Monday, 24 June 2013

Breaking Down the San Jose vs. MLB Lawsuit

Image from
The on-going dispute surrounding the Oakland Athletics' proposed move to San Jose took a new turn last week when the city of San Jose filed an antitrust lawsuit against Major League Baseball in federal district court (for prior Sports Law Blog coverage of the dispute, see here, here, and here).  The complaint, available here, argues that both MLB's franchise relocation policies in general, and the league's failure to approve the A's relocation to the city in particular, violate state and federal antitrust law, as well as several other California common law torts.  Under MLB rules, any proposed relocation must be approved by at least three-quarters of MLB teams.  Moreover, teams have complete veto power to prevent another franchise from relocating into their home territory.  Although MLB has not formally rejected the Athletics' proposed relocation, it has delayed a decision on the matter for several years.  San Jose's suit asserts that this delay is costing it millions of dollars in potential tax revenue and economic development. 

As others have noted, San Jose faces an uphill battle in the lawsuit as MLB has a number of potential defenses at its disposal.  The most obvious defense for MLB is its historic exemption from antitrust law.  In a series of three decisions (Federal Baseball in 1922, Toolson in 1953, and Flood v. Kuhn in 1972), the U.S. Supreme Court has consistently held that federal antitrust law does not apply to professional baseball, thus apparently undermining the city's Sherman and Clayton Act claims.

In response to the antitrust exemption argument, San Jose's best hope may be to persuade the district court to follow a series of precedents from the early-1990s limiting the scope of baseball's immunity.  Most notably, in the 1993 case of Piazza v. Major League Baseball, the Eastern District of Pennsylvania decided a suit similarly challenging MLB's relocation policies after the league refused to approve the proposed relocation of the San Francisco Giants to Tampa Bay.  The Piazza court allowed the plaintiffs' antitrust claims against MLB to proceed despite the league's exemption by interpreting the Supreme Court's baseball trilogy as only protecting the reserve clause from antitrust scrutiny.  Because major league players successfully defeated the reserve clause via arbitration and collective bargaining in the mid-1970s, the upshot of the Piazza holding was that MLB's antitrust exemption was effectively null and void.

However, as I argued in my 2010 law review article Defining the 'Business of Baseball': A Proposed Framework for Determining the Scope of Professional Baseball's Antitrust Exemption, the Piazza precedent is of dubious validity given that it was premised on several erroneous conclusions.  Indeed, most subsequent courts considering the scope of baseball's antitrust immunity have disregarded Piazza, making it unlikely that the court in San Jose's suit will adopt such a narrow interpretation of the exemption in this case (unless, of course, the court - itself located in San Jose - is particularly motivated to allow the case to proceed to discovery and trial).

Meanwhile, although unlikely, it is also possible that MLB will decide not to assert its antitrust exemption in the case.  The league has been extremely reluctant to rely on its exemption in recent antitrust cases, presumably for fear of triggering an adverse court decision limiting the scope of its immunity.  Most notably, MLB did not assert the exemption as a defense in the Garber v. MLB lawsuit filed last year challenging baseball's television broadcast policies under antitrust law.  Therefore, should baseball believe that it can successfully persuade the court to dismiss San Jose's lawsuit on other grounds (such as those discussed below), then the league may opt to forgo asserting the exemption in this case.  However, given that control over franchise relocation is one of the two most important protections the league derives from the exemption (with the shielding of the minor league system from antitrust scrutiny being the other), San Jose's suit would appear to be a prime case for MLB to rely on its historic antitrust immunity.

In addition to the antitrust exemption, MLB can make at least two other potentially strong arguments in support of its motion to dismiss the lawsuit.  Most significantly, the city of San Jose's standing to sue in the case appears to be tenuous at best.  The city's complaint is based upon an option contract San Jose entered with the team in 2011, under which the Athletics have three years to purchase a parcel of land from the city for just under $7 million.  However, the option contract in question does not obligate the Athletics to purchase the land, nor to relocate the team to the city even if the option were exercised.  While A's owner Lew Wolff has consistently expressed his desire to move the team to San Jose, he has yet to formally commit to such a relocation, and has never suggested that he would be willing to move the team without MLB approval. 

As a result, San Jose's suit poses a similar fact pattern as that litigated back in the late-1970s when the Los Angeles Memorial Coliseum first sought to attract an NFL team (following the Rams' move to Anaheim Stadium, but before the Coliseum reached its eventual agreement with Al Davis to move the Raiders to Los Angeles).  Specifically, the Coliseum sued the NFL alleging that the league's relocation restrictions prevented the stadium from securing a new NFL team, thus violating antitrust law.  The district court dismissed the case, however, concluding that the Coliseum lacked standing to sue.  Los Angeles Memorial Coliseum Commission v. National Football League, 468 F.Supp. 154 (C.D. Cal. 1979) ("Los Angeles Memorial I").   In particular, the court held that because the Coliseum had not yet found an NFL team willing to move to the stadium, and because the league had not yet rejected any proposed relocation, there was not yet an actual case or controversy to resolve.  It wasn't until Davis formally agreed to move the Raiders to Los Angeles, and the NFL officially blocked the relocation, that the Coliseum was able to move forward with its case (resulting in the so-called Los Angeles Memorial II litigation).  Accordingly, given that Wolff hasn't definitively committed to moving the Athletics to San Jose, and because MLB hasn't formally rejected the proposed relocation, the court may very well follow the Los Angeles Memorial I precedent and conclude that San Jose lacks standing to sue.

Meanwhile, MLB can also argue in its motion to dismiss that San Jose's state law claims are preempted by federal law.  In Flood v. Kuhn, the Supreme Court not only dismissed Flood's federal antitrust claims pursuant to baseball's exemption, but also his state antitrust claim as well.  In particular, the Flood Court held that the regulation of professional baseball required national uniformity, thus concluding that Flood's state law claims were precluded by the Commerce Clause.  Consequently, MLB will likely argue that, at a minimum, the Flood precedent requires that San Jose's claim under California antitrust law be dismissed (the league may also assert that some of the city's other state law tort claims -- its unfair competition claim in particular -- are similarly preempted, although that argument will likely be harder to win).

Finally, however, even if San Jose were to survive MLB's motion to dismiss, and the court allows the suit to proceed to trial, the city may still face an uphill battle in winning the suit.  The Ninth Circuit Court of Appeals has held on two separate occasions that professional sports leagues' restrictions on franchise relocation do not automatically violate federal antitrust law.  See Los Angeles Memorial Coliseum Commission v. National Football League, 726 F.2d 1381 (9th Cir. 1984) ("Los Angeles Memorial II"); National Basketball Ass'n v. SDC Basketball Club, 815 F.2d 562 (9th Cir. 1987).  For instance, despite ultimately condemning the NFL's refusal to allow the Raiders to move to Los Angeles, the Los Angeles Memorial II court noted that several factors could potentially justify a league's decision to block a proposed relocation under antitrust law.  These factors included: (i) an interest in protecting the loyalty of fans in the franchise's current home city, (ii) the maintenance of some reasonable territorial restrictions, (iii) the preservation of traditional rivalries, (iv) giving municipalities time to recoup their investments in local stadiums, and (v) maintaining a league presence in major television markets.  While not all of these considerations will apply to the Athletics' proposed move, San Jose will ultimately have to convince the court that MLB's failure to approve the relocation was improper in light of the legitimate factors outlined in Los Angeles Memorial II, should the case proceed to trial. 

Of course, the city probably does not intend to take the case all the way to trial.  Instead, San Jose's litigation strategy likely hinges on surviving MLB's inevitable motion to dismiss and entering the discovery phase, at which point the city will have significantly increased its bargaining leverage over the league.  If San Jose can get to that stage then its litigation strategy may prove fruitful.  Given MLB's potential defenses outlined above, however, I suspect that the city will be unable to defeat a motion to dismiss the suit.

Update (6/27/13): Professor Ed Edmonds wisely notes in the comments that San Jose will also have to overcome the text of the Curt Flood Act of 1998 if it wishes to persuade the court to adopt the Piazza precedent limiting baseball's antitrust exemption to the reserve clause.  As Professor Edmonds notes, the text of the act would appear to support a broad interpretation of the scope of the exemption.

No comments:

Post a Comment