Lemat Corp. v. American Basketball Assn.

• Decision Date: 11 September 1975
• Citation: 51 Cal.App.3d 267,124 Cal.Rptr. 388
• Court: California Court of Appeals Court of Appeals
• Parties: LEMAT CORPORATION, Plaintiff and Appellant, v. AMERICAN BASKETBALL ASSOC., Defendant and Respondent. Charles E. BOONE, Plaintiff and Appellant, v. AMERICAN BASKETBALL ASSOC., Defendant and Respondent. Civ. 35140.

Page 388

124 Cal.Rptr. 388

51 Cal.App.3d 267

LEMAT CORPORATION, Plaintiff and Appellant, v. AMERICAN BASKETBALL ASSOC., Defendant and Respondent.

Charles E. BOONE, Plaintiff and Appellant, v. AMERICAN BASKETBALL ASSOC., Defendant and Respondent.

Civ. 35140.

Court of Appeal, First District, Division 3, California.

Sept. 11, 1975.

Hearing Denied Nov. 6, 1975.

Robert L. Dunn, Bancroft, Avery & McAlister, San Francisco, for Lemat corp.

Allen E. Rennett, Louis M. Meisinger, Richards, Watson, Dreyfuss & Gershon, Los Angeles, for Charles E. Boone.

Frederick P. Furth, John H. Boone, Clyde W. Stitt, Law Offices of Frederick P. Furth, San Francisco, for defendant and respondent.

GOOD, ^* Associate Justice (Assigned).

Lemat Corporation, owner of the National Basketball Association (NBA) franchise for the Golden State Warriors (formerly San Francisco) and Charles E. (Pat) Boone, part owner in 1967 of the then newly formed American Basketball Association (ABA) franchise for the Oakland Oaks, appeal from adverse judgments in actions they had separately filed against the ABA that were consolidated for trial. Lemat and Boone sought enforcement of an alleged indemnity agreement resting upon proceedings at an ABA trustees' meeting held in Denver on August 18 and 19, 1967, and a resolution contained in the minutes thereof. An understanding of the issues involved in the appeal requires a somewhat lengthy statement of the background of that meeting and both prior and subsequent events.

ABA was formed and incorporated as a Delaware corporation early in 1967. NBA had been the sole pro basketball league until that time. ABA intended to become a 'major league' and envisioned a super-bowl type playoff between NBA and ABA champions. ABA's management was vested in a board of trustees, one member designated for each of the 11 franchises that had been issued. In June 1967 ownership of the Oakland franchise had vested in S. Kenneth Davidson and appellant Boone with Davidson as trustee therefor. At the time, Richard F. Barry III, now the outstanding super-star of pro basketball, had completed his first season (1965--66) under contract to the Warriors with great success. ¹ He signed with Warriors for 1966--67 and the contract contained an option for 1967--68 and perhaps options for several years thereafter. ²

There was uncontradicted evidence that during the formative period (spring-summer 1967) ABA and its franchised teams were experiencing the vicissitudes of any new league whose teams were unable to contract the services of any pro stars whose mere presence might draw a reasonable gate because those stars were all uncer contract to NBA teams. If ABA had to wait a year or two to develop its own stable of such from high school and college talent ready to turn pro, there was serious doubt that its teams could secure the kind of money necessary to finance a season. Further, its ability to recruit amateur players of potential star status was limited by NBA's established position. There were background noises about possible anti-trust violations and a player's serf or chattel status that resulted from the renewal clause (cf. Fn. 11 Post).

In March 1967, ABA, at an Oakland meeting, held a draft, open or public as to college and high school talent and secret as to pros. Davidson, Oakland's trustee, drafted Barry for Oakland. Such draft created an exclusive right for Oakland among ABA teams to attempt to sign the drafted player. Again without contradiction, the evidence shows that at this meeting, Davidson was assured by George Mikan, ABA Commissioner (an attorney and former Minneapolis star) and by William J. Erickson, ABA's attorney, that it would be rpoper to sign an NBA player if such player made the first advances--apparently a situation similar to 'no raid' clauses of union contracts. The selection of Barry was made upon the advice of Bruce Hale, Barry's father-in-law, who became Oakland's Coach and part-owner of the franchise.

Until the incorporation of Oakland Basketball, Inc., to which the franchise was eventually transferred, the business arrangements of the partners owning the Oakland franchise was rather loose and depended upon oral agreements between Davidson and Boone. Sometime in the spring of 1967, Commissioner Mikan called Boone and asked him to assume the responsibilities of putting a team together and getting the show off the ground. Mikan thought Davidson was dragging his heels. Thereafter, while Boone was performing in Reno, Barry and his wife came backstage after the performance and Boone asked Barry if he was available and interested in playing for Oakland. Barry answered affirmatively and stated some conditions and requirements he would want. Further negotiations resulted in Barry signing an option dated June 19, 1967, and expiring October 2, 1967, which gave Boone the right to sign Barry to a three-year contract at $75,000.00 per year plus a share in gross gate receipts. It was provided that if Barry were legally enjoined from playing for Oakland in the 1967--68 season, September through May (training beginning in August), the three years would commence October 2, 1968. If he could not play for Oakland, he was free to play for the Warriors if he so elected.

On the same date, Boone executed a document that guaranteed Barry an annual income of not less than $75,000.00 per year for three years commencing October 2, 1967, and not less than $30,000.00 per year for five years commencing October 2, 1970. Boone also executed an assignment to Barry of a 15 percent interest in a proposed corporation to which the ABA Oakland franchise was to be transferred.

On the following day, the Warriors gave Barry notice they were exercising their option for the 1967--68 season. Barry refused to sign and stated he would not play for the Warriors that season. Lemat Corporation filed suit in the San Francisco Superior Court (Lemat Corp. v. Barry, 275 Cal.App.2d 671, 80 Cal.Rptr. 240) and procured a preliminary injunction dated August 8, 1967, enjoining Barry from playing pro basketball for anyone but the Warriors until September 30, 1968 (August injunction Post). On August 15, Lemat filed suit in the Los Angeles County Superior Court (No. 915895) against Boone, Davidson, Hale and Oakland Basketball, Inc., as the corporation to which the Oakland ABA franchise had been or was to be assigned. The suit sought $1,500,000.00 general damages for inducing Barry to repudiate his contract with the Warriors and exemplary damages of $3,000,000.00 by reason of the defendants' 'willful, deliberate and malicious' acts and 'tortious intent to injure the (Warriors) and appropriate the good will' generated by Barry's association with them. This suit received considerable nationwide coverage in news and sports columns of the press.

On August 18, 1967, the regularly scheduled ABA trustees meeting was convened at Denver with representatives of ten member teams, including Oakland, present. Commissioner Mikan, William Erickson, ABA's General Counsel, Bill Eilers, Oakland's counsel and Bruce Hale were also present. Erickson and Eilers discussed Lemat's recently filed suit between themselves. Eilers was seeking an indemnity agreement covering obligations and legal fees arising out of the litigation, before proceedings any further with Barry. Erickson considered an indemnity resolution prepared by Eilers as 'politically unacceptable' and suggested revisions. The minutes of the neeting reflect that Erickson introduced the subject of the Barry litigation. Then Eilers reported the current status of the Barry negotiations and advised the trustees of the 'considerable expense and personal involvement of the Oakland owners in the Barry legal position.' The upshot of a 'long discussion' was the proposal and seconding of a resolution revised in accordance with Erickson's suggestions: 'BE IT RESOLVED, that to the extent that the Oakland franchise of the American Basketball Association shall incur any obligation by reason of claims brought against it as a result of its signing Rick Barry or matters resulting therefrom, the A.B.A., by means of this resolution, agrees to assume two-thirds of any such obligation and from this point forward the A.B.A. hereby agrees to reimburse the Oakland franchise for one-third of all legal expenses attributable to the litigation concerning Mr. Barry above referred to.' The minutes proceed: 'After additional lengthy discussion, the resolution was adopted; 4-For, 2-Against . . ., 4-abstaining,' with the absence of one trustee noted.

OBI then proceeded to sign Barry to a contract, basically blank, on September 29, 1967. Barry was paid $75,000.00 for 1967--68 as had been guaranteed. Salary ($75,000.00 plus a gate percentage per year) and time of service (three years beginning October 2, 1968, or sooner if the injunction were lifted) were supplied by amendment on October 31, 1967. The August injunction was not lifted. ³ Barry chose not to play for the Warriors and 'sat out' the 1967--68 season. He played in the ABA for four seasons beginning 1968--69.

On November 30, 1971, Lemat v. Boone, et al. (L.A. No. 915895) was settled and a stipulated judgment for $1,000,000.00 was entered against Boone, Davidson and Hale, who assigned to Lemat their claimed rights under the August resolution for indemnity as to two-thirds of the obligation. ⁴ ABA refused Lemat's demand and Lemat as assignee filed the present action against ABA to recover $666,667.00 for breach of the claimed contract of indemnity.

Boone and his associates retained their alleged rights under the resolution as against one-third of the legal fees expended in defense of litigation related to the Barry deal. Boone sued ABA to recover one-third of the legal expenses in defending L.A. No. 915895. The Alameda County Superior Court consolidated the two cases for trial. All parties waived jury. After commencement of trial the parties agreed to a bifurcation of the issues and to...