Ninth Circuit Determines That Baseball’s Antitrust Exemption Requires the Dismissal of a Suit by Minor League Baseball Players

Jul 21, 2017

By Ed Edmonds
On June 26, 2017, Chief Judge Sidney R. Thomas of the Ninth Circuit Court of Appeals issued his opinion in Miranda v. Selig affirming a district court opinion holding that Major League Baseball’s long-standing antitrust exemption prevents minor league players from pursuing a claim attacking the largely uniform wage structure and restrictions on players’ freedom to seek employment with other teams under the minor league reserve system. The case began on December 5, 2014, when attorneys Samuel Kornhauser and Brian David filed a complaint on behalf of four named plaintiffs (Sergio Miranda, Jeffrey Dominguez, Jorge Padilla, and Cirilo Cruz) against Commissioner Bud Selig and the thirty Major League teams. The Miranda case is one of a number of actions in recent years attacking various practices of Major League Baseball involving the salary structure of minor league players and scouts, an attempt by the Oakland Athletics to relocate to San Jose, and the territorial restrictions regarding the broadcasting of MLB and National Hockey League games. In all of these instances, the courts grappled with the reach of the judicially created antitrust exemption plus the impact of the Congressional enactment of the Sports Broadcasting Act and the Curt Flood Act.
The Miranda plaintiffs filed their complaint knowing that the Ninth Circuit had already heard oral arguments on August 14, 2014, in a case involving the City of San Jose’s antitrust claim against Major League Baseball for obstructing the relocation of the Athletics from Oakland to San Jose. On January 15, 2015, Judge Alex Kozinski issued the panel’s opinion that San Jose was blocked from pursuing their claim because franchise relocation is part of the “business of baseball” that is the foundation of the exemption.
Less than one month later on February 11, 2015, the Miranda defendants filed a motion to relate their case to either City of San Jose or Senne v. Office of the Commissioner of Baseball. Senne, like Miranda, involved the salaries of minor league baseball players, and their counsel quickly responded the following day by filing a motion in opposition arguing that:
First, the Senne and Miranda actions should not be related because Senne is an employment law wage-and-hour case and Miranda is an antitrust conspiracy case. As such, the two cases assert distinct legal claims, theories, and causes of action; require different evidence at both the liability and damages stages; and seek different remedies. Moreover, they involve different plaintiffs, and different counsel for plaintiffs and defendants. If Miranda is related to any case, it should be to City of San Jose, and not Senne.
The distinction in legal theories is significant to an understanding of the different approaches taken to attack the incredibly low salaries paid to minor league baseball players and Major League Baseball’s reliance on its antitrust status to effectively insulate it from an attack on such grounds. The Senne case is still active after the district court refused to certify the initial class of plaintiffs. After an amended complaint was filed, the court did agree to a class that involved just players in the California League. As will be explained, the wage-and-hour approach is more likely to be successful short of the United States Supreme Court accepting on certiorari the Miranda case despite denying such an attempt in the City of San Jose case.
On September 14, 2015, Northern District Court Judge Haywood S. Gilliam, Jr. granted Major League Baseball’s Rule 12(b)(6) motion to dismiss in Miranda declaring that “the Court’s resolution of this motion is guided and ultimately determined by the Ninth Circuit’s recent decision in City of San Jose v. Office of the Commissioner of Baseball, 776 F.3d 686 (9th Cir. 2015).” Gilliam’s decision to rely on Judge Kozinski’s decision in City of San Jose was predictable based on numerous lower federal courts’ decisions holding that the 1922 United States Supreme Court’s Federal Baseball case and the later Toolson v. New York Yankees, Inc. and Flood v. Kuhn cases exempt a broad range of activities from antitrust scrutiny because they fall within the “business of baseball.”
Judge Kozinski started his opinion by stating that “the City of San Jose steps up to the plate to challenge the baseball industry’s 92-year old exemption from the antitrust laws. It joins the long line of litigants that have sought to overturn one of federal law’s most enduring anomalies.” After a strong analysis of the precedents, Kozinski concluded that
like Casey, San Jose has struck out here. The scope of the Supreme Court’s holding in Flood plainly extends to questions of franchise relocation. San Jose is, at bottom, asking us to deem Flood wrongly decided, and that we cannot do. Only Congress and the Supreme Court are empowered to question Flood’s continued vitality, and with it, the fate of baseball’s singular and historic exemption from the antitrust laws.
Judge Thomas’s recent Ninth Circuit Miranda opinion affirming Gilliam’s opinion included a review of Federal Baseball, Toolson, and Flood . Judge Thomas also provided a short analysis of the impact of the Curt Flood Act of 1998 concluding that “it explicitly maintained the baseball exemption for anything related to the employment of minor league baseball players—including the use of reserve clauses—and the relationship between organized professional major and minor league baseball.” 
Judge Thomas also discussed Judge Kozinski’s opinion in City of San Jose noting that “we held that restrictions on franchise relocation fall squarely within the ‘business of baseball’ and are therefore exempt from federal antitrust laws under Flood.” In particular, Judge Thomas noted that the Curt Flood Act altered the exemption’s impact on “‘the reserve clause and other labor issue [for major league players], but explicitly maintained it for franchise relocation.’” Judge Thomas was faced with a consideration of the reach of the Curt Flood Act to the claims before him—the specific language in the act that minor league players lack standing to pursue an antitrust claim in a manner provided for major league players under the act. Moving to the heart of the matter before the panel, Judge Thomas held that “considering the case law and the Curt Flood Act, it is undeniably true that minor league baseball—particularly the employment of minor league baseball players and the requirement that they sign a uniform contract containing a reserve clause—falls squarely within baseball’s exemption from federal antitrust laws.” Judge Thomas followed this statement with a declaration that the employment relationship is even more within the “business of baseball” than franchise relocation because the reserve system was the main focus of Curt Flood’s challenge. Judge Thomas also discounted the plaintiffs’ charge that Federal Baseball, Toolson, and Flood did not reach the salaries of minor league players concluding that
MLB’s farming structure belies the claim that major and minor league baseball are separate and distinct in a meaningful way for the purposes of the Sherman Act. Minor league baseball players are employed and paid by MLB, and MLB employs minor league players with the hope that some of them will develop into major league players. Therefore, the employment of minor league players is precisely the type of activity that falls within the antitrust exemption for the business of baseball.
The final point of Judge Thomas’ analysis covered the doctrine of stare decisis. The outcome of both the Toolson and Flood decisions regarding Federal Baseball rested on the application of stare decisis and Major League Baseball’s reliance on its freedom from antitrust scrutiny. Thomas noted that Samuel Kornhauser and Brian David, arguing for the plaintiffs, pressed the Ninth Circuit to rely on Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) as a reason to depart for finding that they were bound by stare decisis when doing so would rely on “‘outmoded, erroneous reasoning to an antitrust case,’ especially in light of economic changes that have occurred since Federal Baseball.” Judge Thomas properly noted that a court of appeals is bound by an applicable decision of the Supreme Court, and it is not its role to ignore Supreme Court precedent. That role is reserved for the Supreme Court itself. Furthermore, the City of San Jose decision was controlling because “under the law-of-the-circuit rule, ‘[w]e are bound by decisions of prior panels’ [sic] unless an en banc decision, Supreme Court decision, or subsequent legislation undermines those decisions.’”
John W. Keker of Keker, Van Nest & Peters argued the Miranda case for the Office of Commissioner and Major League Baseball. Keker also represented Major League Baseball in City of San Jose v. Office of the Commissioner of Baseball including the denial of certiorari petition filed by San Jose with the Supreme Court. Hassan A. Kanu, who wrote a short summary of the Miranda case for the Bloomberg BNA’s Antitrust & Trade Regulation Daily noted that Samuel Kornhauser told Bloomberg BNA that the players plan to pursue an appeal to the Supreme Court. Kanu quoted Kornhauser as stating that the decision in Federal Baseball “didn’t make much sense back then and it certainly doesn’t make sense nearly 100 years later.”
Kornhauser’s position is supported by many commentators, but a number of writers including Justice Samuel Alito who have looked carefully at the nature of antitrust jurisprudence in the 1920s have argued that the case was in concert with many trade regulation decisions of that era. Before pointing out an aspect of the case that is generally overlooked, at this point it really does not matter whether or not Federal Baseball was decided correctly in 1922 or has been undercut by subsequent decisions. Today the critical point is the appropriate application of the doctrine of stare decisis that is critical to the holdings of Toolson and Flood. So, Kornhauser understands that to win his case he must either convince the Supreme Court to grant certiorari in Miranda despite the decision to decline such a grant in City of San Jose or the outcome of the Wyckoff v. Office of the Commissioner of Baseball, a case currently on appeal to the Second Circuit, and its potential appeal to the Supreme Court.
With respect to the 1922 Federal Baseball decision, many observers rely on the common view that the case rested exclusively on the interstate commerce question. However, Justice Holmes also held that “the exhibition . . . would not be called trade or commerce in the commonly accepted use of those words. As it is put by the defendants, personal effort, not related to production, is not a subject of commerce.” George Wharton Pepper, Organized Baseball’s lead counsel in Federal Baseball, discussed his presentation of the case many years after 1922 in his autobiography Philadelphia Lawyer. This is significant because Justice Holmes highlighted Pepper’s arguments by calling attention to the position advanced “by the defendants” in the quoted language above. Pepper set the scene for the presentation of his argument and the primary point accepted by Justice Holmes:
The situation was dramatic. The courtroom was full of interested onlookers . . . I argued with much earnestness the proposition that personal effort not related to production is not a subject of commerce; that the attempt to secure all the skilled service needed for professional baseball is not an attempt to monopolize commerce or any part of it; and that Organized Baseball, not being commerce, and therefore not interstate commerce, does not come within the scope of the prohibitions of the Sherman Act.
To support that position, note that Pepper stated on page 46 of his Supreme Court Federal Baseball that “it is believed that in no decided case has it ever been held that personal effort, considered apart from production, is a subject of commerce.”
This concept of personal labor and production has also long been discarded in antitrust litigation. Also, the definition of what constitutes interstate commerce has expanded. Justice Harry Blackmun accepted the expanded concept of interstate commerce in Flood because he stated in his conclusions that Organized Baseball was “engaged in interstate commerce.” The critical fact in Flood was the court’s willingness to agree with the Toolson decision on stare decisis grounds. The Toolson case, oft overlooked, is really central to an understand of the three cases because it is the decision that truly established the exemption because the Supreme Court could have, and in 1953 should have, easily reached the decision to overrule Federal Baseball. Blackmun faced a different challenge in Flood because of the Court’s determination in Toolson. Once Blackmun’s opinion reinforced the Flood decision, lower courts were left to honor those opinions under the doctrine of vertical stare decisis that controls them or wait for Congress to act. Congress did indeed act twice in the area of sports and antitrust by passing the Sports Broadcasting Act and the Curt Flood Act.
The Sports Broadcasting Act figured into the decisions of the Southern District of New York in Laumann v. National Hockey League and Garber v. Office of Commissioner of Baseball forcing both leagues to reach a settlement on the territorial allocation of broadcast markets that produced more choices for consumers. Interestingly, Judge Shira A. Scheindlin declared in her August 8, 2014, determination in Laumann that “the Supreme Court has expressly questioned the validity and logic of the baseball exemption and declined to extend it to other sports. I therefore decline to apply the exemption to a subject that is not central to the business of baseball, and that Congress did not intend to exempt—namely baseball’s contracts for television broadcasting rights.” This ruling seems out of step with the Ninth Circuit’s rulings in both City of San Jose and Miranda.
Furthermore, the Second Circuit has accepted an appeal of Judge Paul Gardephe’s decision in Wyckoff v. Office of the Commissioner of Baseball holding that the exemption precludes scouts from pursuing a claim regarding their wages. The case is set for oral argument on August 24, 2017. The briefs are already filed, and Major League Baseball and their teams’ answer brief rebutted counsels’ position for the court to ignore stare decisis based on the Supreme Court’s decisions in State Oil Co. v. Kahn and Leegin Creative Leather Products, Inc. v. PSKS, Inc. On page 18 they argued that “plaintiffs’ invitation to disregard existing authority belongs in a petition for certiorari, not an appellant’s brief.” They also pointed out the similarity of this claim to the City of San Jose’s petition for certiorari that the Court denied.
Judge Thomas’ decision in Miranda is certainly supported by Judge Kozinski’s City of San Jose opinion and nearly all lower court opinions. To alter the continuing vitality of Major League Baseball’s antitrust exemption, it will require the Second Circuit to create a circuit split in Wyckoff or the acceptance of a certiorari petition by the Supreme Court in either Miranda or Wyckoff.
Edmonds is the director of the Kresge Law Library and professor of law at the University of Notre Dame.