San Jose’s Challenge to Major League Baseball’s Antitrust Exemption Likely Headed for the Supreme Court

January 15, 2015 –The Ninth Circuit Court of Appeals easily disposed of the City of San Jose’s claim that Major League Baseball’s “franchise relocation” policy violates state and federal antitrust laws, setting the stage for the dispute to be heard by the United States Supreme Court. To prevail, San Jose will have to convince the Justices to reverse over 90 years of precedent granting MLB – to quote the ever-colorful Judge Kozinski – a “singular and historic exemption from the antitrust laws.”

The dispute arose from the Oakland Athletics’ years-long desire to move from Oakland to the likely more lucrative San Jose market. The move, however, was stymied by a provision in MLB’s constitution requiring each ball club to pay its home games within a designated – and exclusive – operating territory. San Jose lies within the exclusive territory of the San Francisco Giants. An MLB team can only relocate to another franchise’s territory with the approval of at least three-quarters of MLB’s teams. Such approval has not been forthcoming, leading San Jose to sue MLB, alleging violations of state and federal antitrust laws and California’s Unfair Competition Law, as well as asserting common law tort claims, such as tortious interference with prospective economic advantage.

The district court dismissed all but the common law tort claims, citing MLB’s exemption from antitrust laws. (The court declined to retain jurisdiction over the common law claims; it is frankly difficult to image how, if baseball’s antitrust exemption survives, these claims stand a chance.)

San Jose appealed to the Ninth Circuit, arguing that the antitrust exemption does not apply to claims related to the franchise relocation policy. Reviewing the history of the antitrust exemption in the Supreme Court and the Circuit Courts, Kozinski and his colleagues had no choice but to rule in MLB’s favor, affirming the district court.

Baseball’s antitrust exemption originated in 1922, in the Supreme Court’s decision in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs. There, the Court relied on a now defunct view of the Commerce Clause of the federal Constitution in ruling that federal antitrust laws do not apply to the “business [of] giving exhibitions of base ball” because those exhibitions are “purely state affairs.”

Thirty-one years later, the high Court again considered baseball’s antitrust exemption in Toolson v. New York Yankees, Inc. By 1953 the Federal Baseball Court’s narrow view of the Commerce Clause had been resoundingly abandoned, the Court left the antitrust exemption intact. The Court reasoned that, had Congress wished to alter the Federal Baseball rule, it would have done so in the intervening decades. Thus, the Toolson Court declined to “re-examine the underlying issue[]” – that is, the indisputably outmoded view of the Commerce Clause – and affirmed 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.” (In dissent, Justice Harold Hitz Burton ably skewered the notion that professional baseball was not “interstate commerce,” citing (among other things) the teams’ constant travel between states, the sums of money spent across state lines, fans’ travel across state lines to attend games, and widespread radio and television advertising and broadcasting.)

The Supreme Court considered, and upheld, the antitrust exemption for the third time in Flood v. Kuhn in 1972. The Flood Court explained that any change in this longstanding policy, upon which a multitude of businesses and individuals had relied, should come from the legislature, not a court. The Court interpreted Congress’ inaction as “clearly evidenc[ing] a desire not to disapprove” the exemption.

STRIKE ONE for San Jose: San Jose first argued that the exemption applies only to the specific policy at issue in Flood, MLB’s “reserve clause” (which prohibited a player from entering into a new contract with another club without the consent of the club he currently or previously played for). But the Ninth Circuit had previously applied the exemption to affirm the dismissal of claims having nothing to do with the reserve clause.

STRIKE TWO: San Jose next asserted that, even if the exemption applies beyond the reserve clause, it applies only to policies or conduct related to “baseball’s unique characteristics and needs.” The court rejected this argument, noting that the Flood decision reflected an intent to apply the exemption to the full extent contemplated by Federal Baseball and Toolson – that is, to extend the exemption to the entire business of professional baseball.

Kozinski and his teammates emphatically concluded that the franchise relocation policy is “in the heartland” of those policies exempted from antitrust laws. And where the federal antitrust claims fail, so too do the state antitrust and (essentially duplicative) unfair competition claims.

Will San Jose Strike Out in the Supreme Court? San Jose will have its work cut out for it in attempting to persuade the Justices to reject or narrow MLB’s antitrust exemption. In addition to the rationales discussed above, Congress has given a strong indication that it intended to leave the exemption intact with respect to franchise relocation. In 1998’s Curt Flood Act, Congress curtailed the exemption for the reserve clause – but expressly maintained the exemption for franchise relocation rules. In the face of such seemingly clear Congressional intent, San Jose’s third strike seems imminent.

But buck up, San Jose baseball fans! Keep in mind that theoretical underpinning of baseball’s antitrust exemption – an exceedingly narrow view of interstate commerce – is no longer good law, and has not been for well over half a century. In just the last several months, both Justice Scalia (in his dissent in Dart Cherokee Basin Operating Co. v. Owens) and Scalia’s ideological opposite Justice Ginsberg (in her dissent in Burwell v. Hobby Lobby Stores, Inc.) have quoted Justice Jackson’s famous rationale for changing his vote: “I see no reason why I should be consciously wrong today because I was unconsciously wrong yesterday.” Perhaps The Nine will conclude that the Federal Baseball Court was unconsciously wrong in creating baseball’s antitrust exemption and that the time has come to right that wrong… But I wouldn’t bet on it.

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