Law of Cards: Early Excitement in Upper Deck and Leaf Lawsuits

Law of Cards: Early Excitement in Upper Deck and Leaf Lawsuits

After a lawsuit is filed, the quiet time of a case begins. Normally.

Legal aside: Yeah, but we all know the Hobby is anything but normal when it comes to litigation.

A pause in litigation after filing is typical because the plaintiff needs time to serve the complaint on the defendant.

Legal translation: Courts require the plaintiff to give the defendant actual notice of the lawsuit. Most times courts require specific methods of service as well (like a third-party process server who will declare under penalty of perjury that a copy of the lawsuit was hand-delivered to the defendant). This ensures the defendant is aware of the lawsuit, and prevents the plaintiff from moving the case forward without the defendant’s participation.

After service has been effected, the defendant normally requires additional time to get up to speed before responding to the complaint. This is because plaintiffs commonly spend months drafting their complaints, so sometimes defendants need a couple of weeks or more to research the issues raised by the plaintiffs prior to responding. Depending on the case type, 30-day extensions of time are common.

Legal aside: Also, at the beginning of cases, most attorneys play nice and give each other extensions of time quite liberally, so the “nice factor” tends to slow cases down as well.

After a defendant responds to the plaintiff’s complaint, new issues are often raised…which requires the plaintiff to ask for more time to respond. And since the defendant received an extension of time from the plaintiff, polite reciprocity follows.

All this normally means that after a case is filed, there’s 2-3 months of dead time before the case truly begins.

Not so with Upper Deck and Leaf. Less than two weeks after suing each other in two different courts (in two different states)—when both companies should be sitting back, strategizing, and serving the other side—both are instead filing motions, and breathing early life into their cases.

Upper Deck Begins the First-Filed Fight

As predicted, Upper Deck began the first-filed fight by asking its California court to transfer Leaf’s Texas antitrust case to California. Basically, Upper Deck argues it filed its case first, and since there is overlap between the cases, it makes no sense to have two courts potentially make inconsistent rulings. So, why not consolidate them?

I previously provided an analysis of how this will likely play out (hint: Upper Deck likely gets Leaf’s action transferred to California), so won’t repeat that here. Besides, Leaf’s motion is more exciting, so let’s get to that one.

Leaf Moves to Enjoin Upper Deck

Leaf brought its case in Texas to knock out Upper Deck’s exclusive distributor contracts (which Leaf alleges prevent it from selling its hockey cards). Leaf seeks relief under the law of antitrust, which normally requires years of litigation.

Not content with the status quo, Leaf filed for a temporary injunction on Dec. 2, 2017, asking the court to knock out the exclusive distributor contracts—not at the end of the case, but at the very beginning.

Legal translation: Because it basically asks for the end result at the beginning, a temporary restraining order (TRO) is an extraordinary remedy that is difficult to obtain.

To win its TRO motion, Leaf needs to show 1) a likelihood of success on the merits and 2) that it is being irreparably harmed.

Legal translation: 1) We’ll win! and 2) we’re being hurt in such a fashion that money by itself won’t make us whole.

To show a likelihood of success on the merits, Leaf alleges Upper Deck’s exclusive distribution contracts illegally interfere with its business. As evidence, Leaf provides the testimony of Brian Gray, the CEO of Leaf, alleging the following:

  1. The owner and founder of Universal (one of Upper Deck’s exclusive distributors), allegedly told Gray that despite seven years of distributing Leaf hockey products, Universal was now “unable” to carry Leaf products due to Upper Deck’s exclusive distributor contract.
  2. GTS Distribution (another of Upper Deck’s exclusive distributors), which distributes 80% of the cards in the US, allegedly told Leaf that although it had intended to continue selling Leaf hockey cards, it was now prohibited from doing so due to Upper Deck’s exclusive distribution contract.

If this evidence pans out, it shows Leaf was prohibited from more than 80% of the US market by Upper Deck’s contracts. This is decent evidence of likely succeeding on the merits.

But, likelihood of success by itself is insufficient; Leaf also needs to show irreparable harm.

To do that, Leaf alleges three types of harm:

  1. Leaf alleges that after a multi-month or multi-year absence from the hockey market, it would not be able to a) resurrect its distribution network or b) rebuild the damage its absence in the market would cause its reputation.
  2. Leaf alleges that a multi-month or multi-year absence from the hockey market would hurt its exclusive agreements with three elite hockey prospects—Nico Hischier, Nolan Patrick, and Jack Eichel. Because they are young players, demand for their cards is higher now than it would be years down the road. (A likely unnecessary #TheHobby aside: Collectors and fans seek early prospect/rookie cards more so than players’ later cards. These players’ cards then are worth more now than they would be months or years from now. So, if Leaf can’t sell those cards now, it’s losing the largest portion of the value of its exclusive agreements with these players).
  3. Leaf also alleges Upper Deck’s financial position might prevent Leaf from recovering any money should Leaf prevail. To support this position, Leaf alleges Upper Deck is insolvent, or may become insolvent, due to what Leaf believes is a current tax liability in the tens of millions of dollars.

Most times, TROs are denied not because of a failure to show a likelihood of success, but rather due to a lack of irreparable harm. And this might be one of those instances. Allegations 1 and 2 by themselves are good, but Leaf can still be financially compensated for such losses at the end of the case. Sure, it’ll require a battle of experts to recreate the market and show what dollar values were lost…a difficult and expensive task…BUT, that’s really what an antitrust action is.

Allegation 3, however, and only if true, strengthens 1 and 2, and might be sufficient to show irreparable harm.

Legal translation: The only way to compensate a party for being absent from the market for months (or years) would be with money at the end of the case. Therefore, if there is significant risk of Upper Deck being insolvent, it’d be better for the court to knock out the exclusive dealer contracts now and allow Leaf to make its money while the case is pending.

Leaf, however, will have to provide evidence of Upper Deck’s alleged insolvency. Right now, all that’s alleged is potential debts. And it won’t be enough to just show the debts exist; Leaf will need to show the debts could put Upper Deck out of business or prevent Upper Deck from satisfying a judgment at the end of the case.

Since this is evidence we don’t have yet, and likely will be kept under seal, it’s difficult to determine if Leaf will win its motion.

However, falling back on the fact that TROs are extraordinary remedies, the best prediction is that the motion will be denied simply because such motions are rarely granted.

That being said, the existence of this motion might provide sufficient pressure on Upper Deck to agree to “lift” any such ban on its exclusive distributors, and allow them to carry Leaf cards while the case progresses.

(On a side note, if Leaf wins a TRO, an injunction likely will only be entered if Leaf posts a bond that could cover Upper Deck’s losses should Upper Deck ultimately prevail at trial. Posting bonds of this size are another deterrent to motions for TROs, because not only do you have to be likely to win, you better well believe that you will ultimately win. Otherwise, you could be giving a significant amount of money to the company you sued.)

So, what are the next steps? Motions for TROs move fast, so we should see a resolution within 30 days (although the holidays might slow things down). Upper Deck will also likely try to slow down the motion by arguing any hearing on the TRO should be in California (pursuant to its first-filed motion) and not in Texas. But, even if it wins that request, it’ll only slow the court down for maybe another 30 days.

Which means early next year we’ll get a good look at the strengths of Leaf’s case. And really, that’s an important outcome of the TRO motion. If the judge denies the TRO motion because Leaf is unlikely to succeed on the merits, it’ll be difficult for Leaf to justify continuing the case. If the court denies the TRO motion, BUT, says Leaf is likely to succeed on the merits (in other words, the court denies the motion on the lack of irreparable harm), then Upper Deck is in a difficult position of knowing it might ultimately lose the case.

Really then, the outcome of the TRO motion could guide the outcome for the entire case.

So, for what should be the boring times for these cases, the beginning of the Upper Deck and Leaf cases are not only leading to early excitement, they might also lead to early resolutions.

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

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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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