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NBA v. WILLIAMS

July 18, 1994

NATIONAL BASKETBALL ASSOCIATION, ATLANTA HAWKS, L.P., CAPITAL BULLETS BASKETBALL CLUB, INC., BOSTON CELTICS LIMITED PARTNERSHIP, CHARLOTTE NBA LIMITED PARTNERSHIP, CHICAGO PROFESSIONAL SPORTS LIMITED PARTNERSHIP, DALLAS BASKETBALL LIMITED, THE DENVER NUGGETS LIMITED PARTNERSHIP, DETROIT PISTONS BASKETBALL COMPANY, GOLDEN STATE WARRIORS, ROCKET BALL, LTD., JAZZ BASKETBALL INVESTORS, INC., LAC BASKETBALL CLUB, INC., THE LOS ANGELES LAKERS, INC., MADISON SQUARE GARDEN CORPORATION, MEADOWLANDS BASKETBALL ASSOCIATES, THE MIAMI HEAT LIMITED PARTNERSHIP, MILWAUKEE BUCKS, INC., MINNESOTA PROFESSIONAL BASKETBALL LIMITED PARTNERSHIP, GUND BUSINESS ENTERPRISES, INC., ORLANDO MAGIC, LTD., PACERS BASKETBALL CORPORATION, THE PHILADELPHIA 76ERS BASKETBALL CLUB, INC., PHOENIX SUNS LIMITED PARTNERSHIP, SACRAMENTO KINGS LIMITED PARTNERSHIP, L.P., SAN ANTONIO SPURS, LTD., ACKERLY COMMUNICATIONS, INC., and TRIAL BLAZERS, INC., Plaintiffs,
v.
CHARLES L. WILLIAMS, CHARLES D. SMITH, DANIEL R. MANNING, ROLANDO A. BLACKMAN, MARK E. EATON, LAFAYETTE LEVER, HERBERT L. WILLIAMS, JAMES A. JACKSON, DIKEMBE MUTOMBO, GLENN A. RIVERS, DAVID M. ROBINSON, REGGIE WILLIAMS, ERIC ANDERSON, MARTY CONLON, CHRISTIAN LAETTNER, ADRIAN AUTRY, ERIC MOBLEY, TREVOR RUFFIN and SHAWNELLE SCOTT, on behalf of themselves and all persons similarly situated, Defendants. DOMINIQUE WILKINS, HORACE GRANT, BRIAN SHAW, DALE DAVIS, TERRELL BRANDON, DONYELL MARSHALL, CHARLES L. WILLIAMS, CHARLES D. SMITH, DANIEL R. MANNING, ROLANDO A. BLACKMAN, MARK E. EATON, LAFAYETTE LEVER, HERBERT L. WILLIAMS, JAMES A. JACKSON, DIKEMBE MUTOMBO, GLENN A. RIVERS, DAVID M. ROBINSON, REGGIE WILLIAMS, ERIC ANDERSON, MARTY CONLON, CHRISTIAN LAETTNER, ADRIAN AUTRY, SHAWNELLE SCOTT, on behalf of themselves and all persons similarly situated, and the NATIONAL BASKETBALL PLAYERS ASSOCIATION, Counterclaim-plaintiffs, v. NATIONAL BASKETBALL ASSOCIATION, ATLANTA HAWKS, L.P., CAPITAL BULLETS BASKETBALL CLUB, INC., BOSTON CELTICS LIMITED PARTNERSHIP, CHARLOTTE NBA LIMITED PARTNERSHIP, CHICAGO PROFESSIONAL SPORTS LIMITED PARTNERSHIP, DALLAS BASKETBALL LIMITED, THE DENVER NUGGETS LIMITED PARTNERSHIP, DETROIT PISTONS BASKETBALL COMPANY, GOLDEN STATE WARRIORS, ROCKET BALL, LTD., JAZZ BASKETBALL INVESTORS, INC., LAC BASKETBALL CLUB, INC., THE LOS ANGELES LAKERS, INC., MADISON SQUARE GARDEN CORPORATION, MEADOWLANDS BASKETBALL ASSOCIATES, THE MIAMI HEAT LIMITED PARTNERSHIP, MILWAUKEE BUCKS, INC., MINNESOTA PROFESSIONAL BASKETBALL LIMITED PARTNERSHIP, GUND BUSINESS ENTERPRISES, INC., ORLANDO MAGIC, LTD., PACERS BASKETBALL CORPORATION, THE PHILADELPHIA 76ERS BASKETBALL CLUB, INC., PHOENIX SUNS LIMITED PARTNERSHIP, SACRAMENTO KINGS LIMITED PARTNERSHIP, L.P., SAN ANTONIO SPURS, LTD., ACKERLY COMMUNICATIONS, INC., and TRIAL BLAZERS, INC., Counterclaim-defendants.


DUFFY


The opinion of the court was delivered by: KEVIN THOMAS DUFFY

KEVIN THOMAS DUFFY, D.J.:

 The National Basketball Association (the "NBA") and the 27 teams (the "NBA Teams" or "Teams") that compete in the NBA commenced a declaratory action on June 17, 1994 against a class of NBA players as well as prospective NBA players, pursuant to 28 U.S.C. § 2201. In particular, the NBA and the Teams seek a declaration that continued implementation of: (1) the college draft; (2) the right of first refusal; and (3) the salary cap does not violate federal antitrust laws. (Am. Compl. P 105). Alternatively, the NBA contends that these measures are not unreasonable restraints of trade and therefore do not violate the antitrust laws. (Am. Compl. P 113).

 The same class of players who are defendants in the declaratory judgment claim, along with the National Basketball Players Association (the "NBPA") (collectively the "Players"), brought counterclaims alleging, in effect, that continuation of these policies are unreasonable restraints of trade not exempt from antitrust law and thereby violate the Sherman Act. (Counterclaims PP 43, 47, & 51). Shortly after initiating the counterclaims, the Players moved for a temporary restraining order and a preliminary injunction: (1) to enjoin the Teams from entering into player contracts with current or prospective professional basketball players, and (2) schedule an expedited trial on the merits. On June 28, 1994, the Honorable John F. Keenan granted the temporary restraining order and set a hearing date for the preliminary injunction motion. On July 1, 1994, I was assigned this case, and a hearing was conducted on July 8, 1994. At the hearing, I informed the parties that the preliminary injunction hearing would be consolidated with the trial on the merits, pursuant Rule 65(a)(2) of the Federal Rules of Civil Procedure. A consolidated factual hearing was conducted on July 12, 1994. *fn1"

 BACKGROUND

 This case is the fourth lawsuit initiated by either of the parties as a result of disputes that have arisen during collective bargaining negotiations. Indeed, I am convinced that this is a case where neither party cares about this litigation or the result thereof. Both are simply using the court as a bargaining chip in the collective bargaining process. Each is truly guilty of this practice. *fn2" A recitation of the history of these lawsuits demonstrates this and puts this litigation in its proper context, i.e., a labor dispute that does not belong in litigation.

 In 1970, the Players commenced a class action suit against the NBA in the federal district court for the Southern District of New York, challenging certain NBA imposed player restrictions on antitrust grounds. The NBA moved for summary judgment, arguing that the practices were shielded from antitrust laws by a labor exemption. The district court denied the NBA's motion on the ground that the exemption only shields unions and not employers. Robertson v. National Basketball Ass'n, 389 F. Supp. 867, 884-89 (S.D.N.Y. 1975).

 In 1976, the parties in Robertson entered, and the district court approved, a settlement agreement. This agreement effected a number of changes in the operation of the NBA, including modification of the college draft and institution of the right of first refusal. (Am. Compl. PP 63-64). The settlement agreement provided that it would expire at the end of the 1986-1987 NBA season. In addition, it expressly provided that the Players had not waived their right to challenge in court any unilateral imposition of any rule, policy, practice or agreement by the NBA. When the Robertson settlement agreement was adopted in 1976, the Players and the NBA also entered into a multi-year collective bargaining agreement incorporating the substantive terms of the settlement agreement. The 1976 Collective Bargaining Agreement expired on June 1, 1979, and on October 10, 1980, the parties again entered into a multi-year collective bargaining agreement that expressly incorporated the terms of the Robertson settlement agreement, including the college draft and the right of first refusal. (Granik Decl., July 6, 1994, PP 12-15).

 The 1980 agreement expired on June 1, 1982. (1980 Collective Bargaining Agreement, Granik Decl., July 6, 1994, Ex. 2, Art. XXVI). In 1983, the NBA sought for the first time to introduce the salary cap. The NBA contended that such a restriction was necessary because the majority of NBA teams were losing money, due in part, to rising player salaries and benefits. (See Grantham Trial Decl., July 11, 1994, PP 3, 13). The players responded by filing a lawsuit challenging the legality of the salary cap. Lanier v. National Basketball Ass'n, 82 Civ. 4935 (S.D.N.Y.). A special master appointed to hear disputes under the Robertson settlement agreement determined that the salary cap would violate the terms of the settlement agreement and, therefore, could not be imposed without a modification of that agreement. (Granik Decl., July 6, 1994, PP 17-19). The Players and the NBA entered into a Memorandum of Understanding that modified the expired 1980 Collective Bargaining Agreement to include a salary cap, and it continued in force through the end of the 1986-1987 season. (Granik Decl., July 6, 1994, Ex. 3).

 On June 8, 1987, the NBA and the Players entered into a Moratorium Agreement to facilitate negotiations, whereby the challenged practices would remain in effect but no new contracts would be signed. The Moratorium Agreement expired on October 1, 1987. (Grantham Decl. 31 & Ex. A). The day the Moratorium Agreement expired, the Players commenced an action in the District of New Jersey, seeking a ruling that the college draft, the right of first refusal, and the salary cap violated the antitrust laws. Bridgeman v. National Basketball Ass'n, 675 F. Supp. 960, 961 (D.N.J. 1987). The Players represented to the court that they would never agree to these restrictive practices. (Granik Decl., July 6, 1994, Ex. 4). After a ruling on the labor exemption issue, discussed more fully below, the parties reached an agreement in principle, the final terms of which were memorialized in the 1988 Collective Bargaining Agreement. (Granik Decl., July 6, 1994, PP 29). The 1988 Collective Bargaining Agreement continued the college draft, the right of first refusal and the salary cap. (1988 Collective Bargaining Agreement, Granik Decl., July 6, 1994, Ex. 5, Arts. IV, V, & VII).

 The 1988 Collective Bargaining Agreement formally expired on June 23, 1994, the day following the last playoff game of the 1993-1994 NBA playing season. (Grantham Decl., June 26, 1994, P 4). At a formal bargaining session, held in New York on April 7, 1994, the Players demanded that the three disputed employment practices be eliminated. (Grantham Decl., June 26, 1994, PP 39-40). In a position paper delivered to the NBA at that meeting, the Players expressly stated their view that the college draft, right of first refusal and the salary cap would "be subject to successful challenge under the antitrust laws." This position was reiterated at a second formal bargaining session, held on May 4, 1994. (Granik Decl., July 6, 1994, P 33).

 On June 15, 1994, in a letter addressed to the NBA, the Players, while asserting that further negotiations would be futile, said that the Players would attend another meeting, but only in late June or mid-July. In that letter, the NBPA again threatened that the NBA's continuation of the employment conditions at issue would be "subject to scrutiny under the antitrust laws and . . . are clearly in violation of those laws." (Granik Decl., July 6, 1994, P 33). At the preliminary injunction hearing on July 8, 1994, I informed the parties of my belief that this litigation was simply being used as a bargaining chip in the collective bargaining negotiations, and I advised them that the best course of action would be to resolve the dispute through negotiations. (Transcript of Preliminary Injunction Hearing, July 8, 1994, at 8-9). Apparently, the parties did attempt to negotiate, but such efforts were unsuccessful. (Stern Testimony, Tr. at 153).

 The Challenged Measures

 The College Draft

 The college draft is held annually shortly after the NBA season concludes. It is a mechanism in which each team is allotted two selections. A team may exercise its selections or trade them to another team. The order of selection is generally determined by the records of the 27 Teams for the season immediately preceding the draft, i.e., the weaker teams select earlier. In the end, 54 prospective players are selected by the Teams. A player who is selected by a particular team may only negotiate with that team. Any team that negotiates with a player it did not select is severely penalized. Prospective players who are not drafted are free to negotiate with any NBA team. (1988 Collective Bargaining Agreement, Granik Decl., July 6, 1994, Ex. 5, Art. IV).

 The Right of First Refusal

 Under the 1988 Collective Bargaining Agreement, the Teams maintain a right of first refusal over players who have played fewer than four seasons or who have not completed at least two contracts. When a player's contract expires, he is able to negotiate a new contract with any team. If a team has a right of first refusal over that player, however, it may match any offer another team makes. If there is a matching offer, the player may not sign with the new team, and his services are retained by his current team. (1988 Collective Bargaining Agreement, Granik Decl., July 6, 1994, Ex. 5, Art. V).

 The Salary Cap

 The salary cap is part of a complex player/owner revenue sharing arrangement in which the Players are guaranteed a percentage of the defined gross revenue of the team. This arrangement also operates as a ceiling on the total amount a team may spend on salaries for its players. As part of this arrangement, each team is also required to pay a minimum amount of salaries to its players (1988 Collective Bargaining Agreement, Granik Decl., July 6, 1994, Ex. 5, Art. VII, Pt. A, Sec. 1(e)-(f)). The salary cap may be exceeded by a team that wishes to pay a veteran player it currently employs. A team may, ...


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