Chivas USA Resolves Pending Employment Discrimination Lawsuits

When news broke last week that Major League Soccer had reacquired the Chivas USA franchise from investor-operator Jorge Vergara, the response was almost universally positive.  By taking steps to assume ownership of the franchise and create an opportunity for a new investor to take over the team, MLS removed a blemish from its record and renewed the push to support a viable second MLS team in Los Angeles.

Tucked away in the news of the reported $70 million sale of the franchise to MLS was the news that two discrimination lawsuits brought against Chivas USA by former coaches Dan Calichman and Teddy Chronopoulos and by former human resources executive Cynthia Craig had been resolved prior to the sale.chivas-usa-logo-DL

Calichman and Chronopoulos—both former youth coaches with Chivas USA— brought a lawsuit in May 2013, alleging that Chivas USA terminated their employment because they were not of Mexican or Latino descent.  The lawsuit alleged 7 state law claims claiming discrimination and harassment based on national origin, ethnicity, and race; failure to prevent discrimination and harassment; retaliation; wrongful termination in violation of public policy; and intentional and negligent infliction of emotional distress.  Craig, who is black and a former human resources and administrative manager with the Chivas USA organization, alleged in an August 2014 complaint filed in the Los Angeles Superior Court that Chivas USA team officials “flout[ed] employment laws, temporarily hir[ed] undocumented coaches and discriminate[ed] against non-Latino employees.”

Although the Craig complaint is not readily available, the Calichman and Chronopoulos complaint named as defendants Chivas USA Soccer LLC, Chivas USA Enterprises LLC, Chivas USA Futbol Education, LLC, Insperity, Inc., Insperity Business Services, L.P. (all alleged to be joint employers of Calichman and Chronopoulos), and 50 unknown individual defendants.  MLS was not identified as a defendant.  That is, Calichman and Chronopoulos alleged that the entities operating the Chivas USA franchise were responsible for the discrimination.

The sale of the Chivas USA franchise back to MLS would not have spelled the end of the discrimination litigation, nor would it necessarily end any potential problems for MLS as the interim owner of the franchise or any future owner of the franchise.  The basic structure and relationship of investor-operators and their respective franchises to MLS remains well-guarded, confidential information.  As a result, it is difficult to understand the continuing liability—perhaps in the form of successor liability—of the league and a future investor relating to the discrimination claims.

In that context, it is easy to understand why the resolution of the two lawsuits would be a critical condition to the closing of the sale of the franchise to MLS.  For Vergara, Chivas USA, and the related entities named in the complaints, resolution of the lawsuits was imperative to allowing the parties a clean break from MLS.  The lawsuits are no longer an impediment to Vergara winding up the Chivas USA entities’ operations, freeing up capital, and streamlining the business of the larger Chivas organization.  For MLS, resolution of the lawsuits eliminates the concern that the league would be in the untenable position of managing, as a potential successor to the discrimination lawsuit liability, litigation over which it previously had no control.  Further, a continuing discrimination lawsuit (a contingent liability) would reduce the value of the franchise , thereby lowering the MLS’s potential return on the sale of the franchise to a new investor.  For that future investor, the resolution of the lawsuits means that the liabilities of the club will be more certain and the investor will not inherit litigation relating to another entity’ employment and labor practices.

Of course, the plaintiffs in each lawsuit also gain the benefit of the value of the resolution, which begs the question: how exactly were the lawsuits “resolved”?

The resolution to which MLS Commissioner Don Garber and a Chivas USA spokesperson have referred is likely a settlement.  The terms of the settlements with Calichman, Chronopoulos, and Craig are likely to be confidential pursuant to the terms of settlement agreements.  In addition to any monetary compensation, it is likely that the settlement agreements would release the defendants from further liability with respect to the claims outlined in the complaints, and will require the plaintiffs to file a motion to voluntarily dismiss their lawsuits with prejudice.  In other words, as a condition to the entry into the settlement agreements, the plaintiffs would have to agree to dismiss the litigation without the right to later bring the same or similar claims against the named defendants.

In the end, the resolution of the lawsuits is good for all parties involved, whether the Chivas USA entities, MLS, future investors, and the plaintiffs.  The sale of the franchise back to MLS, of course, is a positive for all fans of MLS.

Reporting on the business side of the world's game.