McCourt v. California Sports, Inc.

• Decision Date: 27 June 1979
• Docket Number: Nos. 78-1462,s. 78-1462
• Citation: 600 F.2d 1193
• Parties: 87 Lab.Cas. P 11,570, 1979-1 Trade Cases 62,649 -Appellee, v. CALIFORNIA SPORTS, INC., and the Los Angeles Kings, Inc., Defendants-Appellants. Dale McCOURT, Plaintiff-Appellee, v. CALIFORNIA SPORTS, INC., et al., Defendants, National Hockey League, Defendant-Appellant. Dale McCOURT, Plaintiff-Appellee, v. CALIFORNIA SPORTS, INC., et al., Defendants, National Hockey League Players' Association, Defendant-Appellant. to 78-1464. United States Court of Appeals, Sixth Circuit
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1193

600 F.2d 1193

87 Lab.Cas. P 11,570, 1979-1 Trade Cases 62,649

Dale McCOURT, Plaintiff-Appellee, v. CALIFORNIA SPORTS, INC., and the Los Angeles Kings, Inc.,

Defendants-Appellants.

Dale McCOURT, Plaintiff-Appellee, v. CALIFORNIA SPORTS, INC., et al., Defendants, National Hockey League, Defendant-Appellant.

Dale McCOURT, Plaintiff-Appellee, v. CALIFORNIA SPORTS, INC., et al., Defendants, National Hockey League Players' Association, Defendant-Appellant.

Nos. 78-1462 to 78-1464.

United States Court of Appeals Sixth Circuit.

Argued Oct. 19, 1978.

Decided May 22, 1979.

Rehearing Denied June 27, 1979.

Avern Cohn, William G. Christopher, Honigman, Miller, Schwartz & Cohn, Detroit, Mich., Richard M. Mosk, Mitchell, Silberberg & Knupp, Los Angeles, Cal., for defendants-appellants in No. 78-1462.

Laurence D. Connor, Roger K. Timm, Dykema, Gossett, Spencer, Goodnow & Trigg, John A. Entenman, Ted T. Amsden, Detroit, Mich., Brian M. Smith, Brian M. Smith & Associates, P.C., Troy, Mich., for plaintiff-appellee.

Fred W. Freeman, Kenneth J. McIntyre, Dickenson, Wright, McKean, Cudlip &amp Joseph A. Sullivan, Bodman, Longley & Dahling, Detroit, Mich., Lawrence Latto, Benjamin Boley, Shea & Gardner, Wendy S. White, Washington, D.C., for defendant-appellant in No. 78-1464.

Moon, Detroit, Mich., Harry L. Shniderman, Bingham B. Leverich, Covington & Burling, Washington, D.C., for defendant-appellant in No. 78-1463.

Before EDWARDS, Chief Judge, and ENGEL and MERRITT, Circuit Judges.

ENGEL, Circuit Judge.

The reserve system, ¹ in professional athletics, has been the subject of exhaustive and spirited discussion both in the sports and in the legal world. Its supporters urge that it stimulates athletic competition between the teams of a sports league; its opponents urge that it stifles economic competition among those same teams. We have no doubt that there is a measure of truth in both claims.

I. NHL RESERVE SYSTEM

Involved in this appeal is the validity, under federal antitrust laws, of the reserve system currently in effect in the National Hockey League. In its present form, the system has been termed a "modified Rozelle Rule" because it closely resembles the rule promulgated for the National Football League by its commissioner, Pete Rozelle, but has been modified to the extent that arbitration is not by the commissioner himself but by a professional and independent arbitrator.

At the heart of the NHL reserve system is By-Law Section 9A, which is attached as Appendix A. This section provides the rules governing the acquisition of free agents of other clubs in the league and is specifically made applicable to the players in the league by paragraphs 17 and 18 of the Standard Players Contract, ² which each player in the NHL is required to sign. Further As can be seen from its terms, By-Law Section 9A mandates that when a player becomes a free agent and signs a contract with a different club in the league, his original club has the right under the By-Law to exact an "equalization payment" from the acquiring club. That payment may be by the assignment of contracts of players, by the assignment of draft choices, or "as a last resort," by the payment of cash. If mutual agreement is not reached, each club submits a proposal to a neutral arbitrator, selected by majority vote of the Board of Governors of the League, who then must select, without change, one of the two proposals submitted.

the Standard Players Contract, expressly including Paragraph 17, was approved by both the NHL team owners and the National Hockey League Players Association (NHLPA) in the current collective bargaining agreement, Sections 9.03(a) and (b). ³

II. THIS LITIGATION

On October 10, 1977, Dale McCourt, a 21-year-old hockey player from Canada, signed a NHL Standard Players Contract (1974 form) with the Detroit Hockey Club, Inc. to play professional hockey for three years with the Detroit Red Wings. ⁴

McCourt was to be paid $325,000 over three years. He subsequently played his rookie year, 1977-78, with the Red Wings and was the leading scorer.

Rogatien Vachon had been a star goaltender for the Los Angeles Kings for six years when he became a free agent in 1978. After rejecting a substantial offer by the Kings, Vachon entered into a contract with the Red Wings at a salary of $1,900,000 for five seasons. By signing Vachon, the Red Wings obligated itself to make an equalization payment under By-Law Section 9A to the Kings and, when no agreement was reached, each club submitted to arbitrator Houston a proposal pursuant to By-Law Section 9A.8. The Red Wings offered two of its players as compensation and the Kings proposed that McCourt's contract be assigned to it. The arbitrator selected the Kings' proposal and accordingly, the Red Wings assigned McCourt's contract to Los Angeles. Rather than report to the Kings, however, Dale McCourt brought suit in the United States District Court for the Eastern District of Michigan.

Named as defendants in that suit were the National Hockey League, the Los Angeles Kings, the National Hockey League Players Association, and the Detroit Red Wings. Count I of McCourt's complaint alleged that the reserve system, and consequently the assignment of his contract to the Los Angeles Kings as the compensation for free agent Vachon, violated Section 1 of the Sherman Act, 15 U.S.C. § 1 (1976), and sought injunctive relief under Sections 4 and 10 of the Clayton Act, 15 U.S.C. §§ 15 and 26 (1976), to prevent the defendants from enforcing the arbitration award and to require that his contract be reassigned to the Detroit Red Wings. ⁵

On September 19, 1978, following an extensive evidentiary hearing, the district court entered a preliminary injunction restraining the defendants from enforcing the arbitration award and from penalizing McCourt for refusing to play professional hockey with the Los Angeles Kings pursuant to the award. This appeal followed. ⁶

In an opinion accompanying the preliminary injunction and reported at 460 F.Supp. 904, the district judge held that By-Law Section 9A unreasonably restrains trade in commerce, in violation of Section 1 of the Sherman Act:

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. Bylaw 9A cannot be justified by any legitimate business purpose to achieve the NHL's announced goal of maintaining competitive balance. 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 460 F.Supp. at 907 (footnote omitted).

Act. See Mackey v. National Football League, 543 F.2d 606 (8th Cir. 1976).

Having thus ruled, the trial judge went on to hold that the defendants were not entitled to the benefit of the non-statutory labor exemption from antitrust sanctions because "(t)he preponderance of evidence . . . establishes that bylaw 9A was not the product of bona fide arm's length bargaining over any of its anticompetitive provisions. The evidence establishes that the bylaw was unilaterally imposed upon the NHLPA and was incorporated into the collective bargaining agreement in the identical language it contained when it was first adopted by the League." 460 F.Supp. at 910.

III. ANTITRUST LIABILITY

While the Supreme Court has ruled that other professional sports do not enjoy the unique exemption from antitrust laws which has historically been reserved for the game of baseball, Flood v. Kuhn, 407 U.S. 258, 92 S.Ct. 2099, 32 L.Ed.2d 728 (1972), it has never directly ruled upon whether the reserve system common to most professional athletics comes within the ban of the Sherman Act, nor has it expressly determined whether the reserve system is a mandatory subject of collective bargaining and, therefore, exempt under federal labor policy from the operation of the federal antitrust laws. ⁷

Assuming without deciding that reserve systems such a those here are subject to Section 1 of the Sherman Act and could otherwise be violative of it, we proceed to determine whether the non-statutory labor exemption applies upon the facts here.

IV. LABOR EXEMPTION

A. Legal Standards

The trial court and the parties before us in this appeal have all relied upon Mackey as properly enunciating the governing principles in determining whether the non-statutory labor exemption applies to the reserve system provisions of a collective bargaining agreement in professional sports. Mackey v. National Football League, 543 F.2d 606 (8th Cir. 1976), Cert. dismissed, 434 U.S. 801, 98 S.Ct. 28, 54 L.Ed.2d 59 (1977). There Judge Lay set forth three broad principles:

We find the proper accommodation to be: First, the labor policy favoring collective bargaining may potentially be given pre-eminence over the antitrust laws where the restraint on trade primarily 543 F.2d at 614-15 (footnotes omitted).

affects only the parties to the collective bargaining relationship. See Connell Co. v. Plumbers & Steamfitters, supra (421 U.S. 616, 95 S.Ct. 1830, 44 L.Ed.2d 418 (1975)); Meat Cutters v. Jewel Tea, supra (381 U.S. 676, 85 S.Ct. 1596, 14 L.Ed.2d 640 (1965)); Mine Workers v. Pennington, supra (381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965)). Second, federal labor policy is implicated sufficiently to prevail only where the agreement sought to be exempted concerns a mandatory subject of collective bargaining. See Meat Cutters v. Jewel Tea, supra; Mine Workers v. Pennington, supra. Finally, the policy favoring collective bargaining is...