Tag Archives: breach of contract

Legal Documents of the LA Clippers Forced Sale

The forced sale of the Los Angeles Clippers may be moot, but the legal issues surrounding the forced sale are interesting.

Donald Sterling made offensive racial comments during what appears to be a private conversation that was taped and then leaked to news outlets.  The league claimed in it’s summary of dismissal, Sterling “disparaged African-Americans and ‘minorities’; denigrated the contribution of NBA players; directed a female acquaintance not to associate publicly with African-Americans; admonished that acquaintance for posting pictures of herself with African-Americans on social media; directed that acquaintance not to bring African-Americans to Clippers games; and criticized African-Americans for not supporting their communities.”  A public uproar ensued.  NBA Commissioner Adam Silver then fined Sterling $2.5 million dollars and placed an indefinite ban on him doing anything relating to the Clippers.  It appears Donald Sterling gave power to his wife to sell the team.

This really does not deal with an issue in Arizona, but the Phoenix Suns are part of the NBA and I found the topic interesting.

The National Basketball Association is kind of an oligarchy.  There is not much competition and very few owners.  Outside of college basketball, where the players are not paid, the only real alternatives are the WNBA and the D-League both of which have strong affiliations with the NBA — it is not fair to call them competitors.  With thirty majority owners (one for each team), it is a pretty exclusive club.  The owners collective hire the Commissioner who enforces the rules.  Furthermore, each team has a stake in creating the rules via the NBA Board of Governors (explained in the NBA Constitution).

How does it operate?  Outside of lockouts and rule changes, it does not seem like there is a lot of information on its operations.  Since it is unlikely that I will ever have the privilege of owning a sports team, it interests me to see how things run from the inside.

The NBA is guided by it’s own Constitution and By-Laws, which were apparently made public after the taped Donald Sterling comments.  It is nice to be able to see the rules the NBA owners have chosen to live by.

Termination of Ownership

The NBA Constitution directly deals with the termination of ownership in Article 13.  Like reported in the media, Article 13 says the interest of an owner may terminated by a 3/4ths vote for one of the enumerated activities.

  • ” Willfully violate any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association.”
  • Transfer or attempt to transfer an ownership interest in violation of Article 5.
  • Fail to pay dues or other debts.
  • “Fail or refuse to fulfill its contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect the Association or its Members adversely.”
  • Betting on games.
  • Allowing others to bet on games.
  • Fixing the score of a game — to allow others to bet on a game.
  • Disband the team during the season.
  • Intentionally fail to keep team from playing a game.
  • Intentionally lie on membership application.

— NBA Const. art. 13.

There is not a moral clause anywhere in there — after all, he is being charged with being immoral.   Offensive comments are not grounds for termination of ownership, nor are they illegal.  There really isn’t anything in the express language of the Constitution that Donald Sterling violated.

It is apparent the Commissioner exercised another section of the Constitution when it banned Donald Sterling.

The Commissioner shall have the power to suspend a Player, Coach, Member, Owner, or other person subject to the Commissioner’s jurisdiction for a definite or indefinite period and to impose such fines and other penalties as are authorized by Article 35, 35A…

— NBA Const. art. 24, sec. (h)(i).

Furthermore, Article 24, section (l) gives the Commissioner the power to impose fines.  The qualification to levy a fine is that there must not be a “fixed penalty” for the violation.  This section was most likely utilized in order to impose the fine upon Sterling.

NBA’s Arguments For Termination

The NBA in it’s Summary of Termination (see link below) argues that Sterling violated Article 13, sections (a), (c) and (d).

The league claims Sterling “willfully violated” 13(a) “when LAC destroyed evidence, provided false and misleading evidence, and issued a false and misleading public statement, as described above.”  Granted this is only the league’s summary, but the document does not state what was violated.  Section (a) is pretty clear the Constitution, By-Laws, or some other agreement needs to be violated.  Unfortunately, the Summary does not state a specific agreement that is violated.  Perhaps a potential violation could be found in Article 35A(c) of the league Constitution, “[a]ny person who gives, makes, issues, authorizes or endorses any statement having, or designed to have, an effect prejudicial or detrimental to the best interests of basketball or of the Association or of a Member or its Team, shall be liable to a fine not exceeding $1,000,000 to be imposed by the Commissioner.”  This is just a guess on what the NBA could argue for breach.

The second claim is 13(c) gives the league cause when an owner fails to pay debts to the league.  The league considers the $2.5 million dollar fine a debt to the league.  Since Sterling refuses to pay the fine, the league says that is grounds for terminating his ownership.  This seems like a fairly reasonable interpretation of the league’s constitutional language.

Lastly, and the point the league spends the most time on, is a violation of 13(d).  There seems to be a lot of overlap with this alleged violation and the one alleged in 13(a).  The league claims that 13(d) could be violated by, “[T]he taking or supporting of a position or action which may have a material adverse impact on the league or its teams.”  Again, just looking at the Constitution probably the closest clause for a violation would be Article 35A(c).

An option not mentioned in the Summary is the NBA may have used Article 17(a) without an express breach.  This allows the Constitution and By-Laws to be changed by a 3/4s vote.  If the owners employed enough solidarity, they could write-in any act or behavior to prohibit, and could have easily have created some sort of morality clause after the fact.  It is not clear if the owners utilized this provision or not, but it is a likely option.  This option was tossed around in the media, but it did not receive a lot of support because of the precedent it would set.  Theoretically the argument goes, since Sterling’s comments arose out of a private, taped conversation, then it open the doors for the owners to amend the NBA Constitution to prohibit any private behaviors they find objectionable in the future.  From the facts I have gathered, it is unclear if this option ultimately was used, however some gave it a lot of weight.

Sterling’s Response to NBA (out of court)

The response by Sterling is interesting because his arguments are a hybrid of criminal law and the NBA Constitution.

First, Sterling argues that the taped call is inadmissible.  It is against California law for taped calls to be permissible into court.  While Sterling acknowledges the NBA Board of governors does not follow strict rules of evidence (either under California or federal law), but he cites the NBA does have some standards for what evidence it will look at.

Then he turns his attention to alleged violation of the NBA’s Constitution.

A jealous rant to a lover never intended to be published cannot offend the NBA rules.

— Donald Sterling’s Answer To Charge, In the Matter of the Termination of the National Basketball Association Membership of LAC Basketball Club, Inc., 3 (May 27, 2014).

He argues that Article 13(a) is a stretch.  Since the clause has the word “willful” it means that Sterling had to intend the results of his comments.  Since his comments were made in private, it would be very difficult for the NBA to argue Sterling comments were made with the intention of causing the NBA harm.  If Sterling only made the offensive comments in private, it would be one thing.  However, Sterling has a history of offensive racially charged conduct, and the public interviews he made in his defense in the aftermath only seemed to reinforce what he said in private.

Similar logic is used to defend against the charge of violating 13(d).  He argues that since his conversation was in private he did not take a position that was meant to harm the NBA or its affiliates.  As indicated above, the topic of the conversation was not about the course of the NBA’s business, but it was an argument about Sterling’s apparent girlfriend hanging out with other men.

Conclusion

On Friday, Sterling filed suit against the NBA on May 29 for violation of constitutional rights, breach of contract, antitrust violations and more.  The suit is seeking $1 billion in damages.  Since the league makes it’s own policies, Sterling’s best chance for keeping his team may be fighting in federal court.

Sources:

NBA Constitution and By-Laws

NBA Summary of Sterling Termination Charge

Donald Sterling’s Response to NBA Charge

 

 

 

Amended Lawsuit Against Phoenix School of Law by Former Profs

Round two is already underway.  Federal Judge Susan Bolton allowed former Phoenix Law School Professors Michael O’Connor and Celia Rumann to amend their complaint.  Judge Bolton dismissed the original complaint because she viewed the complaint did not sufficiently state a legal claim.

The facts of the matter are Michael O’Connor and Ceclia Rumann were professor at Phoenix School of Law (PSL) and tenured respectively in 2010 and 2011.  Both were tenured until their termination in May 2013.  Both Professors were presented with a “letter of appointment” on May 3, 2013 which left several material terms undefined, and was a change from their previous tenure contracts. On May 20, 2013 PSL revoked the letters of appointment because it viewed the unresponsive Professors as rejecting their offer of employment for the following academic year.

According to the Profs, they school breached their tenured contract and violated the implied warranty of good faith and fair dealing.

The case is No. CV-13-01107-PHX-SRB.

*** During the course of the lawsuit Phoenix School of Law changed its name to Arizona Summit Law School as a part of a re-branding effort to coincide with a curriculum change.

Arizona Employment Law

Even though Arizona law is not asserted in the complaint, it is a good idea to have a legal background about it — after all, it is being litigated in federal court for the District of Arizona and contract law is the domain of the states, as there is not a federal contract law.  Even though it is being litigated in federal court, the court will most likely defer to Arizona state law when making its judgment.

Arizona is an at-will employment state. At-will employment is where an employer does not need to have “just cause” to fire an employee.  The employee can dismissed by an employer for any reason that does not violate public policy (generally discrimination statutes).  This is codified in the Employment Protection Act, Ariz. R. Stat. § 23-1501(A)(2)

2. The employment relationship is severable at the pleasure of either the employee or the employer unless both the employee and the employer have signed a written contract to the contrary setting forth that the employment relationship shall remain in effect for a specified duration of time or otherwise expressly restricting the right of either party to terminate the employment relationship. Both the employee and the employer must sign this written contract, or this written contract must be set forth in the employment handbook or manual or any similar document distributed to the employee, if that document expresses the intent that it is a contract of employment, or this written contract must be set forth in a writing signed by the party to be charged. Partial performance of employment shall not be deemed sufficient to eliminate the requirements set forth in this paragraph…

Under the act, an employee has a claim if the employer breaches the contract.  In the employment context, employee handbooks are recognized as a formal contract.  Usually, there is not any bargaining over the employee handbook unlike in typical contractual situations — it is a take it, or leave it scenario.  However, an employee has a chance to accept or reject the handbook via if she takes the job or not.

The statute indicates when both the employer and employee sign the employee handbook it becomes a binding contract. See Demasse v. ITT Corp,. 984 P.2d 1138, 1143 (Ariz. 1999).

Second Amended Complaint

Breach of Contract

As with the first complaint, one of the major points of contention is if the defendants breached the contract by using a letter of appointment instead of a tenure contract.

What is interesting in the Second Amended Complaint is Profs provide both a Tenure Contract from 2012-2013 academic year and the Letter of Appointment for the 2013-2014 academic year.

The Tenure Contract from the 2012-2013 school year is a typical two-page contract.  Exhibit B, is a partial copy of the Faculty Handbook for Phoenix School of Law explaining the basic rights and responsibilities of faculty.  The the tenure contract acts like an annual re-affirmation of the original employment contract.

Both parties acknowledge that § 2.25 of the Faculty Handbook states the form of the employment contracts (as a sample template with blanks needing to be filled in is provided).  What is not agreed upon is if the Letter of Appointment meets the “form and style” of the sample template provided in § 2.25.

The content of the Letter of Appointment is mostly similar to that of the Tenure Contract. Although the stated purpose of the Letter of Appointment is to “simplify the process.”  The Letter of Appointment is approximately half the length of the Tenure Contract, so it accomplishes it’s stated purpose.  It does this through referencing the employee handbook where items are explained in detail. While the Letter of Appointment reads, as a ‘letter’ to each professor, it contains the elements to meet the definition of a contract.  The letter contains the amount of pay, the pay period, general responsibilities, incorporates the Faculty Handbook for specific responsibilities, and mentions indicators used in faculty review.

The Professors argue that while it may meet the elements of a contract, it is not in the “form and style” of the sample template.  The school responds that it does not matter if small deviations are met as long as it is materially similar.

In her analysis, Judge Bolton agreed that there are no material differences between the content of the Tenure Contract and the Letter of Appointment.  Even though there may be small differences between the Tenure Contract and the Letter of Appointment, Judge Bolton says these do not affect the rights of the Professors, and thus do not affect the form and style. Judge Bolton seemed to imply that the structure could change as long as the rights and content are not affected, because she did not address the layout or particular wording of the documents.

It will be difficult to see how Judge Bolton will rule differently on the breach of contract in the Second Amended Complaint, unless Judge Bolton addresses the layout and wording of the Letter of Appointment.

Good Faith and Fair Dealing

The Profs also argue that the school broke the implied covenant of good faith and fair dealing.  A covenant is a promise in contracts to continually do something.  Covenants can be written into a contract.  The covenant of good faith and fair dealing is implied because it is not written into the contract.  It does not have to be in the contract because Arizona’s common law requires both parties in a contract to act in good faith.  Wells Fargo Bank v. Arizona Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 28 (Ariz. 2002).

Even though a violation implied covenant of good faith and fair dealing is a separate claim, it is dependent in part on the breach of contract claim.  If Judge Bolton finds that the school did not breach the contract, it is very difficult to argue how the school did not act fairly.

The Professors make a lot of claims about how they were treated unfairly for speaking out against the changes at the school.  The argument of a violation of the implied covenant of good faith and fair dealing would be stronger if the Professors claimed constructive discharge by the law school.

It appears Judge Bolton is reviewing a Motion to Dismiss the Second Amended Complaint.  I will post when the Court makes a determination.