Championsworld L.L.C. v. United States Soccer Federation, Inc. et al
Filing
316
MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 8/17/2011:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CHAMPIONSWORLD, LLC,
Plaintiff,
Case No. 06 C 5724
v.
Hon. Harry D. Leinenweber
UNITED STATES SOCCER
FEDERATION, et al.,
Defendant.
MEMORANDUM OPINION AND ORDER
The
parties
have
filed
a
number
of
pretrial
motions,
primarily seeking sanctions against one another for various
alleged misdeeds.
of this order.
The Court will resolve all the motions by way
For the reasons that follow:
(1) Defendants’
Joint Motion for Sanctions for Plaintiff’s Wholesale Destruction
of Evidence [246] is granted in part; (2) ChampionsWorld’s Motion
for Sanctions Against Defendant United States Soccer Federation,
Inc. [277] is denied; (3) Non-Party John Collins’ Motion to Quash
Discovery Subpoena [265] and Defendant USSF’s Motion to Quash
Discovery Subpoena Issued to Non-Party John P. Collins [268] are
granted; (4) ChampionsWorld’s Motion for Sanctions Against: (A)
the Law Firms of Proskauer Rose LLP and Latham & Watkins LLP and
(B) Defendants MLS and USSF [278] is denied; and ChampionsWorld’s
Motion to Compel the Production of Documents [306] is denied.
Defendants, in various pending motions, seek to recover their
fees and costs in responding to these motions.
the
motions
brought
by
Plaintiff
are
Because none of
frivolous,
the
Court
declines to impose fees or costs.
I.
Plaintiff
defunct
OVERVIEW OF LITIGATION
ChampionsWorld,
sports
marketing
LLC
company
(“ChampionsWorld”)
that,
from
2001
to
is
a
2005,
sponsored professional soccer exhibitions in the United States
involving international club teams.
ChampionsWorld filed for
bankruptcy and ceased operations in 2005.
Defendant United States Soccer Federation, Inc. (the “USSF”)
is the governing body for amateur soccer in the United States.
Defendant Major League Soccer, LLC (“MLS”) is a professional
first-division
soccer
league
in
the
United
States.
ChampionsWorld claims that USSF improperly assumed the power to
oversee professional, as well as amateur, soccer in the United
States. USSF then used this power to unreasonably restrain trade
and to extract millions of dollars in sanctioning fees from
ChampionsWorld, which caused the company to fail. ChampionsWorld
alleges that USSF’s actions were part of an anticompetitive
scheme to protect MLS by preventing other soccer entities from
applying
for
first-division
status
in
the
United
States.
Defendants deny any wrongdoing and argue that ChampionsWorld is
trying to make them scapegoats for the company’s poor business
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strategy and eventual demise.
Given the contentious nature of
the litigation, it is perhaps not surprising that the parties
have become embroiled in various discovery disputes and seek
sanctions against one another on several grounds.
II.
ALLEGED DESTRUCTION OF EVIDENCE
First, Defendants seek sanctions against ChampionsWorld on
the ground that Plaintiff lost or destroyed evidence, including:
(1) virtually every email on its servers dated after September 1,
2004; (2) all of its accounting files dated after April 2004; and
(3)
virtually
ChampionsWorld.
all
of
its
accountant’s
records
relating
to
Defendants seek a number of possible sanctions,
including precluding Plaintiff from arguing that it is entitled
to recover future lost profits or the lost value of its business
and precluding Plaintiff from relying on testimony regarding
events that occurred post-September 2004. It also seeks fees and
costs in bringing this motion.
ChampionsWorld responds that it took reasonable steps to
preserve its data. It acknowledges that it cannot find data from
the end of 2004 and 2005, but points the finger at Lino DiCuollo
(“DiCuollo”), who had been a Senior Vice President for Legal and
Finance at ChampionsWorld.
been
hired
by
that
DiCuollo now works for MLS, having
company
shortly
ChampionsWorld.
- 3 -
after
the
demise
of
A.
Background
Deposition testimony paints a muddy picture as to who was
minding
the
existence.
store
in
the
last
months
of
ChampionsWorld’s
DiCuollo, asked if he recalled being in charge of
document retention for ChampionsWorld, replied, “I don’t recall
that,”
but
acknowledged
providing
documents
to
Plaintiff’s
counsel, Pryor Cashman LLP, in connection with this case.
DiCuollo testified that he did not destroy any ChampionsWorld
documents and was not aware of anyone else doing so.
job
duties
while
serving
as
Senior
Vice
DiCuollo’s
President
for
Legal/Business Affairs for ChampionsWorld included “filing and
maintenance of corporate documents.”
Charlie Stillitano (“Stillitano”), ChampionsWorld’s CEO,
testified at his deposition that from 2002 on, the company had a
verbal policy of retaining all documents.
It was Stillitano’s
understanding that all of the company’s data would be saved on
the company’s on-site computer server. Stillitano testified that
he did not know why so few documents were produced from the
period after September 2004.
Employees of the company were
instructed to give documents to DiCuollo toward the end of the
company’s existence because such documents might be needed in the
company’s bankruptcy proceeding, he said.
DiCuollo’s brother,
Mario De Paola, who was the company’s information technology
director, has since died.
Stillitano further testified that he
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did
not
instruct
the
company’s
Traphagen, to retain documents.
accountants,
Traphagen
&
Defendants did receive hard
copies of at least some of the 2004 QuickBooks data kept by
Traphagen, but they contend this is mostly financial projection
data
which
is
not
helpful
in
determining
the
cause
of
ChampionsWorld’s failure.
Stillitano provided an affidavit explaining that in the
early fall of 2004, after ChampionsWorld retained Pryor Cashman,
he, DiCuollo, and the company’s outside general counsel had lunch
with attorneys from the firm and were instructed to preserve all
documents related to the lawsuit.
Stillitano told outside
counsel that the company had a 100 percent document retention
policy in place and nothing would be destroyed.
ChampionsWorld contends that at the time outside counsel was
retained to bring the instant lawsuit, there was no reason to
doubt
that
DiCuollo
was
adequately
performing
his
job
of
maintaining the company’s records, with the assistance of his
brother.
Defendants argue that it was actually Senior Vice
President of Operations Tim Kassel (“Kassel”) who was in charge
of document retention.
Kassel testified that he preserved data
up until the company’s bankruptcy filing in January 2005, but did
not know if anyone did so following the bankruptcy.
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B.
Legal Standard
Courts have the inherent power to sanction a party for
failure to preserve evidence that it controls when it could have
reasonably foreseen that evidence to be material in a potential
lawsuit.
Jones v. Bremen High School, 08 C 3548, 2010 WL
2106640, at *5 (N.D. Ill. May 25, 2010).
Sanctions “must be
proportionate to the circumstance surrounding the failure to
comply with discovery.”
Crown Life Ins. Co. v. Craig, 995 F.2d
1376, 1382 (7th Cir. 1993).
To find sanctions appropriate, the Court must determine:
(1)
that there was a duty to preserve the evidence; (2) that the duty
was breached; (3) that the other party was harmed by the breach;
and (4) that the breach was caused by the breaching party’s
willfulness, bad faith, or fault. Jones, 2010 WL 2106640, at *5.
If the court finds sanctions appropriate, it must impose the
least severe sanction necessary to ameliorate the prejudice that
arose from the breach.
Id.
C.
1.
There
is
no
Analysis
Duty to Preserve the Evidence
real
dispute
between
the
parties
that
ChampionsWorld had a duty to preserve evidence by early to mid2004.
Even prior to that date, the company had investigated
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possible claims against USSF.
In August 2004, ChampionsWorld
retained Pryor Cashman, its counsel of record in this proceeding.
2.
Breach of Duty to Preserve
The next question, then, is whether ChampionsWorld breached
its duty to preserve the evidence.
Court
cannot
find
that
On the record presented, the
ChampionsWorld
intentionally destroyed any documents.
(or
anyone
else)
However, it does not
appear that Stillitano took any affirmative steps to carry out
Pryor Cashman’s directive that all documents be preserved.
Stillitano apparently assumed either that DiCuollo handled this
process or that the company’s verbal document retention policy
would
suffice.
It
did
not.
Plainly
put,
Stillitano
and
ChampionsWorld’s outside counsel should have done more to ensure
that relevant evidence was preserved, particularly given the
importance of ChampionsWorld’s financial condition to its case
and the fact that ChampionsWorld had been contemplating some sort
of legal action against USSF well prior to its demise.
See
Jones, 2010 WL 2106640, at *6 (noting that an intention to
preserve evidence must be “followed up with concrete actions
reasonably calculated to ensure that relevant materials will be
preserved.”). So Plaintiff breached its duty to preserve certain
emails and accounting records.
Nonetheless, in discussing spoliation sanctions, the Seventh
Circuit has held that “the crucial element is not that evidence
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was destroyed but rather the reasons for the destruction.”
Faas
v. Sears, Roebuck & Co., 532 F.3d 633, 644 (7th Cir. 2008)
(internal citations omitted).
Here, neither DiCuollo nor anyone
else seems to be able to explain why certain data was not
preserved. DiCuollo’s brother, who might have been able to offer
an explanation, has died.
As such, the circumstances make it
difficult for the Court both to understand what happened to the
information and to assign responsibility.
3.
Prejudice to Defendants
Nonetheless, the Court finds that Defendants have been
prejudiced
by
ChampionsWorld’s
failure
to
preserve
certain
documents from 2004 and early 2005. In arguing against a finding
of
prejudice,
ChampionsWorld
notes
that
in
October
2004,
Defendant MLS approached ChampionsWorld about buying the company,
and ChampionsWorld turned over some financial information to MLS.
The parties dispute how much information was disclosed, but
Defendants note that because the information was submitted in
October,
it did
not include
ChampionsWorld’s
fourth-quarter
results, which would have been important in understanding why the
company subsequently filed bankruptcy.
Defendants also argue
that almost all of the information regarding ChampionsWorld’s
efforts to find potential investors in late 2004 and early 2005
is missing, as are documents concerning the company’s decision to
file bankruptcy.
This information is clearly important to
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defending against ChampionsWorld’s claims that USSF’s sanctioning
fees forced it into bankruptcy.
However, the Court notes that
that prejudice is ameliorated somewhat by the data provided by
ChampionsWorld to MLS during the sale discussions, as well as
information provided to Defendants through third-party subpoenas.
4.
Fault
As noted above, apportioning fault in this case is difficult
given the messy relationship between DiCuollo and the parties.
Nonetheless, the Court cannot find that ChampionsWorld acted
willfully or in bad faith because there is nothing to indicate
the company destroyed records to hide adverse information.
Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681 (7th
Cir. 2008).
But bad faith is not a prerequisite to the imposition of
sanctions. Marrocco v. Gen. Motors Corp., 966 F.2d 220, 224 (7th
Cir. 1992). Fault is enough, and Stillitano and ChampionsWorld’s
outside counsel should have done more to ensure the documents
were preserved, rather than relying on what was apparently a
verbal “100 percent document retention policy.”
See, Danis v.
USN Communs., Inc., No. 98 C 7482, 2000 WL 1694325, at *32 (N.D.
Ill. Oct. 20, 2000) (“The duty to preserve documents in the face
of pending litigation is not a passive obligation.”).
So a
sanction of some sort is appropriate, although not so harsh as
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limiting ChampionsWorld’s damages to recovery of the sanctioning
fees alone or precluding Plaintiff from presenting testimony
about events after September 2004.
Nor should Defendants be
allowed to draw an adverse inference from the absence of the
emails and accounting records without any evidence that they were
destroyed in bad faith.
See Wiginton v. CB Richard Ellis, 02 C
6832, 2003 WL 22439865, at *7 n.6 (N.D. Ill. Oct. 24, 2003).
That
leaves
the
remedy
of
instructing
the
jury
that
ChampionsWorld failed to take appropriate steps to preserve
information relevant to the litigation, and that as a result,
most its emails dated after September 1, 2004, its Quickbooks
files dated after April 2004, and most of its outside accounting
firm’s records were destroyed.
The Court agrees to so instruct
the jury, but declines to impose any further sanctions, monetary
or otherwise, on ChampionsWorld.
III.
ALLEGED MISCONDUCT OF USSF BEFORE FIFA
ChampionsWorld seeks sanctions against USSF, arguing that
USSF tampered with arbitration proceedings before the Federation
Internationale de Football Association (“FIFA”) by engaging in
inappropriate ex parte communications with FIFA officials.
ChampionsWorld argues that USSF needed a favorable ruling from
FIFA after this court rejected its argument that the Ted Stevens
Olympic and Amateur Sports Act, 36 U.S.C. § 220501, gave it
authority to charge sanctioning fees for professional soccer
- 10 -
matches in the United States.
ChampionsWorld LLC v. U.S. Soccer
Fed’n, Inc., 726 F.Supp.2d 961, 970 (N.D. Ill. 2010).
ChampionsWorld requests either a default judgment against
USSF or a finding that USSF is barred from asserting that FIFA’s
regulations
gave
it
professional
soccer
authority
sanction
USSF
matches.
to
contends
international
any
ex
parte
communications with FIFA officials concerned only scheduling
matters, and the motion is frivolous.
Because the Motion to
Quash filed by Collins (and joined by USSF) is intertwined with
this motion, the court will address them jointly.
A.
Background
Some background on the FIFA arbitration is necessary for the
Court to resolve this motion.
In 2007, this Court ordered this
case stayed pending arbitration before FIFA pursuant to an
arbitration clause in Stillitano’s application for a FIFA match
agent license.
ChampionsWorld subsequently filed a request
before FIFA’s Players’ Status Committee (the “PSC”) seeking a
resolution
of
its
dispute
with
USSF,
but
FIFA
declined
to
intervene in the matter because only individuals may proceed
before FIFA’s decision-making bodies.
company, was barred.
ChampionsWorld, as a
FIFA also stated that it could not hear
RICO or antitrust claims, two of the issues ChampionsWorld had
asked it to decide.
After receiving letters from FIFA to that
- 11 -
effect, ChampionsWorld requested that this Court lift the stay.
USSF objected on the ground that they had not been informed of
ChampionsWorld’s efforts before FIFA and wanted the opportunity
to present its own case for arbitration.
This Court continued
the stay to give the parties a chance to get the PSC to accept
the case.
On September 4, 2008, USSF submitted a petition to the PSC
asserting that Stillitano, and not ChampionsWorld, was the real
party in interest because he held the match agent license.
USSF
did not request an adjudication of ChampionsWorld’s racketeering
or antitrust claims, but rather requested that the PSC answer
four questions related to USSF’s authority to charge sanctioning
fees for matches between foreign national teams or foreign clubs.
Specifically, USSF asked FIFA to decide whether:
(1) USSF has
the authority to require matches between foreign national teams
first to be sanctioned by USSF; (2) USSF has the authority to
impose sanctioning fees; (3) USSF was required to return the
sanctioning fees previously paid to it; and (4) USSF has the
right to notify FIFA if a match agent refuses to pay sanctioning
fees.
(The phrasing of these questions in the present tense,
rather than as of the time the sanctioning fee dispute arose,
would become a problem, as we shall see.)
Stillitano
objected
to
that
petition.
One
day
after
Stillitano filed his objection, on October 31, 2008, USSF’s
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General Counsel, Timothy Pinto (“Pinto”), sent an email to FIFA’s
Director of Legal Affairs, Marco Villiger (“Villiger”).
Pinto,
writing on behalf of himself and USSF’s President, Sunil Gulati
(“Gulati”), requested a meeting with FIFA Secretary General
Jerome Valcke (“Valcke”) about the ChampionsWorld lawsuit and
indicated that Pinto and Gulati were willing to travel to Zurich
for the meeting.
Villiger’s response was copied to Omar Ongaro
(“Ongaro”), the head of player status and governance for FIFA.
Villiger wrote that the Players’ Status Department was awaiting
Stillitano’s position, so “there is not much we can say.”
He
added, “once we have the position, things are surely getting
interesting.
If you agree, I propose that we will inform you
once we got [sic] the position in order to discuss the next
steps.”
There is no evidence showing that any in-person meeting
took place as a result of this exchange.
Villiger and Ongaro are
part of the administrative staff of the PSC.
ChampionsWorld views these communications as an attempt to
manipulate the proceedings before FIFA, but USSF offers a less
nefarious explanation. USSF contends that ChampionsWorld kept it
in the dark about its initial communications with FIFA.
When it
learned of those discussions, USSF contends, it contacted FIFA to
determine what the procedure would be after USSF submitted its
own petition.
After receiving no response to these inquires,
Pinto sent the October 21, 2008, email to Villiger.
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USSF
contends there were no further communications between Pinto and
Villiger prior to FIFA’s decision to accept jurisdiction over the
USSF petition.
In deposition testimony, Pinto said he did not
expect a meeting in Zurich to occur, but was merely trying to
“step up the pressure” to get a response from FIFA.
On November 5, 2008, FIFA provided each side with copies of
correspondence from the other side, but did not provide copies of
the email exchange between Villiger and Pinto.
later,
on
December
2,
2008,
the
jurisdiction over USSF’s petition.
PSC
decided
About a month
that
it
had
It did not initially provide
an explanation for its ruling.
ChampionsWorld contends that USSF again had improper contact
with FIFA on the eve of a March 10, 2009, status hearing before
this Court in which the Court to was decide whether to continue
the stay.
Gulati emailed Villiger and told him an update on the
ChampionsWorld matter was needed because of an “important court
filing date.”
Villiger replied that the decision would be
released the day before the status hearing.
On March 9, 2009,
the PSC did issue the grounds for its decision that it had
jurisdiction over the USSF petition.
Gulati, in deposition
testimony, said the email was no different from a call to a clerk
to see when an order would be issued.
Stillitano
appealed
the
PSC’s
decision
that
it
had
jurisdiction to the Court of Arbitration for Sport (the “CAS”).
- 14 -
On July 15, 2009, the CAS found the PSC was competent to answer
questions as to whether FIFA’s statutes and regulations give USSF
the right to sanction foreign matches, charge sanctioning fees,
and report non–paying match agents to FIFA.
But the CAS found
that the PSC could not rule on the issue of whether USSF was
required to return sanctioning fees previously paid by Stillitano
for international matches played in the United States.
Again,
the questions as framed by the CAS were in the present tense and
did not specifically refer to the period when the sanctioning fee
dispute arose.
With
the
case
again
set
to
be
heard
by
the
PSC,
ChampionsWorld alleges that USSF had improper contact with FIFA.
On August 26, 2009, Gulati wrote to Villiger to propose a meeting
to introduce USSF’s new general counsel, Lisa Levine (“Levine”),
and to address various issues “that we have been discussing over
the last several months with you.” The ChampionsWorld litigation
was on the agenda for the meeting, which was held via conference
call on September 24, 2009.
Levine’s notes from that meeting indicate that during the
conference call, FIFA officials said they would soon be inviting
Stillitano to file a brief, to which USSF could file a reply.
hearing would then be set.
A
USSF contends that Levine’s notes
show that the discussion of the ChampionsWorld matter was limited
to questions of timing and procedure.
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Testimony from Levine,
Gulati, and John P. Collins (“Collins”), counsel for FIFA, during
the most recent CAS hearing supports this interpretation. Levine
testified that during the conference call there was no discussion
about the substance of the dispute, and that no one from USSF
tried to influence the PSC. Collins agreed that the conversation
solely concerned the status and timing of the dispute.
Nonetheless, ChampionsWorld notes that shortly after this
meeting, FIFA again sided with USSF in a dispute. Stillitano had
attempted to moot the need for arbitration by stipulating that
FIFA’s current statutes and regulations may be read to authorize
USSF to sanction professional international soccer matches played
in the United States.
ChampionsWorld argued that although the
current regulations do give USSF that power, the regulations in
existence during the genesis of this dispute did not.
USSF, on
the other hand, argued that the PSC should decide not only
whether
it
currently
has
sanctioning
authority
under
FIFA
statutes and regulations, but whether it had that authority
during Stillitano’s tenure at ChampionsWorld.
The PSC agreed,
rejecting ChampionsWorld’s arguments that the CAS’s questions
were framed in the present tense and did not speak to that issue.
On February 10, 2010, the PSC decided the questions in favor
of USSF, finding that under FIFA regulations USSF has sanctioning
authority over soccer matches played by foreign national teams or
foreign clubs in the United States, has the right to charge
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sanctioning fees, and has the right to notify FIFA if a licensed
match agent refuses to pay those fees.
that
USSF
has
had
those
rights
since
Further, the PSC found
at
least
2001,
when
Stillitano and ChampionsWorld began promoting international,
first-division
professional
men’s
soccer
exhibitions
in
the
United States. ChampionsWorld appealed that decision to the CAS.
A ruling by the CAS was issued on July 12, 2011.
affirmed the PSC’s ruling.
The CAS
Relevant to the instant motion, it
found insufficient evidence in the record to establish that USSF
and FIFA had engaged in improper communications or conspired to
rephrase the questions at issue to suit their own purposes.
B.
The
Court
notes,
Analysis
as
it
has
before,
that
FIFA’s
interpretation of its own statutes is of limited use in this
proceeding because FIFA does not have the authority to interpret
U.S. law or to grant USSF an exemption from this country’s
antitrust
laws.
ChampionsWorld,
726
F.Supp.2d
at
969.
Nonetheless, ChampionsWorld argues that USSF manipulated the
outcome of the FIFA proceedings and should not be permitted to
offer
the
misconduct.”
CAS’s
ruling
“as
insulation
against
its
prior
A district court may dismiss a case for egregious
litigation misconduct under either FED . R. CIV . P. 37 or its
inherent authority.
JFB Hart Coatings, Inc. v. AM Gen. LLC, 764
F.Supp.2d 974, 981 (N.D. Ill. 2011).
- 17 -
However, while ChampionsWorld can show some communications
between USSF and FIFA’s administrative staff of which it perhaps
should have been informed, nothing in ChampionsWorld’s motion
rises to the level of “tampering” with the tribunal.
There is no
evidence to show that USSF communicated with the PSC tribunal
that decided the arbitration, and USSF’s explanation that its
communications with FIFA officials involved scheduling matters
appears well-taken.
While ChampionsWorld ascribes a great deal
of meaning to FIFA’s unwillingness to accept his stipulation that
FIFA’s current regulations allow USSF to charge sanctioning fees,
the Court cannot do the same.
The questions in USSF’s petition
inartfully
of
framed
the
issue
USSF’s
authority
to
charge
sanctioning fees as implicating only FIFA’s current regulations.
But it has always been clear that the dispute in this case stems
from the USSF’s authority to charge sanctioning fees during the
time of ChampionsWorld’s existence.
In an attempt to show wrongdoing by USSF, ChampionsWorld
supplemented its motion with emails between counsel for USSF and
Collins. Collins, who now serves as outside counsel to FIFA, was
formerly general counsel to USSF.
Collins turned over these
emails in response to a subpoena from ChampionsWorld that seeks
information
related
to
his
communications
with
Defendants’
counsel regarding ChampionsWorld or Stillitano. Although Collins
turned over these emails, he and USSF seek to quash the subpoena.
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In one of the emails to Collins, one of the attorneys
for
USSF, Russell Sauer (“Sauer”), attached a letter that USSF had
faxed to FIFA (which also had been submitted to ChampionsWorld’s
counsel), with the comment “I understand you may be advising the
FIFA Player’s Status Committee in connection with the [the
ChampionsWorld matter].”
Sauer added, “If you wish to discuss
this matter further, please do not hesitate to call.”
replied, “Your understanding is correct.”
exchange,
Sauer
requested
that
Collins
In a later email
Collins
provide
contact
information for an individual at FIFA, unconnected with the PSC,
who could help locate historical information.
The Court cannot ascribe to these emails the nefarious
motives urged by ChampionsWorld.
ChampionsWorld complains that
it did not have an opportunity to submit copies of anticipated
submissions to the PSC for Collins’ “consideration and ex parte
‘discussion.’”
However,
there
is
no
evidence
of
further
discussions of that letter, or that Collins took any actions that
compromised the integrity of the FIFA arbitration proceedings.
Collins has submitted an affidavit in which he states that he was
not present at the PSC hearing, did not know who was on the
bureau of the PSC that decided the matter, and did not learn of
the PSC’s decision until after the fact.
In light of these
representations, and the lack of evidence of any discussions
between USSF officials and FIFA officials that went to the
- 19 -
substance of the dispute, ChampionsWorld cannot establish any
tampering with the FIFA proceedings on the part of USSF.
There remains the question of whether Collins should have to
turn over additional documents in response to ChampionsWorld’s
subpoena regarding his communications with Defendants’ law firms
about Stillitano or ChampionsWorld.
USSF and Collins note that
fact discovery in this case closed on January 31, 2011.
Because
there is nothing to show improper conduct on Collins’ part, the
Court
finds
that
good
cause
does
not
exist
to
extend
discovery deadline and allow the subpoena of Collins.
the
As such,
it is quashed, and ChampionsWorld’s Motion for Sanctions against
USSF for FIFA Tribunal Tampering is denied.
Collins’ request
that he be awarded fees and costs incurred in filing the motion
to quash is likewise denied.
IV.
Motion to Disqualify Defense Counsel
ChampionsWorld asks this Court to disqualify counsel for
both Defendants, and to strike their affirmative defenses, on the
basis of
a
June 2006
interview
with
DiCuollo
conducted by
attorneys for MLS from the law firm of Proskauer Rose LLP.
DiCuollo,
as
ChampionsWorld
noted
who
above,
went
ChampionsWorld’s employ.
to
is
the
work
former
for
MLS
executive
after
for
leaving
DiCuollo, a lawyer, served as in-house
counsel at ChampionsWorld, although he and Defendants contend his
role at the company was primarily a business one.
- 20 -
In March, this Court directed Proskauer to turn over its
notes from the meeting over its objection.
The interview of
DiCuollo by Proskauer attorneys is documented in an 11-page
internal
memorandum
Memorandum”).
Proskauer
dated
June
29,
2006
(the
“Proskauer
ChampionsWorld contends the memorandum shows that
deliberately
elicited
privileged
information
from
DiCuollo, and that both Proskauer and counsel for USSF, Latham &
Watkins LLP, must be disqualified because this information has
tainted the proceedings.
Specifically, ChampionsWorld contends
that DiCuollo was the source of Defendants’ theory that misguided
business strategies, and not the USSF sanctioning fees, drove
ChampionsWorld into bankruptcy.
Defendants contend that it was legally permissible for
attorneys for MLS to interview a former employee of its adversary
and
that
DiCuollo
information.
was
warned
not
to
reveal
privileged
Further, they argue that DiCullo’s role within
ChampionsWorld was largely business, not legal, circumscribing
the scope of Plaintiff’s privilege claim.
A.
As
noted
ChampionsWorld
Affairs.”
above,
was
Background
DiCuollo’s
“Senior
Vice
job
President
description
—
with
Legal/Business
DiCuollo told the Proskauer attorneys that he was not
really “practicing law” at ChampionsWorld, but was Stillitano’s
right-hand man and the day-to-day “financing guy.” DiCuollo said
- 21 -
he worked for ChampionsWorld until May 2005, then did some work
on a per diem basis as the company’s bankruptcy administrator
until October or November 2005.
By late November 2005, he was
offered a position with MLS as director of player personnel.
DiCuollo outlined for the Proskauer attorneys the staffing
of ChampionsWorld, its financial position, the attempted sale of
the
company
prior
to
its
bankruptcy,
and
its
bankruptcy.
Proskauer attorneys also questioned DiCuollo about the background
of the instant lawsuit.
On this point, DiCuollo disclosed:
•
He was asked to do research on the suit by the
ChampionsWorld Board.
•
In his opinion, MLS was not a potential target of
the suit until the lawyers got involved.
•
The names of certain ChampionsWorld investors
that DiCuollo said were “leading the charge” on
the lawsuit.
Relevant to the issue of USSF sanctioning fees, DiCuollo told the
Proskauer attorneys that:
•
Certain international teams required that the
promoter be sanctioned by the home federation.
For example, Manchester United, an English team,
told ChampionsWorld that it would not play in
matches sponsored by it if ChampionsWorld did not
either pay the USSF sanctioning fees or sue over
them.
•
In 2002 or 2003, ChampionsWorld had an expert
look at the Ted Stevens Act to determine if USSF
had authority to charge sanctioning fees, and the
expert concluded that it did not.
•
DiCuollo himself looked into the issue in 2004,
reviewing FIFA rules, USSF bylaws, and other
- 22 -
documents.
He also researched whether other
federations were charging similar fees. DiCuollo
concluded that USSF did not have authority to
charge sanctioning fees.
•
DiCuollo spoke with Sheila Kronert Moore at FIFA,
who told him that club team games were outside of
FIFA’s purview, so ChampionsWorld would have to
look to the governing law in the United States.
•
DiCuollo
also recounted
conversations
with
officials at USSF seeking clarification for its
authority for charging the sanctioning fees.
DiCuollo told the Proskauer attorneys that his
research on the sanctioning fee issue was not
done from a “legal perspective,” but rather as a
negotiating tool to get lower fees.
DiCuollo also discussed with Proskauer attorneys details of
ChampionsWorld’s perception of the interrelationship between MLS
and USSF, including the fact that there was a perception by some
at ChampionsWorld that because MLS and USSF had overlapping board
members, MLS received benefits from USSF.
Finally, DiCuollo
provided the names of two of ChampionsWorld’s main competitors.
B.
Legal Standard
Here, the Court is called upon to determine whether DiCuollo
revealed any privileged information.
ChampionsWorld’s principal
claims (RICO and antitrust violations) are brought under federal
law, so this Court will apply attorney-client privilege law as
determined by the federal courts. Mem’l Hosp. for McHenry Co. v.
Shadur, 664 F.2d 1058, 1061 (7th Cir. 1981).
As a preliminary
point, Defendants argue that Proskauer’s conduct in interviewing
DiCuollo should be judged by the standards applied in New York
- 23 -
federal courts because this action was transferred pursuant to
28 U.S.C. § 1404(a), and in such a case the transferee court
applies the law of the forum in which the case was originally
filed.
law
ChampionsWorld contends that this Court should apply the
of
this
circuit
as
to
the
appropriate
boundaries
of
interviews of a former employee of an adversary. Given that this
interview occurred in New York while the case was pending there,
this Court will look to the interpretation of New York federal
courts on this issue. Regardless, it appears that federal courts
sitting both here and in New York (and indeed throughout the
country) have applied similar reasoning to disputes such as this.
Federal
courts
have
inherent
authority
to
discipline
attorneys who appear before them for conduct inconsistent with
ethical standards.
MMR/Wallace Power & Indus., Inc. v. Thames
Assoc., et al., 764 F.Supp. 712, 717 (D. Conn. 1991).
Generally
speaking, counsel may conduct ex parte interviews of former
employees
of
a
corporate
adversary.
Chambers
v.
Cities/ABC, 159 F.R.D. 441, 443 (S.D.N.Y. 1995).
counsel
may
not
inquire
about
privileged
or
Capital
However,
confidential
communications, and must conform to all ethical standards.
Siebert & Co., Inc. v. Intuit, 868 N.E.2d 208, 210 (N.Y. 2007).
Where
privileged
information
was
revealed,
the
Court
must
determine whether the attorney’s conduct is so questionable as to
- 24 -
taint
the
litigation
before
disqualification of counsel.
the
Court,
thus
requiring
MMR/Wallace, 764 F.Supp. at 718.
C.
Analysis
DiCuollo’s role in this case is thorny for many reasons, not
the least of which is that he worked in both a business and legal
capacity
for ChampionsWorld.
The
attorney-client
privilege
protects confidential communications by a client to an attorney,
acting in his or her role as an attorney, for the purpose of
obtaining legal advice. Sandra T.E. v. South Berwyn School Dist.
100, 600 F.3d 612, 618 (7th Cir. 2010).
Because the privilege
only applies when a lawyer acts as a lawyer, communications
regarding business strategy are not governed by the attorneyclient privilege.
Weeks v. Samsung Heavy Ind. Co., Ltd., 93 C
4899, 1996 WL 341537, *3 (N.D. Ill. June 20, 1996). Further, the
“attorney-client privilege protects communications between a
client
and
its
lawyer,
not
communicates to the attorney.”
the
facts
which
the
client
Standard Chartered Bank PLC v.
Ayala Int’l Holdings, Inc., 111 F.R.D. 76, 80 (S.D.N.Y. 1986).
And the privilege does not protect facts that an attorney obtains
from independent sources and conveys to his client.
Id.
Much of the information revealed by DiCuollo during the
Proskauer
Rose
interview
was
factual
information
about
the
circumstances of the sanctioning-fee dispute. Further, a portion
- 25 -
of ChampionsWorld’s Complaint centers on communications between
DiCuollo
and
USSF
over
the
sanctioning
fees,
communications cannot be considered privileged.
so
those
The Court also
notes ChampionsWorld itself inquired of DiCuollo during his
deposition in January 2011 (before disclosure of the Proskauer
Memorandum) about many of the same subjects touched upon during
the Proskauer Rose interview.
Specifically, ChampionsWorld’s
counsel asked DiCuollo about his position with the company, who
its
investors
were,
his
communications
with
USSF
over
the
sanctioning fees, and his own investigation into the validity of
the fees.
ChampionsWorld’s counsel apparently was not concerned
that DiCuollo would reveal privileged information in response to
these inquiries. But counsel did instruct DiCuollo not to reveal
privileged information in regard to his conversations with Martin
O’Connor, who served as outside counsel for the company. This is
a strong indicator that, despite its arguments to the contrary,
ChampionsWorld
privileged.”
did
not
view
DiCuollo’s
work
as
“innately
Further, while it is undisputed that DiCuollo
identified documents for ChampionsWorld to use in preparing its
RICO and fraud claims, there is no evidence that Proskauer
attorneys broached this subject with him.
The instant case is similar to Siebert, 868 N.E.2d at
210–11,
where
the
disqualification
Court
was
not
of
Appeals
warranted
- 26 -
of
New
merely
York
held
because
that
defense
attorneys interviewed a former executive for the plaintiff who
had
been
privy
information.
to
plaintiff’s
privileged
and
confidential
In Siebert, the executive, Nicholas Dermingy, was
involved in negotiating a contract between the parties to create
an Internet brokerage service.
Id. at 209.
After the agreement
fell apart, Dermingy also was a member of the litigation team for
the plaintiff and was privy to its litigation strategy.
Id.
After he was fired from the plaintiff company, attorneys for the
defendant interviewed Dermingy, but warned him not to reveal
confidential or privileged information.
Id.
Because the record
showed that no such information had been disclosed, the court
found the interview was proper.
Id. at 212.
There are numerous parallels between the instant case and
Siebert. Like the executive in that case, DiCuollo played a role
in the underlying transaction by negotiating with USSF over the
sanctioning fees, and he later played a role in developing
ChampionsWorld’s litigation strategy.
And as in Siebert, the
interview in this case focused on the facts underlying the
dispute, not ChampionsWorld’s litigation strategy.
As such, the
Court cannot find that the Proskauer interview was improper.
Even
if
the
Court
were
to
find
some
impropriety,
ChampionsWorld has not shown that the interview tainted these
proceedings or provided Defendants with an unfair advantage so as
- 27 -
to require the extreme sanction of disqualification.
The vast
majority of the information obtained from DiCuollo was publicly
available elsewhere, primarily through information disclosed
during
the
bankruptcy
proceeding
and
ChampionsWorld itself made to third parties.
by
disclosures
It is clear that
DiCuollo was not the only possible source of Defendants’ theory
that a flawed business model, and not the USSF sanctioning fees,
was the cause of the company’s demise.
There was abundant
information that pointed in this direction, including testimony
by
both
Stillitano
and
DiCuollo
during
ChampionsWorld’s
bankruptcy proceedings, as well as a valuation of ChampionsWorld
prepared
by
Bederson
&
Company,
LLP,
a
firm
retained
by
Plaintiff’s bankruptcy counsel, which showed the financial losses
suffered by ChampionsWorld throughout its history.
The fact
that DiCuollo did not disclose secret information and was not the
only source of the defense theory in this case distinguishes this
case from the principal case relied upon by ChampionsWorld,
Ackerman v. Nat’l Prop. Analysts, Inc., 887 F.Supp. 510 (S.D.N.Y.
1993). In Ackerman, a former in-house counsel for the defendants
provided
“inside
and
obviously
secret
information”
to
the
plaintiffs’ counsel and helped them develop their theory of
fraud.
Id. at 517–18.
That information was used as the primary
source of information for plaintiff’s complaint.
is not true here.
- 28 -
Id.
The same
Further, counsel for USSF argues that it did not know the
substance of the DiCuollo interview until after this Court
ordered co–defendant MLS to produce it, so it could not have used
information from DiCuollo to shape its litigation strategy.
ChampionsWorld has given this Court no reason to doubt this
assertion.
For
these
reasons,
ChampionsWorld’s
Motion
for
Sanctions Against: (A) the Law Firms of Proskauer Rose LLP and
Latham & Watkins LLP and (B) Defendants MLS and USSF is denied.
V.
ChampionsWorld’s Motion to Compel Production
of Documents from MLS
Finally, ChampionsWorld seeks to compel MLS to produce
documents relating to its decision to partner with Creative
Artists Agency (“CAA”) to promote international, professional
soccer matches in 2010 and 2011.
For the reasons that follow,
the motion is denied.
A.
Background
CAA is a talent and entertainment agency that, among other
things, promotes exhibition soccer matches and is the current
employer
of
both
Stillitano
ChampionsWorld executive.
and
Jon
Sheiman,
a
former
In 2010 and 2011, MLS, through its
marketing arm, Soccer United Marketing (“SUM”), partnered with
CAA
to
promote
these
international teams.
exhibitions,
some
of
which
involved
ChampionsWorld’s document requests, issued
in 2010, sought documents that showed MLS’ revenues and expenses
- 29 -
in connection with the promotion of international games.
MLS
objected to the unlimited date range of the requests. After some
back and forth, MLS agreed in a June 11, 2011, letter to produce
such documents through the end of 2009.
The CAA–promoted games
did not fall within this category, and, until recently, there was
no further discussion of the matter.
However, Championsworld argues that the CAA documents are
important
reports.
in
light
of
recently
exchanged
expert
valuation
ChampionsWorld’s expert contends that but for USSF’s
unlawful sanctioning fees, it would have stayed in business and
become profitable. Defendants’ expert, on the other hand, opines
that ChampionsWorld could not have reasonably expected to turn a
profit.
ChampionsWorld
contends
that
during
recent
deposition
testimony, Stillitano shed new light on the issue when, under
questioning from USSF’s counsel, he testified that lessons he
learned from running ChampionsWorld allowed the CAA-MLS promoted
matches to be profitable. Although Stillitano is its former CEO,
ChampionsWorld characterizes this revelation as surprising.
In
fact, during Stillitano’s initial deposition in this matter,
counsel for ChampionsWorld instructed Stillitano not to answer
questions about whether certain CAA-promoted games made a profit
because that would result in the disclosure of CAA’s confidential
information.
Further, when counsel for Defendants sought to
- 30 -
question Sheiman about the CAA games, counsel for ChampionsWorld
objected because CAA is not represented in this matter and “it’s
irrelevant to this action anyway.”
MLS argues, in essence, that
ChampionsWorld has waived any right to the CAA documents.
B.
Generally,
parties
Analysis
may
obtain
discovery
regarding
any
non–privileged matter that is relevant to any party’s claim or
defense.
FED. R. CIV. P. 26(b)(1).
ChampionsWorld brings this
motion to compel under FED . R. CIV . P. 37(a)(1).
broad discretion in ruling on motions to compel.
Courts have
Gile v. United
Airlines, Inc., 95 F.3d 492, 495–96 (7th Cir. 1996).
In ruling
on a motion to compel, the Court must “independently determine
the proper course of discovery based upon the arguments of the
parties.”
Id. at 496.
While FED. R. CIV . P. 37 does not set a
time limit for motions to compel, they must be brought within a
reasonable period of time.
Singletary v. Cont’l Ill. Nat’l Bank
and Trust Co. of Chi., No. 89 C 2821, 1992 WL 199827, at *2 (N.D.
Ill. Aug. 10, 1992).
Here, ChampionsWorld has known since June 11, 2010, that MLS
planned to produce documents to show its revenue and expenses in
connection with the promotion of international games only through
the end of 2009, but has not objected until now.
The fact
discovery cutoff in this case was January 31, 2011.
It is too
- 31 -
late in the game, so to speak, for ChampionsWorld to object,
particularly given that the “new” information that sparked this
motion came from its own former CEO.
This is particularly true
where attorneys for ChampionsWorld had previously objected during
depositions when Defendants tried to pursue this line of inquiry.
As such, Plaintiff’s motion to compel is denied.
VI.
CONCLUSION
For the reasons stated herein, the Court rules as follows:
(1)
Defendants’ Joint Motion for Sanctions for Plaintiff’s
Wholesale Destruction of Evidence [246] is granted in part;
(2)
ChampionsWorld’s Motion for Sanctions Against Defendant
United States Soccer Federation, Inc. [277] is denied;
(3)
Non-Party
John
Collins’
Motion
to
Quash
Discovery
Subpoena [265] and Defendant USSF’s Motion to Quash Discovery
Subpoena Issued to Non-Party John P. Collins [268] are granted;
(4)
ChampionsWorld’s Motion for Sanctions Against: (A) the
Law Firms of Proskauer Rose LLP and Latham & Watkins LLP and (B)
Defendants MLS and USSF [278] is denied; and
- 32 -
(5)
ChampionsWorld’s Motion to Compel the Production of
Documents [306] is denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE: 8/17/2011
- 33 -
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