NBA Constitution - Now Available for Review

M

MentalDisabldLst

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Good stuff.  There are openings for a good NBA lawyer in there to put the screws to Sterling, and (thankfully, in my case) it doesn't take a legal genius to spot some of them:
 
ARTICLE 6 
 
LIMITATIONS ON INDEBTEDNESS 
 
 The Board of Governors (and such committees of the 
Board as it or the Commissioner may appoint) shall have the right to 
establish limits on the indebtedness and other obligations that any 
Member or Owner may incur.
 
 

ARTICLE 13 
 
TERMINATION OF OWNERSHIP OR MEMBERSHIP 
 
 The Membership of a Member or the interest of any Owner 
may be terminated by a vote of three fourths (3/4) of the Board of 
Governors if the Member or Owner shall do or suffer any of the 
following: 
 
 (a) Willfully violate any of the provisions of the 
Constitution and By-Laws, resolutions, or agreements of the 
Association. 
 
 
---
 
etc.  The really good provisions are in Sec 35A, if you want to skip to it - powers the Commissioner has over everyone including Owners - but none of the powers there pertain to control, transfer of ownership, or liquidation of any Owner's interest in a Member of the Association.
 

DennyDoyle'sBoil

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This is going to be interesting.  I don't see any provisions of Article 13 that would be a basis for termination of Sterling's membership other than (a), quoted above.  Did the Commissioner say today what "provisions of the Constitution and By-Laws, resolutions, or agreements of the Association" Sterling "willfully" violated?  I can't imagine that saying racist things in one's private life is covered in the by-laws or Constitution, but perhaps it is.  Maybe the hook is that he was arguably instructing her not to permit people to attend games, based on race, which I would imagine they can some kind of provision for.
 
Otherwise, the argument has to be that termination is proper for a violation of the provision in Article 35A.  That article contains the following language:
 
 
(c) Any person who gives, makes, issues, authorizes or 
endorses any statement having, or designed to have, an effect 
prejudicial or detrimental to the best interests of basketball or of the 
Association or of a Member or its Team, shall be liable to a fine not 
exceeding $1,000,000 to be imposed by the Commissioner. The 
Member whose Owner, Officer, Manager, Coach or other employee has 
been so fined shall pay the amount of the fine should such person fail to 
do so within ten (10) days of its imposition. 
 
If I'm Sterling's lawyers, I think I argue that the specific trumps the general.  This provision establishes its own penalty.  One cannot read the Constitution to provide for the specific penalty in this section, but also permit termination for a violation of the same provision. Interesting legal question -- I don't think it's free from doubt at all.
 
The other relevant sections are section 14, which sets the due process that a member receives prior to termination, and section 14A, which talks about what happens when the team is terminated.  (It's long, but basically, the Commissioner runs the team until it's sold.) What's interesting about sections 14 and 14A is that, to read them, it's pretty clear that the drafters never really envisioned termination for something like what Sterling has done.  The provisions read as though they are aimed primarily at situations in which the owner gets into financial trouble, and the league has to come in to take over and pay debts and administer finances.  This is backed up by section 15, which permits a fine to be imposed in lieu of termination.  This should be an interesting legal battle if they get the 23 votes needed. 
 

RG33

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Well, Article 35A applies to "Members and Owners". Section C clearly states that "any person who gives, makes, issues, authorizes, or endorses any statement having, or designed to have, an effect prejudicial or detrimental to the best interests of basketball. . . . . "

Clearly, his racist rants have violated this by-law and he is subject to fine and suspension per the rest of the bylaw. Article 13 that MDL quotes above then states that they can kick him out for violating any bylaw.

It seems pretty clear cut to me that they can give him the boot with the 3/4 vote. Now, whether or not that having that language in a "constitution" of a private entity holds up in court, I have no freaking idea.
 

dcmissle

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Papelbon said:
So, I'll ask a borderline ignorant question here: would Silver had done this if his lawyers didn't think it was a pretty solid case to win? I understand Sterling will fight it, as anyone with his means would. But in cases like this, I tend to assume that the larger entity wouldn't proceed without pretty sound legal standing. I'd tend to think the nba would have more and better lawyers than Sterling would, as rich as he is.

I haven't read the constitution, am not a lawyer, am halfway drunk and only here because I can't sleep.

That being said, I have to assume Sterling is fucked, no?
Not necessarily. It's a winning move from Silver's perspective even if he can't make this forced sale stick. The owners' too. They can never be accused of not doing enough. They have quelled a players' rebellion.

I'd like to see the arbitration provision, if there is one.
 

Brickowski

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dcmissle said:
I'd like to see the arbitration provision, if there is one.
Article 24, subsection (m).  Also, Article 18 (e) provides that all decisions by the board of governors shall be treated as arbitration awards and can be entered in a court of competent jurisdiction for enforcement.  
 

soxfan121

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Papelbon's Poutine said:
So, I'll ask a borderline ignorant question here: would Silver had done this if his lawyers didn't think it was a pretty solid case to win? 
 
I think that the NBAPA's (very real, according to many sources) threat to boycott Tuesday's games if Silver didn't do this overrode any long term legal concerns. That would have been disastrous for the league and all the owners. Sponsors would have abandoned the league (not just the Clippers) in droves and the TV networks would have been furious. 
 
FWIW, I don't think the NBA will "win" a lawsuit brought by Sterling and (based on reading here and elsewhere) Sterling's family will retain ownership when the dust settles years from now. Which is bad for the NBA but less bad than the entire players union walking out on three nationally televised games that had the most casual fan interest (read: rubbernecking at the mess) in a decade.
 

dcmissle

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Thank you.

I was looking at 18(j), which could be construed as providing no review of a franchise termination. As a practical matter, I think stripping the franchise will be reviewed, in arbitration.

This is very significant. Arbitrations can and often do happen very quickly, even in cases where the stakes are enormous. And the grounds for setting aside arbitral awards are very narrow. A panel can construe an agreement in a clearly erroneous way, and this is generally insufficient to set aside an arbitration award, so long as the panel as least purports to construe the agreement.

Of course, this can be both very good, or very bad, for both sides, depending on the result.
 

soxhop411

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soxfan121 said:
 
I think that the NBAPA's (very real, according to many sources) threat to boycott Tuesday's games if Silver didn't do this overrode any long term legal concerns. That would have been disastrous for the league and all the owners. Sponsors would have abandoned the league (not just the Clippers) in droves and the TV networks would have been furious. 
 
FWIW, I don't think the NBA will "win" a lawsuit brought by Sterling and (based on reading here and elsewhere) Sterling's family will retain ownership when the dust settles years from now. Which is bad for the NBA but less bad than the entire players union walking out on three nationally televised games that had the most casual fan interest (read: rubbernecking at the mess) in a decade.
I thought most sports lawers have said that Sterling has no chance w/ a lawsuit?
 

TheGazelle

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He's probably not going to get to sue in court.  As dcmissle notes, any dispute over the franchise termination is likely going to be resolved in arbitration. The losing party can theoretically move to vacate that award in court, but the grounds to do so are extraordinarily narrow.  That would typically be resolved by motion practice, not a true "litigation" with discovery, etc. 
 
I agree with others that, regardless of whether the NBA would prevail in arbitration, this is the right move for them.  Even if the NBA ultimately loses, Silver is doing what we can under the NBA's Constitution to remove Sterling.  Tough to criticize the NBA"s response here.
 
And Sterling would be absolutely insane to challenge the sale, if only from a publicity perspective.  Take your $750MM in proceeds and walk.  Of course, that probably makes it more likely that someone as crazed as Sterling will actually fight this out. 
 

Brickowski

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IMHO the real issue is the suspension, not franchise termination per se.  
 
I doubt if a court is going to hold that it's against public policy for a billionaires club to self regulate by supermajority vote.  Sterling (himself a lawyer) knew what he was getting into when he agreed to that document.  Plus there doesn't appear to be any legal (as opposed to equitable) remedy if the franchise is sold to the highest bidder--Sterling will make a huge profit-- unless he can prove that the NBA botched the sale and sold the Clippers' franchise for much less than market value.
 
The suspension is a different matter.  It's arguably draconian and there was no vote taken.  He could argue that ithe threats of player boycotts weren't real, etc.  But he'll almost certainly have to make that case to an arbitrator in NY, not to a court in California.
 
However, Mrs. Sterling might get a day in court.  If she files for divorce, wouldn't the franchise be community property in California?  She might argue that a court should stay the sale of the franchise until her slice of the pie is determined.
 

soxfan121

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soxhop411 said:
I thought most sports lawers have said that Sterling has no chance w/ a lawsuit?
 
We're out of the sports lawyers end of the pool. This is a billion dollar business with far reaching ties. See below.
 
TheGazelle said:
He's probably not going to get to sue in court.  As dcmissle notes, any dispute over the franchise termination is likely going to be resolved in arbitration. The losing party can theoretically move to vacate that award in court, but the grounds to do so are extraordinarily narrow.  That would typically be resolved by motion practice, not a true "litigation" with discovery, etc. 
 
I agree with others that, regardless of whether the NBA would prevail in arbitration, this is the right move for them.  Even if the NBA ultimately loses, Silver is doing what we can under the NBA's Constitution to remove Sterling.  Tough to criticize the NBA"s response here.
 
And Sterling would be absolutely insane to challenge the sale, if only from a publicity perspective.  Take your $750MM in proceeds and walk.  Of course, that probably makes it more likely that someone as crazed as Sterling will actually fight this out. 
 
1. Sterling does not give a shit about "the public perspective" now, if he ever did. He will challenge the NBA. Because..
2. See the other thread. It isn't $750M in proceeds - it's far less than that due to the tax implications. Sterling has very little leverage in an arbitration (unless he has dirt on the NBA, which he'll tell them about then) and every reason to cut a deal with Silver/NBA. $300M+ is worth contesting for a guy like Sterling, when the alternative is $30M. 
 

DennyDoyle'sBoil

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dcmissle said:
I was looking at 18(j), which could be construed as providing no review of a franchise termination. 
 
I think perhaps you mean 14(j)?  
 
Three provisions seem potentially relevant to me.
 
24(m) says that decisions of the Commissioner are to be treated as arbitration awards, and thus can only be challenged on very limited grounds.  However, 24(m) only applies if there has been a hearing or quasi-hearing (only if the affected party has had the right to be heard and to provide evidence).  This is only relevant to the commissioner's decision to fine and suspend Sterling.  My guess is that does not yet have the status under the constitution of an arbitration award, because there was no process or little process afforded.  But Sterling would have to challenge it internally first, in which case he'd be given a hearing, and then the resultant decision would be treated as an arb award.
 
18(j) says that decisions of the BOG are treated as arbitration awards.  This means they can be challenged in court, but only on very narrow grounds. They get great deference.  This would apply to a decision to terminate Sterling's membership.
 
14(j) purports to strip any court review of BOG termination decisions.  This is arguably inconsistent with 18(j), which seems to envision that the decision should at least be treated as arbitration awards.  Unlike decisions to arbitrate, contractual provisions that purport to strip entirely your right to access to court are not given deference and are disfavored, so if there's any ambiguity in the agreement, they usually are not enforceable.
 
So, my best reading would be that if Sterling were forced to sell, that decision would be treated as an arbitration decision, which the league could have enforced by judicial process and remedies.  Sterling could also challenge it by bringing a complaint to vacate the arbitration award, but the kinds of arguments he could make would be very limited -- he would have to show fraud, or a seriously deficient procedure that did not give him the ability to present his case or evidence, or something else of that nature.  The court wouldn't second guess judgment decisions by the BOG.  But Sterling would have some very narrow latitude to argue that the NBA violated its own agreement by deciding this is a valid basis for termination.  The BOG would be entitled to significant but not absolute deference about the meaning of its constitution.  You do get some narrow ability to challenge an arbitration award based on a conflict of interest -- Sterling might be able to come up with some kind of theory that gets him some traction in this regard given the economic interest of those who would be deciding his case, but that's a longshot.
 

Swedgin

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DennyDoyle'sBoil said:
 
I think perhaps you mean 14(j)?  
 
Three provisions seem potentially relevant to me.
 
24(m) says that decisions of the Commissioner are to be treated as arbitration awards, and thus can only be challenged on very limited grounds.  However, 24(m) only applies if there has been a hearing or quasi-hearing (only if the affected party has had the right to be heard and to provide evidence).  This is only relevant to the commissioner's decision to fine and suspend Sterling.  My guess is that does not yet have the status under the constitution of an arbitration award, because there was no process or little process afforded.  But Sterling would have to challenge it internally first, in which case he'd be given a hearing, and then the resultant decision would be treated as an arb award.
 
18(j) says that decisions of the BOG are treated as arbitration awards.  This means they can be challenged in court, but only on very narrow grounds. They get great deference.  This would apply to a decision to terminate Sterling's membership.
 
14(j) purports to strip any court review of BOG termination decisions.  This is arguably inconsistent with 18(j), which seems to envision that the decision should at least be treated as arbitration awards.  Unlike decisions to arbitrate, contractual provisions that purport to strip entirely your right to access to court are not given deference and are disfavored, so if there's any ambiguity in the agreement, they usually are not enforceable.
 
So, my best reading would be that if Sterling were forced to sell, that decision would be treated as an arbitration decision, which the league could have enforced by judicial process and remedies.  Sterling could also challenge it by bringing a complaint to vacate the arbitration award, but the kinds of arguments he could make would be very limited -- he would have to show fraud, or a seriously deficient procedure that did not give him the ability to present his case or evidence, or something else of that nature.  The court wouldn't second guess judgment decisions by the BOG.  But Sterling would have some very narrow latitude to argue that the NBA violated its own agreement by deciding this is a valid basis for termination.  The BOG would be entitled to significant but not absolute deference about the meaning of its constitution.  You do get some narrow ability to challenge an arbitration award based on a conflict of interest -- Sterling might be able to come up with some kind of theory that gets him some traction in this regard given the economic interest of those who would be deciding his case, but that's a longshot.
 
That is my reading of the Constitution as well.   The conflict of interest argument, which you acknowledge is a long shot, is further hampered by the fact that the owners do not benefit directly by forcing a sale as the proceeds will go to Sterling.   It seems like the process would be done with six months to a year.   BOG votes (presumably within the month), Sterling then has 90 days to move to vacate the award.  Even then the League can force has his hand by immediately moving to confirm the award.  My guess is that whatever court gets the case would keep on a very tight leash.   I suppose an appeal could drag it out a little longer.
 
One other calculation Sterling has to take into account: the Constitution has fee-shifting provisions that are extremely favorable to the league.  If he challenges a league action, he has to pay all the league's fees unless he is 100% completely successful.   In contrast, if the League wins some relief it gets its fees paid by Sterling.  Even if he wins 100%, he still has the privilege of paying his pro-rata share of the League's fees.  
 
Frankly, I don't see why Sterling would bother to fight under these circumstances.   The only rational upside is avoiding some capital gains tax for his heirs.  In contrast, the downside is that the value of the Clipper's franchise plummets if he remains owner, so that if and when his heirs do cash out they net less anyway, even with the tax savings.  NBA franchises have never been more valuable then right now.   There is no guarantee that value with hold 10 years from now, whether as a general or Clipper-specific, proposition.      
 

Brickowski

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Swedgin said:
 
 
Frankly, I don't see why Sterling would bother to fight under these circumstances.   The only rational upside is avoiding some capital gains tax for his heirs.  In contrast, the downside is that the value of the Clipper's franchise plummets if he remains owner, so that if and when his heirs do cash out they net less anyway, even with the tax savings.  NBA franchises have never been more valuable then right now.   There is no guarantee that value with hold 10 years from now, whether as a general or Clipper-specific, proposition.      
The "poor me, I have to pay cap gains tax" argument is a loser.  The fact that he will have to pay tax on three quarters of a billion dollars of profit isn't going to get much sympathy from a judge.  He was a willing party to the arrangement that allows 3/4 of the owners to force a sale.  And its not exactly the case that he earned that money through brilliant and astute management of the Clippers' franchise.  It was actually the business acumen of Stern and the other owners that floated his boat along with all of the others.
 
But Sterling may just be dumb enough to fight.  Anyone can walk into a court with lawyers, a complaint and bankers boxes full of supporting documents.  But this isn't some tenant's association, or individual ex-employee, or state human rights commission that he would be fighting.  He'd be fighting against the NBA and its counsel, and win or lose he'd be on the hook for the astronomical fees of whichever big NY firm the NBA decided to retain.
 

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Brickowski said:
The "poor me, I have to pay cap gains tax" argument is a loser.  The fact that he will have to pay tax on three quarters of a billion dollars of profit isn't going to get much sympathy from a judge.  He was a willing party to the arrangement that allows 3/4 of the owners to force a sale.  And its not exactly the case that he earned that money through brilliant and astute management of the Clippers' franchise.  It was actually the business acumen of Stern and the other owners that floated his boat along with all of the others.
 
But Sterling may just be dumb enough to fight.  Anyone can walk into a court with lawyers, a complaint and bankers boxes full of supporting documents.  But this isn't some tenant's association, or individual ex-employee, or state human rights commission that he would be fighting.  He'd be fighting against the NBA and its counsel, and win or lose he'd be on the hook for the astronomical fees of whichever big NY firm the NBA decided to retain.
 
He doesn't have to win, though.  If he can just hold out until he passes, the $270 million or so in savings will absolutely dwarf whatever legal fees he might have to pay.
 

Brickowski

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Yes, but he won't have an extra $500,000,000 to invest now.  If he reinvested the after-tax proceed of the sale wisely, he could make up the difference before he died and his heirs might be in the same (or better) position.
 

SumnerH

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Brickowski said:
Yes, but he won't have an extra $500,000,000 to invest now.  If he reinvested the after-tax proceed of the sale wisely, he could make up the difference before he died and his heirs might be in the same (or better) position.
The reports are that his girlfriend was recording their calls because he forgets things and would go back and listen to them again later.  He may not be in a condition to invest wisely.
 

soxfan121

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Brickowski said:
Yes, but he won't have an extra $500,000,000 to invest now.  If he reinvested the after-tax proceed of the sale wisely, he could make up the difference before he died and his heirs might be in the same (or better) position.
 
He's 81. That's the very definition of "day-to-day". He ain't interested in buying into a tech firm or a burger chain. He wants to be owner of the Clippers, which lets him bang hot chicks that aren't his wife. What business, other than something in Nevada, could he invest in that gets his old ass on TV and in front of thousands of prospective miners?
 

Brickowski

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soxfan121 said:
 
He's 81. That's the very definition of "day-to-day". He ain't interested in buying into a tech firm or a burger chain. He wants to be owner of the Clippers, which lets him bang hot chicks that aren't his wife. What business, other than something in Nevada, could he invest in that gets his old ass on TV and in front of thousands of prospective miners?
Yeah, some judge will give him the franchise back because the ability to bang hot chicks (actually at his age it's the ability to get blowjobs from hot chicks) and to sit courtside at Clippers games are unalienable rights.
 

soxfan121

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Brickowski said:
Yeah, some judge will give him the franchise back because the ability to bang hot chicks (actually it his age it's the ability to get blowjobs from hot chicks) and to sit courtside at Clippers games are unalienable rights.
 
What does that have to do with the post I responded to? You wrote it, so I assume you are familiar with its content. 
 
I simply gave you reasons why your post was poorly thought out and irrelevant to the discussion. 
 

dcmissle

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I don't believe that sustaining a forced sale is anything close to a slam dunk. As indicated before the sanctions were announced, if one assumes (sensibly) that Sterling had no role in leaking the tape, the notion that his racist commentary, even he knew he was being recorded, constitutes a "willful" violation of his obligations as an owner is extraordinarily strained. Indeed, before a judge, I's much rather have Sterling's argument than the League's.

Sterling's big problem is that he'll be before one or more arbitrators, not a judge, and if the panel adopts an interpretation of the provision adverse to him, it will be extraordinarily difficult to overturn. Arbitrators can basically so what they want, Ao long as they root their decision in the operative document. And arbitrators can be less than scrupulous in their reasoning.
 

Brickowski

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No, he'll be before an arbitrator to contest the suspension and the fine.  He'll be before the other 29 owners to contest the forced sale.  There's no arbitration for that; the other 29 owners get to decide if he violated the constitution or not.  See Article 18(e).
 
Perhaps a just result would be to put the franchise into a court-supervised receivership until Sterling dies.  The franchise would be sold by the receiver after his death, and his heirs would get the benefit of the stepped up basis and avoid cap gain taxes  on the proceeds of the sale.
 
But the NBA constitution does not provide for that, and I'm not sure how a judge gets there absent a settlement agreement.
 

dcmissle

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Brickowski said:
No, he'll be before an arbitrator to contest the suspension and the fine.  He'll be before the other 29 owners to contest the forced sale.  There's no arbitration for that; the other 29 owners get to decide if he violated the constitution or not.  See Article 18(e).
 
Perhaps a just result would be to put the franchise into a court-supervised receivership until Sterling dies.  The franchise would be sold by the receiver after his death, and his heirs would get the benefit of the stepped up basis and avoid cap gain taxes  on the proceeds of the sale.
 
But the NBA constitution does not provide for that, and I'm not sure how a judge gets there absent a settlement agreement.
I know Sterling is a sophisticated lawyer who went in with his eyes open, but the League is going to have a challenge sustaining the position that getting kicked out is completely immune from any review by anybody. If Sterling chooses to challenge.
 

Brickowski

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soxfan121 said:
 
What does that have to do with the post I responded to? You wrote it, so I assume you are familiar with its content. 
 
I simply gave you reasons why your post was poorly thought out and irrelevant to the discussion. 
Why was it poorly thought out?  If he lives 5 years, his portfolio could easily increase by 10-15% a year, which would make up the tax.  My portfolio has certainly done that since 2008, and it's invested very conservatively in big NYSE and NASDAQ companies whose names you would recognize.
 
Sterling could argue, I suppose,  that in 5 years the Clippers could be worth 900M if he were allowed to retain ownership.  But that's unlikely, with virtually every one of his sponsors pulling out.
 
M

MentalDisabldLst

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Well, Article 35A applies to "Members and Owners". Section C clearly states that "any person who gives, makes, issues, authorizes, or endorses any statement having, or designed to have, an effect prejudicial or detrimental to the best interests of basketball. . . . . "

Clearly, his racist rants have violated this by-law and he is subject to fine and suspension per the rest of the bylaw. Article 13 that MDL quotes above then states that they can kick him out for violating any bylaw.

It seems pretty clear cut to me that they can give him the boot with the 3/4 vote. Now, whether or not that having that language in a "constitution" of a private entity holds up in court, I have no freaking idea.
 
It seems pretty clear-cut to me that the opposite is true.  35A(c) definitely covers Sterling's actions, but the penalties are fines, suspension or banning - not Termination as per Articles 13 and 14.  Termination - a takeover and forced sale of the Member club - was pretty clearly contemplated mostly for clubs not being able to pay their debts and being insolvent.
 
They could invoke that bit of Article 13 that I quoted, but there would need to be an existing bylaw (not just 35A(c) here) about such statements.
 
Basically, I think that the ban and fine is so well-covered as to be un-contestable, but forcing Termination is tougher.  If I were an NBA lawyer, I might go for some ad-hoc limits on indebtedness, set the limit to $0, give $1 fines to all other clubs for maintaining debt, but force a sale of the Clippers on the basis of their violation of that rule.  Unless they think that Sterling can pay off the entire debt of the club using cash the club holds within a week - which I doubt.
 

dcmissle

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Were I advising one or more of the owners prior to a forced sale, I would tell them that a yes vote carries with it a substantial possibility of very substantial liability. Even if one assumes that the owners' vote is absolutely shielded from reversal by a judge, jury or arbitrator, that does not mean that a termination cannot be wrongful and the occasion for a hefty liability award for breach of contract (the NBA constitution spells out specific grounds for termination) and/or breach of fiduciary duty (the owners are business partners). Damages could include the tax consequences on Sterling that could have been long deferred if not avoided, and profits that he would have earned, diminished, of course, by his sale proceeds. Put differently, a wrongful termination may not be reversible, but it could prove very expensive.
 

Brickowski

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We'll just have to agree to disagree, dcmissle.  Either the constitution is a legally binding document, or it isn't.  If it's binding on Sterling, I see very little potential liability in forcing a sale, so long as the owners' actions are procedurally correct.
 
Indeed, there might be liability for failing to boot him out.  Owners who vote "no" might be sued by other owners for declines in jersey sales, sales of trademarked items, etc.  Or Nike could sue the owners based on a drop in shoe sales.  The NBA is the last league in the world that can afford a racist owner, even one who has been suspended.
 

JakeRae

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It strikes me as relevant that the clause Sterling was punished under was under Silver's power to punish actions against the good of the game not otherwise contained in the Constitution and Bylaws. Since 13a requires that he willfully violate the NBA Constitution or Bylaws, being disciplined under a clause that is expressly for situations in which the actor being punished did not engage in such violative conduct is problematic for the NBA.
 

wade boggs chicken dinner

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Brickowski said:
We'll just have to agree to disagree, dcmissle.  Either the constitution is a legally binding document, or it isn't.  If it's binding on Sterling, I see very little potential liability in forcing a sale, so long as the owners' actions are procedurally correct.
 
Indeed, there might be liability for failing to boot him out.  Owners who vote "no" might be sued by other owners for declines in jersey sales, sales of trademarked items, etc.  Or Nike could sue the owners based on a drop in shoe sales.  The NBA is the last league in the world that can afford a racist owner, even one who has been suspended.
 
Are you an attorney?  If not, do you realize that most people who have posted in this thread are attorneys?  I ask this because your earlier comment about the suspension being actionable and the termination not is almost surely incorrect, so I was wondering.

And I'm not saying you shouldn't express your positions; just understand that oftentimes the law isn't something you can reason to, and - particularly in the case of arbitration and franchise termination law - what should be fair and equitable doesn't really matter.
 
Assuming the BoG takes actions to strip Sterling of his franchise, my best guess is that he will undertake a scorched earth tactic.  The amount he and his heirs stand to lose if the sale occurs before his death is upwards of $200M.  That's a lot of money, and Sterling isn't going to make that up before he dies.  He doesn't care if he has to pay 7 figure legal bills to the NBA.  He is going to do whatever he can to extend his tenure as owner.
 
This all becomes exponentially more complicated if Shelly Sterling files for divorce.
 

Brickowski

Banned
Feb 15, 2011
3,755
I've been a practicing business attorney for quite a long time.
 
The question is whether or not Section 18(e) of the NBA Constitution is enforceable as drafted.  If it is, then Sterling will have a very tough time getting a day in court to contest termination of his ownership.  Courts are extremely deferential to arbitration awards.  The Federal Arbitration Act (FAA) requires the court to confirm an arbitration award unless the award was procured by “corruption”, “fraud”, “undue means”, or where the arbitrators were “guilty of misconduct” or have “exceeded their powers”. 9 U.S.C. § 10.  The question is not if Sterling's racist statements justify his removal.  That's a red herring. The question is whether or not an affirmative vote of 75% or more of the owners is legally sufficient for his removal.  Given that Sterling voluntarily entered into the arrangement and reaped considerable benefit from it,  I believe a court would find it sufficient.
 
I think it is very likely that Stern has an opinion from a very reputable firm,-- perhaps Proskauer Rose, where Stern was an associate, or Cravath, where Silver was an associate, to the effect that this provision is enforceable.
 
But let me repeat two things I said earlier.
 
1. I'm in agreement with you that Shelley Sterling could complicate matters: the Jamie McCourt scenario.
 
2. It's very possible that, in order to avoid further litigation, Sterling and the league could agree to put the franchise into receivership until Sterling's death, to be sold for the benefit of his heirs, to give them the benefit of the stepped-up basis.  That avoids the cap gains tax problem.  It's also what the NBA appears to be doing as a practical matter; I read that Silver is searching for a CEO unaffiliated with Sterling to run the franchise on a temporary basis.
 

finnVT

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Not a lawyer, so asking because I genuinely have no idea.  *If* it turns out the phone call was recorded illegally (and I know there's debate about this in the other thread) and Sterling challenges the NBA, would they be allowed to use it (the recorded phone call) in the arbitration hearing?  Would it be allowed in court if Sterling manages to appealing the arbitration result?
 

DennyDoyle'sBoil

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A few thoughts.
 
First, the constitution does not contain a standard arbitration clause.  Let's take a classic case -- A and B enter a contract to buy and sell widgets.  They include a provision that if they have a dispute that arises out of the contract, they will submit it to arbitration.  This means that a third-party neutral will hear the case, usually subject to written procedures.  Courts give decisions made by such arbitrators a high degree of deference.  They are difficult, but not impossible, to challenge in court.  Why?  Well, judges don't like to work weekends. So, provisions where people agree to resolve their disputes informally without courts are really really encouraged.
 
This is not that type of arbitration clause.  This is much more akin to a circumstance where one party to a contract gets to decide its own case, and then have that decision treated as arbitration.  So, in my widgets example, it would be as though the contract said that B could terminate the contract for cause, but B could decide what constitutes cause in its sole discretion, and that decision would be treated as an arbitration award.  It's not completely analogous in the NBA constitution, because it purports to give some lip serve to due process.  What happens is that the Board of Governors votes for termination after a very streamlined hearing.  But, and this is important, there is no substantive standard for the board to apply.  The constitution reads as though the Board is considering only facts.  While its clear that the Board also has discretion, there is no standard on which it must exercise its discretion, nor is there any suggestion of why or how the accused owner can appeal to discretion.  For example, if the accused wanted to present a case where he said, yes, as a matter of fact, I did what you've charged me with doing, but here's why I should not be punished with termination, the constitution is utterly standardless with respect to how a governor can exercise its discretion.
 
So, you have a combination of two things here -- a standardless hearing process and a situation where a group of the parties to the contract have in essence appointed themselves arbitrators.  Courts don't quite know how to deal with this.  I don't know New York law, but some courts will treat these types of provisions as different from arbitration clauses -- they see them more as court-jurisdiction stripping provisions which are given less deference.  Or, they review them as arbitration, but are less deferential or make up law about conflicts of interest to set aside arbitration awards.  (I noted New York law, because the constitution purports to have a sort-of choice of law provision in 18(e), but it's not well written.
 
A post above says that Stern had an "opinion" that the provision is enforceable.  No idea what this means.  A lawyer can't make something enforceable.  No lawyer's opinion is more valid than any other, though some lawyers are smarter than others.  This is clearly drafted to try as hard as it can to make BOG decisions tantamount to arbitration awards, but that doesn't mean it did so successfully.  The fact that a lawyer gives you an opinion -- even if it expressly says you can rely on it -- doesn't mean you win.  It just makes it easier to sue the lawyer for malpractice since the lawyer cannot argue reliance.
 
A last point on arbitration -- though challenging arbitration awards is hard, it's not impossible.  Arbitration awards can and do get vacated all the time.  The fact that the constitution is deemed to be a full arbitration clause, entitled to full deference, merely is the beginning of the inquiry, not the end.
 
 
MentalDisabldLst said:
 
It seems pretty clear-cut to me that the opposite is true.  35A(c) definitely covers Sterling's actions, but the penalties are fines, suspension or banning - not Termination as per Articles 13 and 14.  Termination - a takeover and forced sale of the Member club - was pretty clearly contemplated mostly for clubs not being able to pay their debts and being insolvent.
 
 
This is what I was trying to get at above, and I really think it would be the centerpiece of any legal challenge.  Let me try to make another analogy.
 
Imagine a franchise agreement between a store owner and McDonalds.  To make it simple, let's isolate two sections in the agreement.  Let's call them section 1 and section 2.  Section 1 says that the franchise can be terminated in four cases:  (a) failure of owner to make franchise payments, (b) in store violations that compromise public health and safety, or (c) a determination of refusal to serve based on race, age or religion by a court of competent jurisdiction, or (d) any other violation of this agreement.
 
Now, imagine section 2 is entitled "duties of francisees" and it includes a long list of things that the owner must do to protect the McDonalds brand.  Let's suppose that some of these provisions contain their own penalties.  So, for example, subsection (m) says that failure to use approved yellow wrappers for cheeseburgers is a violation and can be fined $1,000 for a violation, and $10,000 for the third or more violations.
 
Would a violation of wrapper rule constitute "any other violation of this agreement" for purposes of termination of the franchise agreement under Section 1(d)?  Very unlikely.  The provision has its own internal penalty, and it's not commensurate with the other things in Section 1.  In this case, a court would apply one of a handful of latin expressions that essentially mean, "the specific trumps the general."  Now, I'm not trying to equate Sterling's violation with a wrapper violation at McDonald's.  But, I agree with MDL that the structure of the constitution seems to envision, throughout (from the charge process to the fact that a fine can be issued in lieu of violation) to deal with financial woes or bankruptcy.  
 
There is a third point, and to me, this is the most important one.  The constitution says that termination is appropriate if an owner or member shall "willfully violate any of the provisions of the Constitution and By-Laws."  The word "willfully" is an important one in the law.  It is a word that tries to say what kind of state of mind you must have to be guilty of doing something.  It's called "scienter."  Willfully is a very high degree of scienter.  It is usually used to signal that a person must not only have intended an act, but also intended its consequence.  It is pretty much the highest level of scienter that can be required.  It does not require a person knows that his or her conduct is prohibited, but it requires pretty much everything but.  
 
So what?  Well, let's look at the provision that Sterling would be charged with violating -- 35A-c.  It refers to "Any person who gives, makes, issues, authorize or endorses any statement having, or designed to have, an effect prejudicial or detrimental to the best interests of basketball . . . ."  Traditional rules of interpretation mean that a scienter requirement -- like willfully -- must apply to all elements of the prohibited conduct.  So, in this case, some intent to have an effect prejudicial or detrimental to the best interest of basketball must be shown.  That's going to be really hard.  I think the NBA's hook would have to be not in just being a racist, but willfully attempting to exclude people from NBA events based on race.  I still think that's a hard one.  But, the league has going for it that racists shouldn't get too much leeway.
 
Of course, the key issue is how deeply will a court go into this kind of constitution interpretation?  See my point 1.
 

DennyDoyle'sBoil

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finnVT said:
Not a lawyer, so asking because I genuinely have no idea.  *If* it turns out the phone call was recorded illegally (and I know there's debate about this in the other thread) and Sterling challenges the NBA, would they be allowed to use it (the recorded phone call) in the arbitration hearing?  Would it be allowed in court if Sterling manages to appealing the arbitration result?
 
You know, that's an absolutely fantastic question.  The California wiretap statute says:
 
 
 
(c) Except as proof in an action or prosecution for violation of
this section, no evidence obtained in violation of this section shall
be admissible in any judicial, administrative, legislative, or other
proceeding.
 
The question whether an arbitration under New York law must be governed in compliance with the law of California is an extremely complicated question.  (There also is a threshold question whether California courts have interpreted "other proceeding" to mean arbitration.  I'd bet they have.)  
 
Arbitrators are permitted to decide the question of admissibility in the first instance.  How much deference that decision is given is not always clear.  
 
My answer?  Others may disagree but my analysis would go like this:  If this recording were introduced in a New York court, the court would have to give full faith and credit to the law of California, which has a superior interest in enforcement of its wiretap laws, and not permit the recording to be admitted.  The rule should be the same in arbitration conducted pursuant to New York law.
 

Brickowski

Banned
Feb 15, 2011
3,755
1. Courts enforce all kinds of private agreements between parties, such as contractual statutes of limitations, e.g if you want to sue for nonpayment, you have to do it with six months after the payment was due, etc. etc.  I'm not sure why a court would decline to enforce this provision of the NBA constitution.  As a practical matter, a judge would have to be a total masochist to meddle in the internal affairs of this particular billionaires club.
 
2. A legal opinion is only that-- an opinion.  But if the league couldn't get an unqualified opinion that it could legally enforce the 3/4 termination vote, it would have asked the lawyers to redraft and/or restructure it so as to make it enforceable.
 
3.  Anyone can walk into court with a complaint, an army of lawyers and bankers boxes full of supporting documentation. (i guess nowadays you can do computerized filings, although the legal profession is way behind the medical profession in using computers.)  That doesn't mean you have a good claim.
 
4.  I assume folks realize that if Sterling sues the league and or the individual owners, and if the cases aren't  thrown out via Rule 12(b)(6) (or its N.Y. Field Code equivalent) or decided on summary judgment, the league and the other owners are going to sue him right back.  I haven't thought about what specific causes of action they could bring, but their basic claim would be that Sterling's past actions and ongoing franchise ownership are bad for the NBA and hence undermine the value of their individual investments.
 
5.  The language is:  "Any person who gives, makes, issues, authorize or endorses any statement having, or designed to have, an effect prejudicial or detrimental to the best interests of basketball."  I don't see any scienter requirement there.  It says "...OR designed to have...", not "...AND  designed to have..." .  And the word "willfully" doesn't create a scienter requirement either.  It just means he meant to say what he said.  It didn't just accidentally slip out.
 
6.  Any comparison of NBA franchises to McDonald's or Pizza Hut franchises is irrelevant.  This is not a case of some poor little franchisee up against the big bad corporate franchisor.  Most states have franchise statutes to protect individual franchisees against termination by the franchsor (so as to require good cause for termination, prior notice, an opportunity to cure any breaches of the franchise agreement etc. etc.).  There is no such statute here.
 
6. I wonder if the NFL's constitution, or MLB's constitution, have similar provisions.
 

Brickowski

Banned
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3,755
DennyDoyle'sBoil said:
 
You know, that's an absolutely fantastic question.  The California wiretap statute says:
 
 
The question whether an arbitration under New York law must be governed in compliance with the law of California is an extremely complicated question.  (There also is a threshold question whether California courts have interpreted "other proceeding" to mean arbitration.  I'd bet they have.)  
 
Arbitrators are permitted to decide the question of admissibility in the first instance.  How much deference that decision is given is not always clear.  
 
My answer?  Others may disagree but my analysis would go like this:  If this recording were introduced in a New York court, the court would have to give full faith and credit to the law of California, which has a superior interest in enforcement of its wiretap laws, and not permit the recording to be admitted.  The rule should be the same in arbitration conducted pursuant to New York law.
But it wasn't a "wiretap."  Sterling knew he was being recorded.
 
 As a technical matter, if there was no CA law (either case or statutory law) covering the particular set of facts in question, the NY Court could use renvoi to send the issue back to CA for a determination.
 

finnVT

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Jul 12, 2002
2,153
Brickowski said:
But it wasn't a "wiretap."  Sterling knew he was being recorded.
 
 As a technical matter, if there was no CA law (either case or statutory law) covering the particular set of facts in question, the NY Court could use renvoi to send the issue back to CA for a determination.
My question was premised on the idea that he didn't know, or that he could reasonably claim he didn't know.  I'm behind on the news part of this story, though, so if he's admitted he knew, the question is obviously moot.
 

Brickowski

Banned
Feb 15, 2011
3,755
Even if Sterling knew he was being recorded, if he was doing so (based on the facts and circumstances) with the understanding that the conversation was private (which is a pretty fair assumption here), he would have claims against the person who leaked the recording, starting with a claim for violation of privacy.  I'm not admitted in CA, but I know that CA has strong statutes protecting the privacy rights of celebrities, use of their names and likenesses without permission, etc.
 
Ms. Stiviano's attorney says it was not she who leaked the tape, but Sterling could also sue her for negligently handing the tape over to the person who then made it public.
 

Tony C

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Unless I missed a bit of news, I think it's just V. Stiviano and her lawyers, at this point, claiming he knew he was being recorded. That's far from determinative. They also claim not to be the source of the leak, which seems dubious at best, so no need to take their claims at face value.
 

Brickowski

Banned
Feb 15, 2011
3,755
Tony C said:
Unless I missed a bit of news, I think it's just V. Stiviano and her lawyers, at this point, claiming he knew he was being recorded. That's far from determinative. They also claim not to be the source of the leak, which seems dubious at best, so no need to take their claims at face value.
Well I may have missed some news too.
But let's suppose that something akin to the CA wiretap law applies.  Does that mean the owners have to disregard Sterling's statements when deliberating whether or not to terminate his ownership of the Clippers' franchise by supermajority vote?   It seems to me that once Sterling's racist drivel became public (through no fault of the Board of Governors of the NBA) the damage was done.  Their duty is to the NBA as a whole.  I don't know if individual owners are technically fiduciaries with respect to the league under NY law, but Silver almost certainly is.
 
Suppose a corporate board of directors gets illegally obtained information (e.g. a "tip" from a relative of an employee who overheard a phone conversation)  that the employee is selling trade secrets to a competitor.  Do they have to wait for legally admissible evidence to fire him?
 

finnVT

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Jul 12, 2002
2,153
Brickowski said:
Well I may have missed some news too.
But let's suppose that something akin to the CA wiretap law applies.  Does that mean the owners have to disregard Sterling's statements when deliberating whether or not to terminate his ownership of the Clippers' franchise by supermajority vote?   It seems to me that once Sterling's racist drivel became public (through no fault of the Board of Governors of the NBA) the damage was done.  Their duty is to the NBA as a whole.  I don't know if individual owners are technically fiduciaries with respect to the league under NY law, but Silver almost certainly is.
I can't imagine they'd have to disregard it per NBA rules (and its constitution), but I think the question is if Sterling appeals, are the other owners allowed to use it in an arb hearing/appeals court to justify their decision?
 
Anyway, I don't want to belabor the point, was just curious if there was an easy way to dismiss this issue out of hand.
 

dcmissle

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Oh this is getting interesting again. A few observations:

1. Legal opinions from august law firms are nice, but they are still educated guesses. Anyone with any doubt about that should read one some time and count the weasel words. Lawyers advise and argue, but courts decide.

2. Philosophically, I have little personal problem with the notion that billionaires can kick anyone out of their club for any reason or no reason at all. Courts often times have a less libertarian view, especially if plaintiff can get into the right court.

The problem with a provision that says no one can review the decision of 75% of the owners is that the decision could be violative of the foundational agreement, contrary to public policy or even illegal -- and that would disturb lots of judges everywhere. And it's not a satisfactory answer to argue, well not on the facts of this case. Terminations are either reviewable by courts or they are not.

3. Even if kicking Sterling out cannot be overturned, that does not necessarily mean that the owners are out of the legal woods. A court could conceivably decline to reverse the termination but nonetheless find that the owners acted wrongfully by expelling Sterling for reasons that fail to satisfy what the NBA Constitution requires, a willful breach of an owner's obligations.

By analogy, suppose that BB has in his contract with the Patriots that he cannot be fired for anything less than gross dereliction of duty. Then suppose that he is fired Friday morning because Bob Kraft thinks BB fucked up the first round of the draft Thursday night.

The Patriots would have acted wrongfully, but in no court in this country is BB reinstated as HC of the NEP. And that's because courts refuse to enforce specifically personal services contracts -- they are not in the business of making failed marriages work. But BB cleans their clock on damages because the termination was undoubtedly wrongful.

So too here:

One can envision a court ruling that Sterling's ouster is reviewable, will not be set aside, but nonetheless may not have met the standard for franchise terminations and, accordingly, is a basis for damages.
 

Brickowski

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What's contrary to public policy about a supermajority vote involving 30 members of a billionaires club, all of whom are well represented by counsel, to expel one of their number who has made a fool of himself and created economic risk for all of the others?  Do courts review decisions made by corporate boards of directors and overturn them as "violations of public policy?"  That's not what courts do.
 
Once Sterling has failed to block the forced sale of his franchise, he has lost.  If he wants to sue for damages after the fact he's entitled to do so.  And if the NBA and/or the other owners want  to make counterclaims against him (on Sterling's nickel) for damage to the NBA they are entitled to do so as well.  If, as has been reported, Sterling has prostate cancer, he'll probably be long dead by the time all of the cases are settled or decided, and in the very unlikely event that his estate can collect any damages, the other owners can probably afford to chip in and pay.  Meanwhile, they have preserved the league's goodwill and the value of their individual franchises.  Call it a cost of doing business.