Opinion
18-CV-03025 (PGG) (VF)
12-05-2022
SPORTVISION, INC. and SPORTSMEDIA TECHNOLOGY CORPORATION, Plaintiffs, v. MLB ADVANCED MEDIA, LP, Defendant.
THE HONORABLE PAUL G. GARDEPHE, UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION
VALERIE FIGUEREDO UNITED STATES MAGISTRATE JUDGE
Defendant MLB Advanced Media, LP (“MLBAM”) brings the instant motion seeking the imposition of sanctions on Plaintiffs Sportvision, Inc. (“Sportvision”) and SportsMEDIA Technology Corporation (“SMT”). For the reasons explained below, I recommend that Defendant's motion be DENIED without prejudice.
BACKGROUND
A. Factual Background
Sportvision creates “innovative graphic enhancements of sports objects and graphic visualizations of sports elements.” See ECF No. 200, Second Am. Compl. (“SAC”) ¶ 3. SMT develops “real-time on-screen graphics, tickers, clock-and-score, virtual insertions[,] and social media integration for live televised sport and entertainment events.” SAC ¶ 50. On October 4, 2016, SMT acquired all of Sportvision's outstanding stock. Id. ¶ 53. MLBAM is a limited partnership of Major League Baseball (“MLB”) club owners, which manages and directs MLB's digital properties. Id. ¶¶ 54-55.
In 1999, engineers from Sportvision and ESPN collaborated to create a new system capable of generating and inserting a virtual strike-zone graphic and a virtual pitch-location graphic during broadcasts of MLB games. Id. ¶¶ 64-65. Once completed, the new system, called “K-Zone,” was exclusively licensed by Sportvision to ESPN, and ESPN debuted the system during a television broadcast on July 1, 2001. Id. ¶¶ 66, 71. From 2001 to 2005, ESPN was the only MLB broadcaster with the right to use the K-Zone system, and thus the only broadcaster that could insert “Virtual Strike Zones” and “Pitch Location Reveal Graphics” into broadcasts of MLB games. Id. ¶ 75.
The use of the K-Zone system “increased the market demand for all forms of MLB pitch data and the market demand for a broadcast alternative to K-Zone that could be used by other MLB Broadcasters.” Id. ¶ 95. Consequently, Sportvision engineers worked to develop and patent a “new and sophisticated camera-based pitch tracking system that could track detailed information along the entire trajectory of a pitch, i.e., from the pitchers' release point through the catchers' mitt.” Id. ¶ 96. Sportvision called its new “full pitch path[ ] tracking system” PITCHf/x. Id. ¶ 97. In contrast to the K-Zone system, the PITCHf/x system was “not limited to just tracking pitches as they crossed home plate;” it could also “track the entire pitch path and . . . derive detailed information along each pitch's entire path.” Id. ¶¶ 98-99.
In 2005, Sportvision and MLBAM began negotiating an agreement that contemplated installing the PITCHf/x system in every MLB stadium. Id. ¶¶ 102-04. On February 7, 2006, Sportvision and MLBAM entered into a six-year contract, with a termination date of December 31, 2011, in order “to work together on an endeavor to capture, collect, market and disseminate” pitch data in MLB games. Id. ¶¶ 105-07; see also SAC at Ex. B (Recitals, § 12.1), ECF No. 200-2. The “Endeavor,” as the parties termed their joint initiative, had four primary objectives: (1) to design, assemble, install league-wide, and operate the PITCHf/x system to capture data on pitches at MLB games; (2) to provide the PITCHf/x system data to MLB-associated entities at no charge; (3) to generate revenue by selling the PITCHf/x system data rendering services to MLB broadcasters; and (4) to generate revenue by selling the PITCHf/x system data to data subscribers. SAC ¶ 107; see also Id. ¶¶ 9-10. The parties business arrangement required MLBAM to pay all expenses associated with achieving the first objective (i.e., the installation, operation, maintenance, and use of the pitch tracking system in all MLB stadiums), to obtain permission to perform the second objective, and to share in the revenue generated by the third and fourth objectives. Id. ¶¶ 108-09, 111-12, 121; see also id. ¶ 10. For its part, Sportvision was required to supply the patents, intellectual property, and expertise needed to perform the first objective, in exchange for a share in the revenue generated by the third and fourth objectives. Id. ¶¶ 109-10, 122.
Sportvision and MLBAM executed various amendments to the Endeavor contract (the “Contract” or the “Agreement”). Effective December 31, 2011, Sportvision and MLBAM executed a second amendment to the Agreement, which extended the term of the initial Agreement through December 31, 2014. Id. ¶ 130; see also SAC at Ex. D (§ 12.1), ECF No. 200-4. The second amendment provided that “[w]ithin six months prior to the end of the Term [(December 31, 2014)], the Parties shall enter into good faith negotiations regarding the renewal of this Agreement and the terms of such renewal.” SAC ¶ 131 (alteration in original).
The first amendment to the Agreement adjusted how the parties allocated certain revenues and revised certain definitions. SAC ¶ 129; see also SAC at Ex. C, ECF No. 200-3. That amendment is not relevant to the instant motion for sanctions.
On December 15, 2014, Sportvision and MLBAM executed a third amendment to the Agreement, which extended the term of the Agreement through December 31, 2019. Id. ¶¶ 132, 135; see also SAC at Ex. E (§ 12.1), ECF No. 200-5. The third amendment to the Agreement required that “the Parties agree to negotiate in good faith to continue the commercial exploitation of PITCHf/x Derivative Data beyond the 2015 MLB season, but absent such a continuation Sportvision's obligations with respect to PITCHf/x System will cease . . . and MLBAM's obligations with respect to payment for the PITCHf/x System set forth in Section 5.6 will likewise cease.” SAC ¶ 136; SAC at Ex. E (§ 12.1).
Effective January 4, 2016, Sportvision and MLBAM executed the fourth and final amendment to the Agreement, amending the parties' revenue allocations. Id. ¶ 137; see also SAC at Ex. F, ECF No. 200-6. That amendment included a section titled “Term of Agreement.” See ECF No. 200-6 at 3 (§ 12.1). The “Term of Agreement” clause, Section 12.1, in the fourth amendment provided as follows:
This Agreement will be effective on the Effective Date and will remain in force until December 31, 2019, unless otherwise terminated as provided herein (the “Term”). Within six (6) months prior to the end of the Term, the Parties shall enter into good faith negotiations regarding the renewal of this Agreement and the terms of such renewal; provided, that whether or not this Agreement is renewed following the end of the Term, (i) MLBAM shall permit Sportvision to render all services to ESPN under Sportvision's current agreement with ESPN through the expiration thereof; and (ii) the Parties agree to negotiate in good faith to continue the commercial exploitation of PITCHf/x Derivative Data beyond the 2016 MLB season, but absent such a continuation Sportvision's obligations with respect to PITCHf/x System will cease and MLBAM's obligations with respect to payment for the PITCHf/x System set forth in Section 5.6 will likewise cease.See ECF No. 200-6 at 3-4 (§ 12.1); see also SAC ¶ 138.
In November 2016, SMT, having acquired Sportvision, contacted MLBAM to commence good-faith negotiations on the financial terms for continued use of the PITCHf/x system during the upcoming 2017 MLB season. SAC ¶ 20. In December 2016, MLBAM told SMT that it had “made the decision to cease using Sportvision's PITCHf/x tracking system for the 2017 MLB season.” Id. MLBAM used a competing “PITCHcast” system instead of SMT's PITCHf/x system for the 2017 season, and did “not perform any of its PITCHf/x System obligations under the Endeavor Contract for the entirety of the 2017 MLB Season.” Id. ¶¶ 30, 174, 178.
There are seven causes of action in the Second Amended Complaint (Counts IV-X) that relate to Plaintiffs' contention that MLBAM abandoned the parties' Agreement after the 2016 baseball season. See SAC ¶¶ 30, 291-366. As is relevant to the instant motion for sanctions, Count Four alleges that MLBAM breached the “operational obligations” in the contract. SAC ¶¶ 291-301. Specifically, Plaintiffs contend that MLBAM refused to: (1) fund the 2017 Capital Equipment Budget; (2) hire the Equipment Operators for the 2017 season; (3) provide Sportvision access to all of the MLB stadiums and facilities; (4) provide contextual game data and the means to conflate that data with the PITCHf/x data; (5) host the PITCHf/x Master Database with current pitch tracking data; (6) provide Sportvision with undisturbed, real-time electronic access to the PITCHf/x Master Database; (7) pay all Total Expenses for the operation of the PITCHf/x System on an annual basis; (8) work in good faith to exploit all reasonable business opportunities for selling the PITCHf/x System Data; and (9) perform all obligations under the Agreement in a timely, professional, competent, and workmanlike manner. Id. ¶ 296. In Count Five, Plaintiffs allege that MLBAM breached the exclusivity provision in the Agreement, which required that during the term of the contract, MLBAM “shall not enter into any arrangement with any third party other than Sportvision for purposes of providing the same data as that provided by the PITCHf/x System.” Id. ¶¶ 302-11.
In Count Six, Plaintiffs contend that MLBAM breached Section 7.5 of the Agreement. That clause barred MLBAM from copying, modifying, or creating any derivative system from Sportvision's intellectual property, and Plaintiff contends that the PITCHcast system that MLBAM began using during the 2017 MLB season is a derivative system of the PITCHf/x system. Id. ¶¶ 312-25. In Count Seven, Plaintiffs claim that MLBAM breached Section 2.4 of the Agreement, which required MLBAM to provide Sportvision a “first right to bid” if MLBAM desired to implement or develop additional “data sets.” Id. ¶¶ 326-33. In Count Eight, Plaintiffs allege that MLBAM breached the confidentiality provision in Section 8 of the Agreement. Id. ¶¶ 334-41. In Count Nine, Plaintiffs claim that MLBAM breached its obligation under the Agreement to negotiate in good faith for the 2017 MLB season. Id. ¶¶ 342-51. Plaintiffs' final breach-of-contract claim is in Count Ten, which alleges that MLBAM breached the exclusivity clause in the Agreement. Id. ¶¶ 352-66.
B. Procedural Background
Plaintiffs commenced this action on April 5, 2018, see ECF Nos. 1, 8, and submitted their First Amended Complaint on April 27, 2018, see ECF No. 26. In August 2018, MLBAM moved to dismiss Plaintiffs' First Amended Complaint, in part, and to compel arbitration, in part, pursuant to the terms of the Agreement. See ECF Nos. 33, 42-44. Plaintiffs opposed arbitration on all counts, including Count IV. See ECF No. 34, 45. Briefing was completed by August 31, 2018, see ECF No. 46, and on April 23, 2020, the Court denied MLBAM's motion, see ECF No. 70. In denying the motion to compel arbitration, the Court concluded that Plaintiffs' breach-of-contract claims, including Count IV, did “not fall within the scope of the arbitration provision” because they “are premised on Defendant's alleged abandonment of the Contract in toto.” Id. at 23. The Court reasoned that “Plaintiffs' breach of contract claims are not about the ‘operation of the Endeavor,'” but instead, “all flow directly from Defendant's alleged abandonment of the Contract.” Id. at 21; see also id. at 22 (concluding that “the Amended Complaint pleads facts demonstrating that Defendant has engaged in a wholesale abandonment of the Contract,” and noting that “there is a claim that Defendant breached the Contract in its entirety by failing to perform any of its obligations”). Plaintiffs filed their Second Amended Complaint on February 19, 2021, which serves as the operative complaint in this action. See ECF No. 200.
C. Instant Motion
On February 10, 2022, MLBAM provided Plaintiffs with written notice of its intent to seek sanctions and included a copy of its planned motion, pursuant to Fed.R.Civ.P. 11(c)(2). See ECF No. 320-1 at 1 n.1 (“Def.'s Br.”). Plaintiffs responded within the prescribed 21-day period. Id. On March 4, 2022, MLBAM filed the instant motion for sanctions. ECF No. 320-1. On May 13, 2022, Sportvision submitted its opposition, and MLBAM submitted its reply on May 20, 2022. ECF Nos. 355-57, 361-62. The Court held oral argument on the motion on November 10, 2022. See Minute Entry (Entered: 11/10/2022); Hearing Transcript (“Tr.”), ECF No. 402. As discussed in further detail below, the instant motion is premised primarily on two sources of evidence: (1) an exchange of letters between Sportvision and SMT in January 2018, relating to an indemnification dispute stemming from SMT's acquisition of Sportvision; and (2) deposition testimony obtained in this action from Gerard Hall, SMT's Chief Executive Officer, and Mike Jakob, Sportvision's former President and Chief Operations Officer.
DISCUSSION
MLBAM seeks Rule 11 sanctions because it claims that Plaintiffs knowingly made false representations in its complaint and in its opposition to MLBAM's motion to compel arbitration.MLBAM contends that Plaintiffs “believed” and “knew” that the obligation to operate the PITCHf/x system did not continue beyond the 2016 MLB season, notwithstanding Plaintiffs' allegations that MLBAM failed to perform its operational obligations under the Agreement. See Def.'s Br. at 1-4; Tr. at 10, 13, 27, 31. Although MLBAM points to various documents obtained in discovery and deposition testimony that may ultimately undermine Plaintiffs' factual allegations that MLBAM's obligation to operate the PITCHf/x system continued beyond 2016, at bottom, a determination as to whether Plaintiffs' allegations were knowingly false is inextricably intertwined with a determination on the merits of Plaintiffs' breach-of-contract claim in Count IV of the Second Amended Complaint. For the reasons set forth below, I thus recommend that MLBAM's Rule 11 motion be denied without prejudice.
MLBAM argues that Plaintiffs opposed the motion to compel arbitration by arguing that “MLBAM ha[d] completely abandoned” the Agreement. See ECF No. 34 at 2; see also Id. (“Each claim concerns MLBAM's refusal to operate the [PITCHf/x] project at all”); ECF No. 45 at 6 (“Each contract claim is premised on MLBAM's abandonment of the contract.”); id. at 1 (“This case is about MLBAM's total repudiation of the contract.”).
A. Sanctions under Rule 11 of the Federal Rules of Civil Procedure
Under Federal Rule of Civil Procedure 11, “[b]y presenting to the court a pleading, written motion, or other paper-whether by signing, filing, submitting, or later advocating it-an attorney . . . certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery ....” Fed.R.Civ.P. 11(b)(3). “Under Rule 11(b)(3), plaintiffs must have an adequate, non-frivolous basis in fact for their claims.” Colliton v. Cravath, Swaine & Moore LLP, No. 08-CV-0400 (NRB), 2008 WL 4386764, at *13 (S.D.N.Y. Sept. 24, 2008), aff'd, 356 Fed.Appx. 535 (2d Cir. 2009). “A pleading, motion or paper violates Rule 11 if it is frivolous, legally unreasonable, or factually without foundation, even though not signed in subjective bad faith.” Wechsler v. Hunt Health Systems, Ltd., 216 F.Supp.2d 347, 356 (S.D.N.Y. 2002).
Rule 11(b)(3) is violated where a party falsely represents that its allegations or factual contentions have evidentiary support or are likely to have such support after a reasonable opportunity for further investigation. Sichel v. UNUM Provident Corp., 230 F.Supp.2d 325, 332 (S.D.N.Y. 2002). Under Rule 11(b)(3), “sanctions may not be imposed unless a particular allegation is utterly lacking in support.” O'Brien v. Alexander, 101 F.3d 1479, 1489 (2d Cir. 1996). Courts typically look for statements which rise to the level of direct falsehoods before they find that sanctions are warranted pursuant to Rule 11(b)(3). Sichel, 230 F.Supp.2d at 332; Chum Ltd. v. Lisowski, No. 98-CV-5060 (KMW), 2001 WL 243541, at *14 (S.D.N.Y. Mar. 12, 2001).
In determining whether the non-moving party has engaged in conduct that violates Rule 11, “courts apply an objective standard of reasonableness.” Colliton, 2008 WL 4386764, at *12 (citing Bus. Guides, Inc. v. Chromatic Commc'ns Enters., Inc., 498 U.S. 533, 550-51 (1991)); In re Pennie & Edmonds LLP, 323 F.3d 86, 90 (2d Cir. 2003) (“The mental state applicable to liability for Rule 11 sanctions initiated by motion is objective unreasonableness.”). The court must “weigh[ ] the evidence to determine if counsel's pleadings, motions or papers are well-grounded in fact or warranted by existing law.” Safe-Strap Co. v. Koala Corp., 270 F.Supp.2d 407, 417 (S.D.N.Y. 2003) (citations omitted). Importantly, “a Rule 11 motion for sanctions is not a proper substitute for a motion for summary judgment.” Id. at 416. In other words, a court does not judge the merits of an action in ruling on a Rule 11 motion. See E. Gluck Corp. v. Rothenhaus, 252 F.R.D. 175, 179 (S.D.N.Y. 2008) (“The appropriateness of sanctions is distinct from the underlying merits of a claim.”); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 396 (1990) (“[T]he imposition of a Rule 11 sanction is not a judgment on the merits of an action. Rather, it requires the determination of a collateral issue: whether the attorney has abused the judicial process, and, if so, what sanction would be appropriate.”). Although a party may move for sanctions before the merits of the compliant has been tested, it is “unusual” to do so. Safe-Strap Co., 270 F.Supp.2d at 413. Rather, courts ordinarily defer determination of Rule 11 sanctions until the end of the litigation. Id. at 417 (citations omitted); see also Mann v. G &G Mfg., Inc., 900 F.2d 953, 960 (6th Cir. 1990) (“[A] Rule 11 motion is generally determined at the end of the proceedings.”).
“A court finding a violation or violations has the discretionary authority under Rule 11(c) to impose sanctions.” Colliton, 2008 WL 4386764, at *12 (citing Clinton v. Jones, 520 U.S. 681, 709 n.42 (1997)); Ulla-Maija, Inc. v. Kivimaki, No. 02-CV-3640 (AGS), 2003 WL 169777, at *8 (S.D.N.Y. Jan. 23, 2003) (“The decision as to whether to award sanctions pursuant to Rule 11 is subject to the Court's discretion.”). “[T]he imposition of sanctions is a choice of last resort,” and even if a court finds that a claim is frivolous, it should “as a first option[ ] consider the dismissal of that action on the merits through the mechanism of summary judgment.” Safe-Strap, 270 F.Supp.2d at 419.
B. Rule 11 sanctions are inappropriate at this time.
MLBAM contends that its motion for sanctions “challenges a discrete and narrow set of allegations in Plaintiffs' initial and amended Complaints: Plaintiffs' repeated allegations that MLBAM's PITCHf/x ‘Operational Obligations' continued through the end of 2019.” See Def.'s Reply Br. at 4, ECF No. 361; see also Def.'s Br. at 8-9, ECF No. 320-1. According to MLBAM, by 2018, Plaintiffs understood that the operation of the PITCHf/x system ended in 2016, and thus Plaintiffs lacked a good-faith basis for their factual allegations to the contrary. See, e.g., Tr. at 13, 21-22, 93-94. Whether MLBAM was obligated to operate the PITCHf/x system through the end of 2019 is at the heart of Plaintiffs' breach-of-contract claim in Count IV of the Second Amended Complaint. At this stage-where MLBAM seeks sanctions and not a ruling on the merits-MLBAM must point to evidence that conclusively establishes that Plaintiffs' factual allegations are false, utterly lacking in factual support, or objectively unreasonable. MLBAM has not done so.
In Count IV of the Second Amended Complaint, Plaintiffs outline specific contractual provisions of the Agreement that Plaintiffs contend ran “through the end of 2019.” SAC ¶¶ 293-95. Under Plaintiffs' view of the Agreement, MLBAM was required to fund the Capital Equipment Budget and provide Sportvision access to stadiums and facilities, among other things. See Id. ¶ 292. The crux of the parties' dispute with respect to the breach-of-contract claim in Count IV appears to center around the proper interpretation of Section 12.1, titled “Term of Agreement.” That provision of the Agreement, which was modified by the Fourth Amendment, became effective on January 4, 2016. In relevant part, Section 12.1 provides:
This Agreement will be effective on the Effective Date and will remain in force until December 31, 2019, unless otherwise terminated as provided herein (the “Term). Within six (6) months prior to the end of the Term, the Parties shall enter into good faith negotiations regarding the renewal of this Agreement and the terms of such renewal; provided, that whether or not this Agreement is renewed following the end of the Term . . . (ii) the Parties agree to negotiate in good faith to continue the commercial exploitation of PITCHf/x Derivative Data beyond the 2016 MLB season, but absent such a continuation Sportvision's obligations with respect to PITCHf/x System will cease and MLBAM's obligations with respect to payment for the PITCHf/x System set forth in Section 5.6 will likewise cease.ECF No. 200-6 at 3-4; ECF No. 203-6 at 3-4. Expressly referenced in Section 12.1 is Section 5.6 of the Agreement. Section 5.6 concerns “revenue sharing” for “rendering the PITCHf/x System Data,” and addresses the sharing of “broadcast revenue” between Sportvision and MLBAM stemming from use of the PITCHf/x system during the “2016 MLB Season.” Id. at 3.
Under Plaintiffs' view of Section 12.1, even if the revenue sharing obligations related to the operation of the PITCHf/x system ended in 2016, MLBAM was nevertheless required to fulfill its “operational obligations” through December 31, 2019, allowing Plaintiffs to continue earning revenue from operation of the PITCHf/x system through its agreements with television broadcasters if it so desired. See Tr. at 36-37, 50-51, 96-97.
Plaintiffs' interpretation of Section 12.1 is facially plausible, given the language of the provision, which expressly provides for termination of MLBAM's obligations only under Section 5.6, and is silent as to the other provisions in the Agreement. That interpretation also has factual support, notwithstanding MLBAM's contention to the contrary. See Tr. at 74 (arguing that “there is no evidence supporting that interpretation”). For instance, on February 21, 2017, Gerard Hall, the President and CEO of SMT, emailed Kenny Gersh, the then-Executive Vice President of Business at MLBAM. Hall explained to Gersh that “SMT believe[d] that that the entirety of the [PITCHf/x] Agreement . . . remain[ed] in force until December 31, 2019.” See SAC, Ex. H at 3. According to Hall, certain of MLBAM's obligations were ongoing through the end of 2019, including, for example, MLBAM's obligation “to fund, operate, maintain, and promote the PITCHf/x System” and MLBAM's obligation to provide SMT “access to PITCHf/x System Data.” Id. Stated otherwise, Hall pointed to specific clauses in the Agreement that created “operational obligations” for MLBAM that Hall contended had not expired and continued through 2019. Id. Additionally, Hall attached a “Situation Analysis” to his email, which further explained SMT's position as to the operation of Section 12.1 and MLBAM's continuing contractual obligations through the end of 2019. Id.
The Situation Analysis was not included as an exhibit to the Second Amended Complaint, but upon request, the parties provided the attachment to the Court for its review in connection with the instant motion.
MLBAM views the operation of Section 12.1 differently. According to MLBAM, Section 12.1 allowed certain aspects of the Agreement to remain in effect through 2019, such as “confidentiality requirements” and provisions relating to the operation of FIELDf/x-a system “used for tracking the players in the field” in minor league games. Tr. at 8, 12-13, 29-30, 71. But MLBAM contends that absent a meeting of the minds on “renewal of [the] Agreement” after the 2016 MLB season, Sportvision's obligations with respect to PITCHf/x system ceased and MLBAM's operational obligations and revenue obligations stemming from operation of that system likewise ceased. See, e.g., Tr. at 8, 12-13, 20-21, 28-34, 93.
Mindful that a Court on a Rule 11 motion is not tasked with addressing the merits of a claim, MLBAM, of course, is “not asking the Court to make a determination” concerning the appropriate interpretation of Section 12.1. See Tr. at 31. Instead, MLBAM contends that by 2018, just months before Plaintiffs commenced this action, Plaintiffs had “agreed” that Section 12.1 operated in the manner advanced by MLBAM. See id.. MLBAM thus argues that Plaintiffs lacked a good-faith basis for the factual allegations underlying their breach-of-contract claim in Count IV, because even if a different reading of Section 12.1 was plausible on its face, Plaintiffs themselves understood that MLBAM was not obligated to operate the PITCHf/x system after the 2016 season. See Tr. at 7, 13, 21-25, 31, 77, 79, 92, 94. Given that the requested relief is Rule 11 sanctions, MLBAM's argument fails because the evidence it relies on does not unequivocally demonstrate that Plaintiffs “knew that [MLBAM's] obligations ended in 2016.” Tr. at 27; see also Def.'s Br. at 10 (arguing that Plaintiffs in the January 2018 letters “did not dispute that MLBAM's obligations to operate PITCHf/x under the Agreement ran only through December 31, 2016”); Tr. at 8 (arguing that the January 2018 letters between Sportvision and SMT “acknowledge” that the “PITCHf/x operation . . . ended in 2016”).
To support its motion for sanctions, MLBAM points to a January 2, 2018 “claims notice,” sent by SMT to Sportvision, demanding indemnification related to SMT's October 2016 acquisition of Sportvision. See ECF No. 320-3 at 2. In MLBAM's view, that claims notice and a subsequent response from Sportvision, dated January 29, 2018, “confirmed” that Plaintiffs “knew that MLBAM was not obligated to operate PITCHf/x after the 2016 season.” Tr. at 7. Neither letter, however, unequivocally confirms that Plaintiffs adopted the interpretation of the Agreement advanced by MLBAM.
In the January 2 letter, signed by attorney Matthew Adler (Plaintiffs' lead counsel in this case), SMT claimed that Sportvision had “breached the Purchase Agreement by misrepresenting the status of . . . Sportvision's contract with [MLBAM].” ECF No. 320-3 at 2. As Mr. Adler stated in the letter, “three years remained on the PITCHf/x Agreement as of September 20, 2016,” but, at least by December 21, 2016, Sportvision “knew that 2016 would likely be the last year for the PITCHf/x Agreement.” Id. at 4-6. In arguing that Sportvision had breached the representations and warranties in the purchase agreement with SMT, Mr. Adler claimed that Sportvision “never disclosed” to SMT that “it was at least unlikely that MLBAM would continue working with Sportvision to provide pitch tracking data beyond 2016.” SMT. Id. at 7. SMT sought indemnification from Sportvision for the lost revenues it had suffered as a result. MLBAM relies on these statements to argue that SMT knew that the operation of the PITCHf/x system and, consequently, MLBAM's operational obligations, ended in 2016. Def.'s Br. at 2-4, 7-8, 13-15; Def.'s Reply Br. at 1-2, 5-7.
But as Mr. Adler himself stated at oral argument on the instant motion, “[t]here is a big difference” between saying that “you didn't tell us that the other party was going to breach” and “agreeing that they could breach.” Tr. at 39-40. All of SMT's statements in the January 2 letter fall into the former category-they could be viewed as declarations by SMT that Sportvision had failed to disclose that MLBAM would not continue performing under the Agreement after 2016. For example, the statement in the January 2 letter that “Sportvision knew that 2016 would likely be the last year for the PITCHf/x Agreement” (see Def.'s Br. at 3, 8) could fairly be interpreted in one of two ways: it could mean that Sportvision knew that MLBAM would not continue performing its obligations, or it could mean that Sportvision knew that MLBAM had no contractual obligations beyond 2016. The statement, however, is not the same as a statement by SMT that it knew that MLBAM was entitled to cease its operational obligations after 2016. And, nowhere in the January 2 letter does SMT concede that “the contract allowed MLBAM to cease performing” its operational obligations at the end of the 2016 MLB season. Tr. at 39-40 (emphasis added). Contrary to MLBAM's contention, Mr. Adler in his January 2 letter does not adopt the interpretation of the contract advanced by MLBAM.The letter thus does not indisputably demonstrate that Plaintiffs lacked a good-faith basis for their allegation that MLBAM's operational obligations continued through 2019.
MLBAM claims that the “crux of SMT's fraud allegation” in the January 2 letter was that “Sportvision knew that MLBAM was not obligated to continue operating the PITCHf/x system beyond the 2016” MLB season. See Def's Br. at 7-8. But that is merely one possible inference drawn by MLBAM from SMT's statements. To succeed on this Rule 11 motion, the statements themselves must conclusively demonstrate that Plaintiffs' factual allegations were false or objectively unreasonable.
MLBAM also relies on the January 29, 2018 “response notice” from Sportvision to SMT, addressing SMT's request for indemnification pursuant to the parties' escrow agreement. See ECF No. 320-4 at 2. But like SMT's statements in the January 2 letter, Sportvision's statements in the January 29 letter do not unambiguously acknowledge that MLBAM had no operational obligations after the 2016 season. Instead, Sportvision's position was that SMT “was well aware that the MLBAM Pitchf/x revenues were not booked through 2019.” Id. at 6 (emphasis added). Throughout the letter, Sportvision's statements appear focused on SMT's knowledge that revenues from the commercial exploitation of the PITCHf/x system were not guaranteed beyond the end of the 2016 MLB season. Repeatedly, Sportvision explains that it had disclosed to SMT that “there was no expectation by MBLAM or Sportvision of PITCHf/x revenue being guaranteed through 2019.” Id. at 3 (emphasis added).
See also id. at 4 (“In the Third and Fourth Amendments to the PITCHf/x Agreement, which extended the PITCHf/x agreement to the 2015 and 2016 seasons respectively, MLBAM made it clear that the commercial exploitation of Sportvision's PITCHf/x pitch tracking system encompassed those seasons exclusively, not through to 2019. Any subsequent commercializations would have to be agreed to by the parties.”) (emphasis added); id. (“[I]n the Third Amendment, signed December 15, 2014, Sections 5.5 (Broadcast Revenue), Section 5.6 (2015 PITCHf/x System Data Rendering Fee) and 5.7 (PITCHf/x Derivative Data Revenue Share) all stipulate that the deal contemplates revenue for the 2015 MLB seasons only.”) (emphasis added); id. at 4-5 (“[T]he Fourth Amendment to the PITCHf/x Agreement, signed on January 4, 2016, was also clearly a one-year extension of the Agreement to commercialize PITCHf/x during the 2016 MLB season.”) (emphasis added).
To be sure, certain statements by Sportvision in the January 29 letter seemingly support MLBAM's interpretation that pursuant to Section 12.1, its operational obligations ended in 2016. For instance, Sportvision states in its letter that SMT knew that there was “no assurance MLBAM would continue working with Sportvision past December 31, 2016,” and Sportvision further explains that SMT “knew from the operative agreements that the PITCHf/x Agreement would last until December 31, 2019 only if Sportvision (later [SMT]) and MLBAM were able to negotiate year-to-year amendments beyond 2016.” Id. at 3 (emphasis in original); see also Id. at 5 (“Buyer was on notice . . . that the PITCHf/x System Agreement was year-to-year and not assured past 2016.”). Those statements, however, cannot be viewed in isolation. And when examined with Sportvision's other statements in the letter, the statements concerning whether the Agreement was year-to-year could be reasonably viewed as pertaining to MLBAM's revenue obligations, not its operational obligations. Moreover, it is significant that Sportvision's statements in the letter were made in response to an indemnity demand. As Mr. Adler argued, “the plain words of the contract relieve [MLBAM] only of payment and not of performance obligations,” but it is hardly surprising in the context of the indemnity dispute between Sportvision and SMT, that Sportvision's “lawyer” took “a more aggressive position” given that its client was the subject of an indemnity claim and faced a potential suit by SMT. See Tr. at 62, 76.
In any case, to succeed on a motion for sanctions, the statements in the January 29 letter must conclusively demonstrate that Sportvision's factual allegations underlying Count IV were “utterly lacking in support” and “objectively unreasonable.” See Zeta Global Corp. v. Maropost Marketing Cloud, Inc., 20-CV-3951 (LGS), 2022 WL 2533182, at *5 (S.D.N.Y. July 7, 2022) (internal quotation marks omitted). That high bar has not been met here. The letter, written by Sportvision's attorney in the context of an indemnity dispute, does not irrefutably demonstrate that Plaintiffs understood that MLBAM's operational obligations ceased in 2016. Id. (“Courts typically look for statements which rise to the level of direct falsehoods before they find that sanctions are warranted pursuant to Rule 11(b)(3).”) (citation omitted). In short, the representations by Sportvision and SMT in their respective January 2018 letters are not fundamentally irreconcilable with Plaintiffs' representations in their Second Amended Complaint or in their opposition to MLBAM's motion to compel arbitration. See Def.'s Br. at 2.
MLBAM fares no better with its reliance on the deposition testimony of Gerard Hall, SMT's Chief Executive Officer, and Mike Jakob, Sportvision's former President and Chief Operations Officer. Beginning with Hall, he was asked in his deposition whether “it was SMT's position that Sportvision knew that PITCHf/x would not continue after 2016,” and Hall responded, “[w]e're making that claim.” Def.'s Br. at 12. As already discussed, there is a difference between claiming that Sportvision knew, at the time of its sale to SMT, that MLBAM would not continue using the PITCHf/x system after 2016, and an acknowledgment by SMT or Sportvision that MLBAM was permitted under the Agreement to cease performing its operational obligations after 2016. Moreover, to the extent Hall agreed with the statement that “Sportvision took a season-by-season approach from the period of the third amendment forward,” that statement is equivocal. It is equally consistent with a view that revenue sharing obligations were season-by-season, as it is with a view that operation of the PITCHf/x system was on a season-by-season basis. In any case, Hall's testimony is not irrefutable evidence that Plaintiffs' factual allegations were false.
MLBAM also relies on the deposition testimony of Mike Jakob. In response to the question of whether he understood that “MLB was only extending the operation of the PITCHf/x platform for 2016,” Jakob testified that his “understanding was that [the fourth] amendment would only cover the 2016 season and not beyond.” Def.'s Br. at 11. Seizing on this and similar testimony from Jakob, MLBAM argues that Jakob “confirmed repeatedly” in his deposition that the Fourth Amendment to the Agreement “was a one-year deal to operate PITCHf/x for the 2016 season only-not an agreement to operate the system through 2019.” Id. (emphasis in original). On a claim concerning the proper interpretation of a contract provision, however, Jakob's testimony is extrinsic evidence and would be relevant only if MLBAM were able to demonstrate that the contract provision is ambiguous. See United States Trust Co. v. Jenner, 168 F.3d 630, 632 (2d Cir. 1999) (noting that where a contract is unambiguous, “courts are required to give effect to the contract as written and may not consider extrinsic evidence to alter or interpret its meaning”) (citations and internal quotations omitted). His testimony thus does not demonstrate that Plaintiffs' interpretation of the contract, based on the plain text of Section 12.1, was objectively unreasonable. Moreover, if credited, Jakob's testimony would only raise a factual dispute concerning the parties' understanding of how Section 12.1 operated. Standing alone, Jakob's testimony cannot support a finding that Plaintiffs' conduct in asserting its claim in Count IV was objectively unreasonable or that its factual allegations in support of that claim were false.
At bottom, MLBAM's motion for sanctions is premised on an argument that Plaintiffs' factual allegations were “objectively unreasonable,” because Plaintiffs “understood” that the Agreement allowed MLBAM to cease its operational obligations at the end of the 2016 MLB season. See Tr. at 74-77. But as just shown, the letters and testimony that MLBAM relies on do not conclusively show that Plaintiffs were effectively in agreement with MLBAM about the proper construction of Section 12.1. Moreover, the standard for awarding Rule 11 sanctions is high. See Rothenhaus, 252 F.R.D. at 179 (noting that “[c]ourts maintain a high bar for establishing a Rule 11 violation”); Galin v. Hamada, 283 F.Supp.3d 189, 201 (S.D.N.Y. 2017), aff d, 753 Fed.Appx. 3 (2d Cir. 2018) (“The standard for imposing Rule 11 sanctions . . . is purposefully high, so as not to stifle legal creativity and zealous advocacy.”); Mahoney v. Yamaha Motor Corp. U.S.A., 290 F.R.D. 363, 368 (E.D.N.Y. 2013) (“A high standard exists for imposing Rule 11 sanctions.”). As the Second Circuit has instructed, “[c]ourts should . . . resolve all doubts in favor of the signer.” Cross & Cross Properties, Ltd. v. Everett Allied Co., 886 F.2d 497, 504 (2d Cir. 1989). And as noted, Courts ordinarily defer determination of Rule 11 motions to the end of the litigation. See Safe-Strap, 270 F.Supp.2d at 417 (citing cases).
Following a resolution on the merits of the claim in Count IV, it may well be that the evidence before the trier of fact conclusively establishes that Plaintiffs did in fact understand in 2018 that MLBAM's operational obligations ceased in 2016. For this reason, I thus recommend that MLBAM's motion be denied without prejudice for leave to refile following an adjudication on the merits of Count IV in the Second Amended Complaint. Moreover, I recommend denying Plaintiffs' request that the Court award Plaintiffs their expenses and attorney's fees “related to MLBAM's misuse of Rule 11.” Pls.' Br. at 21. Although Plaintiffs contend that making a frivolous Rule 11 motion can be sanctionable, Plaintiffs have not demonstrated that MLBAM's motion was frivolous.
CONCLUSION
For the foregoing reasons, I recommend that MLBAM's motion for sanctions be DENIED without prejudice. The Clerk of Court is directed to terminate the motion at ECF Nos. 320 and 333.
SO ORDERED.
PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file any objections. See also Fed. R. Civ. P. 6(a), 6(b), 6(d). A party may respond to any objections within 14 days after being served. Any objections and responses shall be filed with the Clerk of the Court. Any request for an extension of time to file objections or responses must be directed to the Honorable Paul G. Gardephe. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72; Fed.R.Civ.P. 6(a), 6(b), 6(d); Thomas v. Arn, 474 U.S. 140 (1985); Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010).