Washington’s Dan Snyder ‘unlawfully’ blocking partners’ sale, lawsuit alleges

Washington Football Team owner Daniel Snyder is “unlawfully” blocking the team’s three principal limited partners from selling their combined 40.499 percent stake and they are asking a federal judge to greenlight the transaction, a heavily redacted copy of their lawsuit says.

The partners — Fred Smith, Dwight Schar and Robert Rothman — filed the case in U.S. District Court in Maryland on Nov. 13 under seal. At the behest of The Washington Post, the federal judge presiding over the case earlier this week ordered the parties to begin submitting redactions, and the complaint is now available, albeit with large swaths blacked out.

The three partners argue Snyder is violating the 2005 partnership agreements that allow them to sell their stakes after giving Snyder the right of first refusal.

“Snyder unlawfully purported to exercise the agreement right of first refusal,” they argue. “Furthermore, this asserted exercise of Mr. Snyder’s right of first refusal also failed to comply with … the stockholders agreement, which requires that any exercise of the right of first refusal be ‘at a purchase price equal to (and on other terms substantially comparable to)'” the partners’ sale agreement.

The details of the partners’ sale agreement are redacted in the complaint, but much of it has been reported by The Washington Post. Behdad Eghbali and José Feliciano — the billionaire co-founders of private equity firm Clearlake Capital — and Feliciano’s wife, Kwanza Jones, agreed to pay $900 million for the three stakes, the Post reported last month.

The newspaper reported Snyder, who owns 40.459 percent of the team, is seeking to buy out only the combined 25.331 percent held by Rothman and Smith, not the 15.168 percent owned by Schar. The complaint suggests Snyder’s offer did not equal the original and is thus insufficient.

Whether Snyder needs to match the outside buyers’ offer is unclear as each of the three partners would almost surely have signed individual partnership agreements, said Marc Ganis, a sports consultant with deep ties to the NFL.

“A natural expectation would be that the right of refusal is exercisable based on each of the ownership interests individually, on a standalone basis,” he said. “I understand the arguments that the plaintiffs are making. I’m just not familiar with why that would be unless there’s something in the … documents that says that the interests have to be sold as a group.”

* Controls 100 percent of the voting stock
Source: Rothman v Snyder complaint

The NFL has filed to intervene in the case though its motion remains fully under seal. Ownership partners agree to arbitrate their disputes through the NFL, and the league is presumably seeking to get the case out of court. The league has declined comment.

The partners in the lawsuit addressed the arbitration issue, arguing their agreement also allows for litigation.

“(The) stockholders agreement specifically gives plaintiffs the right to seek injunctive relief in ‘court,’ notwithstanding a general arbitration provision in the stockholders agreement,” the complaint reads. “Indeed, the strength of that right to seek injunctive relief in court is emphasized by the express provision in the stockholders agreement that such a claim for injunctive relief may be brought in court before, during or after the pendency of any ‘arbitration proceeding.'”

Frank Hawkins, a former NFL finance executive, said that is the boilerplate language for NFL partners, but the complaint is ignoring a critical issue.

“It’s standard to have those sorts of provisions in the organizational documents, but they’re subject to the terms of an NFL consent letter, which expressly takes priority,” Hawkins wrote in an email. “In case of a dispute, owners can either go to court/arbitrate under the entity’s organizational documents or certify to the commissioner for arbitration under 8.3(a) of the (NFL) constitution. … However, under the consent letter — which those guys all had to sign when they bought their interests — (Roger Goodell) can assert ultimate jurisdiction at any time under 8.3(e) of the constitution if he deems the dispute to involve ‘conduct detrimental,’ and if he does, they agree under the consent letter that his jurisdiction trumps the court’s — the plaintiffs would be obligated to suspend their lawsuit in court. (Not that they always do so voluntarily, but they should under the consent letter, which explicitly trumps the organizational agreement.)”

The case is already in arbitration through the NFL.

The three partners agreed in August 2019 to try to sell their shares collectively, according to the complaint. They reached an agreement on Oct. 23, 2020, and, the complaint reads, on Nov. 9, 2020, “Mr. Snyder’s counsel notified plaintiffs’ counsel by letter that Mr. Snyder and the other (Washington Football Inc.) stockholders (Snyder’s mother and sister) considered the notice of intent to sell dated Oct. 23, 2020, to be deficient in certain respects. …

“On Nov. 10, 2020, Mr. Snyder’s counsel made several requests to speak with plaintiffs’ counsel by phone. When plaintiffs’ counsel called Mr. Snyder’s counsel in response, Mr. Snyder’s counsel made clear that in the event plaintiffs did not accept Mr. Snyder’s approach to the notice of intent to sell and the purported exercise of Mr. Snyder’s right of first refusal, Mr. Snyder would proceed to bring a claim on these issues — and that Mr. Snyder’s counsel had the claim ready to file.”

Snyder has separately filed a defamation suit against an India-based news company that baselessly reported in July that Snyder was linked to sex trafficking — a claim it retracted. He has asked the same Maryland court to subpoena the three partners’ investment banker, John Moag, as part of the litigation surrounding those reports.

In those court filings, Snyder argues Moag appeared to have advance notice of those reports, suggesting the partners might have been sources of it.

“Mr. John Moag made numerous representations to third parties prior to the publication of the defamatory articles that (Snyder) would soon be forced to sell his shares of the team — demonstrating his advance knowledge of the publication and his participation in the broader scheme to discredit and defame (Snyder),” Snyder’s lawyers argued in a court filing.

On Saturday, Snyder filed to seal his 128-page motion to compel Moag to turn over documents and electronic records.

(Photo: John McDonnell / The Washington Post via Getty Images)