By Julian Perlman, of BakerHostetler
A federal district court granted a motion to dismiss filed by Major League Baseball (MLB) on the basis of its storied antitrust immunity. Coming almost on the eve of the World Series, this decision, which is now under appeal, will surely keep the MLB’s antitrust exemption, unique for a sports league, front and center as Congress investigates its effects and considers legislation to eliminate it.
In a decision from Southern District of New York Judge Andrew Carter, the court noted it was constrained to apply U.S. Supreme Court and Second Circuit precedent creating and refining professional baseball’s exemption from U.S. competition laws. The case, Nostalgic Partners, LLC et al. v. The Office of the Commissioner of Baseball, involves claims by four minor league baseball clubs that allege that defendant MLB violated Section 1 of the Sherman Act by orchestrating a horizontal agreement through which 40 minor league teams had their relationships with former MLB teams severed. Plaintiffs’ claims arise out of the 2020 expiration of the Professional Baseball Agreement (PBA), which was replaced by an agreement to form the Professional Development League (PDL), reducing the number of permitted minor league affiliates for each MLB club from six to four.
While ultimately finding that the antitrust exemption shielded MLB from antitrust suits of this nature, the court noted that the plaintiffs had otherwise adequately established antitrust standing and pleaded an antitrust violation.
With regard to antitrust standing, the court observed that the plaintiffs met the bar for alleging anticompetitive conduct with allegations that there have been adverse effects in the market for minor league affiliations and that the plaintiffs had been injured by the same. Notably, the court addressed the defendant’s argument that, effectively, the plaintiffs’ real complaint was that they no longer enjoyed being part of an otherwise anticompetitive agreement – an agreement they did not complain of when there were sufficient affiliation slots to enable them to participate in any alleged conspiracy. The court flatly rejected that argument, observing that such allegations did not bar the plaintiffs from suing under the antitrust laws. “Even a cartel member has antitrust standing to challenge the cartel to which it belongs, to the extent that the member can demonstrate antitrust injury.”
With regard to pleading an antitrust violation, the court grappled with the issue of the appropriate standard of review for Section 1 claims in the sports industry. In the wake of the Supreme Court’s decision in NCAA v. Alston, the court refused to find the restraint of trade was per se unreasonable and also refused to engage in any sort of quick look analysis. “As in Alston, ‘this dispute presents complex questions requiring more than a blink to answer.’” As part of its full rule of reason analysis, the court necessarily considered the relevant market, and held that a narrowly drawn market – here, the market for minor league affiliations – was appropriate given the lack of available substitutes.
However, as many observers predicted, the plaintiffs could not overcome MLB’s antitrust exemption which dates back 100 years. This was even in the face of a Statement of Interest filed by the U.S. Department of Justice urging a narrow construction of the MLB’s immunity. “Even analyzing the exemption narrowly, the exemption is wide enough to encompass the claims here.” The court concluded it was bound by Supreme Court and Second Circuit precedent that could only be altered by a new ruling from the high court or by congressional action. “[U]ntil the Supreme Court or Congress takes action, the exemption survives; it shields MLB from Plaintiffs’ lawsuit.” It will further surprise no one if it precisely takes such action at the highest levels of government to ultimately resolve this dispute nor that plaintiffs have already appealed this court’s decision.
