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The NBA Constitution Might Well Block Donald Sterling From Challenging A Forced Sale Of His Clippers In Court

Posted  May 1, 2014

By Jeffery I. Shinder and David Scupp

Donald Sterling is going to find the NBA constitution a major roadblock if he attempts to fight in court the NBA’s decision to seek his ouster as owner of the Los Angeles Clippers.

Yesterday, we analyzed the antitrust implications of the NBA’s decision to respond forcefully to Sterling’s recently reported offensive and racially charged comments.  In addition to imposing a lifetime ban from NBA activities and a fine of $2.5 million, NBA Commissioner Adam Silver announced that he would urge the NBA Board of Governors to force Silver to sell his basketball team.  We concluded that while joint activity of NBA teams could raise antitrust issues under certain circumstances, it would be difficult for Sterling to prove that his particular expulsion amounted to an antitrust infraction, particularly because it is unlikely that he could show that the NBA’s action caused any competitive foreclosure or impact on price or innovation.

However, apart from the difficulties inherent in proving an antitrust claim, Sterling would also have to overcome two legal barriers contained in the NBA’s constitution, which the league recently made public in the wake of the Sterling controversy.

The first barrier is contained in Article 14, titled “Procedure for Termination.”  That article sets forth the procedure that would govern the league’s termination of Sterling’s ownership of the Clippers, which in turn would trigger a forced sale of the team.  Article 14 contains a clause that purports to bar any owner from challenging in court any league decision:

(j) The decisions of the Association made in accordance with the foregoing procedure shall be final, binding, and conclusive, and each Member and Owner waives any and all recourse to any court of law to review any such decision.

The enforceability of a similar provision in the Major League Agreement among baseball club owners was at issue in Charles O. Finley & Co., Inc. v. Kuhn, 569 F.2d 527 (7th Cir. 1978).  There, the U.S. Court of Appeals for the Seventh Circuit held that a waiver of recourse provision is generally valid.  The court, however, articulated two exceptions: where (1) the rules, regulations, or judgments of the league are in contravention to the laws of the land or in disregard of the charter or bylaws of the league, and (2) the association has failed to follow the basic rudiments of due process of law.

Here, Sterling may well argue that any forced sale would violate the antitrust laws, and therefore be “in contravention to the laws of the land.”  Sterling could also argue that his conduct (reprehensible as it may be) was not one of the enumerated conditions that would enable the league to terminate his ownership under the NBA’s constitution, and therefore a forced sale would be “in disregard of the charter or bylaws of the league.”  Sterling may also argue that the procedures for termination provided by the NBA’s constitution do not comply with due process of law.  But, given that the constitution affords him a hearing, the right to present evidence, and the right to be represented by counsel, that argument would probably be a long shot.

In response, the NBA would likely argue that, as recognized by Finley, there is a “common law nonreviewability of private association actions.”  The league would likely also argue that Sterling, as well as the 29 other NBA owners, agreed to follow the league’s constitution and bylaws.  The league would then argue that the court should, as courts often do, refrain from interfering with the affairs of the NBA, a private association.

Even if Sterling can overcome the waiver provision, however, the NBA constitution contains an additional roadblock.  Article 18, titled “Board of Governors,” provides for the establishment of the Board of Governors, which has general supervision of the NBA’s affairs, including the decision to terminate an owner.  Article 18 contains a clause that recognizes any action taken by the Board as an award made in arbitration:

(e) All actions duly taken by the Board of Governors shall be final, binding and conclusive, as an award in arbitration, and enforceable in a court of competent jurisdiction in accordance with the laws of the State of New York.

Under this clause, the Board of Governors’ decision to terminate Sterling’s ownership and force a sale of the team would be treated by a court as a binding arbitration decision.  This spells trouble for Sterling.

Courts are highly deferential to arbitral decisions, and vacating them is no small task.  It is not enough to show that an arbitrator simply “got it wrong.”  A party seeking to vacate an arbitral award needs to show (1) there was corruption, fraud, or misconduct in procuring the award, (2) partiality of the arbitrator, (3) the arbitrator exceeded his power, perhaps by showing a “manifest disregard for the law,” or (4) the award violates public policy.  These are high thresholds to meet, and cases in which a litigant successfully overcame an arbitral award are few and far between.

Sterling might have more success challenging the validity of the arbitration clause itself.  Enforceable arbitration clauses must demonstrate a clear and unequivocal manifestation of an intention to arbitrate a dispute.  A clause that simply deems any league decision as “an award in arbitration” may not meet that standard.

We reiterate our sentiments that, for the sake of the NBA and our broader culture, we hope that Sterling goes quietly, accepts his punishment, and maximizes the value of his now valuable franchise.  We continue to believe that nothing will be gained by prolonging this tawdry situation through a tactical lawsuit.

Edited by Gary J. Malone

Tagged in: Antitrust Litigation,