Unsupported allegations that a journalist induced prospective lenders to reveal Madison Square Garden’s bullish revenue projections fail to state a claim for tortious interference with contract, a New York trial court has held.

The corporate owner of Madison Square Garden (MSG) sued SportsBusiness Journal and a reporter following the weekly trade publication’s November 16, 2009 report on the Garden’s efforts to secure up to $500 million in financing. The article did not name the sources of the information about the discussions with lenders. The publication also reported that in seeking the loan for a refurbishment project, the Garden’s owners had projected a doubling of cash flow in the year after the renovations – a signal that higher ticket prices may be expected.

At the time of the article and filing of the complaint, the Garden was owned by a subsidiary of Cablevision Systems Corp. In February 2010, while the complaint was pending, the subsidiary was spun off into a separate public company, Madison Square Garden, Inc., with shares trading on the NASDAQ exchange. Also after the complaint was filed, the Garden succeeded in obtaining financing.

The Garden sued SportsBusiness Journal for tortious interference – not with the loan agreement or the public offering (which successfully closed after the article was published) – but for allegedly inducing the employees of potential lending institutions to breach confidentiality agreements. According to the complaint’s allegations, prospective lenders signed confidentiality agreements, and, when attending a telephone conference to discuss the financing plans, their employees had to click through another confidentiality agreement on a web portal.

The Garden pleaded a series of unsupported allegations in an effort to establish their central claim that the SportsBusiness Journal reporter induced his sources to breach these agreements. The complaint attempted to raise a nefarious inference from what the plaintiff characterized as the reporter’s “well-documented pattern and practice of relying on confidential information provided by unnamed ‘banking sources’ and ‘finance sources’ in publishing articles that disclose sensitive information about proposed financing transactions involving professional sports leagues, teams, and venues.” Based on the reporter’s cultivation of his sources, the complaint then jumped to the conclusion that “there is no plausible explanation of these events other than that” the reporter “actively encouraged and induced” the sources “to divulge the information and projections regarding MSG that were discussed” during the conference call with lenders.

Finally – although the company was already planning to go public, and the Garden is one of the most historic arenas in the country and affects the daily lives of thousands of New Yorkers – the complaint alleged that the information about the financing “is neither newsworthy nor a matter of public interest.”

The publication and the reporter moved to dismiss for failure to state a claim. They argued that the complaint’s allegations were entirely speculative and simply accused the reporter of having cultivated good sources. The motion to dismiss also asserted that gathering information on a matter of unquestionable public concern constituted a “lawful justification” that vitiates claims of tortious interference with contract in New York. The defendants further argued that the damages claim was entirely unsupported. Finally, the dismissal motion asserted that the complaint was a clear end-run around the state’s ironclad shield law, which absolutely protects the identity of confidential sources.

At a hearing in March 2010, Justice Shirley Werner Kornreich repeatedly questioned the Garden’s counsel on their damages theory, noting that the article had not interfered with the Garden’s ability to obtain the loan and that the article contained information relevant to the then-pending spin-off. She also expressed concerns that the lawsuit may be “just a wolf dressed up in sheep’s clothing,” and that the Garden’s real purpose “is to find out who it was that disclosed this information.”

Ultimately, however, the judge’s June 24 Decision and Order dismissing the complaint rested on the “conclusory” nature of the allegations of inducement:

MSG’s failure to allege facts indicating that Kaplan knew of the confidentiality agreements, when and how the communications took place, what was said or even which lenders Kaplan allegedly prompted to breach the agreement is insufficient to plead its cause of action. Speculation that unnamed parties gave information upon Kaplan’s prompting cannot support the complaint’s conclusory inference that “[t]here is no plausible explanation ... other than that Defendant Kaplan actively encouraged and induced [his sources] to divulge the information and projections[.]”

Madison Square Garden, L.P. v. SportsBusiness Journal, American City Business Journals, Inc. and Daniel Kaplan, Index No. 603544/09 (N.Y. Sup. Ct. June 24, 2010). The plaintiff did not appeal the dismissal of the complaint.

Holland & Knight represented the publication and the journalist in this matter.