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Finley v. Kuhn

decided: April 7, 1978.

CHARLES O. FINLEY & CO., INC., PLAINTIFF-APPELLANT,
v.
BOWIE K. KUHN, ET AL., DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 76 C 2358 - Frank J. McGarr, Judge.

Fairchild, Chief Judge, Sprecher and Tone, Circuit Judges. Fairchild, Chief Judge, concurring. Tone, Circuit Judge, concurring.

Author: Sprecher

SPRECHER, Circuit Judge.

The two important questions raised by this appeal are whether the Commissioner of baseball is contractually authorized to disapprove player assignments which he finds to be "not in the best interests of baseball" where neither moral turpitude nor violation of a Major League Rule is involved, and whether the provision in the Major League Agreement whereby the parties agree to waive recourse to the courts is valid and enforceable.

I

The plaintiff, Charles O. Finley & Co., Inc., an Illinois corporation, is the owner of the Oakland Athletics baseball club, a member of the American League of Professional Baseball Clubs (Oakland). Joe Rudi, Rollie Fingers and Vida Blue were members of the active playing roster of the Oakland baseball club and were contractually bound to play for Oakland through the end of the 1976 baseball season. On or about June 15, 1976, Oakland and Blue entered a contract whereby Blue would play for Oakland through the 1979 season, but Rudi and Fingers had not at that time signed contracts for the period beyond the 1976 season.

If Rudi and Fingers had not signed contracts to play with Oakland by the conclusion of the 1976 season, they would at that time have become free agents eligible thereafter to negotiate with any major league club,*fn1 subject to certain limitations on their right to do so that were then being negotiated by the major league clubs with the Players Association.*fn2

On June 14 and 15, 1976, Oakland negotiated tentative agreements to sell the club's contract rights for the services of Rudi and Fingers to the Boston Red Sox for $2 million and for the services of Blue to the New York Yankees for $1.5 million. The agreements were negotiated shortly before the expiration of baseball's trading deadline at midnight on June 15, after which time Oakland could not have sold the contracts of these players to other clubs without first offering the players to all other American League teams, in inverse order of their standing, at the stipulated waiver price of $20,000.

The defendant Bowie K. Kuhn is the Commissioner of baseball (Commissioner), having held that position since 1969. On June 18, 1976, the Commissioner disapproved the assignments of the contracts of Rudi, Fingers and Blue to the Red Sox and Yankees "as inconsistent with the best interests of baseball, the integrity of the game and the maintenance of public confidence in it." The Commissioner expressed his concern for (1) the debilitation of the Oakland club, (2) the lessening of the competitive balance of professional baseball through the buying of success by the more affluent clubs, and (3) "the present unsettled circumstances of baseball's reserve system."

Thereafter on June 25, 1976, Oakland instituted this suit principally challenging, as beyond the scope of the Commissioner's authority and, in any event, as arbitrary and capricious, the Commissioner's disapproval of the Rudi, Fingers and Blue assignments. The complaint set forth seven causes of action: (I) that the Commissioner breached his employment contract with Oakland by acting arbitrarily, discriminatorily and unreasonably; (II) that the Commissioner, acting in concert with others, conspired to eliminate Oakland from baseball in violation of federal antitrust laws; (III) that Oakland's constitutional rights of due process and equal protection were violated; (IV) that Oakland's constitutional rights were violated by the first disapproval of a player assignment where no major league rule was violated; (V) that the defendants (the Commissioner, the National and American Leagues and the Major League Executive Council) induced the breach of Oakland's contracts with Boston and New York; (VI) that the Commissioner did not have the authority to disapprove Oakland's assignments "in the best interests of baseball"; and (VII) that Oakland have specific performance of its contracts of assignment with Boston and New York.

On September 7, 1976, the district court granted the Commissioner's motion for summary judgment as to Counts II, III and IV. Count II was dismissed on the ground that the business of baseball is not subject to the federal antitrust laws. Counts III and IV were dismissed on the ground that Oakland did not allege sufficient nexus between the state and the complained of activity to constitute state action.

A bench trial took place as a result of which judgment on the remaining four counts of the complaint was entered in favor of the Commissioner on March 17, 1977.

On August 29, 1977, the district court granted the Commissioner's counterclaim for a declaratory judgment that the covenant not to sue in the Major League Agreement is valid and enforceable. The court had not relied on that covenant in reaching its two earlier decisions.

Oakland appealed from the judgments of September 7, 1976, March 17, 1977, and August 29, 1977, arguing (1) that the court's failure to issue a finding on the question of procedural fairness constituted error; (2) that the exclusion of evidence of the Commissioner's malice toward the Oakland club constituted error; (3) that other errors were committed during trial; (4) that the antitrust count was not barred by baseball's exemption from federal antitrust law; and (5) that baseball's blanket waiver of recourse to the courts is not enforceable.

II

Basic to the underlying suit brought by Oakland and to this appeal is whether the Commissioner of baseball is vested by contract with the authority to disapprove player assignments which he finds to be "not in the best interests of baseball." In assessing the measure and extent of the Commissioner's power and authority, consideration must be given to the circumstances attending the creation of the office of Commissioner, the language employed by the parties in drafting their contractual understanding, changes and amendments adopted from time to time, and the interpretation given by the parties to their contractual language throughout the period of its existence.

Prior to 1921, professional baseball was governed by a three-man National Commission formed in 1903 which consisted of the presidents of the National and American Leagues and a third member, usually one of the club owners, selected by the presidents of the two leagues.*fn3 Between 1915 and 1921, a series of events and controversies contributed to a growing dissatisfaction with the National Commission on the part of players, owners and the public, and a demand developed for the establishment of a single, independent Commissioner of baseball.*fn4

On September 28, 1920, an indictment issued charging that an effort had been made to "fix" the 1919 World Series by several Chicago White Sox players. Popularly known as the "Black Sox Scandal," this event rocked the game of professional baseball and proved the catalyst that brought about the establishment of a single, neutral Commissioner of baseball.*fn5

In November, 1920, the major league club owners unanimously elected federal Judge Kenesaw Mountain Landis as the sole Commissioner of baseball and appointed a committee of owners to draft a charter setting forth the Commissioner's authority. In one of the drafting sessions an attempt was made to place limitations on the Commissioner's authority. Judge Landis responded by refusing to accept the office of Commissioner.*fn6

On January 12, 1921, Landis told a meeting of club owners that he had agreed to accept the position upon the clear understanding that the owners had sought "an authority . . . outside of your own business, and that a part of that authority would be a control over whatever and whoever had to do with baseball."*fn7 Thereupon, the owners voted unanimously to reject the proposed limitation upon the Commissioner's authority,*fn8 they all signed what they called the Major League Agreement, and Judge Landis assumed the position of Commissioner. Oakland has been a signatory to the Major League Agreement continuously since 1960.*fn9 The agreement, a contract between the constituent clubs of the National and American Leagues, is the basic charter under which major league baseball operates.*fn10

The Major League Agreement provides that "the functions of the Commissioner shall be . . . to investigate . . . any act, transaction or practice . . . not in the best interests of the national game of Baseball" and "to determine . . . what preventive, remedial or punitive action is appropriate in the premises, and to take such action. . . ." Art. I, Sec. 2(a) and (b).*fn11

The Major League Rules, which govern many aspects of the game of baseball, are promulgated by vote of major league club owners.*fn12 Major League Rule 12(a) provides that "no . . . [assignment of players] shall be recognized as valid unless . . . approved by the Commissioner."*fn13

The Major Leagues and their constituent clubs severally agreed to be bound by the decisions of the Commissioner and by the discipline imposed by him. They further agreed to "waive such right of recourse to the courts as would otherwise have existed in their favor." Major League Agreement, Art. VII, Sec. 2.*fn14

Upon Judge Landis' death in 1944, the Major League Agreement was amended in two respects to limit the Commissioner's authority. First, the parties deleted the provision by which they had agreed to waive their right of recourse to the courts to challenge actions of the Commissioner.*fn15 Second, the parties added the following language to Article I, Section 3:

No Major League Rule or other joint action of the two Major Leagues, and no action or procedure taken in compliance with any such Major League Rule or joint action of the two Major Leagues shall be considered or construed to be detrimental to Baseball.

The district court found that this addition had the effect of precluding the Commissioner from finding an act that complied with the Major League Rules to be detrimental to the best interests of baseball.*fn16

The two 1944 amendments to the Major League Agreement remained in effect during the terms of the next two Commissioners, A.B. "Happy" Chandler and Ford Frick.*fn17 Upon Frick's retirement in 1964 and in accordance with his recommendation, the parties adopted three amendments to the Major League Agreement: (1) the language added in 1944 preventing the Commissioner from finding any act or practice "taken in compliance" with a Major League Rule to be "detrimental to baseball" was removed;*fn18 (2) the provision deleted in 1944 waiving any rights of recourse to the courts to challenge a Commissioner's decision was restored;*fn19 and (3) in places where the language "detrimental to the best interests of the national game of baseball" or "detrimental to baseball" appeared those words were changed to "not in the best interests of the national game of Baseball" or "not in the best interests of Baseball."*fn20

The nature of the power lodged in the Commissioner by the Major League Agreement is further exemplified "in the case of conduct by organizations not parties to this Agreement, or by individuals not connected with any of the parties hereto, which is deemed by the Commissioner not to be in the best interests of Baseball" whereupon "the Commissioner may pursue appropriate legal remedies, advocate remedial legislation and take such other steps as he may deem necessary and proper in the interests of the morale of the players and the honor of the game." Art. I, Sec. 4.*fn21

The Commissioner has been given broad power in unambiguous language to investigate any act, transaction or practice not in the best interests of baseball, to determine what preventive, remedial or punitive action is appropriate in the premises, and to take that action. He has also been given the express power to approve or disapprove the assignments of players. In regard to nonparties to the agreement, he may take such other steps as he deems necessary and proper in the interests of the morale of the players and the honor of the game. Further, indicative of the nature of the ...


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