Analyzing Donald Sterling's response to the NBA's lifetime ban
As reports circulate that Donald Sterling is actively trying to sell the Clippers before the NBA votes to oust him on June 3, Sterling has filed a passionate answer to the league. The response raises a number of legal and policy arguments.
The intended audience of Sterling's answer to the NBA: Fellow owners
Before analyzing the arguments in Sterling's answer, it is important to highlight the intended audience. Sterling is attempting to persuade at least eight fellow owners on the league's Board of Governors to vote against forcing him to sell the Clippers. Unless at least 22 of the 29 other governors vote to make him sell, Sterling will keep the team, but remain subject to a lifetime suspension. Whether the answer sways potential judges and jurors, or triggers reconsideration by players, media and fans is of secondary interest. The wording, expressions and tone in the answer are crafted principally with Sterling's fellow owners in mind. The owners are not strangers to Sterling. He is familiar with their views and attitudes, and the answer likely reflects his impressions.
As Robert Raiola, senior manager in the Sports & Entertainment Group of the accounting firm O'Connor Davies, LLP, discussed previously on SI.com, Sterling has strong incentives under capital gain tax law to hold onto the team. Sterling would have to pay approximately 33 percent in capital gain taxes on the difference between the price he paid for the team ($12.5 million) and its sale price. As discussed below, Sterling raises capital gain taxes as a rationale against the NBA charge. Then again, if reports are true that Sterling has attracted bids in excess of $2.5 billion for the Clippers, he might be willing to pay the taxes and pocket more than $1.5 billion in net profit.
Still, defeating the June vote would carry another benefit for Sterling: he could have a crucial say in picking the team's next owner, as opposed to the NBA unilaterally selecting the owner. To be clear, Sterling cannot sell the team without the NBA's approval, a process that normally lasts months and involves detailed background checks on any person in a group to buy an NBA team. Sterling, however, can force the NBA to consider a buyer he selects before June 3.
Sterling's first argument: Substantive due process under California law bars NBA's use of recording
The answer begins with perhaps Sterling's best argument: the recording of his infamous, albeit private, remarks to V. Stiviano was likely unlawful under California law, and the NBA is attempting to throw him out based on the recording. If the NBA was suing Sterling in a court of law, the recording would likely be deemed inadmissible under rules of evidence. But, as Sterling wisely acknowledges, the NBA's internal system of justice doesn't follow courtroom rules of evidence. The NBA constitution makes this clear, and Sterling has agreed to follow that the league's rules.
Sterling attempts to counter this argument by claiming that the NBA cannot contract around substantive due process protections under California law. One of those protections, Sterling argues, is the right to privacy, and Sterling cites several cases where the right is treated as paramount. Sterling therefore contends that even if the NBA can, as a matter of procedure, rely on evidence that would be inadmissible in court, the league can't, as a matter of due process, violate his right to privacy.
Expect the NBA to counter with several arguments. First, Sterling's answer does not cite a case where a privacy right was used to reverse the decision of a private association. While the absence of a clear precedent does not nullify Sterling's claim, the NBA would argue it weakens Sterling's contention. Second, the NBA would likely insist that California law does not apply. The NBA's constitution repeatedly references New York law as the state law governing league matters. And unlike California, a two-party starte where both parties must consent to a recording, New York is a one-party state whereby it is lawful to record another person so long as one party consents. From that lens, the NBA can maintain the privacy right under California law does not apply.
Still, even if the NBA can show it has the legal right to expel Sterling, expect some NBA owners to have reservations about linking the ouster of a fellow owner to a private recording that is unlawful in the state where the recording took place. The NBA may ultimately need to rely on Sterling's controversial comments to CNN's Anderson Cooper as supplemental evidence.
Sterling's second argument: Article 13(d) does not justify his ouster
Article 13(d) of the NBA constitution enables the ouster of an owner for failing or refusing to fulfill "contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect the Association or its Members adversely." These obligations need not be found in the league's constitution or bylaws. Other agreements, including the franchise agreement to buy a team and the joint venture agreement in which owners assent to league authority, also contain covenants. According to the NBA, Sterling agreed to refrain from unethical conduct and advocating positions contrary to those of the NBA.
In his answer, Sterling asserts that 13(d) was only intended to cover owners who were unable to meet financial obligations under contracts, not owners who cause the NBA embarrassment. The NBA would likely stress the wording of 13(d) contains no such limitation.
Sterling argues that even if 13(d) governs his remarks to Stiviano, he never supported a position in those remarks adverse to the NBA. He acknowledges his remarks were "terrible" but he insists they did not advocate a position. Instead, in Sterling's view, his remarks merely reflected the height of a "lovers' quarrel" that was illegally recorded and shared with TMZ.com. Sterling contends that Stiviano "baited" him into making his infamous remarks, and he cites Stiviano's interview with Dr. Phil in which she said she loved the limelight as supporting evidence of her intent. Sterling also contends that his comments to Cooper were similarly not to advocate a position, but to answer questions about a private conversation.
The NBA is prepared for Sterling's arguments on 13(d). The league will likely frame Sterling's comments to Stiviano and Cooper as clearly advocating a viewpoint about African-Americans -- who Sterling expressed he did not want attending Clippers games -- that caused massive harm to the NBA. The league will stress that Sterling severely compromised league efforts to enhance diversity, nearly caused an unprecedented player boycott, motivated corporate sponsors to drop the Clippers and led to a stern rebuke by President Obama. The league will also surely maintain that regardless of whether Sterling was baited into making the offensive comments, he nonetheless said them and must held accountable.
Sterling's third argument: No way to confirm material harm to the NBA
Sterling creatively cites his suspension as grounds that he should not be ousted. Sterling insists that because of his lifetime ban, he cannot visit the Clippers facilities and thus he can't measure the financial harm that he has allegedly caused the NBA. For instance, Sterling stresses he's unsure of how many season ticket holders have been lost due to his remarks, or how significantly merchandise sales were impacted. Without this data, Sterling maintains, he is unable to wage an adequate defense. Sterling also emphasizes that some of the NBA's purported harm never actually occurred, with the threatened but never occurring player boycott being exhibit A.
In response, watch for the NBA to reveal some of the data that Sterling claims he has been denied. The league is also poised to frame some of the potential harm as actual harm. Even if the boycott was never carried out, the NBA can allege, damaged labor relations between players and owners. The NBA will also note that players continue to threaten a boycott if Sterling remains an owner. Sterling's remarks also led to disruptions between the NBA and its sponsors.
Sterling's fourth argument: He acted neither willfully nor disloyally
Sterling attacks secondary arguments the NBA uses to justify his ouster. Article 13(a), for instance, bars any willful violation of league documents. Sterling argues that he could not have willfully violated a league document through a private conversation he never intended be made public. Sterling also rebuts the NBA's assertion that he provided false information to NBA investigator David Anders. Sterling stresses that he might have misremembered details about the recording when initially speaking with Anders and that he was under no obligation to admit to conduct that would lead to an ouster he deems unlawful.
Sterling also takes issue with the NBA's insistence that he breached a fiduciary duty of loyalty to the league. In Sterling's view, he could not have breached a duty "in Ms. Stiviano's living room" since the duty concerns avoiding conduct that undermines league interests. A private conversation with Stiviano, according to this interpretation, is outside the scope of league purview.
The NBA will combat Sterling's argument by pointing out that his "private" conversation became very public and quickly harmed the NBA. The league will also emphasize Sterling's primetime interview with Cooper in which Sterling advocated controversial positions -- including a vicious assault on Magic Johnson's character that prompted Silver to apologize to Johnson -- that breached the duty of loyalty.
Sterling's fifth argument: The $2.5 million fine is excessive
As first reported by SI.com, Sterling has refused to pay the NBA's $2.5 million fine. In his answer, Sterling contends he actually has until June 13, 2014 -- or later -- to pay it. His reasoning is that the NBA notified him on May 14, 2014 that he was in default, and therefore he is owed 30 or more days to satisfy a default. Sterling does not cite a source for a 30-day window, although Article 13(c) specifies that an owner can be ousted if the owner takes more than 30 days to pay dues owed to the NBA. Sterling, who is reportedly worth close to $2 billion, also asserts the fine should be $1 million per the league's constitution. This argument is important not because of its financial impact -- to Sterling, the difference between $2.5 million and $1 million may not be of great significance -- but to communicate to NBA owners that he is being unfairly treated.
Sterling's sixth argument: The NBA is hypocritical and acting arbitrarily and capriciously
When the NBA announced its sanctions against Sterling, Dallas Mavericks owner Mark Cuban expressed concern about a "slippery slope." Sterling appeals to that concern by listing 15 other incidents involving owners and players that triggered relatively modest NBA sanction or no sanction at all.
As a starting point, Sterling's examples about players -- such as when television cameras picked up Kobe Bryant screaming obscenities at a referee -- may be persuasive to owners, but are not as legally significant. Players are primarily regulated by a separate legal document, the collective bargaining agreement between the NBA and the Players' Association. Owners, in contrast, are regulated by the constitution and bylaws.
Sterling also points out that Magic owner Rich Devos. Devos donated $100,000 to the National Organization of Marriage, a group that advocates against marriage equality. Sterling finds it revealing that Devos was not punished by the NBA for making the donation despite LGBT groups advocating a boycott. Sterling also cites comparatively modest punishments -- fines or short suspensions -- issued against NBA owners for driving drunk, criticizing referees or revealing NBA secrets on Twitter.
Sterling's central thesis is to argue that the NBA is acting arbitrarily in punishing him with the ultimate sanction -- banishment and ouster -- whereas other owners received slaps on the wrist or no punishment at all. Sterling wants NBA owners to believe that he is being treated unfairly and also that they too might face ouster in a post-Sterling world. Should Sterling sue, proving arbitrary conduct by the NBA would be crucial, as a court would likely review the NBA's interpretation of its constitution under the so-called "arbitrary and capricious" standard. Under this standard, Sterling would have to prove that the NBA acted arbitrarily. This would also be relevant should Sterling seek an injunction to temporarily halt the NBA from ousting him, as he would have to establish, among other points, that he would have a substantial likelihood of success on the merits.
The league will remind owners that no owner can be ousted unless three-quarters agree, a high threshold. The league will also argue that Sterling's conduct is unique given the consequential damage it caused the NBA. Along those lines, Sterling is being judged as much for the impact of his speech as the speech itself.
Sterling's seventh argument: NBA owners have already decided to vote him out
Sterling cites several public statements by NBA owners suggesting or clearly indicating that they support Silver and will vote against Sterling. Sterling raises an important due process argument: how can he get a fair trial if the jurors -- other NBA owners -- have already made up their minds before the trial? The NBA will likely respond by noting that NBA owners are free to speak their mind and draw their own assessments at their own pace. NBA owners are not supposed to be jurors who have no familiarity with the facts before a trial; they are fellow owners always judging each other's conduct.
Sterling's eighth argument: Capital gain taxes will be enormous if he has to sell
Sterling might want to credit Robert Raiola for this argument. Raiola was the first to identify the tax issue last month. The NBA will surely argue that the tax implications of Sterling having to sell the team are not the league's concern but rather an unavoidable byproduct of federal and state law.
Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.