Federal Judge Holds Key Hearing In San Jose vs. MLB Lawsuit

Federal district judge Ronald Whyte held a hearing today on Major League Baseball’s motion to dismiss the City of San Jose’s lawsuit, which charges MLB with violating federal and state law by refusing — so far — to permit the Oakland A’s to move to San Jose.

San Jose’s complaint, filed in June, alleges that MLB places unreasonable restrictions on competition by making it difficult — if not impossible — for teams to relocate from one city to another. The City also claims that by refusing to act on the A’s proposal to build a privately-financed ballpark in San Jose, MLB has interfered with the City’s option agreement with the A’s. Under that agreement, the A’s would purchase land from the City for the purpose of building the ballpark, if MLB approved the move.

As I explained in this post in June, the core of the City’s case is founded on federal antitrust law. And therein lie the issues before Judge Whyte today on MLB’s motion to dismiss the complaint: Does MLB’s antitrust exemption still exist? If so, what is the scope of the exemption? Has San Jose even suffered an injury recognized by antitrust law?

Before I get to the details of today’s hearing, a disclosure. As it notes in my bio below, I practiced law for nearly 18 years before moving on to other things at the end of 2010. For most of that time, I practiced with the law firm of Keker & Van Nest in San Francisco, first as an associate, then as a partner. That firm, including senior partner John Keker, represents MLB in this lawsuit. This case arose long after I left the firm. I never worked on or was privy to any information about MLB’s decision-making with respect to the A’s.

I am also a season-ticket holder with the San Francisco Giants and a Giants fan. But I’ve been on record since early 2012 with a proposal for resolving the territorial rights dispute between the Giants and the A’s in a way that allows the A’s to move to San Jose. My personal view is that a financially-vibrant A’s franchise would be good for MLB and the Bay Area and, ultimately, the Giants.

Now, on to the hearing.

Judge Whyte began the proceedings with questions about the existence and scope of baseball’s antitrust exemption. It was clear from his questions that the judge had read the motion papers and the case law in detail. He was prepared with pointed questions for both sides.

Joe Cotchett, who represents the City, addressed the court first. Cotchett argued that the U.S. Supreme Court and lower courts have narrowed the exemption significantly, and that it now covers only the “business of baseball.” Cotchett then argued that the “business of baseball” is limited to “the play on the field” and does not include matters relating to team location and relocation.

John Keker argued for MLB. He told the court that the exemption was alive and well and that the “business of baseball” includes — at a minimum — league structure and organization, franchise location, broadcast agreements, and revenue sharing.

There was a fair bit of discussion on the “inside baseball” (pun intended) of how the Supreme Court interprets its own decisions. The original decision declaring a baseball exemption to the antitrust laws dates to 1922. In that case, the Court held that the business of baseball did not involve interstate commerce (business that crosses state lines), and therefore, the antitrust laws did not apply. Later Supreme Court cases recognize the folly of that reasoning, but have upheld the antitrust exemption under the principle of stare decisis — which binds judges to prior court decisions even if they disagree the holding.

On that point, Keker emphasized the Curt Flood Act of 1998, the federal law that explicitly overruled the antitrust exemption for matters relating to the reserve clause — i.e., free agency. All other parts of the exemption were explicitly left untouched by Congress, argued Keker. As such, neither Congress nor the Supreme Court has eliminated the exemption or narrowed it to exclude matters relating to team location.

Judge Whyte then took up the question of “legal standing.” That’s a fancy way of saying: Has San Jose suffered an injury yet, and if so, is it an injury that can be remedied by antitrust law? According to Keker, San Jose has only agreed to sell the A’s city-owned land at a below-market price to build a downtown ballpark. That option agreement is contingent on (1) MLB’s approval of the A’s plan to move; and (2) the voter’s approval of a new ballpark in the downtown area. Keker emphasized that, just because a city might benefit from an MLB team in the future, the fact that one hasn’t been permitted to move there doesn’t mean that city has suffered antitrust damages. Counsel for the City took the opposite view.

The final point argued by the lawyers focused on the state law claims. “What if I rule for MLB on the federal antitrust claims,” Judge Whyte asked, “do I still need to decide the state law claims?” After some fumbling, both sides agreed that court would retain jurisdiction to decide the state law claims.

On the merits, the court seemed troubled that MLB could simply delay indefinitely a decision on the A’s relocation. “Doesn’t Commissioner Selig owe the City a duty to at least make a decision,” Judge Whyte asked Keker, “especially since Mr. Selig asked the City to put off the voter referendum until after MLB decides?” “No,” responded Keker. He added that MLB has asked the A’s to provide a wealth of information about the proposed relocation and that the A’s haven’t fully satisfied those those requests.

Philip Gregory, an attorney in Cotchett’s firm, argued this point for the City. He emphasized that the state law claims involved several important factual disputes, and thus could not be dismissed by the court on the motion. Instead, Gregory argued, the court should permit the claims to go forward into the discovery phase where the parties exchange documents and take depositions of each others’ witnesses.

After more than 90 minutes of argument, Judge Whyte deemed the matter submitted and stated that he would try to issue a written decision soon.

After the hearing, Cotchett lingered outside the courthouse to answer questions. He anticipates that Judge Whyte will rule within the next 20 to 30 days. And he is prepared to appeal the case to the Ninth Circuit Court of Appeals if Judge Whyte dismisses the entire complaint. Indeed, Cotchett boasted that if the case makes it all the way to the U.S. Supreme Court, he is confident the court would rule in his favor.

If I were a betting woman — and I am not — I would wager that Judge Whyte will dismiss the federal antitrust claims, either based on lack of standing or the antitrust exemption, or both. I’m less sure where his thinking is on the state law claims — both on the question of his jurisdiction to decide them if he dismisses the federal claims and on the merits of the claims. It is unusual for a court to dismiss a case outright on a motion to dismiss, without providing the plaintiff an opportunity to re-state its claims in light of the court’s decision. Unusual, but not unheard of.

We should know in the next 30 days.

Note: I tweeted the court hearing this morning. If you want to read my contemporaneous tweets, go to this Storify put together by one of my twitter followers.