The Texas Supreme Court has granted review of a case challenging the $600 million-plus sale of the Houston Astros baseball team and the fledgling sports network created to broadcast its games.
Houston Baseball Partners, led by now-Astros owner Jim Crane, sued McLane Champions, which owned the Astros when Crane brought the team in 2011; R. Drayton McLane Jr., Champions principal shareholder; Comcast Corp. and NBCUniversal Media for fraud, fraud by nondisclosure, negligent misrepresentation and conspiracy.
In essence Crane’s partnership says it was deceived to pay too much to buy the team and its share of the cable network. Before the sale, Houston Baseball Partners assigned its rights to a holding company, HBP Holdings.
The trial court denied McLane’s effort to dismiss the suit. Houston’s 14th Court of Appeals affirmed the trial court’s order denying the McLane and the other defendants’ dismissal motion based on its conclusions that (1) Houston Baseball Partners has standing and (2) the partnership produced clear and specific evidence for each essential element of its claims, required by the Texas Citizens Participation Act. The McLane defendants moved to dismiss under the act.
In its petition to the Supreme Court, McLane raises objections to Houston Baseball Partners’ standing to sue because of the assignment of all rights to the holding company and to the court’s denial of the dismissal motion under the Citizens Participation Act. Crane’s partnership, the petition contends, failed to establish a threshold case under the act for fraud and negligent misrepresentation.
McLane and the media companies argue that Crane’s suit is based on a transaction well analyzed by legions of lawyers and financial advisers and should fail because opinions and predictions about unknowable future events are not actionable. To the principal contention that the value of the sports network was exaggerated by unrealistic pricing, extensive “red flags” negated Houston Baseball Partners “justifiable reliance” as a legal matter.
“In the absence of a fiduciary relationship,” McLane argues, “a seller does not owe a general duty to disclose in an arm’s-length commercial transaction.”
“This Court has long recognized the doctrine of ‘caveat emptor,’” McLane and the other defendants argue. “The court below turned that doctrine on its head by summarily noting that, even in the absence of a fiduciary relationship, a seller owes a duty to disclose in an arm’s-length commercial transaction when it (1) discovers new information that made its earlier representation untrue or misleading; (2) made a partial disclosure that created a false impression; or (3) voluntarily disclosed some information, creating a duty to disclose the whole truth.”
This lawsuit, McLane’s petition says, presents an “ideal case” to provide guidance to courts, litigants, and the business community concerning when a duty to disclose arises.
Consistent with the second Restatement of Torts (section 551), McLane’s petition argues, appeals courts in Texas have recognized, as the court of appeals did in this case, a general duty to disclose may arise under circumstances that Crane presents. “But this Court has never ‘adopted’ section 551 or ‘embraced it as a rule of law in Texas.
“A seller has no obligation to negotiate against itself. Nor should it have a general duty to disclose to a potential purchaser every possible opinion, prediction, or fact that could arguably affect a negotiated sales price.”
In its suit, Houston Baseball Partners complains about statements made during the due-diligence process that allegedly induced it to purchase the Astros for an “inflated” price.
And, finally, the petition also contends it poses a “dispositive” jurisdictional issue regarding standing: “HBP asserts contract and tort claims arising from the purchase of the Houston Astros. But HBP did not purchase the Astros.”
The Supreme Court has not scheduled submission dates for the term that begins September 1.
McLane is represented by Wayne Fisher of Fisher, Boyd, Johnson & Huguenard in Houston and Geoffrey Berg of Berg, Plummer, Johnson & Raval in Houston. McLane Champions is represented by Chip Babcock, Nancy W. Hamilton and Harris J. Huguenard of Jackson Walker in Houston and Brett Kutnick with Jackson Walker in Dallas, as well as David J. Beck with Beck Redden in Houston.
Thomas F.A. Hetherington of McDowell Hetherington in Houston and Greg D. Andres, Dana M. Seshens and Brian M. Burnovski of Davis Polk in New York represent Comcast Corp. and NBCUniversal Media.
Ronald G. Franklin, Thomas M. Farrell and Charles B. Hampton with McGuireWoods in Houston represent Houston Baseball Partners and HBP Team Holdings.