City of San Jose ‘Strikes Out’ in Case against MLB

Mar 6, 2015

By Seth Reagan, of Manatt, Phelps & Phillips, LLP
Baseball holds a special place in America’s heart, but it also holds a special place in our judicial system when it comes to federal antitrust law. Unlike other professional sports, such as football, hockey, and basketball, Major League Baseball (“MLB”) is exempt from federal antitrust claims related to the “business of giving exhibitions of baseball.” Just how far this exemption extends, and under what circumstances it applies, was the issue recently decided by the Ninth Circuit Court of Appeals on January 15, 2015 in City of San Jose v. Commissioner of Baseball, No. 14-15139.
As the court explained in San Jose, MLB’s constitution requires each of the league’s 30 teams to play its home games within a designated territory. Relocation to another team’s territory is prohibited, unless the move is approved by three-quarters of the league’s teams. In 2009, the Oakland Athletics, facing dwindling attendance and revenues, sought to relocate their team to the city of San Jose in the heart of Silicon Valley. However, San Jose falls within the exclusive operating territory of the San Francisco Giants. MLB established a special Relocation Committee to consider the move. In the meantime, the A’s moved forward with their relocation plan, entering into an option agreement with San Jose to purchase land for a new stadium. But MLB dragged its collective feet, and four years later it still had yet to issue a decision regarding the move. The site of the future stadium in San Jose sat idle. Believing that MLB’s delay was an attempt to stymie the relocation, San Jose resorted to suing MLB and its commissioner for violations of state and federal antitrust laws, among other causes of action.
The court found in MLB’s favor. The baseball industry, held the court, benefits from a unique 92-year-old exemption from the antitrust laws. The court cited three (in)famous cases in which the Supreme Court established and affirmed the existence of baseball’s exemption: Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, 259 U.S. 200 (1922) (holding that the Sherman Act had no application to the “business [of] giving exhibitions of baseball”); Toolson v. New York Yankees, Inc., 346 U.S. 356 (1953) (affirming that “the business of providing public baseball games for profit between clubs of professional baseball players was not within the scope of the federal antitrust laws”); and Flood v. Kuhn, 407 U.S. 258 (1972) (once again upholding the baseball exemption). The court agreed with and adopted the fundamental reasons for the baseball exemption explained in Flood: (1) fidelity to the principle of stare decisis and aversion to disturbing reliance interests created by baseball’s enduring exemption over the past 50 (now 90) years, and (2) Congress’s acquiescence to, and refusal to eliminate, the baseball exemption. Accordingly, the court affirmed the district court’s dismissal of San Jose’s claims against MLB.
In finding for MLB, the court rejected San Jose’s argument that the holding in Flood did not apply to team relocations, and that it only applied to baseball’s “reserve clause” (i.e., the provision in baseball players’ contracts that prevented them from signing with other teams, even after their contracts had expired, without the consent of the team they had played for). Such a drastic limitation on the baseball exemption, reasoned the court, would be contrary to other cases in which the court had applied the exemption, such as Portland Baseball Club, Inc. v. Kuhn, 491 F.2d 1101 (9th Cir. 1974), which had nothing to do with the reserve clause. The court also pointed out that in passing the Curt Flood Act in 1998, Congress withdrew baseball’s antitrust exemption with respect to the reserve clause, but explicitly maintained the exemption for franchise relocation. 15 U.S.C. § 26b(b)(3). “In short,” the court held, “antitrust claims against MLB’s franchise relocation policies are in the heartland of those precluded by Flood’s rationale.” The court also affirmed the district court’s dismissal of San Jose’s duplicative state antitrust claims, because of the need for “national uniformity” with respect to the regulation of baseball. Thus, the court concluded: “Like Casey, San Jose has struck out here.”
Although, as the court acknowledged, there may indeed be activities that would subject MLB and its teams to antitrust liability—particularly if those activities are wholly collateral to the “business of providing public baseball games”—the holding in San Jose makes clear that efforts to block a team from moving to a new location do not fall into that category. Restrictions on the relocation of a baseball team remain subject to the sport’s historic, and ever-vital, exemption to federal antitrust laws. For now at least, it appears that residents of San Jose will have to wait on MLB to make its final decision, or on Congress to enact legislation modifying the baseball exemption. It could be a long wait.
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