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.