Aubrey McClendon is the CEO of Oklahoma City-based Chesapeake Energy Company, which was hit with a verdict for $404 million last year when a jury determined that it had systematically and deliberately underpaid natural gas well owners in violation of their leases by withholding production costs from the royalties paid to them.
But what is more relevant here is that McClendon is also a member of The Professional Basketball Club, LLC, which purchased the NBA’s Seattle SuperSonics and the WNBA’s Seattle Storm from Starbucks founder and CEO Howard Schultz in 2006. Last week, the NBA Board of Governors approved the Sonics’ move from Seattle to Oklahoma City in time for the 2010 season, if not sooner.
The team’s move did not sit well with Schultz, who, in his capacity as the sole member of Canarsie Holdings, LLC, filed a derivative lawsuit in federal court on behalf of The Basketball Club of Seattle, LLC, which formerly owned the teams. Schultz’s claim is that McClendon’s group always intended to move the Sonics franchise to Oklahoma City even as they promised to keep the team in Seattle. The Basketball Club of Seattle, LLC v. The Professional Basketball Club, LLC, (W. D. Wash., April 22, 2008).
The introduction to Schultz’s complaint explains that
In early 2006, when The Basketball Club of Seattle (“BCOS”) offered the Seattle SuperSonics for sale, it was critical to BCOS that any potential buyer be committed to keeping the team in Seattle. Defendant, a group of Oklahoma City businessmen, knew that BCOS would only sell it the team if defendant persuaded BCOS that it wanted to keep the Sonics in Seattle. For that reason, the Oklahoma City group told BCOS at the time it purchased the team that “it is our desire to have the Sonics and the Storm continue their existence in the Greater Seattle Area and it is not our intention to move or relocate the team.” That statement was false from the moment it was made. The Oklahoma City group’s true intention, as later described candidly by one of its principal owners, was to move the team to Oklahoma City at the earliest possible time: “We didn’t buy the team to keep it in Seattle, we hoped to come here [to Oklahoma City].”
Defendant fraudulently induced BCOS to sell the Sonics to it, and actively concealed that deception. These Oklahoma City businessmen wanted a team that would play in Oklahoma City – not in Seattle. They were willing to lie, and did lie, to complete the deal. Under these circumstances, principles of law and equity do not permit defendant to continue to own property it fraudulently obtained.
The principal owner referred to above was McClendon, who was fined $250,000 by NBA Commissioner David Stern for making that statement (because it was contrary to Stern’s stated hope of keeping the Sonics in Seattle).
The complaint seeks various relief, including:
- a declaratory judgment that the purchase agreement was induced by fraud and therefore is voidable at BCOS’ option;
- the imposition of a constructive trust from which McClendon’s group “can be ordered to convey the Sonics to an honest buyer who desires to keep the Sonics in Seattle;”
- the appointment of a receiver to manage the assets at issue in the litigation for the benefit of the constructive trust;
- an accounting of the Sonics’ financial condition;
- a preliminary injunction that prohibits McClendon’s group from taking any action that would compromise the Sonics’ value or interfere with the court’s ability to render the relief sought by BCOS; and
- attorney’s fees and costs.
For more information, here is The Seattle Times‘ story, which has links to various documents, including some e-mails that allegedly show the McClendon group’s intent to move the team, and earlier coverage of the sale.