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Chris Sagers Headshot

Righting Donald Sterling's Racial Wrongs and... Um, Antitrust?

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DONALD STERLING
ASSOCIATED PRESS
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So, it takes a pretty unusual theory of antitrust liability for even a knee-jerkingly impulsive, pro-enforcement, Ivory Tower whackjob -- that is, a person like me -- to doubt its viability. And yet it appears that the racism-based expulsion of L.A. Clippers owner Donald Sterling from the NBA, assuming the planned forced sale of his franchise goes through, is likely to result in antitrust challenge.

On Tuesday the Los Angeles Times quoted a professor of sports law to that effect, and it was also suggested on NPR. At first I thought that seemed awfully unlikely, and I (quite unfairly as it happens) chalked it up to the fact that the professor is actually a young-ish law firm corporate finance associate, who's taught a few times as an adjunct. Absurd, I thought, surely not. Antitrust law prohibits harms to competition, actions that diminish the vigor of price or quality competition for the protection of consumers, not a law that keeps organizations from having norms of racial equality.

It appears I was wrong.

My thought was that if the NBA kicks out Mr. Sterling pursuant to league rules, then I don't see why it's different than the operation of other joint venture membership rules, which the U.S. Supreme Court has treated with a great deal of solicitude under modern antitrust. In its leading case on point, the Court recognized that if a joint venture kicks out one of its members, that could in principle be anticompetitive. It could exclude a competitor from competitively useful benefits that the venture gives the other members. But the Court also recognized that joint ventures are themselves likely to be beneficial most of the time, and that they need membership rules in order to work. So the Court made it quite difficult for expelled members to sue in antitrust to challenge their expulsion. And indeed Sterling's case should be an even more difficult antitrust case, it seems to me. It's hard to see how forced sale that doesn't exclude the competing firm has any anticompetitive effect at all. If Sterling is forced out, the Clippers would still be there, producing a product and providing price and quality competition to other NBA teams and other entertainment products. The harm to Sterling that is contemplated by those predicting antitrust litigation is apparently that he will be forced to sell at a depressed price, but that doesn't sound like antitrust injury to me. To quote the legendary federal Judge Henry Friendly, "combining assertion of general antitrust violation . . . [to] breach of contract or tort does not automatically make the latter a claim under the antitrust laws."

But it looks like Professor Grieb is probably right. There was a high-profile antitrust suit in the 1990s against the NFL by a team-owner who was essentially squeezed out. Bill Sullivan, a colorful Boston industrialist and newpaperman, founded the team that was to become the New England Patriots. His decades long, rocky affair with professional football ended in the late 1980s, when the NFL refused to let him sell half of his ownership through an IPO to the public. He said that was anticompetitive and he sued.

While that doesn't seem any more like an antitrust case to me than a suit by Sterling against the NBA, Sullivan's case made it successfully to a jury (which awarded damages of about $100 million), got reversed, then made it to a subsequent hung jury, and then settled for $11 million. Moreover, Professor Michael McCann, who is prominent in sports law, has this excellent analysis, citing sources putting the odds of an antitrust suit at "very high." Professor McCann also points out practical reasons to expect the NBA to fold on the antitrust issues pretty fast. Maybe most importantly, Mr. Sterling (a lawyer) is notoriously litigious, and he will use discovery in the trial to uncover whatever he can to embarrass the league and pressure settlement.

It seems to me that as a matter of substance, Sterling has more sensible legal avenues, like just plain old breach of contract (as both Professors Grieb and McCann point out, the league rules don't clearly permit expulsion in these circumstances) or breach of fiduciary duty (joint venture participants usually owe one another such duties) or the so-called warranty of good faith and fair dealing.

But every plaintiff loves even the bare threat of the so-called "treble damages" available in antitrust -- if plaintiff recovers money damages, it will be awarded three times the amount of actual injury. Throw that in with the racist or other embarrassing comments and gaffes Sterling might uncover during discovery, and a big fat settlement seems not unlikely.