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Week In Review

By Chris Helsel

Minor League Baseball Players File Class Action Antitrust Suit Against MLB

In December of last year, four minor league baseball players filed a proposed class action lawsuit against Major League Baseball (MLB, league), alleging that the league and its clubs operate as a cartel and artificially suppress the minor league players' wages.

Most, but not all, MLB clubs are owned and operated by parent clubs. The parent club pays each player's wages, and team executives are free to assign a player to any of its other minor league clubs, or to promote the players to the MLB (that is, to the parent clubs themselves). The "non-affiliated" independent minor league clubs, which have no parent clubs, pay their own players' wages and do not compete against affiliated minor league teams, are not involved in this lawsuit.

The suit contends that the "uniform player contract," which nearly all players on affiliated minor league teams are required to sign, violates antitrust law. The contract contains a "reserve clause," which grants the parent club the exclusive contractual rights to a player for a seven year period. Under a reserve clause, a club retains exclusive rights to a player even after the player's employment contract expires, and the player cannot sign with another club without the parent club's consent (see below). The parent club, meanwhile, is free to trade the player to another club without his consent or unilaterally terminate his contract, but the player may not sign with another team on his own.

At the MLB level, the obviously anticompetitive practice of trading a player without his consent is permitted through the non-statutory labor exemption to federal antitrust law. This judicially carved-out exemption allows parties to a collective bargaining agreement to avoid antitrust scrutiny, provided the restraint on competition concerns a mandatory subject of collective bargaining, primarily affects only the parties to the collective bargaining relationship, and is the product of bona fide arm's-length bargaining. Under this exemption, in addition to player trades, practices such as first-year player drafts and salary caps have been upheld.

Further, the U.S. Supreme Court held (in 1922, and then twice since) that the "business of baseball" was entirely exempt from antitrust law, and that reserve clauses were therefore valid. However, in 1975, an arbitrator declared two MLB pitchers free agents, nullifying the reserve clause at the MLB level and opening the door to free agency, whereby a player not under contract is free to sign with any other team. In 1998, Congress passed the Curt Flood Act, which withdrew baseball's antitrust exemption for all labor issues - but the non-statutory labor exemption still applies where a CBA exists and the above-mentioned criteria are met.

At the minor league level, however, reserve clauses persist. Further, unlike their MLB counterparts, minor league players have no union and no collective bargaining agreement. Therefore, the players argue, the non-statutory labor exemption should not apply, and MLB parent clubs should not be permitted to suppress wages and impose the "uniform player contract" on their minor league players.

The current suit requests that the court certify a class of thousands of minor league players who are or were employed under the uniform contract during the last four years. The plaintiffs seek damages resulting from the loss of the potentially higher wages they could/would have earned in a competitive market, as well as injunctive relief prohibiting the enforcement of the reserve clauses contained in their contracts.


Three-Strike Candidate Rap Mogul Suge Knight Pleads Not Guilty to Murder

Rap mogul Marion "Suge" Knight, the co-founder of Death Row Records, has pleaded not guilty to one count of murder and one count of attempted murder following an altercation at Tam's Burgers in Compton, CA. Mr. Knight is accused of intentionally running his pickup truck over two men, Terry Carter and Cle "Bone" Sloan, outside the restaurant. Mr. Carter was killed, and Mr. Sloan remains hospitalized. Mr. Knight's $2 million bail was revoked after a court commissioner determined he was a flight risk and could intimidate potential witnesses.

According to a 911 call released last week, a witness reported that "The car ran over two guys, there was fighting and then he just pulled back and pulled forward and run 'em over."

Mr. Knight's attorneys insists that the event was an accident. He says Mr. Knight tried to escape an attack by four men who were trying to grab him through the driver's side window, and that, fearing for his life, he accelerated in order to escape, inadvertently striking Mr. Carter and Mr. Sloan.

Mr. Knight, who played briefly in the National Football League, helped usher Tupac Shakur, Dr. Dre and Snoop Dogg into the mainstream and developed a reputation as one of the most powerful and feared figures in the music industry. However, his professional career suffered in recent years, and he filed for bankruptcy in 2006.

This is not Mr. Knight's first brush with the law. In 1996, while on probation for charges including auto theft, attempted murder and carrying a concealed weapon, he and Mr. Shakur badly beat a rival at a Las Vegas hotel, hours before Mr. Shakur was fatally shot while riding in Mr. Knight's car. He was sentenced to five years in jail for the hotel attack. Mr. Knight also has prior felony convictions for armed robbery and assault with a gun.

Additionally, Mr. Knight has survived at least two shootings. Most recently, he was shot six times at a pre-MTV Video Music Awards party in Los Angeles.

His prior felony convictions make him a candidate for California's Three Strikes sentencing law, which mandates a state prison term of at least 25 years to life for a defendant convicted of any felony with two or more prior strikes. Mr. Knight's attorney acknowledged that his client is a Three Strikes candidate, but told reporters on Tuesday that he is confident Mr. Knight will be cleared of all charges.



The F.C.C. Goes Beyond Presidential Recommendations in Net Neutrality Proposal

In November, to the dismay of cable television and telecommunications companies, President Obama urged the Federal Communication Commission (F.C.C., Commission) to adopt the "strongest possible rules" to ensure net neutrality. This week, the F.C.C. went beyond even the President's recommendations.

On Wednesday, F.C.C. chairman Tom Wheeler proposed regulating consumer Internet services as a public utility, as expected. He went even further, however, in proposing to reclassify high-speed Internet service as a telecommunication service under Title II of the Telecommunications Act (Title II), instead of an information service. This bold new proposal would give the F.C.C. enforcement powers to police marketplace practices for handling of data before it enters the so-called interconnect market - that is, people's homes.

According to F.C.C. officials, this would allow the Commission to ensure that the Internet is not divided into "pay-for-play" fast lanes for those who can afford it, and "slow lanes" for those who cannot. It would also prevent providers from blocking content.

In addition, the new proposal calls for mobile data service to fall under the open Internet order and be regulated under Title II, like mobile voice service. Furthermore, it includes provisions aimed at protecting consumer privacy and ensuring Internet availability to persons with disabilities and in remote areas.

The proposal will be put to a vote by the full Commission on February 26th. It is expected to pass, and cable and telecommunications companies have vowed to litigate.

Supporters of the F.C.C. plan include major Internet companies like Google and Netflix. They argue that the Internet has become such an essential gateway of communication and commerce in everyday life that it must be regulated like any other public utility. They consider Title II protection a necessary safeguard, and believe that a robust regulatory framework will ensure continued business innovation.

Republican opponents of the F.C.C. plan agree that blocking content and enabling fast and slow lanes must be prohibited. However, they contend that classifying the Internet as a public utility under F.C.C. control will lead to over-regulation and deter investment and innovation.


Caddies File Antitrust Lawsuit Against PGA Tour, Seek Class Certification

Eighty-one professional golf caddies have filed a lawsuit against the PGA Tour alleging antitrust, intellectual property and contract violations. The suit stems from the Tour's policy that caddies wear "bibs" containing logos and other insignia of corporate sponsors without compensation.

The lawsuit was filed in the Northern District of California, where Ed O'Bannon recently prevailed in his antitrust suit against the NCAA. The caddies' suit seeks at least $50 million in damages, which the caddies claim is the approximate annual value of the bibs' display during tournament television broadcasts. The plaintiffs also seek class certification; the proposed class would include approximately 1,000 caddies.

While there is no specific rule that the caddies must wear the bibs, the suit alleges that the caddies are compelled to wear them through coercion and retribution. Specifically, the caddies allege that they are threatened with exclusion from tournaments if the bibs are not worn, golfers are encouraged to fire caddies who refuse to wear the bibs, and the PGA Tour admonishes caddies against receiving endorsement money from competing sponsors. The caddies, who are employed by individual golfers, not the PGA Tour itself, do not receive any compensation for their allegedly compulsory wearing of the sponsored bibs. They are free, however, to sign sponsorship deals with apparel companies and wear those companies' clothing during tournaments and interviews, which are often televised.

The suit contends that the bib policy violates the Sherman Antitrust Act by preventing caddies from negotiating their own sponsorship contracts. It further alleges that the policy results in decreased competition for bid sponsorships because only the PGA Tour, and not the caddies, can negotiate the sponsorship contracts. The caddies also claim that the PGA Tour has conspired with local tournament organizers to force them to wear the bibs.

In addition to the antitrust claims, the caddies allege the PGA Tour has breached the caddies' registration agreement by barring them from wearing the clothing of competing sponsors. The caddies have also raised an intellectual property cause of action, claiming that the forced wearing of sponsored bibs causes consumer confusion in violation of the Lanham Act.

While the PGA Tour is expected to contend that bibs are not a part of the official caddy "uniform" under its rules, the caddies can cite the experience of James Edmondson at last Honda Classic. Mr. Edmondson, while caddying for Ryan Palmer, reportedly removed his bib prior to a one-hole playoff and forced to explain himself to PGA Tour officials - though it should be noted that he was not punished for removing the bib.

The PGA Tour might also contend that caddies contractually assent to follow its rules, and are not obligated to participate in its competitions. The caddies will likely counter with a monopoly argument, claiming that the PGA Tour is the single highest level of male professional golf and therefore no real marketplace competition exists.

Finally the PGA Tour can argue that the bibs improve the presentation and marketability of its tournaments, which contributes to the "pro-competitive" virtues of a restraint on trade, which in an antitrust analysis must be balanced against its "anti-competitive" harms. Of course, the caddies can counter that there are less restrictive means for the PGA Tour to achieve its goal of standardizing the caddies' appearance.


Nearly 10,000 Picassos For Sale - Art Industry Fears Market Saturation and Depressed Prices

Maria Picasso, a granddaughter of Pablo Picasso, inherited approximately 10,000 of her grandfather's works upon his death in 1973. Since then, she has sold numerous pieces through private dealers and auction houses in order to support herself and her charities. Now, however, she has decided to sell them on her own.

Ms. Picasso grew up in relative poverty. She was never close with her grandfather, and recalls with shame the way he treated her father. Her brother committed suicide after Mr. Picasso's second wife banned him from the legendary artist's funeral. She now intends to sell his art in order to raise millions of euros for charity. Specifically, she plans to provide aid for a pediatric hospital in Vietnam and fund projects in France and Switzerland benefiting the elderly and troubled teenagers.

"It was really difficult to carry this celebrated name and to have a difficult financial life," she said. "I think because of it I developed my sense of humanity and my desire to help others." Regarding her decision to sell them on her own, she added, "It's better for me to sell my works and preserve the money to redistribute to humanitarian causes."

In the last year alone, Ms. Picasso has donated €1.5 million to the Hospital Foundation of Paris, with proceeds going to the psychiatric emergency unit for teenagers and a long-term hospital care program for elderly patients.

Mr. Picasso died without a will, and Ms. Picasso was awarded one-fifth of his estate, including his French villa and the 10,000 aforementioned works. The fact that she has decided to offload a significant portion of them has raised alarm in the art-for-profit community. Speculators fear that this "acceleration" of her sales will flood the market and depress prices.

It is hard to argue with Ms. Picasso's timing, however. Last year, sales of Picassos totaled $449 million, second only to Andy Warhols.


Ninth Circuit Stops Oakland Athletics' Move to San Jose

While baseball's historic exemption from federal antitrust laws regarding labor issues was finally removed by Congress in 1998, the Ninth Circuit has decided that the exemption still applies to franchise relocation.

The City of San Jose had filed suit against MLB (specifically then-commissioner Bud Selig), challenging the league's rules regarding franchise relocation. Under league rules, a team may not relocate into another team's designated operating territory unless it receives the approval of at least three-quarters of MLB's clubs. San Jose argued that the 1972 Supreme Court decision in Flood v. Kuhn, which upheld baseball's antitrust exemption, applied only to the "reserve cause" and not to other facets of the baseball industry, like franchise location.

The Ninth Circuit disagreed. The Court noted that the ability to prevent market saturation is crucial to MLB's success, and that therefore the rule regarding franchise relocation was valid.

"The designation of franchises to particular geographic territories is the league's basic organizing principle. Limitations on franchise relocation are designed to ensure access to baseball games for a broad range of markets and to safeguard the profitability--and thus viability--of each ball club. Interfering with franchise relocation rules therefore indisputably interferes with the public exhibition of professional baseball ... [F]ew, if any, issues are as central to a sports league's proper functioning as its rules regarding the geographic designation of franchises."

The court also noted that the Curt Flood Act of 1998, which withdrew baseball's antitrust exemption with respect to the reserve clause and other labor issues, "explicitly maintained it for franchise relocation" [emphasis in original].

As Judge Alex Kozinski of the Ninth Circuit so poetically put it in his decision, "Like Casey, San Jose has struck out."

Attorneys for San Jose have indicated that they will file for a petition of certiorari to the Supreme Court.


Pop Warner Sued Following Suicide of Former Player with Degenerative Brain Disease

The family of a 25-year old former amateur football player who committed suicide in 2012 has filed a lawsuit against Pop Warner, the largest and most established youth football organization in the country. The suit alleges that Pop Warner knew or should have known about the risks associated with children playing football, and failed to warn participants about, and protect them from, the dangers of head trauma. The family seeks at least $5 million in punitive damages.

The suit charges Pop Warner with failing to train coaches properly, not providing the safest helmets available, not teaching players how to wear helmets properly, and not limiting the amount of physical contact in practice. The organization is also accused of failing to follow established concussion protocols.

The deceased, Joseph Chernach, played four years of Pop Warner football, followed by four years in high school. He also wrestled for 12 years and competed in the pole vault for the track team. Although he was never diagnosed with a concussion, an autopsy revealed that he suffered from chronic traumatic encephalopathy (C.T.E.), a degenerative brain disease. C.T.E. has recently been linked to the suicides of numerous former National Football League players.

To be successful, the suit must affirmatively demonstrate that C.T.E. was the cause of Mr. Chernach's suicide. Further, the plaintiffs will need to show that the C.T.E. was the result of his time playing Pop Warner football, not high school football, wrestling, or pole vaulting.

Mr. Chernach, whose father was a volunteer football and wrestling coach while his son was participating, had dropped out of Central Michigan University and demonstrated signs of depression prior to his suicide.


International Soccer Players' Union Pledges Legal Action Over Unpaid Players

Labor disputes between football leagues and their players are apparently not confined to the National Football League and the United States.

According to FIFPro, the international soccer players' union, negotiations to reform FIFA rules regarding the transfer of players came to a crashing halt when representatives from European clubs and leagues rejected demands to protect players whose wages went unpaid or whose contracts were improperly terminated. The union has now pledged to take legal action "to restore the basic rights of players impeded by football's fundamentally flawed player transfer system."

According to Bobby Barnes, head of FIFPro's European division, "The basic right of players to be paid according to the terms laid out in their contract is non-negotiable [...] Our patience to find solutions has been exhausted and the European members are united in their belief that more forceful action seems inevitable."

FIFPro had proposed numerous new rules, including allowing a player to terminate his contract with 10 days' notice after he went unpaid for more than 30 days and entitling a player to financial compensation if his contract is terminated without just cause.

FIFPro did not disclose whether it intended to bring its case to a domestic court, the European Court of Justice or the European Commission. "All avenues are open to us. Nothing is being ruled out," said a union spokesman.


Manhattan Art Galleries Subpoenaed

Several Manhattan art galleries have received subpoenas from the borough's District Attorney requesting sales and shipping records, according to the galleries' attorneys.

Numerous galleries and the Art Dealers Association have claimed to be unaware of any investigation, but attorneys from four separate law firms told the New York Times that they had seen subpoenas sent in recent months to their gallery or dealer clients. Additionally, a tax specialist at Andersen Tax said he had direct knowledge of a subpoena received by a major Manhattan gallery.

The attorneys and accountants did not name the galleries subpoenaed to avoid risking the public identification of their clients.

Although one attorney whose client received a subpoena described this as occurring "on a fairly regular basis," another indicated that this inquiry was being handled by the Major Economic Crimes Bureau of the District Attorney's office. "This suggests a bigger scope," he said.

The District Attorney's office and New York State Tax Department declined to disclose the details of any pending investigation or audit.

This inquiry brings to mind one somewhat recent investigation - in 2002, led by then-Manhattan District Attorney Robert M. Morgenthau - which uncovered large-scale tax fraud and resulted charges against more than 300 customers and nearly a dozen galleries. Prosecutors ultimately recovered tens of millions of dollars in outstanding city and state taxes and fines.


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This page contains a single entry from the blog posted on February 8, 2015 3:54 PM.

The previous post in this blog was The Ongoing Washington Redskins Name Controversy.

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