52567364 27 - judiciary of new york

SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK

NORTH AMERICAN SOCCER LEAGUE, LLC,

Index No. 650579/2018

Plaintiff,

I.A.S. Part: 48

Justice: Andrea Masley- against - Motion Sequence No. 001

SUNIL K. GULATI, DONALD GARBER, CARLOS MEMORANDUM OF LAWCORDEIRO, CARLOS BOCANEGRA, STEPHEN MALIK, IN SUPPORT OF MOTIONJOHN COLLINS, DONNA E. SHALALA, VALERIE B. TO DISMISS THE

ACKERMAN, DANIEL T. FLYNN, LISA CARNOY, COMPLAINTRICHARD MOELLER, JESSE HARRELL, TIMOTHY

TURNEY, CHRISTOPHER AHRENS, and ANGELA K. ORAL ARGUMENT

HUCLES, REQUESTED

Defendants.

Andrew A. Kassof, P.C.

Atif Khawaja, P.C.

Shireen A. BardayKIRKLAND & ELLIS LLP

601 Lexington Avenue

Tel: (212) 446-4800

New York, New York 10022

Attorneys for Defendants Sunil K.

Gulati, Carlos Cordeiro, Carlos

Bocanegra, Stephen Malik, John

Collins, Donna E. Shalala, Valerie

B. Ackerman, Daniel T. Flynn, Lisa

Carnoy, Richard Moeller, Jesse

Harrell, Timothy Turney,

Christopher Ahrens, Angela K.

Hucles

FILED: NEW YORK COUNTY CLERK 03/28/2018 03:32 PM INDEX NO. 650579/2018

NYSCEF DOC. NO. 21 RECEIVED NYSCEF: 03/28/2018

1 of 31

TABLEOFCONTENTS

Page

BACKGROUND ............................................................................................................................ 1

SUMMARY OF ALLEGATIONS.................................................................................................................................................................................................. 2

A. U.S. Soccer.............................................................................................................. 2

B. U.S. Soccer's Board of Directors............................................................................ 3

C. U.S. Soccer's Efforts to Promote the Game ........................................................... 6

1. Professional League Standards ................................................................... 6

.......................................................................................2. Financial Stability.......................................................................................~ ~

8

D. NASL's Demands for Division II Status ................................................................ 9

1. NASL's Repeated Failure to Meet the Applicable Standards .................. 10

2. NASL's Federal Lawsuit .......................................................................... 12

3. NASL's State Lawsuit Against U.S. Soccer's Board ............................... 13

ARGUMENT................................................................................................................................~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 14

I. NASL'S CLAIMS FAIL FOR A FUNDAMENTAL REASON: DEFENDANTS

DO NOT OWE A FIDUCIARY DUTY TO NASL AS A MATTER OF LAW. ............ 14

II. NASL CANNOT BRING CLAIMS ON BEHALF OF U.S. SOCCER........................... 17

III. NASL HAS FAILED TO STATE A CLAIM AGAINST THE DEFENDANTS............ 20

IV. THIS COURT SHOULD DISMISS THE CASE AS DUPLICATIVE OF

NASL'S FEDERAL LAWSUIT OR, AT A MINIMUM, IMPOSE A STAY................. 24

CONCLUSION............................................................................................................................. 26

.1



2 of 31

-Soho

TABLE OF AUTHORITIES

Page(s)

Cases

Auerbach v. Bennett,

64 A.D.2d 98 (2d Dep't 1978).................................................................................................19.................................................................................................1

Barringer v. Zgoda,

91 A.D.2d 811 (3d Dep't 1982)...............................................................................................25...............................................................................................25

Burry v. Madison Park Owner LLC,

84 A.D.3d 699 (1st Dep't 2011)........................................................................................14,........................................................................................14, 20

Case Capital Corp. v. Morgan Invs.,

154 A.D.2d 501 (2d Dep't 1989).............................................................................................25.............................................................................................25

Cherico, Cherico & Assocs. v. Midollo,

67 A.D.3d 622 (2d Dep't 2009)...............................................................................................24...............................................................................................

Colnaghi U.S.A., Ltd. v. Jewelers Prot. Servs., Ltd.,

81 N.Y.2d~ ~ 821 (1993)..............................................................................................................22~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Consumers Union of U.S., Inc. v. State,

5 N.Y.3d~ ~ 327 (2005)..........................................................................................................15,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 16

Gilbert v. Kalikow,

272 A.D.2d 63 (1st Dep't 2000)..............................................................................................19..............................................................................................1

Goldstein v. Bass,

138 A.D.3d 556 (1st Dep't 2016)............................................................................................21............................................................................................21

Haenel v. Epstein,

88 A.D.2d 652 (2d Dep't 1982).................................................................................................6.................................................................................................

Health-Loom Corp. v. Soho Plaza Corp.,

209 A.D.2d 197 (1st Dep't 1994)............................................................................................23............................................................................................23

Kingsbrook Jewish Med. Ctr. v. Allstate Ins. Co.,

61 A.D.3d 13 (2d Dep't 2009)...................................................................................................3...................................................................................................3

Krackeler Scientific, Inc. v. Ordway Res. Inst., Inc.,

97 A.D.3d 1083 (3d Dep't 2012).............................................................................................20.............................................................................................20

Longo v. Butler Equities II,

278 A.D.2d 97 (1st Dep't 2000)..............................................................................................18..............................................................................................18

..11



3 of 31

..........................................3

..............................................................................................

......................

.............................................................................................1

..................................18

..............................................................................................1

..................................................................................1

Lore v. N.Y. Racing Ass'n.,

No. 007686-04, 2006 WL 1408419 (N.Y. Sup. Ct. May 23, 2006)..........................................3

Mark Hampton Inc. v. Bergreen,

173 A.D.2d 220 (1st Dep't 1991)..............................................................................................9

Marx v. Akers,

88 N.Y.2d~ ~ 189 (1996)..............................................................................................................18~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Mullin v. WL Ross & Co.,

No. 650535/17, 2018 WL 1030313 (N.Y. Sup. Ct. Feb. 23, 2018).........................................14.........................................1

N. Am. Soccer League v. U.S. Soccer Fed'n,

No. 17-3585, 2018 WL 1021223 (2d Cir. Feb. 23, 2018) (NASL II)...................................7, 12

N. Am. Soccer League v. U.S. Soccer Fed'n,

No. 17-cv-05495, 2017 WL 5125771 (E.D.N.Y. Nov. 4, 2017) (NASL I)...................... passim

Pacella v. Town of Newburgh Volunteer Ambulance Corps Inc.,

48 Misc. 3d 1231(A), 2015 WL 5451209 (N.Y. Sup. Ct. Sept. 10, 2015)........................15,........................15, 16

Pebble CoveHomeowners'Homeowners Ass'n v. Shoratlantic Dev. Co.,

191 A.D.2d 544 (2d Dep't 1993).............................................................................................16

Pokoik v. Norsel Realties,

55 Misc. 3d 1208(A), 57 N.Y.S.3d 677 (N.Y. Sup. Ct. Apr. 12, 2017)..................................18

Ret. Plan for Gen. Emps. of N. Miami Beach v. McGraw,

No. 652695/15, 2018 WL 826119 (1st Dep't Feb. 13, 2018)..................................................21

S.H. & Helen R. Scheuer Family Found. v. 61 Assoc.,

179 A.D.2d 65 (1st Dep't 1992)..............................................................................................16

Simonetti v. Larson,

44 A.D.3d 1028 (2d Dep't 2007).............................................................................................25.............................................................................................25

Steinberg v. Steinberg,

434 N.Y.S.2d 877 (N.Y. Sup. Ct. 1980)..................................................................................19

Tuscano v. Tuscano,

403 F. Supp. 2d 214 (E.D.N.Y. 2005).....................................................................................19.....................................................................................19

White Light Prods. v. On the Scene Prods.,

231 A.D.2d 90 (1st Dep't 1997)........................................................................................24,........................................................................................24, 25

Yudell v. Gilbert,

99 A.D.3d 108 (1st Dep't 2012)..............................................................................................19..............................................................................................19

...111



4 of 31

...............................................................................................................

.........................................................................................................................

Statutes

36 U.S.C. § 220522(a)(10)...............................................................................................................4

36 U.S.C.~ ~ ~ § 220523..........................................................................................................................3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

26 U.S. Code § 501(c)(3)...............................................................................................................20

NPC § 6.05.....................................................................................................................................15~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NPC § 623......................................................................................................................................18~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

N ()C623NPa _§ (b)...........................................................................................................................18...........................................................................................................................1

NPC § 717(b)...................................................................................................................................6~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

N C 20NP7 _§ a...................................................................................................................................20

NPC § 724(c)...........................................................................................................................18,...........................................................................................................................18, 19

Rules

CPLR 3016(b)................................................................................................................................20~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CPLR 3211(a)(3)...........................................................................................................................18...........................................................................................................................1

CPLR 3211(a)(4).....................................................................................................................24,.....................................................................................................................24, 25

CPLR 3211(a)(7)...........................................................................................................................17...........................................................................................................................1

CPLR 3211(a)(11).........................................................................................................................20

Other Authorities

Evelyn Brody, The Board of Nonpro it Organizations, 76 Fordham L. Rev. 521,

525 (2007)................................................................................................................................16

.1V



5 of 31

"

BACKGROUND

This lawsuit shamelessly attacks unpaid directors on a non-profit board charged with

developing soccer in the United States because they would not bend the rules to let a failing league

play in the division it wanted. The message sent by the latest lawsuit by plaintiff North American

Soccer League (NASL) is the opposite of what we teach our kids about sports: if unsuccessful,

scream foul, blame others, and refuse to take responsibility for your shortcomings.

NASL alleges it lost its ability to play as a Division II professional soccer league because

the defendants-unpaid directors and the CEO of the non-profit United States Soccer Federation,

Inc. (U.S. Soccer)-favored more successful leagues and allegedly misused a contract with a

marketing company, Soccer United Marketing, LLC (SUM), to do so. But NASL already sued

U.S. Soccer directly in federal court over these issues. The federal court denied NASL's motion

for a preliminary injunction to be designated as a Division II soccer league, and the Second Circuit

affirmed that decision. After losing its federal court injunction request, NASL now has sued U.S.

Soccer's directors and CEO here for breach of fiduciary duty arising from the same facts. This

Court should dismiss NASL's claims for at least four reasons.

First, none of the defendants owes NASL a fiduciary duty. Directors and officers of non-

profits have fiduciary obligations to act in the best interest of the organization and its membership

as a whole. As NASL admits, U.S. Soccer is "meant to serve the collective interests its millions

ofmembers."

(¶15.)¹

Nevertheless, the Complaint alleges the defendants owed fiduciary duties

to NASL itself NASL is wrong, and imposing such duties would create unworkable conflicts.

Second, NASL cannot salvage its claims by alleging that the defendants somehow harmed

1 Citations in the form "¶__" refer to the Complaint. Except where noted, all emphasis has been added and all

internal quotations and citations omitted.

1



6 of 31

U.S. Soccer. NASL lacks standing to make that argument. Claims that directors or officers harmed

a non-profit belong to the corporation and must be brought on the corporation's behalf. NASL has

not even tried to satisfy the pleading requirements to bring derivative claims, and for good reason:

NASL cannot pursue derivative claims because of its cemented animus toward the organization.

Third, even if the defendants could somehow be deemed to owe a fiduciary duty to NASL

directly-and they do not-the Complaint would still fail to state a claim that would overcome

defendants'defendants qualified immunity from suit. To sue unpaid directors of a non-profit, a plaintiff must

show a reasonable probability that the directors were grossly negligent or intentionally inflicted

harm. The Complaint comes nowhere close to meeting that high bar. All the Complaint pleads is

that a handful of the defendants have some connection to more successful soccer leagues: Major

League Soccer (MLS) and the United Soccer League (USL). But it is no surprise that a

membership-based body like U.S. Soccer's Board of Directors has directors with ties to those

leagues. And critically, the Complaint admits those directors make up only one third of the voting

members, and none of them voted on NASL's application for Division II status. As for the

directors who did vote, the Complaint contains hardly a single specific allegation of wrongdoing.

Finally, in light of NASL's federal lawsuit, this Court should dismiss or, at a minimum,

stay these proceedings. Filed after NASL lost its motion for a preliminary injunction and while its

appeal was pending, the Complaint rehashes the same allegations and is a clear attempt to open a

second front in the same litigation. This Court should not allow this action to move forward.

SUMMARY OF ALLEGATIONS

A. U.S. Soccer

U.S. Soccer is a not-for-profit corporation formed "to promote, govern, coordinate, and

administer the growth and development of soccer in all its recognized forms in the United States



7 of 31

for all persons of all ages andabilities."

(Ex. 1, U.S. Soccer 2017-18 Bylaws §102.)2102.) Its mission

is "to make soccer, in all its forms, a preeminent sport in the United States and to continue the

development of soccer at all recreational and competitivelevels."

N. Am. Soccer League v. U.S.

Soccer Fed'n, No. 17-cv-05495, 2017 WL 5125771, at *1 (E.D.N.Y. Nov. 4, 2017) (NASL I).

Since 1914, FIFA, the worldwide soccer authority, has recognized U.S. Soccer as the national

association for soccer in the United States. (Id. § 103.) And for decades, U.S. Soccer has been

the national governing body for the sport under the Ted Stevens Olympic and Amateur Sports Act.

See 36 U.S.C. § 220523. Locally, its members oversee recreational leagues for players of all ages.

(Id. §§ 312-13.) Nationally, U.S. Soccer develops and promotes players and professional leagues.

(Id. § 314.) Globally, it fields the teams that represent the United States abroad. (Id. § 512.)

B. U.S. Soccer's Board of Directors

At its core, U.S. Soccer is a member-driven organization. Membership "is open to all

soccer organizations and all soccer players, coaches, trainers, managers, administrators and

officials."(Id. § 201.) These stakeholders run U.S. Soccer. Many participate in one of its four

councils that administer the game: Youth and Adult Councils for amateur organizations; a

Professional Council for professional leagues; and an Athlete's Council. (Id. Part III.B-C.)

Members also send delegates to the National Council-the "representative membershipbody"

of

U.S. Soccer-which meets annually to select U.S. Soccer's officers and independent directors,

approve or reject the annual budget, and amend the Bylaws. (Id. Part III.A.)

Stakeholders select the Board of Directors, which "ha[s] all governance, supervisory, and

administrativeauthority"

over U.S. Soccer. (Id. § 411.) The Board has 17 directors-including

2 The Court may take judicial notice of "public documents," Kingsbrook Jewish Med. Ctr. v. Allstate Ins. Co., 61A.D.3d 13, 19-20 (2d Dep't 2009), and "documents that are integral to plaintiff's claims, even if not explicitlyincorporated by

reference," Lore v. N.Y. Racing Ass'n., No.,No. 007686-04, 2006 WL 1408419, at *2 (N.Y. Sup. Ct.

May 23, 2006). Any documents referenced in this brief are public documents integral to plaintiff's claims.



8 of 31

two non-voting members-drawn from American soccer's many constituencies. (Id. § 412.) The

makeup of the Board when it denied NASL's request for a waiver to play in Division II for the

2018 season is a case in point. Of the 15 voting seats, nine are reserved for the Adult, Youth,

Professional, and Athletes Councils.3Councils. (Id. § 412.) In September 2017:

• John Motta and Richard Moeller represented the Adult Council. (¶ 32.) They are the

President and Vice President of the United States Adult Soccer Association.

• Jesse Harrell and Timothy Turney represented the Youth Council. (¶¶ 33-34.) They also

serve as the Chairman and Vice Chair of the U.S. Youth Soccer Board of Directors.

• DonaldGarber andStephenMalik represented the Professional Council. Mr. Garber has been

Commissioner of MLS since 1999 and serves as the CEO of SUM. (¶ 23.) Mr. Malik owns

North Carolina FC, a NASL team during the 2017 season that now plays in the USL (¶ 26), as

well as the North Carolina Courage of the National Women's Soccer League.

• Christopher Ahrens, Carlos Bocanegra, and Angela Hucles represented theAthletes'

Council. (¶¶ 25, 35-36.) Each has played for the United States in international competitions.

One Board position is reserved under U.S. Soccer Bylaw 412-9 for the At-Large director,

who is elected by Members not represented by other Board members. In September 2017:

• John Collins was the at-large director. (¶ 27.) Mr. Collins is a partner at the Law Offices of

Collins & Collins and previously served as the General Counsel for U.S. Soccer. (Id.)

Another five seats go to directors elected by the National Council. (Ex. 1, Bylaws § 412.)

Specifically, the President, the Vice-President (Id.), and three independent directors. (Id.) In

September 2017:

3 Under U.S. Soccer's Bylaws and federal law, 36 U.S.C. § 220522(a)(10), the Athlete Council is entitled to notless than 20 percent of the voting power held in the Board and therefore elects three voting directors.



9 of 31

• Donna Shalala, Valerie Ackerman, and Lisa Carnoy served as independent directors. (ptt28-

29, 31.) Dr. Shalala has served as U.S. Secretary of Health and Human Services, Chancellor

of the University of Wisconsin, Madison, and President of the University of Miami. Ms.

Ackerman is the Commissioner of the Big East Conference and has served as President of the

WNBA and USA Basketball. Ms. Carnoy is Vice Chair of the Trustees of Columbia University

and has served as a Division Executive for the Northeast at U.S. Trust.

• Sunil Gulati was President. (¶ 22.) Mr. Gulati served as Vice President of U.S. Soccer from

2000 to 2006, and as President from 2006 to February 2018. He currently serves on the

international FIFA Council and is an economics professor at Columbia University.

• Carlos Cordeiro was Vice President. (¶ 24.) Mr. Coreiro held that position from 2016 until

February 2018, when he was elected to succeed Mr. Gulati. He served as one of U.S. Soccer's

first independent directors and, before then, was a partner at Goldman Sachs.4Sachs.

• The immediate past President and CEO of the organization also hold non-voting positions on

the Board. In September 2017, this included Defendant Dan Flynn, the current CEO.

Crucially, no one constituency controls the Board, and only five voting directors on the

September 2017 Board (Defendants Garber, Malik, Bocanegra, Collins, and Gulati) had any

possible connection at any time with MLS or USL. (¶¶ 22, 23, 25-27.) The other two thirds of

the Board (Defendants Cordeiro, Shalala, Ackerman, Carnoy, Moeller, Harrell, Turney, Ahrens,

Hucles, and Motta) represent different constituencies. (¶¶ 24, 28, 29, 31-36.) And to further guard

against any impropriety, the Board has conflict-of-interest policies-updated in September 2017-

and Bylaws prohibiting directors from participating in "deliberations andvoting"

on matters in

4 "Carlos Cordeiro, an Insider, is Elected President of U.S. Soccer,"NYTimes.com,

https://www.nytimes.com/2018/02/10/sports/soccer/us-soccer-election.html.



10 of 31

which they have a "financial interest."5 (Ex. 1, Bylaws § 411; Ex. 2, 2017 Conflict of Interest

Policies.)

C. U.S. Soccer's Efforts to Promote the Game

As the Complaint acknowledges, U.S. Soccer "has a duty to develop interest and

participation"in the game. (¶ 47.) That is no easy task given the crowded American sports and

entertainment landscape. On any night, fans can tune into the NBA, MLB, NFL, or NHL, then go

out the next day to mimic their favorite players in organized basketball, baseball, football, and

hockey leagues. To ensure healthy soccer leagues that can compete in this challenging

environment, the Board promulgates Professional League Standards. (See ¶ 94.) And to ensure

fans have recreational leagues to play in and strong national teams to cheer on, U.S. Soccer

generates money by licensing some, but not all, of its marketing rights to SUM so the non-profit

can invest in everything from youth development to America's national teams. (See ¶ 62.)

1. Professional League Standards

The Complaint admits that U.S. Soccer created the Professional League Standards long

before NASL emerged in 2009. (¶ 106.) While it is not hard to find professional American soccer

today, that was not always the case. After a string of failed attempts to gain a national following,

the last major men's professional league in the country prior to MLS collapsed in 1984.

Things started to turn around in 1994, when the United States hosted the World Cup.

(¶ 50.) As a condition of hosting, FIFA required U.S. Soccer to help develop a top-tier professional

league. (Id.) The result was the 1995-96 Professional League Standards. (¶ 106.) These Standards

created three Divisions-much like the system in college athletics-each with its own

5 Despite insinuating some unspecified problem with the Board's process for handling conflicts of interest, theComplaint admits the Board relied on outside counsel's opinion about the adequacy of the pre-2017 policies.

(¶ 83.) See Not-For-Profit Corp. Law §717(b) (allowing directors to "rely on information [and]opinions"

prepared by "counsel");"counsel" see also Haenel v. Epstein, 88 A.D.2d 652, 653 (2d Dep't 1982).



11 of 31

requirements. (¶ 94.) To qualify for Division I, the top level of professional soccer, a league

needed 10 teams spread across three different time zones. Those teams had to meet a number of

specifications, including that they play in stadiums large enough to hold 15,000 fans. (Ex. 3, 1995-

96 Standards, at II.E.) Qualifying for Divisions II or III required similar, but less rigorous, criteria.

To receive a Division II sanction, for example, a league needed eight teams across two time zones,

playing in smaller stadiums. (Ex. 4, 2014 Standards.)

MLS received a Division I sanction for its inaugural season in 1996, and has remained the

lone Division I league since. (¶ 49.) The Complaint does not allege that only one Division I league

is somehow bad for soccer. Nor is it unusual in professional sports. Each major sport in America

has had one preeminent league for decades: the NFL, the NBA, MLB, and the NHL. Despite going

on at length about how the Board uses league-sanctioning and Standard-revising to protect MLS,

the Complaint says nothing about how that supposedly happens.

Start with the"sanctioning"

process, which the Second Circuit described in the federal

litigation. See N. Am. Soccer League v. U.S. Soccer Fed'n, No. 17-3585, 2018 WL 1021223, at

*1 & n.1 (2d Cir. Feb. 23, 2018) (NASL Il). Each year, every league submits a report that requests

a sanction for a Division and explains how that league meets applicable Standards. If a league

fails to meet certain Standards, it may seek a waiver. Id. These reports then go to the Professional

League Task Force-a group of directors with no affiliation with any professional league-and

the Task Force makes a recommendation to the Board, which votes on the sanction. No director

with ties to any professional league participates in the sanction vote. Id.

Revisions to the Standards go through a similar process. A Standards Task Force,

consisting of individuals from across soccer, none of whom serve on the Board, reviews the state

of professional soccer and decides whether to update the Standards. NASL I, 2017 WL 5125771,



12 of 31

at *3. If it decides an update is warranted, the Task Force submits the suggestion to all professional

leagues for comment. The Board has the final say on whether to revise Standards, but like the

sanction vote, no director with ties to a professional league may vote. Id.

The Standards have changed three times since 1996, including in 2008 and 2010-before

NASL played its first full season. (¶ 3.) After the most recent change in 2014, which NASL did

not oppose (as the federal district court recognized in the parallel lawsuit),6lawsuit), qualifying for Division

I now requires a league to have 12 teams playing in 15,000 person stadiums at inception (14 by

year three), with squads located in the Eastern, Central, and Pacific time zones. Division II

leagues, in contrast, need eight teams across two time zones at inception, and then 12 across all

three by year six. (Ex. 4, 2014 Standards.) Under the Standards, professional soccer has grown

steadily, with MLS expanding from 10 teams to 23, and USL expanding from 12 teams to 33.733.

2. Financial Stability

Promoting soccer in the United States involves more than fostering the growth of

professional leagues. U.S. Soccer also builds the national teams that represent the United States

in global competitions, develops coaches and referees, and helps facilitate amateur soccer for

thousands of athletes. (¶ 20.) Unsurprisingly, both pursuits cost substantial amounts of money.

As the Complaint points out, one way U.S. Soccer generates money is by selling marketing assets,

including the rights to license valuable intellectual property associated with U.S. Soccer's

trademarks and national team games. (¶ 6.) Beginning in 2004, the agent charged with monetizing

these rights was SUM, a company founded by MLS owners that provides marketing services to

MLS and other soccer entities. (Id.; Ex. 5, 2006 Financial Statement, at 6.)

6 See NASL I, 2017 WL 5125771, at *4.

7 "MLS History,"https://www.missoccer.com/league/history; "About USL," https://www.uslsoccer.com/about.



13 of 31

NASL does not and cannot allege it is entitled to U.S. Soccer's marketing rights or that

NASL contributes in any way to the value of those rights. The Complaint also does not take issue

with U.S. Soccer monetizing its assets. Instead, NASL alleges that the agreement between U.S.

Soccer and SUM creates an "institutionalbias"

in favor of MLS because U.S. Soccer "does not

receive any revenue . . . until MLS achieves a threshold level ofrevenue."

(¶ 63.)

This assertion is flatly inconsistent with U.S. Soccer's publicly available audited financial

statements, which NASL refers to in the Complaint.8Complaint. (¶ 66.) As those statements explain, from

day one under the SUM agreement, U.S. Soccer received guaranteed annual payments and

"additional funding above the annual guarantee . . . based on a revenue sharingarrangement"

with

SUM, not MLS. (Ex. 5, 2006 Fin. Statement, at 6.) U.S. Soccer renegotiated and extended the

SUM agreement twice, each time with a guarantee structure, which guarantees increased

substantially over time. (Exs. 6 & 7, 2008 & 2016 Fin. Statements.) In 2016 alone, U.S. Soccer

made over $25 million from the deal's guarantee. (2016 Fin. Statement, at 14.) As the Complaint

acknowledges, that money, in combination with another third-party licensing deal, made up

"roughly 50percent"

of U.S. Soccer's budget. (¶ 69.) The Complaint does not allege that money

went to MLS. Rather, as is clear from the National Council Meeting Notes cited in the Complaint,

the National Council voted on how U.S. Soccer would distribute that money to support its national

teams, develop coaches and referees, operate youth academies, and otherwise promote soccer

throughout the country. (Ex. 8, 2017 Nat'l Council Meeting Notes, at 63-66.)

D. NASL's Demands for Division H Status

Unlike the Board of U.S. Soccer, NASL has only one constituency to look out for-itself.

8 The Court need not credit allegations that are conclusory or contradicted by documentary evidence on which theComplaint relies. Mark Hampton Inc. v. Bergreen, 173 A.D.2d 220, 220 (1st Dep't 1991).



14 of 31

Backed by billionaire team owners, NASL sued U.S. Soccer in federal court just six months ago,

demanding a preliminary injunction to force U.S. Soccer to grant it Division II status. (Ex. 9, Dkt.

1.) After the court rejected NASL's request, NASL initiated this lawsuit against 14 of the 15

voting directors on the September 2017 Board and U.S. Soccer's CEO, Daniel Flynn.9Flynn. (¶¶ 22-36.)

The two lawsuits have a common theme: the Standards, the sanctioning process, and the SUM

agreement must be part of a plan to prop up MLS at NASL's expense, culminating in the Board's

refusal to grant NASL a discretionary waiver from the Division II Standards for the 2018 season.

1. NASL's Repeated Failure to Meet the Applicable Standards

NASL emerged in 2009 and, although it claims it had designs on being a Division I league

from the start, it initially applied for Division II sanctioning for each of its first six seasons, from

2010 through 2015. (¶¶ 3, 108.) In all but one season, NASL failed to meet the requirements for

Division II. See NASL I, 2017 WL 5125771, at *5. Nonetheless, the Board granted NASL

discretionary waivers and sanctioned it as a Division II league each year. (¶ 3.)

NASL made its first, and only, request for Division I status before the 2016 season. Rather

than trying to meet the Standards, NASL "assert[ed] that it satisfied all reasonable and enforceable

Division Standards, and request[ed] waivers from additional, arbitrary standards which it could

satisfy.notsatisfy."

(¶ 117.) Notably, NASL failed to meet the Division I time-zone and stadium-capacity

requirements. (¶¶ 115, 122.) In fact, it came up so short that it would have failed to qualify under

the more lenient 2008 Division I standards, which were put in place before NASL existed. (Ex. 10,

2008 Standards.) The Board considered the application, heard from NASL's representatives, and

denied the request. (¶ 122.) The Board nonetheless granted NASL a Division II sanction, even

though NASL needed waivers just to meet those lower requirements. (¶ 130.) NASL does not

9 NASL has not sued John Motta, the only director to vote in favor of granting NASL Division II status for 2018.

1



15 of 31

allege that any directors with ties to MLS voted on its application.

Another year passed, and the Board received two applications for Division II in 2017: one

from USL and another from NASL. (¶ 130.) After years in Division III, USL had built up a 30-

team league across the country. Although some teams did not meet the stadium-size requirements,

the vast majority did. (¶ 145.) NASL's application was a different story. Despite requesting a

Division I sanction a year earlier, NASL applied with a league of only nine teams-shy of the

required 12. (¶ 138.) Even though NASL did not meet that basic requirement, the Board overrode

the Professional League Task Force's recommendation to deny NASL's application. NASL I, 2017

WL 5125771, at *6. Instead, the Board gave NASL a"provisional"

Division II sanction, with

instructions to create an improvement plan for 2018. (¶ 130.)

NASL's application for the 2018 season, however, included no such plan. Once again,

NASL sought a Division II sanction, and once again, as the Complaint concedes, it did not meet

the Division II Standards. In fact, the league had regressed: NASL failed to meet both the

minimum-team and time-zone requirements, with fewer than eight teams ready to participate in

2018, none of which were in the Central time zone. NASL I, 2017 WL 5125771, at *5; ¶ 160. The

Board considered NASL's application for Division II on September 1, 2017, and invited NASL's

commissioner and two owners, one of whom is now its chairman, to speak in support of the league.

(¶ 171.) But this time-in the face of NASL's continued decline and refusal to lay out a plan for

meeting Division II standards-the Board followed the Professional League Task Force's

recommendation, denied the discretionary waiver NASL requested, and instead gave NASL

additional time to file for Division III status. (¶ 7.) As the Complaint concedes, none of the

directors with ties to MLS or USL participated in the vote. (¶¶ 22-36.)

Diverting the narrative from its own application, NASL flails at USL, a competitor, arguing

11



16 of 31

that it, too, needed waivers. (¶ 166.) But NASL is careful to emphasize formalism over facts.

Nowhere does it describe the waivers USL needed, much less allege that USL failed to meet the

fundamental team-minimum and time-zone requirements, like NASL.

2. NASL's Federal Lawsuit

Rather than developing an improvement plan or applying for Division III, NASL ran to

court. On September 19, 2017, NASL filed a federal antitrust suit, asserting that U.S. Soccer

"conspire[d] with MLS and other [U.S. Soccer] members to block the NASL from effectively

competing withMLS,"

which supposedly"thwarted"

NASL's ability to "compet[e] withMLS"

and culminated in "a final effort to eliminate the NASL as a potential competitive rival toMLS"

by denying it Division II status for 2018. (Ex. 9, Fed. Compl. ¶¶ 5-6, 10.) NASL sought

preliminary and final injunctive relief, awarding it Division II status. (Id., at ¶ 70.) The District

Court denied NASL's request for a preliminary injunction. See NASL I, 2017 WL 5125771, at *1.

The decision cited the safeguards the Board follows when it revises the Standards: the Court found

it "significant that [NASL] has had opportunities to voice itsconcerns"

about revisions, and that

"any [director] who ha[s] a then-existing relationship with professional leagues are excluded from

voting . . . or being a member of the Standard TaskForce."

Id., at *12. As for the league-

sanctioning process, the Court found it "significant . . . [that] the body charged with initially

reviewing divisional status applications, is designed to function as a neutralbody,"

and that the

Board granted NASL "Division II status from 2011 through 2017 with waivers in every year except

2013."Id., at *15. The Second Circuit unanimously affirmed the District Court's ruling, adding

that NASL had not shown a "financial conflict of interest stemming from the SUM agreement;

Board members with ties to professional leagues do not participate in the Task Forces and must

abstain from votes regarding theStandards."

NASL II, 2018 WL 1021223, at *9. The federal

lawsuit is ongoing, and in its amended complaint NASL seeks injunctive relief and treble damages

1



17 of 31

under the Clayton Act. (Ex. 11, Dkt. 57, Am. Fed. Compl. ¶ Prayer for Relief.)

3. NASL's State Lawsuit Against U.S. Soccer's Board

NASL easily could have included the same meritless claims against directors in the federal

lawsuit. Instead, it waited until February 6, 2018-after the District Court denied a preliminary

injunction-before filing this Complaint.10 Once again, NASL alleges the Board improperly

aligned itself "with commercial entities such as MLS . . . andSUM."

(¶ 2.) The specifics, however,

are hazy. According to the Complaint, only five of the 15 voting directors in September 2017 ever

had any relationship with MLS or SUM. The other two-thirds go essentially unmentioned.

Further, there are no allegations that any director with a relationship with MLS or SUM voted on

the marketing agreement. Nonetheless, NASL insists that despite the guaranteed revenues, the

SUM agreement must mean the Board is prioritizing MLS. (¶ 70.)

Parroting the federal lawsuit, NASL alleges the Board "manipulate[ed] the[S]tandards"

to

NASL's detriment, including by "revoking its Division IIsanction."

(¶¶ 5, 7.) NASL concedes it

did not meet the Division II Standards and that no director with ties to MLS voted on its

application. Instead, its theory of a tainted vote hinges on the conclusory assertion that those who

voted were "dominated and controlled by conflicteddirectors"

or "inadequatelyprepared."

(¶ 29.)

NASL forces its conspiracy theory into a fiduciary duty claim, asserting that defendants favored

MLS through SUM; undermined NASL by applying"arbitrary"

Standards; and failed to capitalize

on unspecified "opportunities to marketsoccer"

or oversee"wrongdoing."

(¶¶ 14, 198.) As in the

federal lawsuit, NASL seeks injunctive relief and money damages. (¶¶ 194-200.) It also seeks a

judgment declaring U.S. Soccer must deny indemnity to defendants. (¶¶ 201-08.)

10 This Complaint was filed four days before the U.S. Soccer Presidential Election, in a blatant attempt to intimidatethe Board members, who each held a vote in that election, and dissuade them from voting for, or even supporting,the candidate NASL believed to be the frontrunner. (See, e.g., ¶ 61.)

1



18 of 31

ARGUMENT

NASL's claims fail for fundamental legal reasons: first, the defendants owe no separate

duty to NASL; their only fiduciary obligations run to U.S. Soccer and its membership as a whole;

second, NASL did not satisfy the requirements for bringing a derivative suit on U.S. Soccer's

behalf, nor could it given NASL's public disdain and animus towards the organization, and

therefore NASL lacks standing to pursue any of its claims; third, NASL's allegations fall well

short of the specificity required to sue directors of a non-profit; and fourth, the Court should

dismiss or stay this suit as a transparent attempt to pursue claims and seek relief already sought

(and preliminarily rejected) in the parallel federal suit.

I. NASL'S CLAIMS FAIL FOR A FUNDAMENTAL REASON: DEFENDANTS DONOT OWE A FIDUCIARY DUTY TO NASL AS A MATTER OF LAW.

The Board owes a fiduciary duty to U.S. Soccer and, by extension, the organization's

purpose to promote soccer "for all persons of all ages andabilities,"

including the organization's

membership as a whole. (Ex. 1, Bylaws § 102.) The Board does not owe a fiduciary duty to any

particular member and, indeed, should not favor one member's interests over any other unless in

the Board's judgment it would promote soccer or benefit U.S. Soccer as a whole. NASL tries to

plow through this self-evident principle. This flaw is fatal to NASL's claims.

To state a claim for a breach of fiduciary duty, NASL must plead "(1) defendant[s] owed

[it] a fiduciary duty, (2) defendant[s] committed misconduct, and (3) [NASL] suffered damages

caused by thatmisconduct."

Burry v. Madison Park Owner LLC, 84 A.D.3d 699, 699-700 (1st

Dep't 2011); see Mullin v. WL Ross & Co., No. 650535/17, 2018 WL 1030313, at *15 (N.Y. Sup.

Ct. Feb. 23, 2018) (dismissing claim for failing to "plead that a fiduciary relationship existed").

Here, NASL bases its Complaint on an erroneous premise: that defendants owed a fiduciary duty

to NASL in particular, rather than U.S. Soccer and its membership as a whole. In fact, the very

1



19 of 31

first paragraph of the Complaint alleges defendants breached fiduciary duties owed "in particular,

to Plaintiff, theNASL."

(¶ 1.) It then lists ways that defendants allegedly"thwart[ed],"

"undermin[ed],"or failed to devote sufficient time and attention to NASL's aspirations. (¶ 198.)

Supposedly, these actions "cause[d] . . . harm to PlaintiffNASL,"

including "significant monetary

and reputationalharm."

(¶¶ 199-200.) No other members are discussed: NASL does not (and

cannot) explain how the Board's exercise of discretion in denying NASL a waiver for Division II

status after it repeatedly failed to satisfy key standards harmed any of the other members of U.S.

Soccer, much less the membership as a whole.

Directors of non-profit corporations like U.S. Soccer owe fiduciary duties to the

corporation and, by extension, its membership as a collective group-not to specific members

individually.11Consumers Union of U.S., Inc. v. State, 5 N.Y.3d 327, 370 (2005) ("[F]iduciary

duties . . . govern the conduct of not-for-profit boards . . . in their day-to-day relationship to the

organizations they serve."); see also Victoria B. Bjorklund et al., New York Nonprofit Law and

Practice § 6.05 (3d ed. 2017) ("[Directors] may be held liable for breaching their duties of care,

loyalty, or obedience-duties owed to the corporation-if . . . the corporation has been injured.");

Nicole D. Cuttino et al., Getting Organized (6th ed. 2015) ("Directors("

owe a fiduciary duty . . . to

the corporation."). The New York Attorney General put it succinctly in a recent guidance

document: "members of a board of directors must fulfill fiduciary duties to the organization and

the public itserves."

N.Y. Att'y Gen., Right From the Start, 4 (2015).

New York courts adhere strictly to this principle when considering the fiduciary obligations

of directors and officers of non-profit corporations. In Pacella v. Town of Newburgh Volunteer

11Indeed, its Complaint is internally inconsistent. Paragraph 15 of NASL's Complaint admits U.S. Soccer is a "non-

profit organization meant to serve the collective interests of its millions of members."

1



20 of 31

Ambulance Corps Inc., for example, plaintiffs were members of a non-profit volunteer ambulance

corporation. 48 Misc. 3d 1231(A), 2015 WL 5457209 (N.Y. Sup. Ct. Sept. 10, 2015). When the

board decided to end a program that awarded members benefits based on the length of their service

in the organization and to use the remaining funds to invest in the organization, plaintiffs sued,

alleging that the directors breached their fiduciary duties. Id., at *8. The Court dismissed the

claim, reasoning that the directors did not owe fiduciary duties to individual members of the non-

profit corporation; rather the "directors owe such a duty to [the corporation] and its members as a

group."Id. The First and Second Departments have likewise held that "[i]t is firmly established

that the directors of a corporation have the fiduciary obligation to act on behalf of the corporation

in good faith and with reasonable care so as to protect and advance itsinterests."

Pebble Cove

Homeowners'Ass'n v. Shoratlantic Dev. Co., 191 A.D.2d 544, 545 (2d Dep't 1993); see S.H. &

Helen R. Scheuer Family Found. v. 61 Assoc., 179 A.D.2d 65, 70 (1st Dep't 1992) ("[I]t("

is well

established that, as fiduciaries, board members bear a duty of loyalty to the corporation . . . .").

The principle that non-profit directors and officers owe a fiduciary duty to the corporation

and its members as a whole makes good sense. Non-profits, like U.S. Soccer, are mission-driven.

Not all decisions in pursuit of that mission can benefit every member equally. Owing fiduciary

obligations both to the organization and to each member individually would create intractable

problems. See Consumer Union, 5 N.Y.3d at 370 n.16 (explaining that "the duty of loyalty requires

. . . undivided allegiance to the organization's mission"); Evelyn Brody, The Board of Nonprofit

Organizations, 76 Fordham L. Rev. 521, 525 (2007) ("[F]iduciaries must be free to exercise their

judgment in the best interests of the organization."). For example, if funding one member over

another is better for the organization's mission, how is the Board to pick between its duties to the

non-profit and its duties to the member left empty-handed? This is not just a hypothetical concern.

1



21 of 31

Directors of charitable organizations often must make difficult decisions about priorities and

distributing scarce resources. Fiduciary duties to members on an individualized basis would make

a hard job untenable, turning every decision into a potential lawsuit.

U.S. Soccer is no exception. Promoting soccer at all levels in the United States would be

impossible if every decision to devote resources to one area of the game could prompt a lawsuit

from another. Take something as simple as devoting more money to recreational leagues for

children than to those for adults. That decision may be best for the long-term growth of American

soccer, but it would certainly not be in the best interest of the unfunded adult leagues. Under

NASL's view of fiduciary obligations, the Board's routine funding decision would subject

directors to the threat of lawsuits from adult leagues across the country. That is not the law. The

fiduciary obligations run to the non-profit organization as a whole, not the NASL individually.

There is not a single case saying anything different. NASL's breach of fiduciary duty Complaint

fails for this most basic reason: the defendants owe NASL no independent duty. CPLR 3211(a)(7).

H. NASL CANNOT BRING CLAIMS ON BEHALF OF U.S. SOCCER.

NASL cannot save its lawsuit with a handful of passing references alleging harm to U.S.

Soccer and its membership. (See ¶¶ 3, 6, 99.) Nor can NASL decide for U.S. Soccer whether to

deny indemnity to the directors under U.S. Soccer's Bylaws. (¶¶ 201-08.) Indeed, it is hard to

imagine a clearer claim belonging to a corporation than NASL's Second Count, which has nothing

whatsoever to do with NASL but instead seeks to limit indemnification obligations flowing

directly from U.S. Soccer to its directors. When confronted with such derivative claims, members

such as NASL have two options: demand that the Board file suit or instead follow the statutory

requirements for bringing a derivative action. NASL has done neither; nor can it given its animus

toward U.S. Soccer. Not only has NASL contemporaneously sued U.S. Soccer in parallel federal

litigation, it seeks, through this lawsuit, to have U.S. Soccer violate its Bylaws by denying

1



22 of 31

indemnity owed to its directors, which could expose U.S. Soccer to court-ordered indemnification

and related legal costs. See, e.g., Not-For-Profit Corporation Law § 724(c).

As an initial matter, NASL cannot bring any claims on behalf of U.S. Soccer directly.

Under settled corporate law principles, members or shareholders "lack[] standing to pursue a direct

cause of action to redress wrongs suffered by the instead,corporation"

"such claims must be

assertedderivatively."

Pokoik v. Norsel Realties, 55 Misc. 3d 1208(A), 57 N.Y.S.3d 677, at *3

(N.Y. Sup. Ct. Apr. 12, 2017) (dismissing fiduciary duty claim as derivative); see Longo v. Butler

Equities H, 278 A.D.2d 97, 98 (1st Dep't 2000) (dismissing investor's fiduciary duty claims

because plaintiff "lack[ed]standing"

to assert such"derivative"

claims); CPLR 3211(a)(3).

Critically here, filing a derivative action requires specific, statutory steps that NASL

skipped. Under Not-For-Profit Corporation Law § 623, a member seeking to bring a derivative

action on behalf of a non-profit must plead that it represents "five percent or more of [a] class of

members"and describe with specificity its efforts to "secure the initiation of such action by the

board or the reason for not making sucheffort." NPC Law § 623(a)-(b). The Complaint makes

no such claims: it does not allege NASL made a demand on the Board to bring suit; it does not

allege NASL makes up five percent of a class of members; and it does not state with specificity

any reasons why making demand would have been futile. Naming directors as defendants does

not excuse NASL's failure to follow these rules: "it is not sufficient merely to name a majority of

the directors as parties defendant with conclusory allegations of wrongdoing or control by

wrongdoers to justify failure to make ademand."

Marx v. Akers, 88 N.Y.2d 189, 199-200 (1996).

Its claims should be dismissed for this reason as well.

Second, even had NASL met the statutory requirements for bringing a derivative suit, it

still could not be a proper plaintiff given its open animosity toward the organization. A derivative

1



23 of 31

suit plaintiff steps into the case as a fiduciary of the corporation (here, U.S. Soccer). See Auerbach

v. Bennett, 64 A.D.2d 98, 104 (2d Dep't 1978). That requires a showing that it "will fairly and

adequately represent the interests of the shareholders and the corporation, and that [it] is free of

adverse personal interest oranimus."

Steinberg v. Steinberg, 434 N.Y.S.2d 877, 878 (N.Y. Sup.

Ct. 1980); see, e.g., Gilbert v. Kalikow, 272 A.D.2d 63, 63 (1st Dep't 2000) (dismissing derivative

action because plaintiff would not fairly represent partnership).

NASL's adverse interests and animus here are well documented and easy to see. It is no

white knight riding to defend U.S. Soccer. Rather, as this lawsuit makes clear, NASL seeks to

vindicate only its own interests, seeking, among other things, $100 million in damages for itself

(¶ Prayer for Relief (c).) At the same time, NASL's claims ask U.S. Soccer to risk further liability

for itself by denying its directors indemnification for defense fees associated with this action even

though the organization's Bylaws provide for such indemnity. (¶¶ 201-08.) See Not-For-Profit

Corporation Law § 724(c). Further, it is actively litigating a parallel action against the

organization and filed this lawsuit only after losing the initial contest. See, e.g., Tuscano v.

Tuscano, 403 F. Supp. 2d 214, 223 (E.D.N.Y. 2005) (plaintiff asserting direct and derivative

claims at the same time was conflicted as a matter of law). And NASL's adversity is not only in

the courtroom; its Chairman has also criticized U.S. Soccer in the press, calling it absolutely

disgraceful"and "the No. 1 reason why our country has failed

miserably"on the world soccer

scene.12This lawsuit, in other words, is not an attempt to protect U.S. Soccer; it is just another

front in NASL's billionaire-funded fight against the organization.13

12 "New York Cosmos Owner Hits Out at U.S. Soccer Amid NASL Troubles,"ESPN.com, http://www.espn.com

/soccer/new-york-cosmos/story/3402562/new-york-cosmos-owner-hits-out-at-us-soccer-amid-nasl-troubles.

13 Even if NASL had pled a viable direct fiduciary duty claim (and it did not), the presence of these derivativeallegations requires dismissal. See Yudell v. Gilbert, 99 A.D.3d 108, 115 (1st Dep't 2012) (dismissing complaintwith mixed derivative and non-derivative claims for failing to follow derivative process).

1



24 of 31

III. NASL HAS FAILED TO STATE A CLAIM AGAINST THE DEFENDANTS.

Even assuming NASL somehow has a right to claim that defendants breached fiduciary

duties to NASL, there are no adequately pleaded claims to pursue here. The heart of NASL's

claim is that defendants tried to prop up MLS at NASL's expense. (¶ 2.) But the Complaint is

fatally short on details about how this purported scheme to protect MLS played out. In fact, the

"FactualAllegation"

section of the Complaint does not even mention nine of the 15 defendants.

That is far too little to meet the exceptionally high burden for bringing a claim against directors of

a non-profit, even if NASL could bring this claim directly (which it cannot).

Pleading a breach of fiduciary duty always requires stating, "indetail,"

the facts giving rise

to the claim. CPLR 3016(b); Burry, 84 A.D.3d at 700 (dismissing fiduciary duty claim that failed

to plead misconduct with particularity). But NASL's task is even tougher in this case because U.S.

Soccer is a non-profit corporation under § 501(c)(3) of the Internal Revenue Code, and none of

the voting directors, including defendants, receive compensation for their work. (Ex. 12, 501(c)(3)

Letter; Ex. 13, 2017 990 Form; Bylaw § 401(c).) Well-settled New York law "affords qualified

immunity from litigation to directors . . . who serve without compensation in not-for-profit

corporations."Krackeler Scientific, Inc. v. Ordway Res. Inst., Inc., 97,97 A.D.3d 1083, 1083 (3d

Dep't 2012). That is, under Not-For-Profit Corporation Law § 720-a, such directors cannot be

held liable to individuals based on the performance of their duties "unless the conduct of such

[director or officer] . . . constituted gross negligence or was intended to cause . . .harm." On top

of that, CPLR 3211(a)(11) requires courts, at the motion to dismiss stage, to determine whether

the plaintiff has shown a "reasonable probability of gross negligence or intentionalharm."

To

meet this heightened standard, NASL must present "evidentiary proof showing a fair likelihood

that [it] will be able to prove that the defendant was grossly negligent or intended to cause . . .

harm."Krackeler Scientific, 97 A.D.3d at 1084 (dismissing suit against uncompensated director).



25 of 31

Here, NASL has failed to plead withspecificity that defendants breached a fiduciary duty,

much less established a reasonable probability that they were grossly negligent or intentionally

harmed anyone. Most conspicuously, the Complaint does not make a single factual allegation

about nine of the 15 Defendants. For seven of thosenine,14

the Complaint simply lists their names

and states that each voted against NASL on September 1, 2017 "despite being inadequately

prepared"and aware that the process and the

Defendants'decision was "being dominated and

controlled by conflicted directors and[executives]."

(¶¶ 28-29, 32-36.) The other two did not

vote,15 so NASL alleges they generally "participat[ed] in [the] Boarddeliberations."

(¶¶ 25, 27.)

That is all the Complaint has to say about these nine defendants, well short of the

requirement to plead in detail. NASL fails to allege what the directors "should have considered or

investigated,"or explain how they could possibly have been ill-informed despite listening to a

presentation by NASL's current Chairman immediately before voting. (¶ 171.) Goldsteinv.Bass,

138 A.D.3d 556, 557 (1st Dep't 2016) (dismissing claim where "allegations that the directors failed

to inform themselves fully about the transactions and merely rubber-stamped them are wholly

conclusory").conclusory"

Nor does the Complaint specify why these Defendants were supposedly "dominated

andcontrolled."

See, e.g., Ret. Plan for Gen. Emps. of N. Miami Beach v. McGraw, No.

652695/15, 2018 WL 826119, at *1 (1st Dep't Feb. 13, 2018) (allegations of corporate and

fraternal relationships insufficient to show control).

Moreover, NASL's allegations certainly do not establish a reasonable probability that these

defendants were grossly negligent or willful in allegedly breaching their fiduciary duties. Simply

being inadequately prepared or overly accommodating to the demands of other directors does not

14Specifically, Dr. Shalala, Ms. Ackerman, Mr. Moeller, Mr. Harrell, Mr. Turney, Mr. Ahrens, and Ms. Hucles.

15specifically, Messrs. Bocanegra and Collins. Moreover, Mr. Bocanegra did not even join the Board until afterMarch 2017. (Ex. 14, 3/3/17 Board Mtg. Minutes.)

1



26 of 31

"evince a recklessdisregard"

for NASL's rights, much less an intent to harm the league. Colnaghi

U.S.A., Ltd. v. Jewelers Prot. Servs., Ltd., 81 N.Y.2d 821, 824 (1993). At most, it hints at ordinary

negligence, which is not sufficient to meet NASL's burden. See id. (explaining that gross

negligence "differs in kind, not only degree, from claims of ordinary negligence").negligence"

The rest of NASL's blunderbuss Complaint fares even worse, using imprecision to mask a

lack of detailed allegations, much less specifies amounting to gross negligence or intentional harm.

Two other defendants, Mr. Cordeiro and Ms. Carnoy-who voted on NASL's Division II

sanction-receive only passing mention in the Complaint. Again, NASL asserts both were

"inadequatelyprepared"

for the vote and "dominated andcontrolled"

by other directors. (¶¶ 25,

31.) Once more, the Complaint falls short of supporting these allegations in detail: NASL never

explains what information the pair missed or how or why they were beholden to directors with ties

to MLS. But even more glaring, the factual allegations the Complaint contains about Mr. Cordeiro

and Ms. Carnoy do not establish a reasonable probability of either gross negligence or an intent to

harm NASL. When the Complaint mentions Mr. Cordeiro, it says he criticized how the Board had

been run in the past. (¶ 15.) As to Ms. Carnoy, the Complaint describes just one conversation she

had with NASL's Chairman, in which she explained that she was trying to"' help'

the NASL club

owners."(¶ 11.) How these allegations show a reasonable probability of gross negligence or

willful intent to harm NASL by either Mr. Cordeiro or Ms. Carnoy is anyone's guess.

NASL admits that the remaining four defendants-Messrs. Gulati, Garber, Malik, and

Flynn' not vote on NASL's Division II sanction. Instead, it adopts a guilt-by-association

approach, inviting the Court to assume that simply because these individuals have a connection to

16 As CEO, Mr. Flynn receives compensation from U.S. Soccer. But that is of no moment. The Complaint concedesthat he does not vote on the Board (¶ 30), and it fails to identify a single instance of Mr. Flynn influencing anyDefendant's vote. All NASL can say is that he has voiced enthusiasm about the SUM agreement (¶ 71)-hardlynefarious coming from the CEO of an entity that earns money from the deal.



27 of 31

MLS or have spoken positively about SUM, they must be out to undermine NASL. (E.g., ¶¶14-

15.) But NASL leaves out any specifies about how those defendants allegedly leveraged their

positions to undermine NASL and does not allege that any of them ever voted on a NASL sanction,

Standards revisions, or SUM contract. Instead, NASL vaguely references the idea that these

defendants exerted"pressure"

anddominat[ion]"

over the directors who did vote, all without ever

explaining how they did so. (E.g., ¶¶ 131, 137). Without specifics, NASL has no claim. See

Health-Loom Corp.-Corp. v. Soho Plaza Corp., 209 A.D.2d 197, 198 (1st Dep't 1994) (requiring specific

allegations that defendants "have coercive powers over the other directors").

Take, for example, Mr. Malik. NASL admits he, like Mr. Bocanegra, did not join the Board

until March 2017-after the creation of the SUM agreement and most of the actions identified in

the Complaint. (¶ 9.) In fact, the only Board action after March 2017 that NASL complains about

is the sanction vote, which Mr. Malik sat out, along with Messrs. Collins, Bocanegra, Gulati,

Garber, and Flynn. (¶26.)¹7

Conclusory claims that he "helpedorchestrate"

that vote, "collude[ed]

with"others, or was

"co-opted"are insufficient without well-pled facts. (¶¶ 9, 26, 187.) The sole

fact alleged is that, nearly a month after the vote, Mr. Malik moved his team to USL (¶131), an act

he took as a team owner, not a director, which fails to support a breach of fiduciary duty claim.

Pleading in detail is only one half of the problem for NASL here; it also has not established

a reasonable probability that Messrs. Gulati, Garber, Malik, and Flynn were grossly negligent or

out to harm anyone. Mr. Flynn has never worked for MLS, and as for the remainder, their ties to

MLS are not nefarious. As a membership-driven body, U.S. Soccer is supposed to have directors

with relationships to professional leagues. And helping MLS does not, by itself, establish gross

negligence or an intent to harm NASL. What NASL must show is that these directors recklessly

17 The Complaint does not even allege that these six nonvoting directors were in the room during the vote.



28 of 31

or intentionally undermined NASL's Division II sanction. But it cannot do that-consistent with

U.S. Soccer's Bylaws and policies, these directors stayed away from the Standards and voting on

NASL's application, and NASL cannot explain what they did to influence the directors who voted.

The reality, as the Complaint concedes, is that NASL fell drastically short of at least the

team-minimum and time-zone requirements for receiving Division II. (¶ 138.) After years of

giving waivers to NASL for less significant shortcomings, directors with no ties to MLS or USL

decided NASL did not warrant another waiver after falling further out of compliance with the

Standards. NASL may not like the decision, but it is no breach of fiduciary duty.

IV. THIS COURT SHOULD DISMISS THE CASE AS DUPLICATIVE OF NASL'S

FEDERAL LAWSUIT OR, AT A MINIMUM, IMPOSE A STAY.

Finally, at a minimum the Complaint should be dismissed under CPLR 3211(a)(4) or

stayed until completion of the federal lawsuit. CPLR 3211(a)(4) gives courts "broad discretion in

determining whether an action should bedismissed"

or stayed. Cherico, Cherico & Assocs. v.

Midollo, 67 A.D.3d 622, 622 (2d Dep't 2009). The key is that "both suits arise out of the same

subject matter or series of allegedwrongs,"

and the relief sought is "the same or substantially the

same."White Light Prods. v. On the Scene Prods., 231 A.D.2d 90, 94 (1st Dep't 1997).

This case and the federal lawsuit arise out of the same subject matter-namely, U.S.

Soccer's decision not to grant NASL discretionary waivers to play as a Division II league in 2018.

In both, NASL alleges that U.S. Soccer's relationship with SUM, MLS, and USL gave it a financial

incentive to advance MLS at the expense of other leagues. (Compare, e.g., Am. Fed. Compl. ¶ 1,

7-10 with ¶ 48.) And in both, NASL alleges U.S. Soccer, and its"dominated"

board, took the bait

by somehow using the Standards to undermine NASL-first by refusing it a Division I sanction,

and then by refusing it Division II status in 2018. (Compare, e.g., Am. Fed. Compl. ¶¶ 6, 7, 25

with ¶¶ 5, 7, 12.) The fact that this case is against U.S. Soccer's directors, rather than U.S. Soccer



29 of 31

itself, does not matter. Courts routinely hold that CPLR 3211(a)(4) requires only substantial

identity between the parties. See White Light Prods., 231 A.D.2d at 94 (finding substantial

similarity of parties where earlier suit was against the corporation and later suit was against the

corporation and individuals who controlled it); see also Case Capital Corp. v. Morgan Invs., 154

A.D.2d 501, 501 (2d Dep't 1989); Barringer v. Zgoda, 91 A.D.2d 811, 811 (3d Dep't 1982). Here,

there is little, if any, daylight between U.S. Soccer and defendants, whom U.S. Soccer entrusts

with "all governance, supervisory, and administrativeauthority"

over the organization. (Ex.1, §

411.)

Further, there can be no question that the relief requested in the two lawsuits is

"substantially thesame."

In the federal lawsuit, NASL asked the court for money damages and

injunctive relief, including Division II status and a prohibition on U.S. Soccer promulgating

Standards. (Fed. Compl. ¶ Prayer for Relief; Am. Fed. Compl. ¶ Prayer for Relief.) Having lost

the preliminary injunction, NASL unabashedly asks this Court for the very same thing: money

damages (from U.S. Soccer) and "[i]njunctive relief prohibiting Defendants from assigning the

NASL divisional sanction lower than Division II to the extent [U.S. Soccer] continues to impose

its Professional LeagueStandards."

(¶ 200.) The requested relief lays bare the overlap in the cases

and the mirage of different parties. Regardless of whether NASL sues U.S. Soccer or its Board,

NASL seeks the same relief and the same result. Simonetti v. Larson, 44 A.D.3d 1028, 1028 (2d

Dep't 2007) (dismissing case seeking same relief against different defendant).

NASL's strategy is not hard to discern. Rather than filing all its claims in one court at one

time, it held back until it saw the district court's decision in the federal lawsuit before trying its

luck in state court as well. Under CPLR 3211(a)(4), this Court should hold NASL to its decision

to file in federal court first and dismiss or stay the Complaint.



30 of 31

CONCLUSION

For the foregoing reasons, the Complaint should be dismissed with prejudice.

Dated: New York, New York KIRKLAND & ELLIS LLP

March 28, 2018

By: /s/ Andrew A. Kassof

Andrew A. Kassof, P.C.

Atif Khawaja, P.C.

Shireen A. BardayKIRKLAND & ELLIS LLP

601 Lexington Avenue

Tel: (212) 446-4800

New York, New York 10022



31 of 31

52567364 27 - judiciary of new york

Documents