Law of Cards: Leaf v. Upper Deck (Pt. 1); The Battle to be First

Law of Cards: Leaf v. Upper Deck (Pt. 1); The Battle to be First

To outsiders, litigation sometimes looks childish. It’s (normally) not; there are (often) legal-eze reasons for everything. And since over 90% of lawsuits settle, each step in litigation is more a complex, multi-step negotiation than anything else.

BUT, if you’re not a legal nerd and don’t know the reasoning behind each step, a lot of litigation looks like two kids whining “Nyah, nyahnyah, nyahnyah…nyah” at each other.

Take for example the latest in what looks to be a fun few months for Upper Deck and Leaf. While the first steps look childish, there’s actually a chess game being played here.

We’ll begin with what looks to the outside as an immature action: the day after it was sued by Upper Deck in California, Leaf turned around and sued Upper Deck in Texas, alleging illegal monopolistic behavior by Upper Deck regarding its NHL properties.

Legal aside: “You sued me? Well, I’ll sue you!”

While looking like a retaliatory act, Leaf’s complaint hints about prior tensions between the two companies, alluding that Upper Deck might have known a lawsuit was headed its way, so it was Upper Deck that acted childishly first by launching a pre-emptive lawsuit against Leaf.

Legal aside: “I think she’s going to dump me, so I better dump her first!”

Regardless of the actual story on who-wanted-to-sue-who-first, when I see lawsuits filed back-to-back like this, my first thought is: we’re headed for a first-filed rule battle.

Legal translation: The first-filed rule applies when two people/companies file lawsuits against each other in two different courts. If there is substantial overlap between the focus of those two lawsuits, then the court where the first lawsuit was filed usually becomes the court where both suits are heard, while the later-filed suit is usually dismissed (or transferred or stayed) and consolidated into the first-filed.

Beyond being a legal rule, there are real-world advantages for the first-filed lawsuit. First, it’s cheaper to fight a lawsuit in the state where you are located. Your employees, documents and likely most of your witnesses all reside near where you brought the lawsuit. Having a local lawsuit reduces travel costs (and time lost during travel). More importantly, your lawyers are likely also in the same state.

Legal aside: I say “more importantly” for lawyers not because lawyers are “more important” (though quite a few do think they are), but because they are likely paid on an hourly basis…and if you have to pay for their travel time in addition to their work time, as well as hiring a second law firm to be “local counsel” in the state where the lawsuit is pending, it increases your litigation costs a lot.

Second, there are always the optics of hoping that a local judge/jury would commiserate more with a local company, so you want to file in your backyard. I say “optics,” because most judges and juries focus on the issues in the case, and not on protecting a local company…but it does happen and should be a concern.

Legal aside: If you ever catch me out drinking (i.e., in a place where my rants won’t be recorded on the internet forever), ask me about the times I’ve been “hometowned.”

So, yes, it is important to be first.

Because of this, Upper Deck should file a motion to dismiss and/or transfer in the Texas case, arguing that both cases are substantially similar, so they should be consolidated. Leaf, on the other hand, should oppose Upper Deck’s motion and argue either 1) the California case should be consolidated into the Texas case (a difficult argument that buttresses Upper Deck’s position by agreeing the cases are substantially similar), or 2) the cases are not substantially similar and should continue to be separate actions (a better argument to make).

Who will win the first-filed battle?

Having filed first, Upper Deck has the obvious upper hand. But, there’s still room for Leaf because Upper Deck made a tactical mistake by only suing Leaf on its “exclusive athletes” theory. What it should have done is also brought a declaratory judgment action against Leaf.

Legal translation: A declaratory judgment action is a lawsuit brought against someone who has threatened, but not yet filed, another lawsuit. It’s a way of stopping uncertainty (Are we going to be sued? And if so, when?) and to stop legal threats. To keep with the childish theme, it’s a “put up or shut up” lawsuit. Basically: you threatened a lawsuit against me, I think it’s BS, so, bring it.

The declaratory judgment action is a powerful tool because if the other side was just bluffing, it can extinguish the threatened lawsuit. The downside though is, if you bring a declaratory judgment action and the other side joins in, well, you basically just brought a lawsuit against yourself.

BUT, you did so in the location you chose, NOT in your adversary’s backyard.

Here, had Upper Deck filed a declaratory judgment action against Leaf (that’s “DJ’d Leaf” to the cool kids), then Upper Deck would be able to argue both the California and Texas actions are identical and should be combined. And Upper Deck likely would have won. But since Upper Deck did not, Leaf has a good argument that both cases should proceed separately as there is little to no overlap between the cases: Upper Deck’s California lawsuit is about exclusive licenses with certain athletes; Leaf’s Texas lawsuit is about an alleged illegal monopoly concerning hockey cards.

While this is a good argument for Leaf, legal wrangling aside, most judges are pragmatic, and might nonetheless decide it’s in the interests of the court system to have both cases consolidated.

Still, I give Upper Deck a 65% chance of winning such a motion.

First-filed motions are fun to watch because there is a lot of finger-pointing and whining about who did what first. From a cost-saving standpoint, they also delay getting into the merits of the case, which is good for Upper Deck and Leaf because one of the cases is an antitrust case (read: very expensive case type). This “pause” before the litigation begins gives both sides time to talk and see if they can’t settle the case before they have to write check after check after check to their lawyers.

Now, I admit, all of this is speculation as to what the first steps in these lawsuits will be. There’s a chance (albeit a small, and more expensive chance) that both companies will be happy fighting a two-front war against their competitor. I think that would be a bad decision on behalf of both companies (let’s spend lots of money!), but you never know what companies will do…especially within The Hobby (remember Upper Deck v. Upper Deck?!?!?).

Tomorrow, we’ll do a deep dive into the merits of Leaf’s suit against Upper Deck. Don’t worry; we have time. The first-filed battle could take six months or more to sort out.

The information provided in Paul Lesko's "Law of Cards" column is not intended to be legal advice, but merely conveys general information related to legal issues commonly encountered in the sports industry. This information is not intended to create any legal relationship between Paul Lesko and the user. Neither the transmission nor receipt of these website materials will create an attorney-client relationship between the author and the readers.

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Paul Lesko

E-Mail Author |  http://prwlegal.com/attorneys/paul-lesko/
Paul Lesko has litigated complex and intellectual property actions for over 18 years. Don’t hold the fact that Paul is a lawyer against him, he’s also a rabid baseball and college basketball fan, and an avid card collector. He's also the author of the novel Gastric Bypass, available for purchase at Amazon. Paul can be found on Twitter @Paul_Lesko and Google+.

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