informed Ysursa that “[w]e understand and empathize with other owners if they are unsettled about ‘the deal.'” (Filing No. 75 at 11.) Zimmerman went on in his email to invite other owners to consider entering into the expansion opportunity, which would include Kokomo and the Rock River Valley Club.

         After receiving this email, Ysursa sent a letter to Hanners on July 2, 2014, asserting that the Kokomo expansion opportunity was an opportunity for Frontier League to pursue and that if Hanners failed to offer participation in the opportunity to his fellow members, he would be breaching fiduciary duties. He noted that Hanners should “take no further action of any kind in relation to Kokomo until such time as you provide the League the opportunity to review the lease and you provide an update to the Executive Committee as to the state of your negotiations and your intentions with Kokomo.” (Filing No. 75 at 11-12.)

         Ysursa spoke with Hanners on July 3, 2014, and asked him to allow Frontier League to finish the lease negotiations. Hanners stated that he was agreeable but would first have to talk with his people-Zimmerman. Ysursa confirmed this conversation in a letter dated July 4, 2014. On July 7, 2014, the executive committee met to discuss a course of action that assumed Hanners would comply with Frontier League's directives and turn over the Kokomo negotiations to Frontier League. However, Hanners sent a text message to Ysursa on July 7, 2014, expressing his plan to be in Kokomo to finalize the negotiations. Zimmerman and Hanners agreed that Hanners would go to Kokomo to finalize the negotiations for the baseball opportunity there.

On July 8, 2014, Kokomo official McKay sent a text message to Commissioner Lee stating, Bill, we have an agreement on the lease with Dr. Hanners [sic] group that will bring a team into Kokomo. There is no guarantee it will be from the Frontier League, but we certainly hope so. I am hoping things are good at your end to allow this group to obtain a team.

(Filing No. 75 at 13.) The next day, Ysursa informed Hanners that if he failed to conform to the directives of Frontier League and the by-laws and his duties, “the Frontier League will take all legal and administrative actions it deems appropriate to protect its members and interests.” Id.

         On July 11, 2014, MKE Baseball, one of Zimmerman's entities, executed a lease with Kokomo for a baseball opportunity in Kokomo. The lease was assignable by MKE Baseball to any limited liability company in which Hanners or Zimmerman was a majority owner and expressly included the Rock River Valley Club. After securing the lease with Kokomo, Hanners and Zimmerman presented several different proposals to the Frontier League members for Zimmerman's admission into Frontier League and to approve a franchise in Kokomo under Hanners' and Zimmerman's control.

         Zimmerman offered to sell an interest in the Kokomo opportunity to the members of Frontier League, while at the same time acknowledging that Kokomo had always been a Frontier League opportunity. Regarding the value of a Kokomo team, Zimmerman informed the Frontier League directors that “we estimate the fair market value of the Kokomo baseball team to be $1, 000, 000.” (Filing No. 75 at 14.)

         On September 2, 2014, Zimmerman revealed that he was bringing a team from the Prospect League, a competitor of Frontier League, to Kokomo to play at the stadium covered by the Kokomo lease. Hanners and Wickline assisted Zimmerman in bringing a Prospect League team to Kokomo in violation of fiduciary duties. Hanners was involved in owning or operating the Prospect League team in Kokomo in violation of his fiduciary duties and Frontier League's by-laws. Wickline was a director for both the Prospect League team and for a Frontier League team in violation of his fiduciary duties. At the end of September 2014, Wickline resigned as ...

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