• Daniel Wallach

NFL Can’t Transfer Gruden Lawsuit to Federal Court Due To Corporate Status

Updated: Nov 20, 2021


By Daniel Wallach


If the NFL has learned anything from its recent legal setbacks in a St. Louis courtroom, it is that litigating against an adversary on their home turf in state court is to be avoided, if at all possible.


The state court system offers many perceived advantages to local plaintiffs, in that: (1) state court judges are usually elected or appointed for fixed terms, whereas federal judges are appointed for life, presumably leaving them less likely to be biased in favor of a local plaintiff or swayed by local sentiment; (2) the discovery rules may be looser in state court, allowing plaintiffs more leeway and fewer restrictions in obtaining evidence from a defendant, whereas in federal court, district judges and magistrate judges maintain tighter control over both the timing and scope of discovery; (3) more cases go to trial in the state court system, whereas in federal court, pretrial dismissals of lawsuits via a motion for summary judgment are far more common; and (4) state court juries are notorious for awarding higher monetary damages than federal juries.


At first glance, Jon Gruden’s lawsuit against the NFL and Roger Goodell appears to be the kind of case that can be “removed” (meaning transferred) to federal court to avoid these potential disadvantages for an out-of-state defendant. After all, Gruden is a resident of Nevada, and both the NFL and Goodell are domiciled in New York.


In most normal circumstances, the fact the plaintiff and the defendants are from different states—coupled with the amount in controversy likely being higher than $75,000—would make a case removable to federal court under the diversity of citizenship statute (28 U.S.C. § 1332).


But not here.


Why?


Well, the NFL is not like a regular corporation with shareholders.


It is an “unincorporated association” consisting of 32 separately-owned and independently-operated professional football teams.


This has consequences in the federal court system.


For diversity purposes, an unincorporated association has no citizenship independent of its members. Instead, under longstanding federal case-law, an unincorporated association is deemed to be a citizen of every state in which each of its constituent members is a citizen.[1]


Stated another way, an unincorporated association is a citizen of every state in which its members are citizens.


In the NFL’s case, that means that the NFL is a citizen of a whole bunch of different states where its teams play. That includes Nevada, the home state of the Las Vegas Raiders.


Under this quirky jurisdictional rule, courts must “count every member of an unincorporated association" for purposes of diversity jurisdiction. This is to be contrasted with the treatment of corporations, where citizenship for diversity purposes is confined to the entity's principal place of business and state of incorporation.


Thus, if even one member of the unincorporated association defendant is a resident of the same state as a plaintiff, then “complete diversity” is lacking and the case cannot be removed unless there are federal statutory or constitutional claims involved.


The NFL should be very familiar with this rule, as they have invoked it in past lawsuits. In 2009, a Minnesota federal district court dismissed a lawsuit brought against the NFL by Minnesota Vikings players Kevin Williams and Pat Williams, who were seeking to overturn their four-game drug suspensions, and had asserted, among other claims, several state-law causes of action.


The district court dismissed the Williamses state-law claims on the basis that diversity of citizenship was lacking. In so holding, the Court took note of the fact that “[t]he Williamses are residents of the State of Minnesota . . . , and “the NFL, as an unincorporated association of the member teams, is a citizen of each state in which its members are citizens.”[3] Since the plaintiffs were Minnesota residents and one of the NFL’s member teams—the Minnesota Vikings—“has Minnesota citizenship, . . . there is not complete diversity,” the Court ruled.[4]


Jon Gruden’s lawsuit is similarly structured—with a resident of the same state on both sides of the “v.” Gruden, a Nevada resident, is suing the NFL, which is described in the complaint “as an unincorporated association of 32 member clubs organized under the laws of New York.” Relying on the above-cited jurisdictional rule, Gruden’s complaint alleges that “[t]he NFL is a resident of Nevada because, among other reasons, it does business here and derives substantial revenue from its contacts with Nevada, and one of its member clubs is a resident of Nevada.” (¶ 11).


And he would appear to be right, given the NFL’s status as an unincorporated association. Which means that, barring some unknown new information about the NFL’s legal status (such as its filing for corporate status under state law),[5] the case will likely remain in a Nevada state court. This could spell trouble for the NFL, which has learned the hard way—especially in St. Louis—that its successes in the federal court system don’t always translate to state court.


Daniel Wallach is the co-founder of Conduct Detrimental. He is a nationally-recognized gaming and sports betting attorney. You can follow him on Twitter at @WALLACHLEGAL.

[1] See Dix v. Peters, 2020 WL 3792002, at *1–2 (N.D.N.Y. July 7, 2020) (recognizing that “‘unincorporated associations have long been considered to be citizens of each and every state in which the association has members.’”) (quoting Baer v. United Servs. Auto Ass’n, 503 F.2d 393, 395 (2d Cir. 1974); Jaser v. New York Prop. Ins. Underwriting Ass'n, 815 F.2d 240, 242 (2d Cir. 1987) ("The citizenship of an unincorporated association for diversity purposes has been determined for nearly 100 years by the citizenship of each and every member of that association.'"). [2] See Carden v. Arkoma Assocs., 494 U.S. 185, 195 (1990) (adhering to the "oft-repeated rule" that courts must "count every member of an unincorporated association form purposes of diversity jurisdiction."). [3] See National Football League Players Ass’n v. National Football League, 654 F.Supp.2d 960, 972 (D. Minn.), aff’d sub nom., Willams v. National Footbll League, 582 F.3d 863. (8th Cir. 2009). [4] Id. [5] Although the NFL relinquished its tax exempt status in 2015 and began filing returns as a taxable entity beginning that year, it remains an unincorporated association for all other purposes and continues to refer to itself as such in federal court filings. A check of the online records of the New York Department of State and the Delaware Secretary of State does not provide any indication that the NFL has changed its status to that of a business corporation.