Minority Owners Swing For Fences Commencing Suit Against Managing Partner

Image Credit: Garrett Parker

Although sports leagues across the country have been unable to play any games for quite some time, due to the Covid-19 outbreak, there have been no shortage of sports storylines. Among these storylines, is the intense feud brewing among the Arizona Diamondbacks ownership group. Recently, three minority owners commenced a lawsuit against managing general partner Ken Kendrick, alleging that they were forced to either increase or forfeit their investments, according to The Athletic’s Zach Buchanan.

The lawsuit was filed on April 2nd in the Maricopa County Superior Court. The three minority owners are Alfredo Molina, chairman and CEO of Molina Fine Jewelers, former pro pitcher Jim Weber, and limited liability company Carlise Investments. Molina and Weber originally invested with the team in 2004, while Carlisle Investments has been involved in team ownership since 1998. Kendrick is a former banking executive who originally became a part-owner of the Diamondbacks when the team was founded in 1995. Kendrick has served as managing general partner since 2004.

Elizabeth Swinton of Sports Illustrated has reported, on January 13th, all Diamondback minority owners with less than a 1% stake received a letter titled “Buy-Up/Buy-Out.” The letter informed the minority owners that the MLB encouraged the Diamondbacks to “streamline its ownership group.” Put simply, this would allow Ken Kendrick to contact minority owners and force them to increase their stake to at least 1% or sell each of their “ownership units” back at $60 each.

Conversely, plaintiffs argue that the MLB did not request the Diamondbacks to implement such a strategy; rather that the team reached out to the MLB with this proposal and received approval of same. The plaintiffs’ attorney, Roger Cohen, stated that Major League Baseball’s approval of the proposal does not support Kendrick’s claims that the plaintiffs are no longer “eligible holders.” Nonetheless, on February 13th, the three minority owners were provided notice that they were “no longer a limited partner” of the Diamondbacks after they did not purchase further ownership stakes.

Image Credit: Dana Scott / USA Today

According to Zach Buchanan, Molina was told he needed to invest an additional $3.8 million in the team, or in the alternative, be bought out for roughly the same price. In addition, Weber had an option to either receive a $1.5 million buyout or to invest an additional $6 million. However, the specifics of the proposal to Carlisle Investments have not been released.

To date, the three plaintiffs have reportedly not yet been compensated for their team shares. The lawsuit filed on April 2nd includes six counts against Kendrick, which include Declaratory Judgment, Breach of Contract, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Breach of Fiduciary Duty. In addition, these minority owners are pursuing further lititgation to prevent the Diamondbacks from forcing them to release their stakes. However due to the complex nature of this litigation, the amount of documentation involved, and restrictions due to Covid-19, it is unlikely this matter will be resolved anytime soon.

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