A Legal Analysis of the Phoenix Coyotes Situation

(Photo by Harry How/Getty Images)

I am a licensed attorney in the United States. I specialize in contracting disputes and contract litigation. I am not an expert on bankruptcy, but I do have a working knowledge of the subject.

Below is a quick legal analysis of the situation facing the Coyotes, their current owner Jerry Moyes, the NHL, and the fans in Phoenix and southern Ontario. The conclusions are purely my own speculative assessments and not intended to be used as legal advice of any sort. Some if it may be a bit dense, but for those interested, I hope it is informative. 

As everyone knows by now, Jim Balsillie has engineered a daring backdoor bid to buy the Phoenix Coyotes and relocate them to southern Ontario. 

This effort attempts to circumvent the rules of the NHL by taking Gary Bettman and the Board of Governors out of the decision-making equation. 

While Balsillie’s tactic is perhaps reflective of the same “enterprising” spirit that led him to his fortune as the CEO of Research In Motion and the mastermind behind the Blackberry, when matters such as this become tied up in the judicial system, the rule of law will ultimately decide what Balsillie can or cannot do. 

There are two distinct legal hurdles at play in this melodrama—the authority to declare bankruptcy, and the authority of a court to compel the relocation of an NHL franchise. 

Bankruptcy Authority

Jerry Moyes is the owner of the Phoenix Coyotes. He declared bankruptcy on behalf of the Coyotes on May 5, 2009. 

Under normal circumstances, the owner of a business has the authority to declare Chapter 11 bankruptcy reorganization. The inner workings of a Chapter 11 filing are extremely complicated but largely irrelevant for the purposes of this article other than to note that the owner of the business maintains the right to conduct a bankruptcy sale, but such a sale is supervised—and must be ultimately approved—by a special bankruptcy court. 

The NHL now disputes Moyes’ authority to file for bankruptcy. According to the league, when the Coyotes took a significant loan from the NHL in April (and likely on multiple occasions prior to April), Moyes agreed to forfeit his right to declare bankruptcy on behalf of the team in exchange for the cash. 

If the NHL has its way, this promise will be deemed to be part of the loan contract between the NHL and the Coyotes, and Moyes will be barred from violating the deal. 

But there are significant questions about the viability of a promise not to declare bankruptcy. While a contract is a contract, courts have long recognized the right of a contract participant to breach the contract, so long as they are willing to live with the consequences and pay financial damages. This is called the rule of the "Efficient Breach."

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