The following information has not been verified for accuracy and is not intended as legal advice. Rather it is intended as a general information resource for people who wish to better understand the applicability of antitrust litigation to the Kings/Sonics franchise situation:
A. THE HANSEN GROUP SHOULD BE ABLE TO OBTAIN SPECIFIC ENFORCEMENT OF THE PURCHASE AND SALE AGREEMENT UNDER THE SHERMAN ACT'S PROHIBITION AGAINST GROUP BOYCOTTS.
In Haywood v. National Basketball Assn., 401 U.S. 1204 (1971), the U.S. Supreme Court ruled that the NBA was subject to antitrust law (the Sherman Act) making group boycotts illegal in the context of the right of players to enter a contract and to play in the NBA sooner than four years after the year of their high school graduation class. The NBA threatened to disallow the contract, and also threatened Seattle's team with various sanctions. The US Supreme Court upheld a preliminary injunction allowing Haywood to play, stating:
Applicant then commenced an antitrust action against the NBA. He alleges the conduct of the NBA is a group boycott of himself, and that, under Fashion Originators' Guild v. FTC, 312 U.S. 457, and Klor's v. Broadway-Hale Stores, 359 U.S. 207, it is a per se violation of the Sherman Act. He was granted an injunction pendente lite which allowed him to play for Seattle and forbade NBA to take sanctions against the Seattle team.
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This group boycott issue in professional sports is a significant one.
There is nothing in the Supreme Court's decision that restricts its reasoning to contracts between players and teams. Should they disapprove the sale, the NBA owners will be engaging in a group boycott disallowing the Maloofs from executing their contract with the Hansen group in the same way it attempted to prevent the Sonics from executing their contract with Haywood. In both cases the league as a group would be engaging in anti-competitive practices preventing free trade -- here the sale of the basketball team to the highest bidder. The Supreme Court in Haywood looked at the merits of the NBA's position, including " the status quo existing prior to the District Court's action and the disturbance of that status resulting from the injunction; the nature and extent of injury which continuation of the injunction or its stay would cause to the respective parties; and the public interest in the institution of professional basketball and the orderly regulation of its affairs." The court particularly considered that if Haywood was not permitted to play, the Sonics would not make the playoffs, and that his skills were transitory and would diminish during the years that he was not permitted to play.
Here, the Sonics have a binding contract that both the Hansen group and Maloofs want honored. The NBA is interfering with the execution of the contract in the same way it interfered with Haywood and the Sonics' contract. The status quo is that Seattle has approved the building of a new arena, and Hansen and his group have incurred significant expense in preparing for the purchase and sale of the team. They will incur irreversible harm if the NBA denies the contract in the same way the Sonics and Haywood would have incurred harm. At the same time, the Sacramento offer and arena deal are not even close to finalized, and the Maloofs are being forced to accept a lower offer for their team. The equities thus strongly favor the sale of the team to the Hansen group.
While the NBA may have a clause that owners may not sue each other or the league, in the case of laws that favor the public interest such as employment discrimination and antitrust laws, parties are not permitted to force others to prospectively waive their statutory rights to enforce the laws, even by contract. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (contract term operating as a prospective waiver of a party's right to pursue statutory remedies for antitrust violations void as against public policy); In re American Express Merchants' Litigation, 667 F.3d 204 (2d Cir. 2012) (invaliding prospective waiver of antitrust claims resulting from class action arbitration provisions); cf. Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 704 (1945) (agreement for prospective waiver of FLSA rights was invalid). Moreover, even if the clause prohibiting litigation were applied to the Maloofs, the Hansen group is not subject to any contract terms between the Maloofs and the league.
In conclusion, Hansen's group should consider filing an antitrust lawsuit against the NBA seeking an injunction forcing the sale of the team.
B. AS PART OF A LAWSUIT SEEKING SPECIFIC ENFORCEMENT OF THE CONTRACT, THE HANSEN GROUP SHOULD REQUEST DECLARATORY RELIEF THAT THEY ARE ENTITLED TO MOVE THE TEAM TO SEATTLE UNDER ANTITRUST LAWS.
In Los Angeles Memorial Coliseum v. NFL, 726 F.2d 1381 (9th Cir. 1984) ("Raiders I"), the Ninth Circuit upheld a jury finding that the NFL had committed an antitrust violation by prohibiting the Oakland Raiders from relocating to LA. The Raiders I court held that to succeed in an antitrust action in the context of relocating a sports franchise, a plaintiff "must prove these elements: '(1) An agreement among two or more persons or distinct business entities; (2) Which is intended to harm or unreasonably restrain competition; (3) And which actually causes injury to competition.' " Id. (quoting Kaplan v. Burroughs Corp., 611 F.2d 286, 290 (9th Cir.1979), cert. denied, 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980)). The Raiders I panel carefully examined the structure of professional football in applying the Kaplan standard, concluding that the relevant market for professional football, the history and purpose of the franchise-movement rule, and the lack of justification of the rule under the ancillary-restraint doctrine all supported the jury's verdict.
The NFL tried to have the Raider I ruling overturned in American Needle v. National Football League, 130 S. Ct. 2201 (2010) by arguing that it should be treated as a single entity, however the U.S. Supreme Court rejected its argument, holding that the NFL's members are competitors engaged in a joint venture and so they may engage in concerted, anti-competitive action in violation of the Sherman Act.
The Raiders I case was followed by NBA v. San Diego Clipper Basketball Club, 815 F.2d 562 (9th Cir. 1987), which held that a professional sports league's rule against relocation with anti-competitive effect should be scrutinized by a trier of fact under a rule of reason analysis, relying on Standard Oil Co. v. United States, 221 U.S. 1 (1911). The test for the rule of reason analysis is set forth in Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918), which states:
The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition, or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation, or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.
In the present case, the Hansen group has a strong argument that the NBA's decision against relocation has an anti-competitive effect that does not merely regulate, but destroys competition. Moreover, the NBA's decision is contrary to its own relocation rules, which take into account factors like the proximity of other teams to the proposed relocation destination, the profitability of the new destination for the team and for the league, as well as any state or local laws or regulations that might inhibit or prohibit an NBA team's success in a new destination.
The Hansen group has agreed to pay $550 million for the Sacramento franchise and expended significant money to purchase property and plan a new arena in Seattle with the expectation that the NBA would be profitable in the Seattle market, which is geographically larger, has a larger population, and has a much larger media market than Sacramento. Moreover, Sacramento has a competing team in the Golden State Warriors just 80 miles away, whereas the nearest NBA team to Seattle is Portland, 200 miles away. The NBA also has a past history of making a vague promise to consider Seattle for a future team following the move of the former Sonics to OKC and not honoring that promise. Hansen has undertaken substantial risk and investment in reliance on the league's 2008 promise to act in good faith. A franchise owner should have a right to locate his franchise in an area which allows the team to prosper financially with the least amount of competition and a larger potential revenue stream, particularly where he pays over a half billion dollars for the franchise. Given that Seattle has a viable arena plan and that it is the 12th largest media market in the country, prohibiting Hansen from moving here would be a restraint of trade and therefore a violation of antitrust laws, just as preventing the Maloofs from selling their franchise to the highest bidder is a violation of those laws.
Moreover, to the extent that the NBA prefers the Sacramento offer because it includes greater public financing, such factor violates public policy as well as free competition, which presumes that private enterprises compete with each other on a level playing field, and not with the assistance of public funds that drain resources from other areas such as schools, police and fire departments, roads, and infrastructure.
The NBA has said the current Sacramento arena is not up to par, just as they claimed KeyArena was not and the present Milwaukee arena is not. Sacramento further has numerous roadblocks to a new arena. They don't own the land yet, and there are zoning and financing issues. At minimum, the arena is a couple years behind the Seattle plan and has many more uncertainties. Given the price the Hansen group has agreed to pay for the franchise, the Sacramento venue and its plan for a future arena are not financially viable options.
Finally, while the NBA will undoubtedly argue that it has an interest in preserving good will in Sacramento and for the league in general by keeping a team in Sacramento, such claim is belied by the NBA's past history and practice of permitting teams to move - the Sonics to OKC, the Grizzlies to Memphis, the Jazz to Utah, the Hornets to New Orleans, among many others. To condition permitting a team to remain in a city on its taxpayers opening their coffers to subsidize a new arena is both anti-competitive and tantamount to use of coercion to extract public concessions. Such motive and pattern of behavior cannot be rewarded by creating a justification for preventing a team from moving under a rule of reason analysis.
C. POTENTIAL TORTIOUS INTERFERENCE WITH CONTRACT CLAIMS
In addition to the above antitrust claims, there is a potential tortious interference with contract claim against both the NBA and the Sacramento group, as the Hansen group has entered a binding contract with the Maloofs. However, since the NBA essentially invited the competing offer by the Sacramento group, the stronger case may be against the NBA. Moreover, to the extent a tortious interference claim may be prospectively waived, such is not the case with an statutory antitrust claim based on public policy.
Below are additional citations to several legal articles that support the above legal analysis.
Willamette College PDF