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May 20, 2014
By Anthony J. Fredella
NEW YORK, New York - In the aftermath of Commissioner Adam Silver’s ruling in relation to the Donald Sterling fiasco, there have been countless – countless – articles, blogs, and forums discussing what exactly is going to happen with Mr. Sterling and his ownership interest in the Los Angeles Clippers. The misquoting, misapplication of the law and improper interpretation of the NBA’s Constitution and By-Laws has been at an all-time high. The answer to what is going to happen with the Sterling/NBA dilemma is … it depends. The crux of the entire case will be the proper interpretation of the express language of the league’s guiding documents – its Constitution and By-Laws. The NBA will have its legal team asserting an argument that interprets the language in a light most favorable to their position – that they can terminate Sterling’s ownership of the Clippers based upon his racist and ignorant remarks made on a private tape recording some months back. Donald Sterling, an attorney himself, will have a strong legal army that argues the exact opposite position – that what occurred and what was recorded in no way violates any of the provisions of the NBA’s Constitution and By-Laws wherein his ownership rights could be revoked. This is a contractual interpretation question, it’s a legal question, one that needs to be examined in a legal sense, keeping an eye on the language of the documents and past legal precedent. Lucky for you, I earned my law degree a decade ago.
The binding Article of the NBA’s governing document is Article 13, which, is so aptly titled: “Termination of Ownership or Membership.” Good place to start, right? I thought so. Article 13 provides:
The Membership of a Member or the interest of any Owner may be terminated by a vote of three fourths (3/4) of the Board of Governors if the Member or Owner shall do or suffer any of the following:
(a) Willfully violate any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association.
(b) Transfer or attempt to transfer a Membership or an interest in a Member without complying with the provisions of Article 5.
(c) Fail to pay any dues or other indebtedness owing to the Association within thirty (30) days after Written Notice from the Commissioner of default in such payment.
(d) Fail or refuse to fulfill its contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect the Association or its Members adversely.
(e) Wager or countenance wagering by its officers or employees on any game in which a Team operated by a Member of the Association participates.
(f) Willfully permit open betting, pool selling, or any other form of gambling upon any premises owned, leased, or otherwise controlled by the Member or an Owner, except, subject to Article 8(a), for gambling activities that are lawful in the applicable jurisdiction and do not involve in any way, directly or indirectly, gambling with respect to any aspect of the Association’s games, events, property, players, or other personnel.
(g) Offer, agree, conspire, or attempt to lose or control the score of any game participated in by a Team operated by a Member of the Association, or fail to suspend immediately any Officer or any Player or other employee of the Member who shall be found guilty, in a court of law or in any hearing sanctioned by this Constitution and By-Laws, of offering, agreeing, conspiring, or attempting to lose or control the score of any game or of being interested in any pool or wager on any game in which a Team operated by a Member of the Association participates.
(h) Disband its Team during the Season, dissolve its business, or cease its operation.
(i) Willfully fail to present its Team at the time and place it is scheduled to play in an Exhibition, Regular Season, or Playoff Game.
(j) Willfully misrepresent any material fact contained in its application for Membership in the Association.
Those are the ten different infractions for which an ownership interest can be terminated by a 3/4 vote of the Board of Governors, the other owners. To even have that vote, it must first be shown that the violating party – here, Sterling – committed one of the above listed violations. At quick glance we can swiftly eliminate a number of the above categories. Sterling is not alleged to have transferred an ownership interest improperly (b), or failed to fulfill a financial obligation (c), or wager on a game (e), or permit gambling (f), or fix a game (g), or disband his team (h), or have his team fail to appear for a game (i) or misrepresent a material fact in his application (j). If you are keeping score at home, that quickly dismisses 8 of the 10 different categories of Article 13 and leaves us with only 2 remaining categories under which Sterling can be removed. So, did Donald Sterling “[w]illfully violate any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association,” or did he “[f]ail or refuse to fulfill [his] contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect the Association or its Members adversely?” If the answer to both of those questions is no, well then the NBA, and everyone that is rooting for Sterling’s exodus, is going to be out of luck.
Let’s look at the 2 separate categories independently. First, let’s review sub-provision (d) of Article 13 of the NBA’s Constitution, wherein the membership of a member or the interest of any owner can be terminated for “[f]ail[ing] or refus[ing] to fulfill its contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect the Association or its Members adversely.” This is, essentially, a breach of contract claim. To move forward with this, the NBA would need to point to a specific provision in an agreement or contract or guideline between the NBA and Sterling, or the Clippers’ organization as a whole, and show that Sterling breached that agreement by saying what he said on those tape recordings. This is going to be a stretch for the NBA. Even though this category does not limit the violation to just a breach of the Constitution or By-Laws, therein also allowing into its grasp every single agreement that Sterling or the Clippers are a party to with the NBA, they would still need to direct the attention to some sort of morality clause, some sort of “agreement” wherein Sterling, or any other Clippers’ representative, agreed not to embarrass the league or say dumb/racist/ignorant things. I highly doubt such an agreement or contract exists. Morality clauses are usually present in player contracts with their respective teams, because players are employees of the teams they play for and those teams want to protect themselves if their players pull an Aaron Hernandez. But owners are not employees of the NBA, they are franchisees, governed by the terms and conditions set forth in the league’s Constitution and By-Laws.
The second category that the NBA will look to enforce in requesting the vote before the Board of Governors for the termination of Sterling’s ownership interests is sub-provision (a) of Article 13, which provides for termination if the owner “[w]illfully violate[s] any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association.” This is the catch-all provision that the NBA will most likely rely upon. But still, they must cite to a specific provision or provisions that Sterling “violated” with his private comments that were recorded. And here is what they will use: Article 35A of the Constitution pertains to “misconduct of persons other than players,” and specifically references that it applies to “owners” in its first sentence. The pertinent sub-provisions read as follows:
(c) Any person who gives, makes, issues, authorizes or endorses any statement having, or designed to have, an effect prejudicial or detrimental to the best interests of basketball or of the Association or of a Member or its Team, shall be liable to a fine not exceeding $1,000,000 to be imposed by the Commissioner. The Member whose Owner, Officer, Manager, Coach or other employee has been so fined shall pay the amount of the fine should such person fail to do so within ten (10) days of its imposition.
(d) The Commissioner shall have the power to suspend for a definite or indefinite period, or to impose a fine not exceeding $1,000,000, or inflict both such suspension and fine upon any person who, in his opinion, shall have been guilty of conduct prejudicial or detrimental to the Association.
So, under Article 35A(c) the NBA will argue that Sterling made statements that had a prejudicial and detrimental effect on the best interests of basketball and on the NBA as a whole. And under Article 35A(d), the NBA will argue that Sterling’s racist comments constituted conduct that was both prejudicial and detrimental to the league. Both fair points because, let’s face it, this entire Sterling situation has been a complete black eye on an otherwise phenomenal playoffs that should be garnering all of the attention for the on-the-court action. The fact that Sterling has been a top line article on every major sports site and a featured commentary on all the sports talk shows illustrates the “prejudicial” and “detrimental” effect his comments have had on the league. Good news for the NBA, right? Maybe not.
Just as the NBA will have their legal eagles out fighting, so will Sterling. Their first argument will be that none of the provisions of Article 13 apply to comments made by an owner in private that were secretly recorded and impermissibly released to the public. Specifically, as to Article 13(d), they will argue that there is no contractual provision or agreement of which Sterling is a party that requires him not to make the types of comments he made in private. As to Article 13(a), they will argue that Sterling has not willfully violated any of the provisions of the NBA’s Constitution or By-Laws. In respect of the language of Article 35A(c) and (d) above, they will argue that neither apply in relation to Article 13 (termination of ownership) because the express language contained in both Article 35A(c) and (d) provides the precise sanction for those violations, and neither include termination of ownership. For a violation of 35A(c) there is a $1,000,000 fine. For a violation of 35A(d), there is suspension and/or a $1,000,000 fine. Thus, Sterling’s legal team will argue that even if it is found that his comments had a prejudicial and detrimental effect on the NBA – which they obviously did - then his sanction under Article 35A(c) is a $1,000,000 fine. If it is found that his conduct was prejudicial and detrimental to the NBA – which again it obviously was – then his sanction is suspension (which can be permanent) and a $1,000,000 fine, but no termination of ownership.
Both sides have arguments and I will be shocked if this matter does not at least end up in the United State Court of Appeals for the 9th Circuit (the appeals court for federal lawsuits filed in the California). Because there is no doubt that Sterling will file suit in Federal Court the moment a vote is cast by 3/4 of the Board of Governors to terminate his ownership, if that vote is in fact cast. As we provided in an earlier blog post, voting against Sterling here my set forth in motion a very slippery slope for the rest of the owners in the league and whatever skeletons are in their respective closets. But we will soon find out.
As for how a District Court will review this matter and ultimately decide, your guess is as good as mine. I’m actually leaning towards the Court deciding in Sterling’s favor. California law consistently states that the primary objective in interpreting a contract is to ascertain and carry out the intentions of the parties. In this instance, there is a lot of ambiguity and vagueness in respect of Article 13 and the current facts. Ambiguities are generally decided against the drafter of the document, here the NBA. I would think that that standard would be heightened here as the outcome would ultimately strip someone of their ownership rights of something worth close to $1B dollars of which they’ve owned since 1981. To go forward with such a drastic measure I would think that the courts would want to see clear and conspicuous language contained in the governing documents and, we just don’t have that here.
DISCLAIMER: This post is in no way intended to provide legal advice or guidance. It is strictly provided for entertainment purposes only and should not be relied upon in any form or fashion.