Ninth Circuit Court Leans Toward MLB In Dispute Over Antitrust Exemption

A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit heard arguments today on the existence and scope of Major League Baseball’s exemption from federal antitrust law. The arguments arose in the city of San Jose’s federal antitrust lawsuit against MLB over the league’s failure to allow the Oakland Athletics to build a new ballpark in, and move to, San Jose.

San Jose sued MLB last summer claiming that the league’s rules creating exclusive operating territories for teams — and requiring a three-fourths vote of owners for an existing team to move into another team’s territory — violate federal antitrust law. Upon MLB’s motion, the federal district court in San Jose dismissed the city’s claims on the grounds that MLB enjoys an exemption to federal antitrust law dating to the U.S. Supreme Court’s 1922 decision in the Federal Baseball Club case. That decision was based on a view that baseball was a game, and not a business, and thus not subject to antirust law.

Over the years, the Supreme Court and the lower federal courts have grappled with the scope of the exemption and whether it should still exist, given our modern view of baseball as a business and a game. But the Supreme Court has strongly suggested that MLB has developed in reliance on the exemption and that, if any entity is to narrow or repeal the exemption, it should be Congress, and not the courts.

Today’s hearing focused on two key issues: assuming the exemption exists, should it be limited to matters relating only to the reserve system; and putting aside the exemption, does San Jose even have “standing” to bring an antitrust claim against MLB. On the first issue, the court appeared to lean heavily in MLB’s favor, in light of existing Supreme Court case law and decisions of the Ninth Circuit interpreting Supreme Court cases. That is, that the exemption is alive and well and covers MLB conduct relating to the business of baseball, including franchise relocation, and not just the reserve system. The judges didn’t seem particularly interested in following the path of Judge Shira Scheindlin, a federal district judge in New York, who ruled on Friday that the antitrust exemption doesn’t apply to claims challenging MLB’s exclusive broadcast territories. I wrote about that decision yesterday.

In a bit of a surprise, the court also seemed interested in the standing issue  — which in lay terms asks whether the plaintiff has suffered an injury that is compensable under the particular statute invoked. San Jose contends that it has suffered economic injuries because it has a signed option agreement with the A’s that gives the A’s the right to buy several parcels of land owned by the city on which to build a new ballpark.If MLB is successful in persuading the court to rule that San Jose has no standing to sue, it would make the case less much less compelling for a later effort to seek Supreme Court review on the exemption issue.

By its own terms, the option agreement will expire in November. And while the court didn’t focus on that point, I asked San Jose’s attorney Joe Cotchett after the argument if he expects the A’s to review the option agreement. He replied: “I don’t know if the A’s will renew the option agreement. I hope so.” I pressed Cotchett on whether San Jose would lose standing (if it has it in the first place) if the A’s don’t renew the option agreement. He avoided the question. The A’s just entered into a new ten-year lease to play at the Oakland Coliseum. The lease agreement obligates the A’s to act in good faith in looking for a site in Oakland on which to build a new ballpark. It also has several “out clauses” — provisions that allow the A’s to leave the Coliseum with sufficient notice to the city and the county.

San Jose sits in Santa Clara county, which is part of the San Francisco Giants’ exclusive territory, along with San Francisco, San Mateo, Marin, Santa Cruz and Monterey counties. Oakland is in Alameda County, part of the A’s exclusive territory, along with Contra Costa county. San Jose is 50 miles south of San Francisco and 40 miles southwest of Oakland. The A’s agreed in the early 1990’s that the Giants would have exclusive territorial rights in Santa Clara county. At the time, the A’s were pulling in huge crowds at the Oakland Coliseum while the Giants were desperately trying to leave cold, windy and often empty Candlestick Park.

The Giants made several attempts to gain voter approval for a new ballpark in Santa Clara. When those failed, and after the Giants were sold to new investors, the team privately-financed AT&T Park in San Francisco but kept Santa Clara in its territory. The Giants have done everything in their power to keep the A’s from moving to San Jose. The team claims that Santa Clara residents make up a significant percentage of its fan base and, more importantly, that Silicon Valley companies are critical to their corporate sponsorship base.

The Ninth Circuit is likely to issue an opinion in the case in the next 30-45 days.

 

 



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Wendy writes about sports and the business of sports. She's been published most recently by Vice Sports, Deadspin and NewYorker.com. You can find her work at wendythurm.pressfolios.com and follow her on Twitter @hangingsliders.


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Marc Schneider
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Marc Schneider
1 year 9 months ago

This is such a nonsense argument. The original basis for the exemption was itself a court decision so it has always struck me as silly that the courts now say only Congress can change it. It was a ridiculous decision when issued in 1922 and even more ridiculous now in light of current views about the scope of the Commerce Clause. I think the courts are simply afraid of doing anything that would harm the “national pasttime.”

haishan
Guest
haishan
1 year 9 months ago

Well, the Federal Baseball Club exemption, since it originated with the Supreme Court and was upheld by same twice, is binding upon lower courts; the Ninth Circuit couldn’t overturn it if they wanted to. The Supremes could, but they’ve had multiple chances and have upheld it despite admitting its essential silliness.

james
Guest
james
1 year 9 months ago

lower courts can overturn it and make new law in their circuit, it is not common. I think that the way that baseball operates has changed enough that the question is ripe to be reheard, and a circuit going against the holding will only add to that fire.

the standing issue is interesting. Courts go to a standing issue for 3 reasons. 1. the party has absolutely no standing, and rendering a decision would be silly. 2. they do not want to deal with the actual issue (lots of reasons why, it bumps the case off the docket really quickly and they do not actually need to decide the case) and 3. they cannot figure out the case and this solves it.

Nowayjosi
Guest
Nowayjosi
1 year 9 months ago

The ninth circuit cannot overturn Supreme Court precedent. At best, they can Reimhardt it and come up with a disingenuous interpretation of the Supreme Court precedent to achieve the result they desire.

tungster
Guest
tungster
1 year 9 months ago

The Fifth Circuit (lower court) once concluded that an older Supreme Court case was no longer good law even though it hadn’t been expressly overruled. The Supreme Court agreed that the older case was no longer good law, but still chastised the Fifth Circuit for having the temerity to try to overrule it. So, no, lower courts cannot overrule the Supreme Court.

http://en.wikipedia.org/wiki/Rodriguez_de_Quijas_v._Shearson/American_Express_Inc.

jfree
Member
jfree
1 year 9 months ago

Well the anti-trust law is an act of Congress so it shouldn’t be a surprise that the courts are deferential to Congress in allowing them to decide what the law should mean and how it is revised/amended. Anti-trust exemption, collusion, cronyism, billionaires sucking taxpayers dry, etc all are pretty obviously crappy public policy – but they aren’t violations of some natural right – and courts are better off leaving crappy public policy to the corrupt politicians that we the morons keep re-electing.

The standing issue is the important one. Over the decades, courts have really shat on people’s rights to go to court to seek redress of grievances caused by government. Combined with legislation that is usually specifically written to limit any possible standing, the effect is, at core, the elimination/diminution of the 1st amendment.

Not sure San Jose’s approach here re their ‘harm’ is the best one though. A city of that size is certainly capable of supporting a major baseball franchise – and deserves one. The real harm to the people of San Jose however is that they are currently restricted by MLB to a A-ball team when they are the 10th largest city in the US.

jfree
Member
jfree
1 year 9 months ago

As an aside, if the courts were to provide standing to San Jose on a broader anti-trust basis than mere ‘franchise relocation’ (eg collusion at carving up media markets), then that would provide the opportunity for a whole bunch of big cities to challenge the MLB monopoly exemption that forces those cities to be perpetual puppets to some other city – San Jose, Austin, Indianapolis, Jacksonville, Columbus, Charlotte, El Paso, Memphis, Nashville, Louisville, Portland, Las Vegas, etc. On the grounds that their cities are being harmed by not being legally allowed to provide the ‘national pastime’ to either their citizens or as a way of attracting job-creating businesses that look to relocate to cities on the basis of whether the city is ‘a good place to live’.

xoot
Guest
xoot
1 year 9 months ago

Video of today’s argument was streamed live. All arguments are available on the 9th Circuit’s website the day after; perhaps the video of this one will be available, too. My prediction: Judge Clifton, who seemed most entrenched against San Jose’s positions, will write the court’s opinion, and Judge Kozinski will write a separate concurring opinion. Kozinski was entertaining today. Cotchett’s partner (San Jose’s starting pitcher today) argued that the antitrust Rule of Reason approach governs sports franchise restrictions in the 9th Circuit, because that’s what the 9th Circuit ruled in a case involving the Clippers. Kozinski slyly said: “I’m not a sports guy. Do the Clippers play very much baseball?” Very funny way to return to baseball’s unique ATE. Cotchett came in for five minutes at the end of the hearing, as if he could save a game he was losing . . . .

xoot
Guest
xoot
1 year 9 months ago

sorry. I meant AUDIO of all arguments is available the next day. Don’t know about video.

james
Guest
james
1 year 9 months ago

not many courts have video, most put audio online, or make it accessible some how.
Sounds like you have some experience with these judges, care to share how?

Johnston
Guest
1 year 9 months ago

The outcome seems predetermined.

Alex
Guest
Alex
1 year 9 months ago

With so many judges on the 9th Circuit, why was this case heard by a 3 judge panel? Can lawyers request a hearing by the full court?

Not sure if more judges in a hearing enhances or diminishes chances for a favorable ruling for either side.

Regardless of the opinion, it seems unlikely the US SC will even grant cert on this case. Thought this might be the case which finally voids MLB’s exemtion status, but guess not.

fjtorres
Guest
fjtorres
1 year 9 months ago

Typical appeals go to a three judge panel. If a second appeal is granted, then the full court hears the case. Rarely does an appeal court go to a full 9 panel hearing right away.

AA
Guest
1 year 9 months ago

The Ninth Circuit never hears anything truly en banc. Because they have so many judges, they use a modified procedure.

Nathaniel Hall
Guest
Nathaniel Hall
1 year 9 months ago

There are SO many cases that federal appeals courts have to hear that it would be impossible for all of the cases to be heard by all of the members. The Ninth Circuit in particular is by far the largest circuit and has at least twenty judges in order to cover everything.

It is possible to file a motion to have all of the judges decide a case (hearing a case “en banc”) but it is at the discretion of the judges whether to allow that or not.

jorge
Guest
jorge
1 year 9 months ago

I think San Jose is trying to lose well in this case, and then get the supreme court to hear the case. Right now even that is not looking good.

A happy day for:

1) fans of monopolies
2) people rooting for the Giant’s owners to get even richer
3) people that enjoy the car-crash feeling of doomed Oakland stadium planning meetings

LondonStatto
Guest
LondonStatto
1 year 9 months ago

(4) People who like people to be held to their agreements…

Ben
Guest
Ben
1 year 9 months ago

(5) Fans of the Oakland A’s.

You realize Lew Wolff is significantly more wealthy than the Giants owners, one of the wealthiest in the game? There is no reason that he cannot build a stadium in Oakland, as the Giants ownership did in San Francisco.

While the Giants owners are obviously self-interested here, I don’t understand why I’m supposed to care that Lew Wolff is upset that he is bound by a contractual agreement that he knew about when he bought the team. At least the Giants ownership puts some of their money back into the team.

As impressive as it is to see what Billy Beane has done over the years on a limited budget, a Lew Wolff owned team has no excuse for not having one of the top payrolls in baseball. He is like the real-like version of the Indians owner in Major League.

jfree
Member
jfree
1 year 9 months ago

San Jose is bigger than San Francisco (and most other cities with MLB baseball) – and both of those are twice the size of Oakland. The citizens of San Jose have a very legitimate grievance against MLB. MLB is currently forcing A-ball on them – which is basically lower-level professional baseball than Stanford.

LondonStatto
Guest
LondonStatto
1 year 9 months ago

San Jose is southeast of Oakland, not southwest…

Michael
Guest
Michael
1 year 9 months ago

The exemption is silly, but until Congress acts to limit it, it’s going to stay. And, there’s no reasonable chance that Congress will act to do that. MLB’s aggregate revenues and the combined value of the 32 franchises top many Fortune 500 companies. They shouldn’t have this, but Wendy makes the very good point that they have acted in reliance of it in developing. That probably means that untangling the exemption can’t be done just with a thunderclap–it would have to be phased in over a longer period of time, with perhaps a new market developed for things like territorial rights. It’s not impossible, but would require the type of thoughtful legislating that our Congress is not capable of. But, it’s still ridiculous.

jfree
Member
jfree
1 year 9 months ago

There’s a very easy to ‘untangle the exemption’. Just blast away the government-protected monopoly and legally allow competition and freedom. Do you hate freedom?

The only negative result will accrue to baseball team owners (billionaires) and elite players (multimillionaires). The owners will get lower media contract revenues for themselves – and will likely be on the hook for the longer-term contracts to elite players. And the elite players will no longer be able to garner the long-term big-money contracts that make baseball players 26 of the 30 highest-paid professional athletes in the world – without even needing to sell shoes (like Michael Jordan) on the side. Cry me a river.

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