By Christopher R. Deubert, Senior Writer
As explained by the Supreme Court in NCAA v. Alston (2021), it is generally recognized that Major League Baseball’s (MLB) antitrust exemption is “unrealistic,” “inconsistent,” and “aberrational.” Now the case designed to overturn that exemption is one step closer to review by the Supreme Court.
In an October 26, 2022 opinion, Judge Andrew L. Carter, Jr. of the United States District Court for the Southern District of New York dismissed a complaint brought by four minor league baseball (MiLB) clubs against MLB. Nostalgic Partners, LLC v. The Office of the Commissioner of Baseball, 2022 WL 14963876 (S.D.N.Y. Oct. 26, 2022). The parties’ briefing before the Second Circuit Court of Appeals is now complete, with the possibility of a decision before the World Series. Interestingly, the clubs agree that the dismissal was the right outcome and acknowledge that the Second Circuit must affirm the outcome, setting the stage for an appeal to the Supreme Court.
The MLB-MiLB Relationship
This case arises out of the decision by MLB and its 30 member clubs to reconfigure its MiLB arrangements. For more than 100 years, MLB and MiLB clubs operated pursuant to a Professional Baseball Agreement (PBA) through which MLB clubs affiliated with MiLB clubs, most of which were independently owned and operated, up to six affiliates per club. In 2019, there were 160 MiLB affiliates.
The PBA expired in 2020 at which point MLB and its clubs agreed on a new plan that restricted clubs to four affiliates each. The result was the reduction in MLB-affiliated MiLB clubs from 160 to 120, with the survivors being those with economic or political ties to MLB, according to the plaintiffs.
The Abandoned MiLB Clubs Sue
Four clubs that did not make the cut (the Staten Island Yankees, Tri-City Valley Cats, Salem-Keizer Volcanoes, and Norwich Sea Unicorns) sued, alleging that MLB’s plan was an unreasonable restraint of trade in violation of Section 1 of the Sherman Act. The plaintiffs allege that MLB’s plan constitutes a horizontal agreement among competitors to artificially restrict the market for affiliation agreements between MiLB clubs and MLB clubs. Moreover, the plaintiffs allege that the MLB clubs have engaged in an unlawful group boycott by refusing to do business with the excluded clubs.
The plaintiffs knew and know that their claims run head on into baseball’s antitrust exemption. In the Federal Baseball case of 1922, the Supreme Court infamously ruled that baseball was not interstate commerce and therefore, was exempt from antitrust scrutiny. The Supreme Court reluctantly upheld this exemption in 1953 (Toolson) and 1972 (Flood), despite having previously refused to extend it to other sports and acknowledging the errors of Federal Baseball. In the Curt Flood Act (CFA) of 1998, Congress repealed the exemption insofar as it concerned MLB players, but left it alone with regard to other areas of baseball, a disputed issue in the present case. Numerous cases over the years have been brought by scouts, cities, prospective owners and others challenging the exemption with minimal success.
This time, however, feels different. The plaintiffs argue that the Supreme Court’s unanimous decision in Alston not to provide the NCAA any special treatment under antitrust law reflects an evolved attitude by the Supreme Court in considering such challenges to sports leagues. Additionally, the plaintiffs are represented by James Quinn, the preeminent anti-management sports and antitrust litigator, and his long-time firm Weil, Gotshal & Manges LLP.
As expected, the District Court ruled in MLB’s favor based on the antitrust exemption. But in many ways the case was a win for the plaintiffs. The court found that the plaintiffs had sufficiently alleged violations of antitrust law and had antitrust standing (a different concept from ordinary standing). The court stated that the plaintiffs “successfully allege that a competitive market without the agreement would have produced a greater number of affiliations.”
The MiLB Clubs Appeal
On appeal, the plaintiffs seek the Second Circuit’s imprimatur of the District Court’s reasoning. Indeed, despite being the appellants, the MiLB clubs seek a full affirmation of the lower court’s opinion so that they can seek to overturn the antitrust exemption at the Supreme Court. The appellants’ brief concludes with the hope that the Second Circuit will “dispatch this case to the Supreme Court with a message attached: Enough already.”
Previewing its planned arguments before the Supreme Court, the clubs take aim at the Court’s rationale for maintaining the exemption in Flood. There, the Supreme Court declined to overturn the exemption based on stare decisis and the fact that Congress had not taken action to overturn the exemption. As recently discussed at length by the Court in Dobbs v. Jackson Women’s Health Organization (2022), a principal component of the stare decisis analysis is the degree to which parties have taken action in reliance on a past decision. In the instant case, the clubs point out that the reliance interest at issue in Flood (and Toolson) was the existence of the reserve clause which prevented any meaningful free agency for players. However, the reserve clause effectively fell with the Messersmith/McNally arbitration decision in 1975 so that free agency today is managed through collective bargaining. Consequently, plaintiffs argue there are no longer legitimate reliance interests to consider.
In response, MLB makes two principal arguments.
First, it argues that the Curt Flood Act (CFA), 15 U.S.C. § 26b, effectively codified baseball’s antitrust exemption in all areas other than labor relations with major league players. Section (b) of the CFA provides that “[n]o court shall rely on the enactment of this section as a basis for changing the application of the antitrust laws to any conduct, acts, practices, or agreements other than those” concerning the employment of major league players. The section goes on to recite a non-exhaustive list of items not affected by the change in law, including minor league baseball. If not an affirmation of the exemption to MiLB, MLB argues that “Congress’s demonstrated acquiescence in the exemption” meaning that “any decision to withdraw or amend it should be left to the legislature.”
In its briefs, the MiLB clubs vehemently disagree with MLB’s reading of the CFA. Instead, they believe that the CFA is neutral as to the continuance of baseball’s antitrust exemption in areas other than MLB players, leaving it for the Supreme Court to revisit. The parties dig deep into the legislative history of the statute with competing quotes about the law’s intents and possible effects on MiLB.
Second, MLB argues that the appellants do not have antitrust standing because their alleged injuries stem from their exclusion from a system they argue is unlawful. Quoting Second Circuit precedent, MLB asserts that the clubs cannot complain about an inability to “share in the fruits of the cartel.” On this point, MLB notes that the clubs never previously complained about the policy limiting MLB clubs to six affiliates.
In response, the appellants clarify that MiLB and MLB are separate entities and thus they “were never members of MLB’s cartel and are not seeking to join MLB.” Moreover, they explain that they “do not allege that the prior market for affiliations was anticompetitive.” As further noted by the clubs, the distinction between the prior six affiliate policy and the revised four affiliate policy “raises factual and economic questions” that may have to be “litigated later.”
Just as it had done at the District Court level, the United States filed a brief in the matter. While the brief is nominally “in support of neither party,” it clearly supports the appellants. The government recounts the “dubious validity” of baseball’s antitrust exemption and states that it serves no substantive policy goals. Further, it notes that “the application of antitrust law to professional sports has proven workable,” suggesting that there is no reason the same should not apply to baseball.
The Next Inning
The Second Circuit has noticed oral argument for the week of June 13. If the Court has any flair for the dramatic, a decision around the World Series seems possible. Regardless, it is clear that the Second Circuit’s decision will not be the end of the road in this case.
Deubert is Senior Counsel at Constangy, Brooks, Smith & Prophete LLP.
