San Jose Sues MLB To Get A’s, Charges Teams Conspire To Maintain Monopoly Power In Their Markets

After months of threats and saber-rattling, the City of San Jose sued Major League Baseball and its 30 constituent teams on Tuesday over MLB’s refusal to allow the Oakland A’s to move to San Jose.

The lawsuit, filed in federal district court in San Jose, is a direct challenge to MLB’s federal antitrust exemption. San Jose claims that MLB places unreasonable restrictions on competition by giving each team its own exclusive territory (or in the case of New York, Los Angeles, and Chicago, shared territory) and veto power to prevent any other team from moving into that territory. As I explained in this FanGraphs post last September, under MLB rules, a team can move into the territory of another team only when the following conditions are met: a vote of three-fourths of the owners approving the move; the two ballparks are located at least five miles apart; the move results in no more than two teams in a single territory; and the team moving compensates the team already in the territory.

In addition to the federal antitrust claims, San Jose also charged MLB with violations of California antitrust law and with state law claims for interference with prospective economic advantage based on San Jose’s agreement to allow the A’s to buy certain parcels of city land, if the A’s plan to move is approved by the league.

You can read the lawsuit in its entirety here.

San Jose is represented by Joe Cotchett and his law firm, Cotchett, Pitre & McCarthy. Cotchett is a nationally well-known and well-regarded attorney with experience in antitrust cases. In fact, Cotchett represented the National Football League and the (former) Los Angeles Rams when the Oakland Raiders sued the league for antitrust violations in 1982 when the league voted against allowing the Raiders to move to Los Angeles. The Raiders won that lawsuit, and paved the way for other professional sports franchises to move from city to city more easily.

Except, that is, in baseball.

The United States Supreme Court granted baseball an exemption from federal antitrust laws in the 1920’s. Several cases sought to chip away at that exemption over the ensuing 90-plus years, and while it has been carved up and narrowed, the exemption remains. In the Curt Flood Act of 1998, Congress specifically overturned the antitrust exemption as it applies to labor relations; by federal statute, major league baseball players have the right to be free of collusive and monopolistic conduct by the owners and the league.

But Congress left the remainder of baseball’s antitrust exemption intact. Or did it?

There’s a good deal of debate about how to interpret what Congress did and didn’t do when it debated and enacted the Curt Flood Act. This law review article analyzes the issues quite well. The question the judge in San Jose v. MLB will have to decide is whether baseball’s federal antitrust exemption as it applies to the location and relocation of franchises survived passage of the Curt Flood Act. If the exemption applies, then the two claims against MLB charging violations of the Sherman Act (one of the federal antitrust statutes) will be dismissed.

That brings us to the state law claims.

California has its own antitrust statute, known as the Cartwright Act. It operates independent of federal antitrust laws; that is, federal law does not preempt the operation of the California statute. And that’s where things get tricky and — frankly — a bit hazy to me. Sure, I practiced law in California for 18 years but handled very few matters involving the Cartwright Act. I just don’t have enough knowledge and experience to say at this point whether this claim carries any weight even if the federal antitrust claims are blocked by baseball’s antitrust exemption.

The Cartwright Act claim is the key to all of the state law claims. San Jose alleges that MLB interfered with its option agreement with the A’s. In November, 2011, San Jose granted an option to the A’s to purchase a five-acre tract of public land for $6.9 million. The option contains two conditions: (1) no public funds shall be used in the design, construction or operation of the new ballpark; and (2) city voters must still approve the construction of the new ballpark. The option cost the A’s $25,000 per year.

That sounds pretty nebulous — how can a party interfere with an option to do something in the future? — but California law does allow plaintiffs to sue claiming that another party interfered with an expected contractual interest if the defendant engaged in otherwise illegal contract. In other words, if MLB’s conduct violated the Cartwright Act, that could be a sufficiently wrongful act on which to base a claim for interference with prospective economic advantage.

San Jose also faces considerable challenges in proving real economic damage. The lawsuit outlines all manner of economic benefits the city would purportedly receive if the A’s were permitted to move and build a new stadium downtown: constructions jobs, related economic activity, tax revenue, etc. The complaint includes as an exhibit a economic study conducted for the city which claims all manner of economic benefits from a new ballpark. But as we’ve seen time and again, these kinds of studies don’t hold up to reality when new ballparks do get built.

In truth, there is a slim chance this case ever gets to the stage where experts are battling over future economic benefits to the city.

Why?

Because MLB will do whatever it can maintain its antitrust exemption, however narrow it may now be.

The key battle in this case will come early on. MLB will undoubtedly file a motion to dismiss the case on legal grounds — before documents are handed over and witnesses are required to give sworn deposition testimony. Such motions do succeed in federal court, particularly in antitrust cases where the standards for pleading a viable legal claim are high. But this is a complicated case with complex issues. I’m just not in a position now — before any motions are filed — to say which parties have the better of the argument. It looks like San Jose is on pretty shaky ground, but if the city can get past the motion stage of the case — and into discovery — the chances for a settlement that results in the A’s moving to San Jose go up.

And at the end of the day, San Jose cares much more about getting an MLB franchise than about blowing up baseball’s antitrust exemption.