McCourt v. California Sports, Inc., Civ. No. 872221.

• Decision Date: 28 September 1978
• Docket Number: Civ. No. 872221.
• Citation: 460 F. Supp. 904
• Parties: Dale McCOURT, an Individual, Plaintiff, v. CALIFORNIA SPORTS, INCORPORATED, a California Corporation, The Los Angeles Kings Inc., a California Corporation, Detroit Hockey Club, Inc., a Michigan Corporation, National Hockey League, an unincorporated voluntary association, and National Hockey League Players' Association, an unincorporated voluntary association, Defendants.
• Court: U.S. District Court — Western District of Michigan

460 F. Supp. 904

Dale McCOURT, an Individual, Plaintiff, v. CALIFORNIA SPORTS, INCORPORATED, a California Corporation, The Los Angeles Kings Inc., a California Corporation, Detroit Hockey Club, Inc., a Michigan Corporation, National Hockey League, an unincorporated voluntary association, and National Hockey League Players' Association, an unincorporated voluntary association, Defendants.

Civ. No. 872221.

United States District Court, E. D. Michigan, S. D.

September 28, 1978.

Laurence D. Connor, John A. Entenman, Ted T. Amsden, Detroit, Mich., for plaintiffs.

Avern Cohen, William G. Christopher, Detroit, Mich., for California Sports and LA Kings.

John A. Wise, Jr., Robert A. Marsac, Detroit, Mich., for Detroit Hockey Club.

Joseph A. Sullivan, Detroit, Mich., for National Hockey League Players' Assn.

Kenneth J. McIntyre, Detroit, Mich., for National Hockey League.

Fred W. Freeman, Detroit, Mich., Gilbert Stein, Gen. Counsel, NHL, New York City, for National Hockey League.

MEMORANDUM OPINION^*

DeMASCIO, District Judge.

The plaintiff, a professional hockey player, filed this suit naming as defendants the National Hockey League (NHL), the National Hockey League Players' Association (NHLPA), California Sports, Inc., The Los Angeles Kings, and the Detroit Hockey Club (Detroit Red Wings). The Los Angeles Kings and the Detroit Red Wings are member hockey teams in the NHL, which is a non-profit corporation governed by a Board of Governors and a president elected by that Board. Each of the 17-member clubs of the NHL has a representative vote on the Board of Governors.

The NHL Board of Governors promulgated and adopted a Uniform Standard Player's Contract, which every hockey player for a member club must sign as a condition of employment. Prior to November 27, 1973, the NHL Standard Player's Contract contained a reserve clause which provided that upon the expiration of a player's contract, the player agreed to continue his employment with the same club on the same terms and conditions except for salary. Salary was subject to mutual agreement or to arbitration in the case of a failure to agree.

In 1972, the World Hockey Association filed suit against the NHL attacking the reserve clause which prohibited NHL hockey players, whose contracts had expired, from signing with World Hockey Association Teams. In Philadelphia World Hockey Club, Inc. v. Philadelphia Hockey Club, Inc., 351 F.Supp. 462, 518 (E.D.Pa.1972), the court preliminarily enjoined the NHL and its member clubs from enforcing the reserve clause because there was a substantial likelihood that it violated Section 2 of the Sherman Act, 15 U.S.C. § 2 (1970). The court specifically found that the reserve clause had never been the subject of bona fide, good faith collective bargaining. 351 F.Supp. at 498. As a result of the preliminary injunction, and a breakdown in negotiations with the NHLPA, the NHL Board of Governors unilaterally incorporated into the 1974 Uniform Standard Player's Contract a new reserve clause, paragraph 17, and a new bylaw, Section 9A. See plaintiff's Exhibit # 2 at 3.

Paragraph 17 of the 1974 Standard Player's Contract provides, among other things, that upon the expiration of a player's contract, the player could be required to contract for an additional option year. After the option year, the player becomes a "free agent" and can sign with any hockey club. Bylaw 9A provides that a player who becomes a free agent may negotiate and contract with any member club; but a team that contracts with a free agent must make an equalization payment consisting of an assignment of player contracts, draft choices and/or cash to the free agent's former club.¹ Any player's contract with the acquiring team is available for compensation. Section 9A.8(a) provides that if the two teams cannot agree upon the equalization payment within three business days after the free agent signs with the acquiring team, both teams must, within two business days thereafter, submit their "last best offer" to an arbitrator who is under contract to the NHL and serves without pay. In making his selection, the arbitrator must, without variance, select one of the offers submitted by the involved clubs. § 9A.8(b).

In this action, plaintiff seeks to enjoin the enforcement of an arbitrator's award assigning his contract with the Red Wings to the Los Angeles Kings as equalization payment for free agent Rogatien Vachon. Plaintiff alleges that bylaw 9A and Section 17 of the Standard Player's Contract are an unreasonable restraint upon trade and commerce. Specifically, we must determine whether plaintiff has demonstrated probable success on the merits of his claim that bylaw 9A violates Section 1 of the Sherman Act, 15 U.S.C. § 1, which declares illegal, "Every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States . . .." The Supreme Court has often held that agreements that unreasonably restrain trade are proscribed by the Act. See e. g., Northern Pacific R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). The court in Mackey v. The National Football League, 543 F.2d 606, 620 (8th Cir. 1976) stated:

The focus of an inquiry under the Rule of Reason is whether the restraint imposed is justified by legitimate business purposes, and is no more restrictive than necessary.

Unreasonable restraints on competition in the market for players' services are prohibited by the Sherman Act. 543 F.2d at 617.

The defendants contend that the plaintiff lacks standing under antitrust provisions to challenge the alleged anticompetitive effects of bylaw 9A. Defendants argue that the alleged market restraints imposed by the equalization provision affects only a free agent's ability to contract with other clubs in a free and open market, and, therefore, Mr. Vachon is the only party to this arbitration award with standing to challenge 9A. Plaintiff's alleged injury, however, arises from the direct application of bylaw 9A. When a player becomes a free agent, every players' contract on the acquiring team is in jeopardy. In this case, the application of bylaw 9A directly injures the plaintiff because he can no longer perform the contract he freely made with the Detroit Red Wings. Plaintiff is, therefore, threatened with loss or damage to an interest cognizable in equity and thus has standing to bring this suit. See Cullen Bryant v. National Football League, (No. 75-2540) (C.D.Cal. July 30, 1975); cf. Radovich v. National Football League, 352 U.S. 445, 77 S.Ct. 390, 1 L.Ed.2d 456 (1957).

Plaintiff's evidence demonstrated a likelihood that he will successfully establish at trial that bylaw 9A unreasonably restrains professional hockey players from freely marketing their services and that it deters member clubs from signing free agents because of the uncertainty created by the required equalization payment. We agree with plaintiff that bylaw 9A has built-in market uncertainties that seriously reduce competition. Like the "Rozelle Rule," bylaw 9A applies to all players without regard to status or ability; it applies to the average player and to the superstar alike; it is unlimited in duration and acts as a perpetual restriction upon a player's ability to freely contract for his services. By-law 9A cannot be justified by any legitimate business purpose and is more restrictive than necessary to achieve the NHL's announced goal of maintaining competitive balance². It inhibits and deters teams from signing free agents, decreases a player's bargaining power in negotiations, denies players the right to sell their services in a free and open market, and it depresses salaries more than if competitive bidding were allowed. Thus, we conclude that plaintiff has sufficiently established that bylaw 9A, as applied, unreasonably restrains trade and commerce and is violative of Section 1 of the Sherman Act. See Mackey v. National Football League, 543 F.2d 606 (8th Cir. 1976).

These findings are fully supported by the record. Mr. Art Kaminsky, an attorney and player agent, testified that he represented Mr. Gary Sergeant, who became a free agent after playing out his option with the Los Angeles Kings. Mr. Kaminsky said that he sent Mailgrams to the six teams suggested by his client but that he did not send inquiries to either Montreal or Toronto because he believed neither would be willing to pay an adequate equalization payment. He stated that Mr. Allen, General Manager of Philadelphia, decided not to pursue his interest in Mr. Sergeant because of the compensation requirement and that Mr. Harry Sinden, General Manager of the Boston Bruins, also indicated that signing Sergeant would be difficult because of the amount of compensation required for players like Mr. Sergeant. Mr. Kaminsky further testified that Mr. Sinden indicated that Los Angeles would probably want Mr. Mike Milberry as compensation and that the Bruins would be unwilling to part with Milberry's services. Mr. Kaminsky further testified that Mr. Bob Pulford, General Manager and Coach of Chicago, was interested in acquiring Sergeant, but could not reach an agreement with the Los Angeles Kings on compensation. Mr. Kaminsky concluded that without bylaw 9A he could have negotiated a higher salary for Sergeant because "certain clubs will pay for talent." Mr. Kaminsky further testified that, although he would rate Mr. Vachon as one of the two outstanding goalies in North America, certain clubs would be reluctant to acquire Vachon because they knew that the equalization payment required could be excessive. Finally, Mr. Kaminsky concluded that bylaw 9A was not essential to maintain competitive balance in the league. He indicated that there is little or no competitive balance within the league at the present time.

Mr. Lawrence Rauch, another player agent, testified that he represented Rogatien Vachon. He testified that he sent every club a list of the free agents he represented, including...