Bud Selig's decision to take over operations of the Los Angeles Dodgers could lead to Dodgers' owner Frank McCourt suing the commissioner and Major League Baseball. Such a lawsuit would challenge the powers of the MLB commissioner. It would also test whether independently-owned clubs are more like individual businesses or subdivisions of a larger company known as Major League Baseball.
Selig, who will appoint an MLB official to oversee the Dodgers, determined that McCourt is incapable of running the Dodgers. Over the next few months, Selig will evaluate whether McCourt can resume his management of the club or whether MLB will order the franchise be sold. During this assessment period, McCourt will be placed in the awkward position of owning half the team (his wife Jamie owns the other half), but having no authority over it.
McCourt's problems are well-documented and cover the gamut of financial, administrative and personal issues. Foremost, he owes substantial money stemming from his highly-leveraged purchase of the Dodgers in 2004. Major League Baseball is concerned about McCourt's financial wherewithal going forward. McCourt has also attracted criticism for questionable security outside Dodgers stadium, a problem highlighted when a Giants fan was brutally attacked earlier this month. McCourt also remains in the midst of a lengthy and notorious divorce with his wife over control of the team.
Selig's authority to sideline McCourt could come under legal fire, particularly if Selig determines that McCourt cannot resume his ownership.
In response, McCourt could file a lawsuit for damages and injunctive relief, which would delay and potentially block any sale.
A. Franchise Agreement
As a starting point, McCourt could argue that Selig and Major League Baseball have violated the terms of the franchise agreement and have consequently caused him financial harm. To advance that claim, McCourt would insist that Selig lacks the specific authority to take over a franchise, particularly a franchise that is allegedly in compliance with MLB's financial guidelines.
McCourt could also emphasize that other ownership groups have demonstrated numerous failings -- be they professional or personal -- and yet Selig has not exiled those owners from their teams. For instance, Selig has allowed Mets owner Fred Wilpon to remain in charge despite his exposure to lawsuits brought by victims of Bernie Madoff. McCourt could probably find other instances of owners having some combination of financial, legal or family troubles, or instances of fans outside other clubs' stadiums who have been hurt due to inadequate security. His goal would not be to slander other owners, but rather to portray his problems as far from extreme and certainly not worthy of expulsion from MLB.
McCourt would likely also charge that Selig's actions have compromised and devalued McCourt's equity share in the Dodgers. To bolster that claim, McCourt could discuss a media-rights deal he has reportedly reached with Fox Sports that, if approved by MLB, would net about $2.5 billion; if he is kicked out baseball, he would lose out on the fruits of that deal.
B. Antitrust Law
McCourt could also raise an antitrust claim under Section 1 of the Sherman Act. He could assert that owners of other clubs, which compete against the Dodgers on and off the field, have joined hands with Selig to harm McCourt and, by implication, the Dodgers and their fans. A successful antitrust claim would result in a treble damages award for McCourt.
C. Injunctive Relief
If baseball attempted to sell the Dodgers without McCourt's consent -- a move which would require approval by three-quarters of the 30 MLB ownership groups -- McCourt would likely seek a temporary restraining order or an injunction to block the sale. While injunctive relief is often difficult to obtain, McCourt could insist any forced sale would result in a lower purchase price than he would be able to obtain in a normal business environment. He could also argue irreparable harm in that losing a coveted MLB franchise, and associated membership in the fraternity of big league owners, might cause damages that go beyond quantifiable harms.
A. Best Interests Of The Game Clause
In response to these claims, Selig and the 29 other ownership groups could highlight that MLB's constitution contains a "best interests of the game" clause. The clause provides Selig with wide, virtually non-reviewable latitude to regulate any aspect of the game, including ownership interests. The clause is premised on the idea that `MLB teams are interdependent entities, meaning the struggles of one club can harm the other 29, and a core role of the commissioner is to prevent that harm.
The best interests of the game clause has been used by the MLB commissioner to restrict individual owners. Without generating litigation, Selig used it to take control of the Texas Rangers in 2009. Selig had an easier road with the Rangers because their owner, Tom Hicks, had defaulted on loans, leaving MLB with virtually no choice but to take over the club.
In 1976, however, MLB Commissioner Bowie Kuhn became the target of a lawsuit brought by Oakland Athletics' owner Charlie Finley over Kuhn's authority to use that clause. Citing it, Kuhn prevented Finley from selling the contracts of star players to the Red Sox and Yankees. Kuhn reasoned that such transactions would harm the competitive balance of the league and also cause As' fans to lose interest in their team and, of particular interest to the Finley's fellow owners, the league in general. The U.S. Court of Appeals for the Seventh Circuit determined Kuhn acted properly and not in an "arbitrary or capricious" way.
By agreeing to become an owner of an MLB franchise, McCourt, like Hicks and Finley, assented to the best interests of the game clause. Selig could maintain that McCourt's problems have harmed the image of the Dodgers and Major League Baseball. Aided by a permissive "arbitrary or capricious" standard of judicial review to assess Selig's use of the clause, Selig could cite declining numbers in Dodgers' season ticketholders as evidencing his claims. McCourt, however, could argue that a $103.8 million team payroll -- 11th highest among the 30 clubs -- suggests a stronger commitment to winning than shown by most big league owners.
B. Waiver Of Recourse Clause
MLB could also highlight the "waiver of recourse" clause found in the MLB constitution. This clause prevents clubs from engaging in litigation against the commissioner, the league or other owners. Indeed, by virtue of becoming a franchise owner, an owner waives away the right to seek remedies that would normally be available through the legal system. The clause also compels owners to resolve their differences internally and to accept the commissioner's judgment as binding.
Waiver of recourse clauses can be found in a wide range of business contexts. Generally, it is difficult for purportedly aggrieved parties to overcome these clauses, especially if the clauses were freely and voluntary negotiated by sophisticated business parties (all of which would hold true with McCourt in his purchase of the Dodgers).
A waiver of recourse clause helped MLB prevail over Finley. The court held Finley could only overcome the clause if he could show that Kuhn failed to follow baseball's internal rules or violated basic due process. Basic due process requires the commissioner to act fairly and not arbitrarily or with bias; the furnishing of fair notice, use of substantive hearings, reliance on neutral experts and uniform application of consistent rules all help the commissioner show that a fair and substantive process was used.
With due process in mind, notice that Selig has outlined a thorough, specific and lengthy process to review McCourt's ownership. Selig and MLB lawyers are aware if McCourt files a lawsuit, the quality of due process McCourt receives during the assessment process would become a key issue in the trial. The issue of process has already been identified by McCourt, who in a statement yesterday highlighted how "the Dodgers are in compliance" with baseball's financial guidelines.
C. Public Policy
In addition to clauses found in MLB's internal laws, a court may also be unwilling, as a matter of public policy, to inject itself into a dispute involving a private organization. Along those lines, a court might reason that an internal dispute brought by one owner should be best handled by the self-governing organization the owner assented to follow. Given the interests of fans, however, a court may be more willing to take a stand.
D. Baseball's Antitrust Exemption
Lastly, MLB can cite its historical exemption from federal antitrust law as a defense to any antitrust claims brought by McCourt. Although the exemption was limited by the Curt Flood Act of 1998 and by several court decisions, it remains strong in matters that do not involve players or franchise relocation. Owners know that and rarely use antitrust law to challenge one another. One exception occurred in 1997, when Yankees owner George Steinbrenner filed an antitrust lawsuit against MLB Properties, which is owned by owners of MLB teams. Steinbrenner wanted licensing independence for the Yankees in their sponsorship and merchandise contracts. Steinbrenner claimed if owners competed, rather than collaborated, with each other on licensing, there would be more competitive pricing for consumers and better quality products. The lawsuit was settled before a court ruling. It remains an anomaly and antitrust law would likely not aid McCourt.
Plus, even without the antitrust exemption, MLB could defeat an antitrust claim brought by McCourt by arguing baseball teams necessarily collaborate in certain ways, including in governance over each other. While the Supreme Court's opinion last year in American Needle v. NFL closed the door for leagues to argue that they are single entities (meaning one entity, rather than a group of competitors), antitrust claims against leagues are still generally subject to Rule of Reason analysis, which is very deferential to defendants.
While McCourt could cite different sources of law to challenge Selig and his fellow owners, the defendants would likely prevail. Still, a lawsuit could take years and the litigation process itself might prevent Selig from removing McCourt as an MLB owner. With that in mind, a possible outcome is a settlement whereby McCourt agrees to sell the team and is also compensated by MLB in exchange for dropping any potential legal claims.
Michael McCann is a sports law professor and Sports Law Institute director at Vermont Law School and the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law. He also teaches a sports law and analytics reading group at Yale Law School. Follow him on Twitter.