Appeal and cross-appeal from a judgment of the United States District Court for the Southern District of New York (Robert L. Carter, Judge), reversing a decision of the Special Master (Telford Taylor, Esq.) and setting aside a free agent compensation award made by the Commissioner of the National Basketball Association. Affirmed in part, reversed in part, and remanded for further proceedings before the Special Master.
Before Oakes, Van Graafeiland and Newman, Circuit Judges.
This appeal presents some novel questions concerning the relationship between private and judicial decision-making. The questions arise in the context of a dispute concerning the amount of compensation that a professional basketball team should pay to another team when signing a player who has completed his contract with that other team. Our primary problem is to determine the appropriate roles of the Commissioner of the National Basketball League ("NBA") and the District Court in adjudicating the amount of compensation. To understand why a federal court has any role in this matter requires some familiarity with the factual and procedural background of this litigation.
In 1970, several NBA players ("the Robertson Class plaintiffs") brought a class action against the NBA and its member teams, alleging that various practices agreed to by the teams impaired the players' rights to earn a livelihood and violated the federal antitrust laws. In 1976 that suit was settled, and the settlement was judicially approved. Robertson v. National Basketball Association, 72 F.R.D. 64 (S.D.N.Y.1976) (Carter, J.), aff'd, 556 F.2d 682 (2d Cir. 1977). The settlement agreement, which was incorporated into the final consent judgment, provided in P 8 that the District Court would retain jurisdiction over the defendants and the class members to enforce the terms of the settlement and the consent judgment. The settlement further provided that the District Court would appoint a Special Master "who shall have exclusive jurisdiction to enforce the terms" of the settlement. The Special Master is obliged to make findings of fact and recommendations for relief, and the District Court is required to accept the findings of fact unless clearly erroneous and to accept the recommendations for relief unless based on clearly erroneous findings of fact, incorrect application of law, or abuse of discretion.
One of the substantive terms of the settlement concerned what is known as the compensation rule. This rule, as it existed prior to the settlement, required a team ("the new team") that signs a player ("a veteran free agent") who has completed his contract with another team ("the old team") to pay the old team compensation for the loss of that player. Compensation was paid in the form of one or more players, one or more draft choices (the exclusive right to sign promising college players), cash, or some combination of the three. If the old and new teams could not agree on appropriate compensation, a binding decision was made by the NBA Commissioner. In their antitrust suit, the players had attacked the compensation rule, contending that it unlawfully interfered with their opportunity to negotiate contracts with new teams after completing their contracts with their old teams. The players were concerned that teams would be deterred from signing veteran free agents by the prospect of paying compensation to the old team, and there was particular concern that the Commissioner, at the behest of some of the team owners, was setting high compensation awards to increase the deterrent effect of the rule.
Section 2 of the settlement agreement included the following provisions to govern the compensation rule from 1977 to 1981:
(1) Under the compensation rule currently applicable in the NBA when a Veteran Free Agent signs a Player Contract with an NBA team (hereinafter the "new team") other than the NBA team for which he had last previously played (hereinafter the "prior team"), if the new team and prior team are unable to agree upon the compensation to be paid to the prior team for the loss of such Veteran Free Agent, the Commissioner of the NBA, who has full, complete and final jurisdiction of any dispute involving the new team and the prior team, is authorized, but not required, to make an award of compensation to the prior team. The award by the Commissioner may take the form of assignment of Player Contract(s) and/or draft choice(s) and/or cash. Although the decision of whether to award compensation and, if so, what form of compensation is fair and equitable, lies in the sole discretion of the Commissioner, the purpose of the compensation rule described above is not to serve as a penalty, but is to ensure that a team which loses such a player is, to the nearest extent possible, made whole for the loss of such player.
(2) The current compensation rule described in paragraph C(1) above will remain in effect until the end of the 1980-1981 NBA playing season and there shall be no other compensation obligation, rule, practice, policy, regulation or agreement created or applied in the NBA during that period. During that period a Veteran Free Agent may negotiate and sign a Player Contract with any NBA team and any NBA team may negotiate and sign a Player Contract with any Veteran Free Agent without any penalty or restriction subject only to the compensation rule described in paragraph C(1) above. No compensation obligation, rule, practice, policy, regulation or agreement shall apply to any Veteran Free Agent who seeks to negotiate or sign a player contract with or play with any team in any professional basketball league other than the NBA.
After 1981, the compensation rule is abolished. From 1981 to 1987 the settlement agreement grants a right of first refusal to a team losing a veteran free agent to another team. The old team can continue the player under contract if it can match the offer of the new team. After 1987, there are no restrictions on the signing of veteran free agents.
This case concerns the application of these procedural and substantive provisions of the settlement agreement to the 1978 signing of Marvin Webster by the New York Knickerbockers. Webster completed his contract obligations with the Seattle Supersonics and became a veteran free agent at the close of the 1977-78 basketball season. When Seattle and New York were unable to agree upon compensation, the NBA Commissioner, Lawrence O'Brien, adjudicated the dispute. The Commissioner awarded Seattle a compensation package consisting of the contract for a New York player, Lonnie Shelton, New York's right to make a first-round selection in the 1979 college draft, and $450,000.
The Robertson Class plaintiffs and the National Basketball Players Association ("NBPA" or "players"), which was authorized by the settlement agreement to seek enforcement of its terms, filed with the Special Master, Telford Taylor, Esq., a petition to have the compensation award set aside as a penalty within the meaning of P 2(C)(1) of the agreement. Named as respondents were the NBA, the Commissioner, and the Seattle team. The NBPA, which had not appeared before the Commissioner, presented evidence challenging the size of the award and contended, among other things, that it was unduly high compared to compensation awards the Commissioner had made in prior cases. The Seattle team appeared before the Master to support the award, and the New York team appeared in opposition to it.
After holding five days of hearings, the Special Master issued a carefully prepared 53-page report. He concluded that the Webster award was "excessive." He also concluded that an award could not be set aside as a penalty unless "either (a) there is substantial evidence that the Commissioner intended to make the team losing the player more than whole, or (b) the award is shown to be so clearly excessive that it must either be attributed to such intent or regarded as a gross error of judgment." Applying this standard, the Master denied the petition to set aside the award. He found no evidence of intent to make the Supersonics more than whole, apart from the size of the award itself, which apparently was not deemed a sufficient basis from which to infer an improper intent. With respect to the size of the award itself, the Master stated:
Webster's exceptional attributes as a center, and the salary he was offered by both of the contending teams, are strong evidence in support of a large award. The circumstances which qualify those indicia of value, and which, in my opinion, support a conclusion that the award was ...