New York Yankees Up to Bat in the Commercial Division Against Former Minor League Affiliate

September 23, 2021

A few weeks ago, my colleague, Madeline Greenblatt, wrote a blog about a $1.75 million breach of contract action brought against Bob Dylan in the Manhattan Commercial Division. In her blog, Madeline reminded practitioners that New York courts will not consider extrinsic evidence to aid in the interpretation of an unambiguous contract, especially on a CPLR 3211 pre-answer motion to dismiss. This bedrock principle was once again illustrated by the Manhattan Commercial Division in Nostalgic Partners, LLC v New York Yankees Partnership, et al., (2021 NY Slip Op 50853[U] [Sup Ct, NY County, Sept. 9, 2021] [Ostrager, J.]), a $20 million lawsuit brought against the New York Yankees by one of its former minor league affiliates.

The Facts

For over 100 years, Major League Baseball (“MLB”) and Minor League Baseball (“MiLB”) worked together in a joint venture to support and promote professional baseball in North America. Their relationship was governed by a Professional Baseball Agreement (“PBA”), which outlined the terms and conditions of the parties’ respective obligations and incorporated the Major League Baseball Rules (“MLB Rules”). Pursuant to the MLB Rules, each MiLB club was required to execute a Player Development Contract (“PDC”) with its affiliated MLB team, which formalized the affiliation between each MiLB and MLB team.

In September 2011, Plaintiff Nostalgic Partners, LLC (“Nostalgic”) purchased the Staten Island Yankees (“SI Yankees”) – a minor league affiliate of the New York Yankees (“NY Yankees”). In connection with the sale, the parties entered into a letter agreement (“2011 Letter Agreement”), obligating the NY Yankees to have a PDC with Nostalgic for so long as: (1) the NY Yankees, through certain trusts, retained an ownership interest in Nostalgic; and (2) a majority of Nostalgic’s original shareholders remained members of Nostalgic.

The NY Yankees and Nostalgic maintained a productive working relationship for nine years following the 2011 purchase. In 2019, rumors began to circulate that the MLB was restructuring the minor league system and eliminating 40 MiLB teams, including the SI Yankees. Although the NY Yankees purportedly assured the SI Yankees of its continued support and intention to remain affiliated, the NY Yankees issued on November 7, 2020 a press release formally ending its affiliation with the SI Yankees.

As a result, Nostalgic commenced on December 3, 2020 an action against the NY Yankees, MLB, and others (“Defendants”), alleging claims for breach of contract, promissory estoppel, tortious interference with contract, breach of fiduciary duty, and violations of the New York State Franchise Sales Act.  Among other things, Nostalgic alleged the NY Yankees breached the 2011 Letter Agreement by refusing to negotiate a new PDC with Nostalgic notwithstanding that the conditions set forth in the 2011 Letter Agreement had been met.

Defendants jointly moved to dismiss Nostalgic’s claims.  With respect to Nostalgic’s breach of contract claim, the NY Yankees argued its obligation under the 2011 Letter Agreement to enter into a PDC with Nostalgic was contingent upon the continuation of the PBA, which expired by its own terms on September 30, 2020.  According to the NY Yankees, because the MLB Rules provided that no PDC could have a term extending beyond the expiration of the PBA, Nostalgic’s contractual right to a PDC extinguished upon the expiration of the PBA.

The Court’s Decision

Justice Barry Ostrager of the Manhattan Commercial Division partially granted Defendants’ motion, dismissing seven of Nostalgic’s eight claims against the Defendants. The Court, however, denied the motion with respect to Nostalgic’s breach of contract claim, finding the complaint, liberally construed, stated a claim against the NY Yankees for money damages based on its alleged breach of the 2011 Letter Agreement.

As the Court explained, the NY Yankees’ obligation under the 2011 Letter Agreement to have a PDC with Nostalgic was not contingent upon the existence of the PBA.  The 2011 Letter Agreement was clear on its face in setting forth the conditions under which the PDC covenant remained in effect, and the continuation of the PBA was not one of those conditions.  The Court noted that the MLB/MiLB structure, and the PBA and MLB Rules that governed the MLB/MiLB’s relationship, were not dispositive of Nostalgic’s claim for breach of the 2011 Letter Agreement, a separate and “unique contract” between Nostalgic and the NY Yankees.  Because the 2011 Letter Agreement plainly set forth in unambiguous terms the two conditions under which the NY Yankees were obligated to have a PDC with Nostalgic, the Court declined to read into the 2011 Letter Agreement a third condition requiring the PBA to remain in effect.

Takeaway

The Nostalgic decision reinforces the “four corners” rule of contract interpretation in New York. Where, as in Nostalgic, the terms of a written contract are clear and unambiguous, New York courts will consider only the “the four corners” of the contract to determine the parties’ intent.  If a contract is unambiguous, courts will not look to extrinsic evidence to create ambiguities not present on the face of the document, and will most certainly not rewrite the parties’ agreement. Because the 2011 Letter Agreement at issue in Nostalgic was clear and unambiguous as to what conditions triggered the NY Yankees’ obligations, the Court did not consider additional terms from extrinsic documents such as the PBA or MLB Rules.

*The NY Yankees reportedly announced their intention to appeal Justice Ostrager’s Order. Stay tuned.