The Week That Was in MLB Antitrust Litigation

Last week was relatively eventful for two pending antitrust lawsuits against Major League Baseball. On Thursday, the district court issued an important decision in the Garber v. Office of the Commissioner of Baseball suit challenging several of MLB’s television broadcasting practices under the Sherman Antitrust Act. Then later that same day, MLB officially asked the district court to dismiss the Miranda v. Office of the Commissioner of Baseball case, a suit contending that MLB’s minor league pay practices violate federal antitrust law.

Let’s start with the Garber case. As both Wendy Thurm and I have previously discussed on several occasions, the Garber suit involves allegations that several of MLB’s television policies violate the Sherman Act. First, the plaintiffs contend that MLB and its regional sports network partners impose unreasonable blackout policies on fans, preventing individual RSNs from competing with one another in each team’s assigned geographic territory. Absent these anticompetitive restrictions, the plaintiffs allege, a Red Sox fan living in California would, for instance, have the option of subscribing to the New England Sports Network (NESN) to watch all of Boston’s game. The resulting competition would, in theory, drive down the cost of sports programming for all baseball fans.

Relatedly, the Garber plaintiffs also accuse MLB of violating antitrust law by selling only league-wide, pay-per-view subscription packages (MLB Extra Innings and, rather than allowing individual teams to offer their own competing out-of-market plans. This restriction on competition also allegedly increases the cost that out-of-market fans pay to watch baseball.

Last year, the presiding judge in the Garber suit – Judge Shira A. Scheindlin – ruled that MLB’s antitrust exemption did not apply in the case because television broadcasting was not sufficiently “central to the business of baseball” to fall within the scope of its exemption.

On Thursday, the Garber plaintiffs cleared another potential hurdle in the suit, with Judge Scheindlin certifying the case as a class action. As a result, any outcome in the suit will now cover all MLB fans adversely affected by MLB’s television practices, rather than only those specific individuals named as plaintiffs in the case.

At the same time, however, Judge Scheindlin determined that the class action plaintiffs could only pursue injunctive relief against MLB, and not monetary damages. In short, class action lawsuits are only appropriate in cases where all of the potential plaintiffs in the case are “similarly situated,” meaning that the facts of one plaintiff’s case are substantially the same as those of the rest of the potential plaintiffs.

Here, the extent to which an individual fan has been overcharged due to MLB’s existing television policies could vary dramatically. Fans of a single out-of-market team may have paid quite a bit less if given the choice to buy only their teams’ games, for instance, while those who want to watch every MLB game will likely have been overcharged to a lesser degree since they would have purchased a league-wide package anyway. Because the plaintiffs failed to propose a viable means with which to determine the degree to which different fans had been monetarily harmed by MLB’s television practices, Judge Scheindlin effectively concluded that individual trials would be necessary to assess the amount of each individual plaintiff’s damages. (In contrast, all plaintiffs would, for the most part, be impacted equally if some of MLB’s television policies were struck down via an injunction.)

The takeaway from all of this is that fans will not receive a check in the mail should MLB’s television practices ultimately be declared unlawful in the Garber case. But if the court determines that MLB’s existing policies violate the Sherman Act, then Judge Scheindlin could issue an injunction forcing MLB to change its broadcasting rules. All in all, then, Thursday’s rulings were a victory for baseball fans hoping for a significant change to MLB’s television blackout policies.

The Garber case will now move forward towards a trial to be held at a yet-to-be-determined date (likely sometime in 2016 or 2017). The legality of MLB’s television practices will be judged under the so-called “rule of reason,” a balancing test in which the court will determine whether MLB’s restrictions are, on balance, pro- or anti-competitive, and thus legal or illegal. While the plaintiffs will argue that the policies are clearly anti-competitive – for the reasons outlined above – MLB has several credible arguments it can assert in defense of the existing rules. Ultimately, then, it is still too early to predict who will prevail at trial.

Meanwhile, as noted above, MLB also filed a motion to dismiss last week in the Miranda v. Office of the Commissioner of Baseball suit. As I explained at the time the Miranda case was filed last December, the suit alleges that MLB unlawfully suppresses minor league players’ salaries in several ways.

In particular, the Miranda plaintiffs assert that MLB has violated the Sherman Act by unilaterally establishing a minor league salary scale on a league-wide basis, rather than allowing individual teams to determine their minor leaguers’ salaries on their own. In addition, the case argues that MLB uses the first-year player draft to unlawfully prevent drafted players from selling their services to the highest bidder – instead allowing them to negotiate only with the team that drafted them – while also artificially reducing the size of players’ signing bonuses through its domestic and international signing bonus pool restrictions.

At the time, I noted that the Miranda suit faced at least one major hurdle: baseball’s antitrust exemption. Not only has the Supreme Court expressly held that the exemption applies to MLB’s treatment of minor league players (in its 1953 decision in Toolson v. New York Yankees), but Congress then arguably ratified this interpretation in the Curt Flood Act of 1998, which states that it “does not create, permit or imply a cause of action by which to challenge under the antitrust laws … any conduct, acts, practices, or agreement … affecting employment to play baseball at the minor league level.”

Not surprisingly, then, MLB’s motion to dismiss the Miranda suit heavily emphasizes baseball’s antitrust exemption, arguing that the exemption clearly applies to MLB’s treatment of minor leaguers in light of both the Toolson opinion and the Curt Flood Act. While the plaintiffs will, of course, have an opportunity to respond to these arguments, they will likely prove difficult to overcome, especially at the district court level (which is bound by the prior Supreme Court ruling).

In addition, MLB also contends that the California federal court in which the Miranda suit was filed lacks personal jurisdiction over eight of the MLB teams named as defendants in the suit (Baltimore, Boston, Philadelphia, Pittsburgh, Tampa Bay, Washington, the White Sox, and the Yankees). In particular, because these teams only occasionally travel to California to play games, and do not maintain any permanent physical presence in the state (like a minor league affiliate franchise), they contend that they are not subject to the court’s jurisdiction. Generally, courts will only force a party to defend itself in a particular state if it maintains a sufficient level of business operations in the jurisdiction; this prevents a Florida resident from unfairly having to travel to Montana to defend himself in a lawsuit that has nothing to do with the state, for example.

Some MLB teams made this same jurisdictional argument in the pending minor league minimum wage lawsuits – which were also filed in the same federal court in California – with the judge in those cases indicating in February that he was inclined to dismiss these teams from the litigation on jurisdiction grounds. However, the judge did grant the plaintiffs in the minimum wage lawsuits time to gather additional evidence regarding the MLB teams’ operations in California, and has not yet issued a final ruling on the matter.

A different judge presides over the Miranda suit, so he will not necessarily reach the same conclusion as the judge in the minimum wage cases on the jurisdictional issue. Nevertheless, the fact that another judge in the same court has suggested that he is amenable to this argument bodes well for the eight teams asserting the defense.

All in all, then, it is difficult to see the Miranda plaintiffs defeating MLB’s motion to dismiss the suit at the district court level. Their best hope is likely for the U.S. Supreme Court to overturn baseball’s antitrust exemption, allowing them to proceed with their claims under the Sherman Act. And while a Supreme Court appeal challenging the exemption is pending in San Jose, California’s lawsuit against MLB, the odds that the Court will agree to hear an appeal on the issue are probably relatively slim. As a result, the motion to dismiss filed by MLB last week could very well doom the Miranda lawsuit.

Nathaniel Grow is an Associate Professor of Business Law and Ethics and the Yormark Family Director of the Sports Industry Workshop at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.

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7 years ago

I’d imagine that, so long as the plaintiffs’ do the evidentiary legwork, they could show that those 8 teams have the minimum business contacts with California necessary to subject them to California’s jurisdiction. I mean, are you really going to say that teams with such a national presence as the Yankees or Red Sox don’t try to market themselves to Californians, or try to sell tickets/merchandise to Californians? And the teams probably employ California-based regional scouts who scout California amateurs and rarely leave California.

Maybe I’m wrong. It’s been like 6 years since Civil Procedure and Federal Courts.