Can the NBA Bounce Donald Sterling?

 

Now that NBA Commissioner Adam Silver and all the NBA owners are, for a thousand good reasons, determined to force Los Angeles Clippers owner Donald Sterling out of the league, the obvious legal question is whether they have the power to force that sale. In this case, it looks as though it’s a split decision.

Section 13 of the NBA Constitution and By-Laws sets the grounds for termination, and, as argued on Fox Sports, these do not seem to include any clause that allows the league to terminate membership on the ground that the conduct of an owner has been detrimental to the good will and reputation of the NBA. Yet that same constitution explicitly blocks any recourse to the courts once a final decision is made. Let’s unpack both points. 

First, the key operative provision for terminating ownership would require that Sterling “willfully violate any provisions of the Constitution and By-Laws, resolutions, or agreements of the association” in order to be removed. Unless there is some “resolution” that covers this case, this provision does not give the NBA an obvious out.

It might be possible for the NBA to adopt some resolution that makes offensive behavior that is detrimental to the league grounds for removal. But there is then an open question as to whether even a private association can amend its agreement retroactively so as to punish conduct that did not violate NBA rules at the time. As a general matter, prospective limitations are easy to defend, and retroactive ones are harder. As a contracts lawyer, I would be inclined to think that the league could not change its rules, no matter how horrible the conduct it wished to alter.

Nor does it seem credible to claim that Sterling could be removed on the grounds that he “fail[ed] or refuse to fulfill [his] 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.” Indeed, read in its entirety, this clause cuts the other way. It raises the question of whether the behavior was adverse to the interest of the NBA, but deems that relevant only if there was an antecedent failure or refusal to fulfill contractual obligations, which does not seem to be the case here.  So again, the close reading of the text looks as though it is meant to block just this outcome.

Nor is it idle for the rules to be drafted in this form. Owners of sports teams are a notoriously difficult lot to begin with, and this provision was meant to protect any individual owner against a sneak attack by disgruntled rivals. To be sure, no one thought that something like the Sterling affair would be the case that tested the wisdom of that provision, but, as a contractual matter, second thoughts about the grounds for forced sale don’t undo the explicit contractual provision.

Everyone’s fervent hope is that Sterling will choose to sell out his shares so as to spare himself further humiliation and business pressure. But will so difficult a man take such sage advice? And if he does not, can he win his contract claim?  

Probably not, because the drafters of the agreement have taken the very sensible decision in Article 14, which sets the Procedure for Termination, of saying, “The decisions of the Association made in accordance with the foregoing procedure shall be final, binding, and conclusive, and each Member and Owner waives any and all recourse to any court of law to review such decision.” It looks as though no means no. 

Or does it? Sometimes there is some wiggle room. But I hope not. There is a weak argument that a decision that does not pay full weight to the substantive rules cannot be done in accordance with the forgoing procedure, but Article 14 seems to block that reading by setting out all the steps on the road to revocation. 

On the other hand, Sterling could invoke the rule of “contra proferentem,” whereby the terms of a standard contract, where ambiguous, are construed against the party that drafted them. This rule is normally applied in consumer contracts, but Sterling could say that the unbridled hostility toward him led everyone in the organization to disregard the substantive rules. 

All of these points are long shots.  I think that courts will be — and should be — very loath to upset standard clauses that speak to the finality of arbitration in a wide range of contexts. Indeed, since no one thinks that the NBA can capture any portion of the gains from sale, a shrewd Sterling should sell now, in order to capture the huge run-up in sales price that comes from the increased name recognition of the LA Clippers, who are no longer a side show to the Minneapolis (whoops, Los Angeles) Lakers. 

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  1. Fricosis Guy Listener
    Fricosis Guy
    @FricosisGuy

    Richard Epstein:

    First, the key operative provision for terminating ownership would require that Sterling “willfully violate any provisions of the Constitution and By-Laws, resolutions, or agreements of the association” in order to be removed. Unless there is some “resolution” that covers this case, this provision does not give the NBA an obvious out.

    Everyone looks to the constitution, whereas this “resolutions or agreements” language is likely where he’s going to be hanged.

    I’d find it difficult to believe that the NBA doesn’t have a general policy about non-discrimination. Heck, I wouldn’t be surprised if they had once about ticket sales and game attendance. And Sterling was pretty clear that he didn’t want his girlfriend bringing blacks to “his games.”

    • #1
  2. Mike H Coolidge
    Mike H
    @MikeH

    Richard Epstein:  I think that courts will be — and should be — very loath to upset standard clauses that speak to the finality of arbitration in a wide range of contexts.

    Agreed. The more the courts reinforce the results of binding arbitration, the better.

    • #2
  3. Jackal Inactive
    Jackal
    @Jackal

    For Sterling, there’s the possibility that having to sell now is a huge tax hit compared to leaving the team intact as an inheritance for one or more of his kids (I think–the death tax is there, obviously, but seems like it would be less severe than the capital gains).  Add a discount in price from being too eager to sell, and that suggests Sterling will be slow to sell.

    For the NBA, the best-case scenario is speed.  If Sterling sells without forcing the owners to go through the Article 14 process, he has saved them a lot of potential heartache.  Who among the owners is willing to cast the first stone, or does not see himself as potentially the next on the chopping block when it comes out that he resisted gay marriage?

    So both parties have an interest in inflating the sale price–to cover tax costs and to speed things up.  Should be a hefty price tag on this one.

    • #3
  4. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    Doesn’t Article 14 make the entire rest of the contract essentially superfluous?  If it can be ignored without redress…..

    • #4
  5. iWc Coolidge
    iWc
    @iWe

    Everyone’s fervent hope is that Sterling will choose to sell out his shares so as to spare himself further humiliation and business pressure.

    Be careful with words like “everyone.” I am rooting for Sterling to defy the common wisdom and the pressure of the masses. He clearly is a nasty person, but society has many despicable people. None should be illegally deprived of their property, especially not as a result of a mob frenzy.
     

    • #5
  6. Son of Spengler Contributor
    Son of Spengler
    @SonofSpengler

    Guruforhire:

    Doesn’t Article 14 make the entire rest of the contract essentially superfluous? If it can be ignored without redress…..

     Along related lines: If the contract text says, “The decisions of the Association made in accordance with the foregoing procedure” etc., wouldn’t the question of whether the decisions are made according to procedure fall outside of the scope? It would seem legitimate to me that the applicability of the contract to the particular situation — questioning the NBA’s jurisdiction, so to speak — could be brought to court, even if decisions within that “jurisdiction” would be covered under Article 14.

    • #6
  7. Ross C Member
    Ross C
    @RossC

    iWc:

    He clearly is a nasty person, but society has many despicable people. None should be illegally deprived of their property, especially not as a result of a mob frenzy.

    I too am troubled by the rush to “get a rope” for Mr. Sterling.  His views are definitely odd for this day and age, but not all that odd for an octogenarian (I suspect).  He appears to have been betrayed badly by this woman, in that she is asking questions during the conversation to goad him on, and he is clearly troubled at having to express his bigoted views.  And lastly, he is acting (it seems to me) out of a desire to help this woman to improve her prospects in life (even though his advice seems bigoted at worst and strange at best).  So I would say that while we (as a nation) should be ready to condemn these statements, we should put this guy well behind the murderers, rapists, and child molesters that were perpetrating their crimes during the last week and that we heard nothing about.

    • #7
  8. user_385039 Inactive
    user_385039
    @donaldtodd

    Many men do foolish things because of women and this guy seems not to be the exception to that rule.  I am sorry he opened his mouth, but not so sorry as he undoubtedly is right now.

    That the words he uttered worked against him is no surprise.  That they will affect the NBA is something else.  I do expect a court fight about this.  Perhaps he’ll be the next Al Davis, twitting the league of which he is a member, and getting money out of them as well.

    • #8
  9. EThompson Inactive
    EThompson
    @EThompson

    iWc:

    I am rooting for Sterling to defy the common wisdom and the pressure of the masses. He clearly is a nasty person, but society has many despicable people. None should be illegally deprived of their property, especially not as a result of a mob frenzy.

     Could not agree more. The great Abdul-Jabbar had an interesting perspective:

    “They caught big game on a slow news day, so they put his head on a pike, dubbed him Lord of the Flies, and danced around him whooping,” he wrote, noting that he does somewhat understand people’s reaction to Sterling’s latest comments.

    “What bothers me about this whole Donald Sterling affair isn’t just his racism. I’m bothered that everyone acts as if it’s a huge surprise,” Abdul-Jabbar continued. ” All this stuff  has been going on for years and this ridiculous conversation with his girlfriend is what puts you over the edge?”

    “Didn’t we just call to task the NSA for intruding into American citizen’s privacy in such an un-American way?

    Kareem makes a valid point and I would only add that there appears to be a double standard between players in the professional leagues and franchise owners. Certainly NFL QB Michael Vick committed far more egregious offenses than Donald Sterling, but he received a comparatively mild slap on the wrist for cruel and unusual behavior and was allowed back in the league in a relatively short period of time.

    And I won’t even bring up the topic of Kobe Bryant.

    • #9
  10. user_554634 Moderator
    user_554634
    @MikeRapkoch

    Excellent as always Richard. Not only is the post a fine discussion of the issues in the Sterling case, I enjoyed the lesson in contract law.

    Having done contract litigation when in practice, I argued many of these questions. I, too, doubt the courts will have much to do with this case, although there maybe a bunch of lawsuits in the process.

    • #10
  11. user_928618 Inactive
    user_928618
    @JimLion

    Well, if the NBA breaks their contract with Sterling in the process of trying to evict him, they can hardly rely on that same contract to enforce their decision. He has a case to make, and enough money to make sure he gets to make it in a court of law, if he wants.

    • #11
  12. user_316485 Member
    user_316485
    @ManOTea

    I agree. I am angry with the faux outrage over Sterling’s private, and illegally taped, conversation.  This is dangerous and predictable precedent. I guarantee you that owners who have expressed disagreement about gay “marriage”, abortion, illegal immigration, you name it – will be called out and forced to sell. I say Don baby, fight this loud and proud. Take em to court and have Ms Stiviano by your side. And Mrs. Sterling too.  Entire proceedings is a nauseating fraud. 

    • #12
  13. user_139157 Inactive
    user_139157
    @PaulJCroeber

    Indeed there appear to be significant tax related reasons for Sterling to hold on and frustrate the NBA in securing new ownership.  That said, I think the team will be sold by summer’s end, giving enough time for the high profile interested parties to bid up the price.

    • #13
  14. Nick Stuart Inactive
    Nick Stuart
    @NickStuart

    I’m not particularly interested in Prof Epstein’s views on whether the NBA can or can’t force Sterling to sell the team.

    I would like to know his views on whether business owners should be compelled by the state to act against their conscience and service same sex weddings.

    For example, does he concur with the New Mexico Human Rights Commission decision that by declining to use its artistic and expressive skills to communicate what was said and what occurred at the ceremony, Elane Photography discriminated based on sexual orientation. The commission ordered them to pay $6,637.94 in attorneys fees. Does he think the Supreme Court made the right decision in denying certiorari in this case?

    That’s just one of a number of instances where state agencies and courts are finding against religious liberty. Where does Prof Epstein weigh in on these cases of the state forcing business owners to act in violation of their conscience?

    • #14
  15. Troy Senik, Ed. Contributor
    Troy Senik, Ed.
    @TroySenik

    Nick Stuart:

    I’m not particularly interested in Prof Epstein’s views on whether the NBA can or can’t force Sterling to sell the team.

    I would like to know his views on whether business owners should be compelled by the state to act against their conscience and service same sex weddings.

    Richard has weighed in on this on numerous occasions both in print and audio, both at Ricochet and at Hoover. I think you’d be happy to know that he’s been unsparingly critical of any attempt to penalize refusals of service like the one in New Mexico, seeing it as infringement on the rights of both conscience and free association.

    • #15
  16. Mario the Gator Inactive
    Mario the Gator
    @Pelayo

    I join with others on this thread who are concerned about the dangerous precedent this could set.  Sterling appears to be a despicable person, but that is not reason enough to deprive someone of their property in this country.  Is an NBA owner who opposes Same-Sex Marriage next on the chopping block? 

    I think the best move for Sterling is to give the team to his family as a gift immediately.  That will allow him to avoid taxes on capital gains from selling the team.  It also kills any legitimate attempt by the NBA to force a sale because his wife and children had nothing to do with his statements during the recorded conversation.

    • #16
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