Judge partially certifies class action status in O'Bannon suit

Saturday November 9th, 2013

Friday's ruling is a major step forward in what could be a landmark case brought by former UCLA star Ed O'Bannon.
Chris Pizzello/AP

Earlier tonight, U.S. District Judge Claudia Wilken took a major step towards empowering current and future college athletes, but dealt a setback for former ones. Wilken partially certified a class action brought by Ed O'Bannon, Sam Keller and other former and current Division I men's basketball and football players against the NCAA. The order, which both sides publicly hail as a victory but is also bittersweet for both, sets the table for a historic trial next June. The order also motivates both sides to engage in settlement discussions over the coming months.

Quick primer on class certification

Class certification is when a judge permits a plaintiff or group of plaintiffs to sue on behalf of a much larger group of persons who have not sued. Class certification, in other words, is not about whether the plaintiff's underlying legal arguments are correct or wrong. Along those lines, a judge certifying a class does not mean the plaintiff will win a trial. Just as important, a judge denying certification does not mean the plaintiff cannot go to trial. A plaintiff whose petition for class certification has been denied can still bring the case himself or with others, but not on behalf of persons who have not sued. To be sure, a case is less intimidating when certification is denied -- the defendant is threatened by far fewer persons -- but the legal arguments could still prevail should the plaintiff continue the fight.

Wilken's record suggested certification in O'Bannon was likely. An analysis by SI.com of her orders on class certification from 1998 to 2013 found that she fully or partially granted certification 79% of the time.

Judge Wilken's order: The good for O'Bannon

O'Bannon's legal team can rightfully claim victory in certain aspects of Wilken's order. Crucially, Wilken has certified a class action against NCAA rules that prevent college athletes from entering into group licensing deals. This a significant development toward college athletes "being paid," and increases the possibility that these athletes will eventually form a trade association or union for entering into licensing deals.

Group licensing deals are common in professional sports. Players associations negotiate with trading card and video game companies for the use of players' image, likeness and names. The NCAA bars student-athletes, either as individuals or groups, from entering into such contracts. The prohibition is arguably a violation of antitrust and intellectual property laws. Antitrust law is implicated because the NCAA and its members have, in O'Bannon's view, joined hands with companies to prevent student-athletes from negotiating licensing deals. If those deals were permitted, there would be more competition in the business of college sports. Television networks would have to negotiate not only with the NCAA but with student-athletes for broadcast rights, while the NCAA and student-athletes might strike separate licensing contracts with two different video game publishers. More competition normally means faster innovation, greater choice, and cheaper prices for consumers. Intellectual property law is implicated because of ownership and value issues related to student-athletes' images and likenesses. Should it take place, a trial next June would center on these topics.

O'Bannon also scored a victory when Wilken regarded as reasonable O'Bannon's proposal that star and regular basketball and football players equally share in deals. This was an important step, as O'Bannon's group licensing idea would only work as a class if players were paid equally. Wilken acknowledged that star players generate more value than typical players and could thus generate more in licensing and publicity contracts. As an example, Johnny Manziel is more marketable than all of his Texas A&M teammates and, would -- and many would argue should -- earn more in licensing deals than other Aggies.

Wilken, however, stressed "it does not necessarily follow that a model of equal sharing among [players] would inevitably create a conflict of interest." The judge instead accepted O'Bannon's contention that the harm to players not be individualized for purposes of class certification. The fact that players in major pro sports leagues equally share licensing money helped O'Bannon bridge his legal arguments from the theoretical to the practical. Put another way, since LeBron James receives the same amount of money in NBA group licensing as teammates Roger Mason, Jr. and Joel Anthony, then Manziel receiving the same amount as teammates Matt Joeckel and Kenny Hill would be no great leap.

The prospect of college athletes entering into group licensing deals is financially threatening to the NCAA. The practice would enable third parties -- broadcast companies, video game publishers, and apparel makers -- to strike lucrative deals with student-athletes and former student-athletes. The money in those deals would be money that was previously paid to the NCAA. Put another way, should O'Bannon prevail on the merits, the pie of licensing wealth would no longer be 100% NCAA -- some of it would go to players.

Group licensing deals are likely to benefit current and future college athletes more than past ones like O'Bannon and Keller. Generally, those who played in the past are less marketable, especially among younger fans who don't remember them. Former college athletes are not entirely out of luck. In September, O'Bannon reached a proposed $40 million settlement with Electronic Arts and the Collegiate Licensing Company that if approved by Wilken, will pay college athletes for past video game and retail sales. The amount each player receives in the settlement may seem underwhelming, however, with speculation that it will be several hundred dollars.

Judge Wilken's order: the bad for O'Bannon

To the surprise of O'Bannon's attorneys, Wilken denied certification on a key purpose of the lawsuit: that college athletes be compensated for the past use of their image and likeness on television and in video games. Wilken found O'Bannon had not persuasively shown common harm to members of his purported class.

Of particular interest to Wilken was O'Bannon's use of alternative histories to explain harm. Chiefly, Wilken questioned the actual impact of scholarship student-athletes staying in college had they enjoyed financial incentives to do so. O'Bannon's expert, Roger Noll, presented evidence that had they been compensated, some star college basketball players would have stayed in school rather than leave early to pursue the NBA. Wilken found Noll's study problematic. In her view, student-athletes staying in college would have meant fewer scholarships for other players. Some student-athletes would have been "displaced", meaning they would have never received a scholarship to play D-I hoops. Wilken stressed these "displaced student-athletes . . . would not have suffered injuries as members of the teams for which they actually played because . . . they would never have been able to play for those teams." In fact, the displaced student-athletes likely benefited by star underclassmen jumping to the NBA. Therefore, Wilken reasoned, the displaced student-athletes did not belong in O'Bannon's class.

Wilken also took issue with O'Bannon's portrayal of harm caused by NCAA-licensed video games. These games contained smaller rosters than actual rosters. Wilken reasoned some real players were therefore not in those video games. Without a persuasive way of determining who made and didn't make the cut, Wilken rejected the class.

Going forward: Possibility of individual lawsuits or appeal

Although class certification was denied for past damages, O'Bannon, Keller and other current and former student-athletes can continue to seek those damages in court. They cannot, however, do so on behalf of a class. Individuated or smaller group lawsuits may ultimately help O'Bannon and other famous student-athletes. These players have a better case they were represented by avatars in video games and were financially hurt by amateurism rules.

In addition, both O'Bannon and the NCAA have 14 days to appeal Wilken's certification order to the U.S. Court of Appeals for the Ninth Circuit. To the extent either side believes it is advantaged by prolonging the litigation, seeking appellate review may accomplish that goal. A higher level court would then have the option of reviewing Wilken's order. Wilken, however, could elect to continue the case on its merits while the Ninth Circuit examined her certification order -- in other words, she could move the parties towards trial next June and thus limit a possible delay.

Going forward II: Possibility of settlement talks

Wilken's order creates incentives for both sides to seek settlement talks. Both sides now have a better understanding of the potential value of the litigation to college athletes and its potential cost to the NCAA and its members. The case is not as valuable as O'Bannon had sought, especially for former student-athletes, but the prospect of college athletes being compensated in the future would still constitute a hefty new cost for colleges.

Sources close to the litigation insist the two sides have not engaged in settlement talks and are essentially in a cold war. The absence of talks to date is not surprising. Until tonight, neither side could reasonably predict the economics of the case. Neither knew if the number of plaintiffs was a handful or tens of thousands and neither knew which claims a class could bring against the NCAA. They now have more information and can better forecast whether the case carries the risk of tens of millions, hundreds of millions or even billions of dollars.

There are two remaining potential obstacles to settlement talks. First is whether the NCAA is on firm ground to enter into settlement talks on behalf of its member schools and conferences. In recent months, conference commissioners have expressed frustration with NCAA policies and leadership. Expect the NCAA to receive renewed pressure from conference commissioners, college presidents and athletic directors to seek a settlement with O'Bannon prior to trial. A settlement would allow the NCAA and its member schools to negotiate new amateurism rules, rather than risk a new system designed by a federal judge and 12 jurors.

A settlement would also help the NCAA incorporate Title IX considerations into any new system. A verdict for O'Bannon would not address Title IX since that law is not part of the case. However, any system where football and men's basketball student-athletes are compensated more than women student-athletes would be vulnerable to a Title IX challenge.

A second obstacle to settlement is on the O'Bannon side. Wilken's order is a mainly victory for future college athletes, but O'Bannon and most of the other persons in his lawsuit are former college athletes. Whether O'Bannon has appropriate standing to reach a settlement with the NCAA on behalf of future college athletes, who would have no input on the terms O'Bannon and the NCAA negotiate, is sure to present a complication. While players' associations in professional sports can lawfully negotiate on behalf of future players, there is no such association for college athletes. It is possible a settlement could trigger a new round of litigation or swift efforts to unionize college athletes.

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.

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