The Prospectus Hit Lis... (06/20)
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June 20, 2013 In A PickleThe Sexy, Sultry San Jose vs. MLB ComplaintYou've heard about it at this point: The City of San Jose sued Major League Baseball for not letting the A's move to their fair municipality. You can find the complaint, which was filed in federal court in San Jose, here (pdf). It's long, though I've seen longer. The PDF is 188 pages, but that's with exhibits. The text of the complaint itself is 46 pages. It's 203 paragraphs.1 One reason it's so long is that the first six pages (23 paragraphs) are essentially a narrative background of the case. The point of a complaint in the federal courts (warning: I'm about to vastly oversimplify a contentious area of law) is to notify the other party of the claims against it. That's what it boils down to. That does not mean that a complaint saying, "I'm suing you for breach of contract" would be sufficient. Which contract? How was it breached? When was it breached? In order to inform the other party of the claims, then, the complaint has to actually allege facts. The issue with this narrative background is that the complaint is meant to contain only relevant facts, with relevance determined by the claims. It might be the case that the person I'm suing for knocking over my mailbox is eight feet tall and green, but unless those facts are somehow relevant to him knocking over my mailbox, there's no reason for that material to be in the complaint. Additionally, the complaint is only supposed to allege facts. This is a rule that is widely disregarded and largely unenforced, but in the end, there is still some idea that the complaint, the document that begins a lawsuit and notifies everyone what the case is about, should not contain argument or legal conclusions or attempts to convince anyone of anything. It's supposed to contain facts. The first six pages here, like you'll unfortunately see in many complaints, especially those of a public nature, contain citations to cases the plaintiffs consider precedential, narrative about the amount of money baseball makes every year, and even a quote from a book called Fans of the World Unite!. (The attorneys for the plaintiffs left off the subtitle: A (Capitalist) Manifesto for Sports Consumers.) None of it is very useful for the court, but much of it is useful for the press. (So far, this article has been an elaborate piece of postmodern art—without spoiling the joke, note how I complained at far too much length about an issue that doesn't matter at all: the plaintiffs' complaint opening with far too much length about issues that don't matter at all. Where do I pick up my Guggenheim Fellowship?) Once you dig through the 206 paragraphs, the essence of the complaint is simple: San Jose is courting the A's, baseball is preventing the A's from moving, and in so doing, baseball is violating a variety of laws. We can grant the two core facts without much dispute: San Jose is obviously courting the A's and baseball is just as obviously preventing a move from happening (by operation of its rules on territory that give the Giants the exclusive right to Santa Clara County). The question is in the legal conclusion: does this violate all those laws? The answer is simple: "um, well, sure, maybe, maybe not, some claims ... I guess." It's first worth noting that San Jose quite possibly does not care about winning. Court documents and proceedings are in large part public, so you can see this lawsuit as an organizing or agitating or move. To the extent San Jose thinks baseball will respond to public or quasi-public pressure2 and that this lawsuit will provide an impetus to get those people moving and lobbying, then it may not matter much how or when the case ends. It's, on that view, a means to a different end than a legal victory.3 The core of the complaint, the area on which most of the allegations focus, is that baseball is violating federal antitrust law by the other 29 teams banding together to make rules that prevent the A's from doing what it wants as an independent business. The obvious problem, the problem that I'm sure many of you know about whether you read my review of Stuart Banner's book on the topic or not, is baseball's antitrust exemption. The short version is this: because of a Supreme Court case in 1922, the federal antitrust statutes do not apply to baseball. The hope of every plaintiff's lawyer in these cases for basically the last 70 years is that because the doctrine was created by the Supreme Court, the Supreme Court will knock it back down when it comes to its senses and realizes that things have changed. To which I say: good luck. It's not impossible, of course. The exemption was last passed upon by the Court in 1972 in the Curt Flood case, which was 41 years ago. Things are different now than they were in 1972! The problem is in the two periods: from 1922 to 1972, a lot changed, especially as to the Supreme Court's understanding of Congress's power to regulate business; from 1972 to 2013, some things have changed, but there's been very little movement on the breadth of Congress's power in that period. Thus, I don't see a real reason to look at the Flood case and believe that circumstances are so different today that the Court would care to reevaluate its holding.4 If you're more optimistic than me that baseball will finally be brought in line with football and soccer and boxing and everything else in American life as regards it being subject to normal antitrust scrutiny, then I applaud your half-full glass. My glass is broken on the floor and there's no water for miles. San Jose also accused baseball of violating California's antitrust statute. The problem is that state antitrust regulation of the business of baseball is preempted by the federal antitrust exemption—that is, the federal exemption is not merely a gap that the states are permitted to fill by their own regulation. Rather, the federal exemption represents a federal policy decision that baseball is to remain unregulated. On this point, the Supreme Court spoke in Flood v. Kuhn, approving of a lower court's statement that
Further, in a 2003 case arising from a challenge to baseball's contraction plan, the 11th Circuit Court of Appeals (covering Alabama, Georgia, and Florida) read the Supreme Court's language in Flood as holding that state antitrust law could not apply to the business of baseball. I don't, then, see any reason to think the California antitrust law claims will pass muster, and I don't see any particular reason to do any deep analysis of how baseball would fare upon application of such laws. That claim should be dismissed in short order. A note before moving on with the rest of San Jose's claims: a key goal for the city is probably simply to survive baseball's argument that the entire lawsuit should be thrown out because none of the claims are viable. If San Jose can get past that stage on at least some of its claims, it will gain access to the discovery process by which it can obtain all sorts of documents and information from baseball, can do depositions (under-oath, out-of-court interviews, for those who haven't watched legal TV shows), and can generally just annoy the hell out of a bunch of old billionaires. Sure, MLB can do the same to San Jose's mayor and city councilpeople and goodness knows who else, but the fact that San Jose was willing to sue at all is strong evidence that the city thinks this is worth it on balance. As someone who loves it when embarrassing internal memoranda come to light, I'm rooting for discovery. Back to the substance. The city brought three other state-law claims: interference with contract, interference with prospective economic advantage, and unfair business practices. I'm going to beg your forgiveness and put aside the unfair practices claim—the concept of "unfair" is broad and not susceptible of easy definition or analysis in a short essay intended to explain the case to nonlawyers. (It might not be susceptible of definition or analysis anywhere.) Whether there's enough in the complaint to show prima facie that MLB's conduct was unfair is beyond my ken. There seems at least a reasonable chance, though, that MLB's defense to the unfair practices claim will be "nuh uh, it wasn't unfair." What this would mean is that it's a factual dispute: San Jose says "X Y and Z prove that it was unfair" and MLB says "A B and C prove it was not unfair." Factual disputes are not resolved early in cases, but after discovery. As I argued above, the very possibility of getting to discovery is probably a victory for San Jose. The interference claims are very similar to each other: one is interference with contract, the other interference with "prospective economic advantage." The difference is exactly as it sounds: to prove interference with contract, you must prove that there is a contract, while no such thing is needed to prove interference with prospective economic advantage. The contract/relation that San Jose alleges was interfered with is an option deal to buy land. San Jose essentially received $75,000 from the A's. In return, the team was given two years in which to exercise a right to buy land from the city for just shy of $7 million. (The contract is attached to the complaint. It's Exhibit 3.) The two hands: One hand: an option giving a party the right to buy is not the same as agreeing to buy. There was no contract between the A's and San Jose—there was only the possibility of a future contract that perhaps the A's would have exercised or not, regardless of what MLB did. Other hand: the A's were never actually given a choice to exercise because MLB interfered with that choice by denying the right to move to San Jose. Putting aside legalistic terminology, what is the actual, on-the-ground difference between a third party standing in the way of exercising an option and a third party standing in the way of performing a contract? Either way, it's interference. As to that second hand, if you'll forgive my sloppy legal research (it's harder than you'd think to do this using only Google), let me quote to you from a Tennessee case quoted here:
An option to renew or extend isn't quite the same thing as an option to purchase land, and Tennessee isn't California, but if you paid me enough, I have a feeling that I could perform the research and find cases supporting at the very least the notion that San Jose's claim shouldn't be thrown out simply because it was an option contract that was interfered with. As to prospective economic advantage, while no contract is required, San Jose will, if it wants to win, have to prove that the alleged relationship "probably would have resulted in an economic benefit." Would the A's "probably" have exercised the option and commenced the building of a stadium in San Jose were in not for those meddling The difficulty with the economic advantage claim not present in the contract claim is that some "wrongful conduct" is required to prove interference. This means that baseball's conduct must have been independently wrongful, i.e. baseball must have failed to live up to a legal duty imposed by some other statute or law. It is not clear to me what that conduct would be, given that the collusive rules about where teams can move does not violate either state or federal antitrust laws. Depending on the treatment of the option contract, the conduct here might fall in a weird no-man's land between the contract and economic advantage claims. That is, there may have been an economic relationship between San Jose and the A's, but there wasn't a contract; on the other hand, baseball interfered, but did not behave wrongfully in doing so. Since you either need a contract or you need wrongful behavior, San Jose might not have a good argument for either of the two claims. The skinny? The antitrust claims, both state and federal, are dead by virtue of precedent nearing a full century of age. Without the antitrust claims establishing wrongfulness, I don't see the interference with prospective economic advantage claim holding up. The interference with contract claim boils down to whether interference with the execution of an option is enough under California law. And the unfair practice claim is a complete black box to me. Questions? (Esp. ones I can't answer, I love those.)
Jason Wojciechowski is an author of Baseball Prospectus. Follow @jlwoj
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The Supreme Court said that federal antitrust overrided state antitrust on the reserve clause. But this isn't about the reserve clause. Why would state antitrust law be overridden because of interstate commerce on an intrastate business move?
The basis of all of the baseball antitrust decisions was, that Congress was free to subject baseball to the antitrust laws, and that Congress's failure to do so meant that the Court wouldn't. I don't think there is any distinction regarding a team move. (In any event, the commerce clause argument would be that a move would affect all of baseball, not just the A's.)
I do have to think the option is in fact a contract -- if the city sold to someone else, the A's could certainly sue for breach.
Maybe I'm just being dense here, but I thought the basis of baseball's antitrust exemption was that the Supreme Court in the 1920s ruled that baseball was not a form of interstate commerce. Except that Congress was free to rule that elements of baseball, such as the reserve clause, were interstate commerce, and it could regulate it if it wished. Which it did with the Curt Flood Act in 1987.
Which sounds to me like, unless Congress specifically says it's interstate commerce by passing a law, then it's all intrastate commerce. So why wouldn't state laws apply?
Congress doesn't have the power to determine which things are in interstate commerce -- they have the power to regulate things that are in interstate commerce. They can make findings to that effect, essentially bolstering their own ability to regulate (IIRC the Violence Against Women Act is replete with these) in case of a challenge in court, but they are not the arbiter.
What happened from the 1920s to the Curt Flood Act is that the Supreme Court accepted a new, broader definition of what interstate commerce is. In 1922, the Court held that Congress did not have the power to regulate. By the time of the Curt Flood Act, the basis of that holding was so long gone as to be laughable and thus Congress's passage of the Act is uncontroversial.
What this has morphed into as to state antitrust law, though, is a sort of hardening of the 1922 decision into a quasi-fictional "federal policy not to regulate baseball under antitrust law" and given that federal policy and the Supremacy Clause, local (state) policy cannot apply.