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San Jose’s Case Against MLB Down To One State Claim

Federal Judge Ronald Whyte today dismissed the City of San Jose’s federal and state antitrust claims against Major League Baseball but permitted a claim for tortious interference with contract to move forward. The one remaining claim gives the city a glimmer of hope in it’s effort to bring the Oakland Athletics to San Jose.

The city’s complaint, filed in June, alleges that MLB places unreasonable restrictions on competition by making it difficult — if not impossible — for teams to relocate from one city to another. The City also claims that by refusing to act on the A’s proposal to build a privately-financed ballpark in San Jose, MLB has interfered with the City’s option agreement with the A’s. Under that agreement, the A’s would purchase land from the City for the purpose of building the ballpark, if MLB approved the move. My post from June explains the ins and outs of discusses San Jose’s complaint.

Judge Whyte held a hearing last Friday on MLB’s motion to dismiss San Jose’s complaint. Here’s my write-up of the hearing. Judge Whyte telegraphed his views fairly well at the hearing, as my view of the likely outcome — after listening the arguments — was close to the ultimate decision. Here is a copy of Judge Whyte’s decision issued today.

Judge Whyte agreed — reluctantly — with MLB that San Jose’s state and federal antitrust claims are barred by baseball’s antitrust exemption. The court held that the U.S. Supreme Court created the antitrust exemption in 1922 based on the view that baseball did not involve interstate commerce, and that while that view is no longer tenable, neither the Supreme Court nor Congress has overruled 1922 decision in its entirety. The court reviewed every state and federal case since 1922 on the question of baseball’s exemption and agreed with those that held the exemption is hanging by the thinnest of reeds. San Jose had also argued that even if the exemption still existed, it applied only to the “business of baseball” and that team location and relocation did not qualify as such. Judge Whyte rejected that argument as well. The court wrote (case citations omitted):

This court agrees with the other jurists that have found baseball’s antitrust exemption to be “unrealistic, inconsistent, or illogical.” The exemption is an “aberration” that makes little sense given the heavily interstate nature of the “business of baseball” today. Despite this recognition, the court is still bound by the Supreme Court’s holdings, and cannot conclude today that those holdings are limited to the reserve clause.

The court also took up the issue of “standing” — legal speak for whether San Jose had yet to suffer an injury recognized by antitrust law. It held that San Jose had yet to suffer the kind of injury necessary to state a claim under section 4 of the Clayton Act (one part of the federal antitrust statute). In other words, the city had not yet suffered economic damages from the A’s not moving there, because no final decision on that move had been made. But, the court continued, section 16 of the Clayton Act could provide a hook for the city, because that provision allows plaintiffs to sue for threatened injuries. But Judge Whyte didn’t answer that question, deferring to his decision on the antitrust exemption. Including an analysis of the standing question is interesting, because the antitrust exemption moots the question. Another hint that Judge Whyte expects an appeal and prepared his order with that in mind.

Finally, the court dealt with San Jose’s claims that MLB has interfered with the option agreement between the city and the A’s. Under that agreement, the A’s pay $25,000 per year for the option of buying 13-plus acres of land owned by the city for the purpose of building a new ballpark. San Jose contends that Commissioner Bud Selig specifically asked the city to delay a voter referendum on whether to authorize a ballpark until after MLB owners make a decision on the A’s request to relocate. Judge Whyte was sufficiently swayed that the city had stated a claim under California law. Here’s the key language from the order:

The court finds that the complaint sufficiently alleges a “disruption” of the contract because, here, the A’s are unable to exercise the option due to MLB’s delay in conducting the vote pursuant to the MLB Constitution to approve or deny relocation. By asking the City to delay on a public vote on the stadium, the City was justified in assuming that MLB would make a decision within a reasonable time which it has not. Regardless of whether MLB ultimately approves or denies the relocation request—and the court has concluded that it is within MLB’s authority to decide either way—the A’s were recently forced by MLB’s delay to extend the Option Agreement for another year, or lose the option. As a result of MLB’s delay, the A’s incurred an additional $25,000 expense to renew the option, and the City is left waiting another year to sell the land set aside for the stadium in question. Fact questions remain regarding the City’s damages resulting from the alleged interference. The court cannot say at this stage that the City has incurred no damages owing to MLB’s frustration of the contract. Although MLB’s frustration of the Option Agreement is not an antitrust violation, MLB is nonetheless aware of the Option Contract and has engaged in acts (or rather, has failed to engage a vote pursuant to the MLB Constitution) indicating an intent to frustrate the contract. The court concludes that the allegations in the complaint are sufficient to state a claim for tortious interference with contract.

So, now what?

There’s no question that the antitrust claims were the main attraction in the lawsuit. MLB wants to keep its exemption in place, and San Jose’s challenge to it presented a threat. That threat is gone, for now, as the city decides whether to immediately appeal the court’s order.  Whether San Jose can appeal now — with the one state law claim surviving the motion to dismiss — is a complicated question. Typically, courts do not permit piecemeal appeals. San Jose also lost the ability to ask the court to force MLB to permit the A’s to relocate. That kind of remedy would have been potentially available only under the antitrust law.

On the other hand, the city can proceed on its interference claim. That means MLB will be forced to turn over documents related to its decision-making process and MLB witnesses — including Commissioner Selig, the members of his Blue Ribbon Commission on the relocation, and MLB owners — will have to answer questions under oath.

My guess is that San Jose will try to proceed on two tracks: ask the Ninth Circuit Court of Appeals to hear an appeal on the antitrust claims immediately and start issuing subpoenas for documents and depositions. MLB will resist both an immediate appeal and San Jose’s effort to dig deep on the league’s decision-making process.

To me, Judge Whyte’s order screams “settlement” — in the sense that neither side got what it wanted and there might be just enough to get the two sides talking about a resolution. If that’s the court’s intent — and I could be wrong on that — we’ll see him give San Jose wide latitude on documents it can subpoena and witnesses it can question under oath, all with the idea that MLB would rather resolve the matter than have to reveal its inner workings in discovery.

There are ways for MLB to protects itself even with discovery. Courts issue protective orders when confidential business information is at issue. But this is not just a private business dispute but one that involves city land and funds. It will be interesting to see whether Judge Whyte permits MLB to cloak its documents and witnesses in secrecy.

Is this a victory for MLB? Yes, but not a complete one. The door is open ever so slightly for San Jose and the A’s.