On February 23, 2018, the Second Circuit Court of Appeals delivered a gut-punch to the North American Soccer League (NASL) by denying their appeal of the District Court order denying their request for an injunction against the United States Soccer Federation. It was a blow the NASL apparently could not recover from, as they announced four days later that they would not participate as a soccer league this year at any level.

If granted, the injunction would have essentially granted the NASL Division 2 status, at least for the 2018 season, and potentially until the underlying anti-trust lawsuit was resolved (either through trial, settlement or dismissal). This decision does not affect the underlying anti-trust lawsuit, except inasmuch as it may strain the resources or resolve of the NASL. As I’ll discuss later, there is some consolation the NASL can draw from parts of the ruling, but the ruling unquestionably hurt the NASL in their prospects to play soccer in 2018. Having lost the request for an injunction at the trial court level and now on appeal, questions will be asked about the NASL’s business and/or legal strategies. But in truth, the NASL was always facing an uphill battle.

Timing is everything

The seeds for the NASL’s demise were basically sown on September 1, 2017. On that date, after presenting the USSF with their proposal, the USSF Board voted to deny the NASL Division 2 sanctioning for 2018. That vote (which was 9-1 against sanctioning) is now the basis for a separate lawsuit alleging breach of fiduciary duty by those Board members, but I’ll get to that later.

When exactly the NASL officially lost Division 2 sanction is still a bit unclear (end of the 2017 season? December 31? Immediately?), but what was clear was that the USSF had stripped the NASL of that designation for 2018. And that’s where the NASL ran into their first major problem with the court.

After losing their sanctioning, the NASL filed the anti-trust suit on September 19, 2017 and filed for an injunction that would grant them Division 2 status for 2018 and beyond. Unfortunately for the NASL, they filed this matter AFTER losing their Division 2 sanctioning, possibly ending any realistic chance of winning an injunction. Why?

Because winning an injunction is not particularly easy. Generally speaking, in cases like these, you are asking the court to grant some relief typically reserved for the winner at trial. In this case, by asking the court to grant them Division 2 status at the outset, the NASL was essentially asking to give them the trophy (at least temporarily) before they played the game.

For an injunction, a plaintiff typically needs to show the court that they are more likely than not to win their case based on the information before the court. This makes sense — if you’re not likely to win at trial, why should you get what you are asking for ahead of time? But the prospects of winning the injunction turned out to be even worse than typical for the NASL. On October 29, 2017, two days before the parties were to argue in front of District Court Judge Margo K. Brodie, the District Court determined that the NASL was seeking a “mandatory” injunction. That determination effectively killed the NASL’s chances of winning the injunction and of thereafter winning on appeal.

High Hurdle…or High Jump

There are two types of injunctions we’re dealing with here: Prohibitory and Mandatory. Without getting too far into legalese, the difference between the two is relatively simple: prohibitory injunctions maintain the status quo pending resolution of the case; mandatory injunctions alter it. Put another way, it’s the difference between asking things to remain as they are, and asking the court to change things by forcing one of the parties to do something; in this case, by requiring the USSF to grant Division 2 sanctioning to the NASL for at least 2018, and maybe longer.

Because the NASL was asking the court to force the USSF to give them something they didn’t currently have (Division 2 sanctioning for 2018 and beyond), as opposed to simply maintain what they had when the suit was filed (which was, well, nothing), the court required to the NASL to jump over a much higher hurdle to get the injunction. As opposed to simply needing to show a “likelihood of success” at trial, or even showing “serious questions” on the merits (plus showing they bore the balance of the hardships), the NASL needed to show that they were clearly likely to succeed on the claim. Putting it in mathematical terms, you might be able to get a prohibitory injunction with a 51-49 score. For a mandatory injunction, add 20 points, give or take.

Here, the NASL were victims of timing not totally of their own making. Had the filed this suit back in August of 2017 (or in 2015 when they were clearly considering it, but that’s another story for another time), and asked for an injunction, they likely would have qualified for the lower “prohibitory standard.”

Obviously, the NASL did not suspect that the USSF was going to strip their sanctioning at the September 1 meeting. And why would they, since 8 months earlier, the USSF agreed to provisionally sanction the NASL as Division 2 for 2017 after arguably helping to them (or at least not actively hurt them) in December 2016, when the New York Cosmos and the NASL were literally a pushed “send” button on a fax machine away from being resigned to the dustbin of soccer history. The reasons for the USSF deciding to strip sanctioning in September 2017 are disputed, and will likely be hashed out at the various trials, so I won’t get into it here. The bottom line is that the District Court decided that the NASL needed to clear that higher threshold, and the Appeals Court agreed.

So where would the NASL get the additional 20 points from?

A little thing called evidence

“A clear likelihood of success on the merits,” means what you think it would. To get the injunction, you’ve basically got to show you can win your case at the outset. Again, it makes perfect sense: If you want the court to grant you what you normally wouldn’t be entitled to unless you won the case, you’ve got to show that you are highly likely to actually win the case.

Again, this is where the NASL ran into a number of issues. Because the NASL essentially has to prove their anti-trust claim at the outset, they had to show that the USSF conspired with some other entity (or entities) to eliminate competition. In this case, as the allegations are as follows: the USSF, along with MLS and USL, through SUM conspired to push the NASL out of the soccer marketplace through their alleged arbitrary use of waivers of professional league standards (PLS).

If you’re reading this, you’re likely at least in passing familiar with the PLS. If not, the PLS are set up by the USSF [PDF link] (with consultation from the members such as MLS/USL/the NASL, etc.) to establish some baselines by which each league must abide to get sanctioning in the respective divisions. Things like minimum number of teams, with owners of a minimum net worth, spread among a minimum number of time zones. There are more requirements than those, but those are the ones that are at the point of most contention.

For the NASL to prove the conspiracy, they have to show that there was some agreement between the parties (“concerted action”). The good news is that the evidence can be direct or circumstantial, since only in the movies do the bad guys sit around a table overtly discussing their dastardly plans. However, the NASL still needed to show more than simply arguing that the fact that the USSF, MLS and SUM (excepting USL for purposes of this story, since they really seem like an add-on to cover all bases) have a working relationship.

So what evidence does the NASL have about the conspiracy between these actors?

…Not much, at least as of yet. The District Court concluded that the NASL needed to have evidence that there was some agreement to vote in a way that would harm the NASL; in this case, an agreement by the USSF Board to vote to strip the NASL of Division 2 sanctioning would clearly apply. But there was no such evidence (such as an email between parties, a voicemail, an overheard conversation, or a whistleblower) before the court. Without any evidence of such an agreement, the USSF simply applying the PLS to the NASL’s 2018 application and voting based on that did not constitute “concerted action.”

Regarding the circumstantial evidence, the NASL got a little closer to the mark. It’s clear that both courts have some concerns regarding the relationship between MLS and the USSF through their marketing partner, SUM. The District Court noted the obvious potential conflicts of interest, and also noted that the USSF’s previous intent to give MLS a “runway of sorts” (Gulati’s words) was in Judge Brodie’s mind, “troubling.”

There was also the 2015 attempt to modify the PLS by raising some of the requirements, just as the NASL was applying for Division 1 status. NASL objected to that proposal and the attempt ultimately failed. Unfortunately for the NASL, the Appeals Court found that there was not sufficient evidence to infer a conspiracy, since the act of the USSF exercising their authority via the PLS was not evidence of a conspiracy.

The reasoning for that is simple: not every decision an organization makes is evidence of a conspiracy. Otherwise, no organization could make any substantive decisions without the risk of being sued for an anti-trust violation. It would make organizations a walking conspiracy, which would grind life in the United States to a halt basically. Of course, that doesn’t mean that an organization can’t make decisions that result in a conspiracy, but in this case, the Court found that merely imposing and regulating the standards doesn’t qualify. Which leads us to…

Tell me what you want

There has been a lot of chatter asking why the NASL didn’t argue that the PLS themselves are evidence of anti-trust violations (and are otherwise pointless). Well, they did... sort of. Unfortunately for them (and us), they were never particularly clear on their argument. The District Court repeatedly asked the NASL if they were challenging the standards themselves, and the NASL would back down from an outright challenge, even though one of their ultimate requests should they win the suit is that the USSF be precluded from implementing PLS. But they never outright used that argument for purposes of the injunction. Since the NASL wasn’t clear on the issue before the District Court or Appeals Court, it’s hard to complain when both courts dismissed the argument. Hopefully we’ll get some clarification as the trial proceeds.

Rules of Reason

Speaking of the PLS, the final argument the NASL went with was to argue that the PLS as constituted unreasonably restrain the NASL. Specifically, the NASL has repeated focused on the requirements of the number of teams (12 by year six), time zone requirements (Eastern, Central, and Pacific), size of markets (75% of teams must be in cities/markets of at least 750,000 people), and to a lesser extent, financial (net worth of owners).

The basic argument is that some (all?) of these requirements are onerous, such that they unreasonably restrain business/trade. However we may feel about some of these standards (do we really need 75% of Division 2 teams to be in cities of 750,000?), the Appeals Court found the Judge Brodie properly applied the standard for this analysis. As long as the USSF could show that these standards have a pro-competitive effect (promoting soccer and stability), it was up to the NASL to show that PLS would be as effective in its mission with less restrictive rules.

The NASL’s argument that the PLS would be effective in their earlier versions (when fewer teams were required, and less money was needed) did not account for the evolving marketplace, in the Court’s opinion. Soccer in the US is undoubtedly more popular than 10 years ago, and as the sport continues to evolve, the court found it reasonable that the standards evolve with the times. Thus, the higher standards imposed by the USSF (with input from the member leagues) made sense, in the Court’s eyes. Ironically enough, had the 2015 standards been instituted, the NASL would likely have had a better case for a conspiracy claim, given the timing since the PLS were last updated (2014) and the NASL’s request for Division 1 sanctioning.

Where do we go from here?

With the news on February 27, 2018 that the NASL has decided not to compete as a league for the 2018 season, it seems that this matter turns from a soccer league seeking to play, to a plaintiff seeking damages. Rocco Commisso, owner of the New York Cosmos, has indicated he will see these lawsuits through to the end, and he has the financial means (and, let’s call it “desire”) to do so. If the NASL is successful, they may obtain a judgment of some amount (though who knows if it would be a $300,000,000 judgment, or a USFL-type judgment where you can’t even buy a cup of coffee), and possibly change (eliminate?) the USSF’s authority to impose and regulate standards.

There is also a state case I previously mentioned in New York, in which the NASL has alleged that the USSF as a non-profit breached their fiduciary duty in voting to strip the league of Division 2 sanctioning. All of the board members, save John Motta, have been personally sued. All of the defendants have retained lawyers; MLS commissioner Don Garber and board member Donna Shalala have retained separate attorneys, while the remaining members have retained the same firm. Answers to that complaint are due March 28. A briefing schedule has also been set for any defendants who wish to file a motion to dismiss, with a hearing set for June 2018. Beyond that, the matter will continue on its course for trial, though there is the possibility that the USSF will move the court to have the state case stayed pending resolution of the Federal anti-trust suit, given that some of the facts alleged are similar to this suit, and the anti-trust suit is (nominally) further along.

As to the anti-trust suit, the parties are due to come together to schedule the USSF’s motion to dismiss. If that is granted, obviously the case goes away (subject to any appeals). If the motion to dismiss is denied — and I think it will be — then the parties will come together to discuss a trial schedule, as well as outline the discovery process. This is where the NASL will hope to exert some leverage over the USSF, as they will surely request documents regarding SUM and correspondences between MLS and the USSF to prove their claims. It should be noted that the court will likely limit the scope of discovery, so the NASL may not get as much as they are looking for. After that a trial date will be set, assuming a settlement can not be reached.

What about the soccer? The NASL is not operating in 2018. They could re-apply to join as D3 or D2, assuming they meet the PLS for 2019. We now have reports that at least one NASL team (San Diego) is planning to join USL in 2019, so it’s possible that the NASL will be down to two or three teams by the time 2019 rolls around. There were reportedly six or seven lower division teams that were ready to join the NASL if they were to win the injunction. It was widely assumed that the NASL owners were going to financially support those lower level teams as they made the jump to Division 2. Clearly they will not be joining the NASL for 2018 and it’s difficult to see them joining a league that isn’t sanctioned. Additionally, it’s tough to see Commisso and the remaining owners agreeing to financially support 6-8 teams at the Division 3 level for multiple years, although it is possible. If not, it’s hard to see how the NASL, as currently constituted, comes back at all.

Consolation goals

About the only consolation for the NASL is in some of the comments made by both the District Court and the Appeals Court. As previously noted, the District Court found some of the actions of the USSF as it relates to MLS and SUM troubling, and was concerned about the potential conflicts of interest littered throughout their relationship. Additionally, it could be argued that the Appeals Court threw the NASL a bit of a bone by concluding, “the NASL has a case left to make.”

Now, this is no small thing. Such comments may provide some incentive for the USSF to engage in settlement talks, lest they be subject to a nine-figure judgment and the potential destruction of their organization. Whether the NASL ultimately prevails on its underlying claims is far from a guarantee (as evidenced by their failure to win the injunction), but the USSF may not want to risk it. In light of their goal to promote soccer in the United States, perhaps they’ll decide that a settlement with the NASL is in everyone’s best interest. It takes two to tango, and whether the egos of the parties can be set aside at this point is far from a sure thing.