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Three minority owners are suing Managing General Partner Ken Kendrick over recent ownership share policy changes

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Alfredo Molina, Jim Weber, and Carlise Investments are suing Kendrick over his buy up or be bought out ultimatum, which started in January.

MLB: Spring Training-Milwaukee Brewers at Arizona Diamondbacks The Arizona Republic-USA TODAY NETWORK via Imagn Content Services, LLC

In an article from Zach Buchanan of The Athletic, Arizona Diamondbacks Managing General Partner Ken Kendrick is being sued by three minority owners: Alfredo Molina, chairman and CEO of Molina Fine Jewelers; Jim Weber, a former pro pitcher; and Carlise Investments, LLC. The lawsuit claims Kendrick acted illegally when coercing them into either increasing their investment in the team or relinquish their ownership stakes at $60 per unit, a number that the plaintiffs call unfairly discounted. The suit names AZPB Limited Partnership (Ownership Group), the group’s managing partner, and Kendrick’s wife as the defendants. They are currently being represented by Roger Cohen from the Phoenix-based Jaburg Wilk law firm.

Carlisle Investments has been a part of the ownership group from 1998 with Molina and Weber buying stakes in 2004, when the team had an operating deficit of $300MM. That is the same year Kendrick ousted Jerry Coangelo as the Managing General Partner. The team hired a Milwaukee-based firm, Bases Loaded Consulting LLC, to evaluate the shares for every minority owner. Molina is required to invest an additional $3.8MM or his stakes will be bought out at the same number, Weber investing another $6MM or get a $1.5MM buyout, and Carlise Investments getting a similar ultimatum for undisclosed amounts.

Here’s the rundown of the suit in question:

The plaintiffs are suing on six counts. The first is Declaratory Judgment, or a request for the court to state their rights under the Partnership Agreement now and in the future. They also are suing for Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing, for which they seek compensatory damages. For the fourth count — of Breach of Fiduciary Duty, filed specifically against Kendrick and the General Partner, which is AZDB I — the plaintiffs also seek punitive damages as they claim Kendrick’s actions “were willful, malicious and performed with evil mind and a conscious disregard for the risk of injury” to the plaintiffs. (“Performed with evil mind” is a legal term of art in Arizona; the plaintiffs are not calling Kendrick evil.)

Finally, the plaintiffs are suing to force Kendrick and the Diamondbacks to provide the documentation they have requested, and they are suing for a Preliminary and Permanent Injunction to prevent the team from forcing them to relinquish their ownership stakes, although none of the three have received payment yet and, with the shutdown of sports from the coronavirus, it’s not clear that anything has transpired that has yet deprived them of any rights or privileges as team owners. Cohen said his clients are not seeking a temporary restraining order, but they reserve the right to do so in the future.

According to Buchanan, the lawsuit has nothing to do with any potential relocation as Kendrick controls a voting bloc of 90% of the ownership (Kendrick himself does not have 90% of the ownership shares). Cohen speculates that Kendrick’s potential motive is to consolidate and increase the stakes of the remaining owners who weren’t bought out. The whole saga began on January 13th, when Kendrick sent out a letter to 22 minority owners with ownership stakes of less than 1% to either buy up or be bought out. A month later Kendrick sent another letter to these three plaintiffs that by electing to not purchase a bigger stake in ownership that they are no longer a limited partner and their stakes will be bought out.

The team’s apparent goal is to “streamline the ownership group and reduce the number of partners with very minimal equity stakes in ownership”. I’m not sure what the ulterior motive is for such a decision, but it definitely comes off as nefarious. This could result in a potential ugly court battle, so we’ll have the details on its resolution out here as soon as we find out. For more details on the lawsuit, including reading the actual document, I recommend reading the linked article from The Athletic.