A federal judge from the Southern District of New York has granted Major League Baseball’s motion to dismiss an antitrust lawsuit brought by professional baseball scouts, who claimed MLB artificially restricted their movement and compensation in violation of the Sherman Act and New York’s Donnelly Act.
In so ruling, the court found that the antitrust exemption enjoyed by baseball extended to its relationship with scouts since their activities fall under “the business of baseball.”
The court noted in the opinion that a scout’s employment relationship with an MLB franchise is governed by a form contract — the Uniform Employee Contract (UEC). The UEC is used for a variety of employees — not just scouts — and incorporates the MLB rules and the league’s Constitution.
The standard UEC contains a “Loyalty” provision, which provides that scouts will:
a. “serve [the employing Franchise] diligently and faithfully, and . . . observe and comply with all rules and regulations of [the employing Franchise] and the Commissioner.”
b. “maintain the confidentiality of all confidential information, including but not limited to scouting information acquired during the [scout’s] employment [under the Scout Contract], and . . . preserve such information for the exclusive benefit of [the employing Franchise].”
When under contract with a franchise, scouts are prohibited from providing scouting services to other franchises. This, the plaintiffs claimed, is a “tacit agreement among the franchises prevents scouts from making ‘a horizontal move in a similar capacity.’”
The plaintiffs, Jordan Wyckoff and Darwin Cox, also took issue with the “Offset Policy,” which was issued in December 2002 by the Labor Relations Unit of the Office of the Commissioner. The Offset Policy is triggered when a scout is dismissed by a franchise and hired by another franchise during the term of the scout’s one-year employment contract with the original employer. Under the standard scout contract, a scout may be terminated upon ten days’ notice, but the franchise must pay the scout’s salary for the full one-year term of the employment contract. The Offset Policy requires that where a scout is re-hired while being paid under an earlier employment contract, the hiring franchise must obtain that earlier contract from the scout. “The amount of any compensation due to the scout [under the original contract] is then reduced by the amount paid to the scout by the hiring Franchise,” according to the plaintiffs.
The court then turned to Section 1 of the Sherman Act, 15 U.S.C. § 1, which prohibits “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.”
Since 1922, however, federal courts have recognized an exemption from antitrust regulation for the business of baseball. See Fed. Baseball Club of Balt, v. Nat’l League of Prof’l Baseball Clubs, 259 U.S. 200, 208-09, 42 S. Ct. 465, 66 L. Ed. 898, 20 Ohio L. Rep. 211 (1922). In Federal Baseball, the plaintiffs challenged the National League and American League’s practice of buying clubs in smaller leagues and “inducing all those clubs . . . to leave their League.” Id. at 207. The plaintiffs claimed that this practice was anti-competitive and violated the Sherman Act. Id. Justice Holmes, writing for a unanimous court, rejected this argument, holding that “giving exhibitions of baseball” was a “purely state affair” not subject to regulation by the federal government. Id. at 208. The Supreme Court reaffirmed this decision in Toolson v. New York Yankees, Inc., 346 U.S. 356, 357, 74 S. Ct. 78, 98 L. Ed. 64 (1953) (per curiam), in which MLB players challenged the “enforcement of the standard ‘reserve clause’ in their contracts, pursuant to nationwide agreements among the [MLB] defendants.” Toolson, 346 U.S. at 362 (Burton, J., dissenting).
The Second Circuit addressed the baseball exemption in 1970, in Salerno v. American League of Professional Baseball Clubs, 429 F.2d 1003 (2d Cir. 1970) (Friendly, J.). In Salerno, umpires brought claims against the American League for antitrust violations, claiming that they had been fired in retaliation for attempting to organize umpires into a collective bargaining unit. Salerno, 429 F.2d at 1004. The Second Circuit held that the umpires’ claim was barred by the baseball exemption. Id. at 1004-05.
The baseball exemption returned to the Supreme Court in 1972, in Flood v. Kuhn, 407 U.S. 258, 92 S. Ct. 2099, 32 L. Ed. 2d 728 (1972). Curt Flood had been a star player for the St. Louis Cardinals until he was traded to the Philadelphia Phillies in 1969. Flood, 407 U.S. at 264-65. Flood had not been consulted about the trade, and he brought an antitrust claim challenging MLB’s reserve system, under which a player is contracted to play with a certain team and that team holds the unilateral right to reassign the player’s contract to another team if it so chooses.2 Id. at 265. The Supreme Court reviewed the history of antitrust regulation as applied to professional sports in the years since Federal Baseball and concluded that the baseball exemption from the antitrust laws is “an exception and an anomaly,” and that “Federal Baseball and Toolson have become an aberration confined to baseball.” Id. at 282.
The Supreme Court noted, however, that that aberration is an established one, and one that has been recognized not only in Federal Baseball and Toolson, but in . . . a total of five consecutive cases. “It is an aberration that has been with us now for half a century, one heretofore deemed fully entitled to the benefit of stare decisis, and one that has survived the court’s expanding concept of interstate commerce. It rests on a recognition and an acceptance of baseball’s unique characteristics and needs,” the high court noted.
Since Flood v. Kuhn, the lower courts “have disagreed about the scope of the baseball exemption,” wrote the judge in the instant opinion. “Some courts have interpreted the exemption broadly, finding that it encompasses the entire ‘business of baseball, not any particular facet of that business, from the federal antitrust laws.’ See, e.g., Charles O. Finley & Co. v. Kuhn, 569 F.2d 527, 541 (7th Cir. 1978)”
Particularly applicable to the instant case is Postema v. National League of Professional Baseball Clubs, 799 F. Supp. 1475, 1488 (S.D.N.Y. 1992), rev’d on other grounds, 998 F.2d 60 (2d Cir. 1993),
In Postema, a female umpire sued the American and National Professional Baseball Leagues, alleging discrimination in violation of Title VII and the New York State Human Rights Law, and common law restraint of trade. Postema, 799 F. Supp. at 1478-90. The defendants moved to dismiss the plaintiff’s restraint of trade claims, “arguing that these claims are preempted by baseball’s exemption to antitrust law.” Id. at 1486.
The judge in the instant case, quoting from Postema, noted that it is “clear that although the baseball exemption does immunize baseball from antitrust challenges to its league structure and its reserve system, the exemption does not provide baseball with blanket immunity for anti-competitive behavior in every context in which it operates. The Court must therefore determine whether baseball’s employment relations with its umpires are ‘central enough to baseball to be encompassed in the baseball exemption.’ (Id.) (quoting Henderson Broadcasting Corp. v. Houston Sports Ass’n, 541 F. Supp. 263, 265 (S.D. Tex. 1982)”
One other court in the Southern District of New York has concluded that Flood narrowed the scope of the baseball exemption. In Laumann v. National Hockey League, 56 F. Supp. 3d 280 (S.D.N.Y. 2014), plaintiffs brought antitrust challenges against, inter alia, the National Hockey League, MLB, several professional baseball and hockey clubs, broadcasters, and distributors concerning the broadcasting of professional baseball and hockey games, alleging that a territorial broadcasting system agreement entered into by defendants violated Sections 1 and 2 of the Sherman Act. Laumann, 56 F. Supp. 3d at 285. The baseball defendants moved for summary judgment, arguing that plaintiffs’ antitrust claims against them were barred by the baseball exemption. Id. at 286. The Laumann court denied defendants’ motion.
The court rendering the instant opinion was reluctant to follow suit.
“We repeat for this case what was said in Toolson:
‘Without re-examination of the underlying issues, the (judgment) below (is) affirmed on the authority of Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, supra, so far as that decision determines that Congress had no intention of including the business of baseball within the scope of the federal antitrust laws.’ Id. at 284-85 (quoting Toolson, 346 U.S. at 357). Given the Flood court’s treatment of Federal Baseball and Toolson, it cannot be credibly argued that Flood announces a significant narrowing of the earlier decisions.”
As the Ninth Circuit has explained, ”Flood’s stare decisis and congressional acquiescence rationales suggest the Court intended the exemption to have the same scope as the exemption established in Federal Baseball and Toolson. After all, it would make little sense for Flood to have contracted (or expanded) the exemption from the one established in the cases in which Congress acquiesced and which generated reliance interests. And Federal Baseball and Toolson clearly extend the baseball exemption to the entire ‘business of providing public baseball games for profit between clubs of professional baseball players.’ City of San Jose, 776 F.3d at 690. This Court finds this reasoning fully persuasive.”
In finding that the exemption should apply in the instant case, the judge wrote that “the employment relationship between baseball scouts and Franchises is central to the ‘business of baseball.’ Scouts play a critical role in directing talent to the Franchises, and the quality of the players is largely what determines success on the field as well as success in the ‘business of baseball.’ Because scouts’ work has a direct and critical effect on the selection of players who will participate in the games that the public will watch, their role cannot be characterized as ‘wholly collateral’ or ‘incidental’ to the business of professional baseball.”
Jordan Wyckoff, Individually and on Behalf of All Those Similarly Situated, and Darwin Cox v. Office of The Commissioner of Baseball, an unincorporated association doing business as Major League Baseball; S.D. N.Y.; 15 Civ. 5186 (PGG), 2016 U.S. Dist. LEXIS 135443; 2016-2 Trade Cas. (CCH) P79,782; 9/29/16
Attorneys of Record: (for plaintiffs) Garrett R Broshuis, LEAD ATTORNEY, Korein Tillery, LLC, St. Louis, MO; Thomas Kay Boardman, Judith S. Scolnick, Scott + Scott, L.L.P.( NYC), New York, NY; Michael C. Dell’Angelo, Patrick Fanning Madden, Sarah Schalman-Bergen, Berger & Montague, P.C., Philadelphia, PA; (for defendants) Adam Michael Lupion, Elise Michelle Bloom, LEAD ATTORNEYS, Proskauer Rose LLP (NY), New York, NY; Elliot Remsen Peters, LEAD ATTORNEY, John W. Keker, Robert Adam Lauridsen, Thomas Edward Gorman, Keker & Van Nest, LLP, San Francisco, CA.
