Your 2014 MLB Legal Year-in-Review: Part Three

This is the final installment of a three-part series looking back at what has been an unusually eventful year for Major League Baseball in the courtroom. Part One recapped the legal maneuvering surrounding Alex Rodriguez’s suspension and the Oakland A’s proposed move to San Jose, while Part Two looked at MLB’s 2014 minimum wage and gender discrimination issues. This part concludes the series by reviewing the status of various television-related legal proceedings for MLB and its teams, as well as covering an assortment of other legal developments.

Television

Television revenues are vital to MLB’s business, so it should be no surprise that the league was involved in a series of important TV-related legal proceedings in 2014. Perhaps the most significant of these cases is Garber v. Office of the Commissioner of Baseball, a suit challenging MLB’s television policies under federal antitrust law.

Wendy Thurm has previously discussed the Garber suit on several occasions. By way of a brief recap, the case alleges that MLB’s television policies violate the Sherman Act in two ways: first, by imposing unreasonable blackout policies on fans; and second, by selling only league-wide pay-per-view subscription packages (MLB Extra Innings and MLB.tv) rather than allowing teams to offer their own individual out-of-market plans.

The Garber suit has slowly been proceeding towards trial since it was filed in 2012. In April, however, MLB filed a motion asking the court to dismiss the case on the basis of baseball’s antitrust exemption. Judge Scheindlin denied the request in August, reasoning that MLB’s television policies were not sufficiently “central to the business of baseball” to be covered by its antitrust exemption.

Undeterred, MLB then asked Judge Scheindlin to certify the case for an immediate, interlocutory appeal, arguing that there was “substantial ground for difference of opinion” regarding the applicability of the exemption, which warranted expeditious appellate review. Scheindlin quickly denied that request as well.

Still unsatisfied, MLB then filed a petition for a writ of mandamus with the Second Circuit Court of Appeals in November. This relatively rare request effectively seeks to go over the trial court judge’s head, asking the appellate court to consider the antitrust exemption issue despite Judge Scheindlin’s refusal to allow an immediate appeal. The plaintiff’s have not yet responded to MLB’s petition at the appellate court, and the league’s ultimate odds of success on the petition are uncertain. Nevertheless, the fact that MLB is willing to go to these lengths to have the case dismissed shows how seriously it views the threat that the Garber case presents to the league’s current business model.

The MASN Arbitration

In addition to MLB’s national television policies, its teams’ relationships with regional sports networks were also subjected to legal scrutiny in 2014. In August, the Baltimore Orioles and their network, the Mid-Atlantic Sports Network (MASN) filed suit in New York asking the court to set aside an arbitration decision requiring the network to pay tens of millions of dollars more in broadcast fees each year to the Washington Nationals.

The origins of the dispute date back to the 2005 relocation of the Montreal Expos to Washington. At the time, MLB resolved Baltimore’s claim to the Washington, D.C. territory by giving the Orioles a significant stake in the MASN network, with the Nationals’ broadcast fees to be recalibrated every five years. In 2012, the Nationals requested that their fees be increased from around $30 million per year to upwards of $120 million. Baltimore rejected Washington’s request, and the dispute eventually ended up in arbitration.

In June, a three-member arbitration panel – consisting of the owners of the New York Mets, Pittsburgh Pirates and Tampa Bay Rays – awarded the Nationals approximately $60 million per year in broadcast fees. Dissatisfied with the outcome, the Orioles then filed suit to ask a New York court to set the decision aside, despite the fact that Bud Selig had threatened to “impose the strongest sanctions available” should either side take the dispute to court.

Typically, courts are extremely reluctant to overturn an arbitration decision. In this case, however, Baltimore had a plausible argument that the arbitration panel was biased, as the other MLB teams stood to benefit from the Nationals receiving increased broadcast rights fees (part of which would then be shared league-wide through MLB’s revenue sharing system). This argument was credible enough to persuade Judge Lawrence Marks to issue a preliminary injunction in August blocking MLB from enforcing the arbitration decision until the suit is resolved.

Since then, the parties have been engaged in the discovery process, collecting the evidence they will use during the eventual hearing in March. Along the way, the court gave the Orioles a minor victory earlier this month, when it ordered MLB to turn over documents relating to commissioner-elect Rob Manfred’s involvement with the arbitration panel. Meanwhile, Baltimore’s decision to contest the arbitration outcome reportedly will likely cost the team its chance at hosting the 2016 MLB All-Star Game.

Ultimately, even if Baltimore prevails in March, the team’s victory is likely to be modest at best, as the court will likely only go so far as to vacate the existing arbitration decision. In other words, the court would most likely simply throw out the June arbitration opinion, putting the parties back to square one in their dispute. At that point, MLB would likely convene a new arbitration proceeding, this time presumably relying on outside arbitrators. Nevertheless, MLB would obviously prefer to have the existing arbitration award upheld by the court, thereby avoiding the embarrassment of having its original arbitration panel declared to be unduly biased.

The Comcast SportsNet Houston Bankruptcy

Last but not least, the long-running CSN-Houston bankruptcy proceedings were finally resolved in October. As Wendy Thurm has explained, the cable station had struggled mightily since launching in late 2012, after most Houston-area cable and satellite providers refused to pay the roughly $3.50 per subscriber fee the network was demanding. As a result, for the better part of two years only Comcast customers received the network, meaning that only around 1 million households had access to most Houston Astros games.

Because CSN-Houston wasn’t bringing in its anticipated subscription revenue, the network was unable to pay the Astros and the Houston Rockets – its two primary broadcast partners – their promised broadcast rights fees. Eventually, in September 2013, Comcast plunged the network into bankruptcy after the Astros threatened to reclaim their broadcast rights.

Following a year’s worth of legal maneuvering, the bankruptcy court finally approved a restructuring plan for the network in October. The deal transferred the network to DirecTV and AT&T, who jointly agreed to invest $50 million into the venture. Comcast has appealed the bankruptcy court’s decision, but the new network – rebranded Root Sports Houston – already officially launched in November. Because the new station is available to most Houston cable television subscribers, it appears that the vast majority of Astros fans will now be able to watch their team play on television in 2015.

Other Assorted Odds & Ends

In July, a Los Angeles jury awarded San Francisco Giants fan Bryan Stow $18 million in damages for the injuries he sustained during an attack in the Dodgers Stadium parking lot in 2011. The Dodgers are responsible for approximately $14 million of the verdict, after the jury concluded that the team failed to provide proper security in and around the stadium.

Also in July, the Major League Baseball Players Association filed a grievance against the Houston Astros after the team failed to sign three of its 2014 draft picks: first overall selection Brady Aiken, fifth round choice Jacob Nix, and 21st round pick Mac Marshall. As Mike Petriello explained at the time, the dispute arose after Aiken tentatively agreed to terms on a $6.5 million bonus, only to have the Astros back out on the deal when a pre-contract medical exam allegedly identified issues with Aiken’s elbow. The Astros subsequently made Aiken several less valuable offers, but he refused to sign for anything less than the original agreed upon amount.

Because the Astros failed to sign Aiken, they lacked the slot money necessary to honor the agreement they had reached in principle with fifth round selection Jacob Nix. (Under the new draft bonus pool rules, the total size of a team’s bonus pool is conditioned on its signing some of its top picks.) However, because both Aiken and Nix were being advised by the same agent/advisor (Casey Close), some speculated that the Astros were manipulating the situation to force one of Close’s clients (Aiken) to sign at a reduced rate so the agent’s other client (Nix) could sign as well.

After the Astros eventually failed to sign either Aiken or Nix, the MLBPA filed a grievance against the team on Nix’s behalf.  (Although initial reports suggested a grievance was filed on behalf of Aiken as well, this later turned out not to be the case.) The union’s decision to file the grievance was somewhat surprising, considering that the MLBPA does not represent minor league players, and the current CBA prohibits teams from signing draftees to major league contracts. Regardless, Nix and the Astros reportedly settled the grievance earlier this month for an undisclosed sum.

Finally, in December, a third minor-league-salary-related lawsuit was filed against MLB. Unlike the pending minimum wage suits filed earlier this year under the Fair Labor Standards Act, though, Miranda v. Office of the Commissioner of Baseball asserts that the minor league salary scale represents illegal price fixing in violation of the Sherman Antitrust Act. The suit’s odds of success appear to be relatively low, however, considering that its claims are likely covered by baseball’s antitrust exemption.



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Nathaniel Grow is an Associate Professor of Legal Studies at the University of Georgia's Terry College of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of the University of Georgia.


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