Both Sides Of NBA Labor Negotiations Prepare For Legal War
NEW YORK -- When NBA owners and players convene Monday for their first full-scale bargaining session since the lockout was imposed on July 1, the real news will be unfolding far from midtown Manhattan. The environment necessary for compromise won't be present in the Omni Berkshire Place hotel conference room that has thus far produced nothing of the sort.
Nearly one month into the lockout, this high-stakes, $4 billion strategy game could soon be shifting gears from negotiations that have been fruitless for two years to what one attorney described as a potentially "nuclear" legal war between the two sides.
If the threat of losing games -- or possibly, the entire season -- isn't enough to compel both sides to hammer out a deal, the 2011-12 season will be in the hands of lawyers, judges and a labyrinth of legality. The outcome would be difficult to predict, and the timeframe possibly lengthy, depending on which legal strategies each side pursued.
Although the National Basketball Players Association has never decertified and sought antitrust relief from the federal courts in past labor disputes, the leverage -- or threat of leverage -- that comes with legal action has helped solve lengthy lockouts and strikes in other sports.
In 1995, Major League Baseball and its players' union were forced back to the bargaining table, where they ended a 7½ month strike, as the direct result of an injunction issued by then federal district judge Sonia Sotomayor, who is now an associate justice of the U.S. Supreme Court. Most recently, the prospect of a lengthy and ugly antitrust battle persuaded NFL commissioner Roger Goodell and NFLPA executive director DeMaurice Smith to hammer out a new labor agreement that ended that sport's 4½ month lockout this week.
Labor attorneys say the NBA's labor impasse differs greatly from both of those cases, and thus, so have the NBPA's legal strategies -- which are coming under fire from high-profile agents. "In the NBA, you are seeing the owners take a position where they want to radically change the way they do business," said Gregg Clifton, a former baseball agent and now an attorney with Jackson Lewis, high-profile firm representing management in labor disputes. "If somebody wants to radically change the way they do business with you, you better have a really good reason and you're going to get pushback. ... Both sides can be polarized and be strong because neither side has anything happening yet that's going to affect their bottom lines."
As with the baseball and NFL work stoppages, this one will have to be solved at the bargaining table. But the leverage forcing each side to give in and negotiate seriously could come from the courts.
For now, the NBPA has decided to pursue its grievances against the NBA through the National Labor Relations Board, where it has filed a complaint alleging, among other things, that the owners have not bargained in good faith. In a meeting last Friday in New York, prominent agents blasted union officials for adopting this strategy as opposed to disbanding the union and filing an antitrust lawsuit, as the NFL players did. But according to labor law experts, the agents are off base.
First off, the injunction issued by Sotomayor that forced the two sides back to the bargaining table in '95 came as the result of the MLBPA pursuing its case through the NLRB. At the time, given baseball's long-standing exemption from federal anti-trust law, this was the baseball players' only legal avenue.
The NFL players could have gone either route during the recent lockout, but chose to decertify and make their case under anti-trust law -- partly because they faced a collectively bargained deadline beyond which such action would have been off limits.
The NBPA has both options available to it, and no deadlines or restrictions on when to use them. This is an advantage, labor lawyers say, but deciding between the two paths carries great risk.
"That's a tough call," Clifton said. "Do you feel you have a better cause of action through NLRB legally and from the standpoint of timing and chances of success vs. the courts, where it becomes an anti-trust action?"
The distinction is important. When they went the antitrust route, NFL players were tripped up by the 8th U.S. Circuit Court of Appeals, which applied the Norris-LaGuardia Act in striking down a district judge's injunction that temporarily ended the lockout. In federal antitrust cases, Norris-LaGuardia is the federal statute that forbids federal courts from issuing injunctions in labor disputes.
The law does not apply in labor disputes brought before the NLRB, meaning the NBPA's current strategy could be its quickest route to an injunction lifting the lockout. If the NBPA is successful in getting the NLRB to issue a complaint against the NBA, the board could follow up by asking a federal judge to reinstate terms of the previous agreement -- thus forcing the two sides to engage in serious bargaining. This is how the baseball strike ended in 1995.
To this extent, the NLRB also provides the players with as close to a home-court advantage as they could hope for, given that the 8th Circuit precedent stands in the way of having the lockout lifted through an antitrust action. The NLRB also is decidedly labor-friendly, especially in its current makeup of four Democrat appointees and one Republican.
"If you go with the antitrust action, you're going to be doing a lot of shopping for interpretation of the Norris-LaGuardia Act before you jump into that circuit," Clifton said.
The key to the NBPA's current strategy will be how the NLRB rules on the union's request for further financial information from the NBA to prove its stated $300 million in annual losses, said Jon Axelrod of Beins, Axelrod, P.C., in Washington, D.C., who has represented unions in labor disputes for 37 years. Larry Katz, the union's outside counsel, has requested additional financial documents from the owners, including those detailing third-party transactions -- where the money goes when a single entity owns the NBA team, the arena and an NHL team -- and franchise valuations.
"In my experience as a union lawyer, that stuff would be very valuable to the union in preparing its negotiating position," Axelrod said.
The NBA has furnished voluminous financial data to the union, including audited financial statements and tax returns. But Katz said the owners have not turned over accounting of third-party transactions or franchise valuations, for which the NLRB could cite the league for bad-faith bargaining.
Third-party details would assist the union in determining how much of certain teams' losses resulted from internal transactions, as opposed to money going out the door. Franchise valuations would speak to the players' contention that interest and depreciation costs they are being asked to bear in the form of pay cuts benefited the owners through rising franchise values -- which the players do not share in when teams are sold.
"You can use interest to hide profit," Axelrod said. "You can use certain other expenses to hide profit."
Over time, through the cycle of various presidential appointees, the NLRB has taken different views on whether such detailed financial information is "reasonable and necessary," Axelrod said. "It's difficult to say what the current board would do."
Problems with the NBPA's strategy include the possibility that a request for an injunction may not necessarily follow swiftly after the NLRB issues a complaint, and that the board's investigative pace is notoriously slow. The NFL filed an unfair labor practices charge against the NFLPA in February, and the NLRB never finished investigating it. Katz estimates, and the other labor attorneys agree, that the NLRB is 30-60 days away from deciding whether to issue the complaint against the NBA that could lead to the coveted injunction, though both sides are cautious about trying to predict the NLRB's timetable.
If the NBPA decided to decertify, the pot of gold at the end of an antitrust case is the possibility of the players receiving treble damages -- compensation totaling three times their salaries for being harmed by the lockout -- if they eventually won the case, which could go all the way to the U.S. Supreme Court. But that process could take as long as 2-3 years, labor lawyers say, and would constitute "nuclear war" between the owners and players, according to Katz.
"It's a Pandora box," Katz said. "I'm scared as heck when I open up a big litigation box, because I don't know what's going to come out of it."
It's important to note that from the NBPA's standpoint, decertification may not be a do-you or don't-you issue, but rather one of timing. Neither side is willing to get bogged down in the federal courts for several years, so the threat of leverage and uncertainty could be more valuable than the outcome itself.
If they do not get a favorable ruling -- or any ruling -- from the NLRB by mid-September, the players may choose to go forward with decertification at that point. They would likely choose a court outside the 8th Circuit and hope for a more labor-friendly judge and appeals panel. There would be no chance of a decision in time to avoid canceling a portion of the season, but the threat of losing games and losing in court could compel the owners to be more flexible at the bargaining table.
"Timing is everything in life," Clifton said. "The timing was reached in the NFL because people said, 'Wait a minute. We're going to miss games, and this is a $9 billion industry that will be an $18 billion industry by the end of the decade. What are we doing?'"
Glenn Grindlinger, a partner at Fox Rothschild, LLP, who represents management, said the most effective form of leverage for both sides remains "the fact that the season's coming up."
"The closer you get to the start of the season," Grindlinger said, "the more incentive there is going to be for both sides to hash out a deal."
But both sides also have legal weapons they have not yet deployed that could shake up the negotiations and add to the leverage necessary for a deal.
If the players decertified, lawyers from both sides essentially would be racing to court in an attempt to sue the other side first in a venue they believe will be favorable to them. This "circuit race," as Axelrod described it, would be a contest of whether the players could file their antitrust suit before the owners sought declaratory judgment in a management-friendly circuit. Whichever side got its lawsuit filed first would set the venue for the case.
The players also have an obscure but potentially useful legal trick up their sleeves. In the 8th Circuit's NFL ruling, the assenting judges used language that suggested players without contracts -- free agents and drafted rookies -- should be required to market their services and sign contracts. From a practical standpoint, the loophole is moot; the court said once those players signed contracts, they'd be locked out like everybody else.
But this could provide the NBPA with a narrow anti-trust avenue to pursue on behalf of players who were not under contract as of July 1. Instead of a Tom Brady v. NFL, imagine an NBA anti-trust case with the most prominent free agents (David West, Tyson Chandler, Grant Hill and Shane Battier) -- plus the top picks in the 2011 draft (Kyrie Irving and Derrick Williams).
"You'd still have to decertify, but you might have a more focused action," Clifton said. "... You might be able to challenge the draft that allowed them to be drafted and the antitrust ramifications of it."
Timing is, indeed, everything. If LeBron James, Dwyane Wade and Chris Bosh had not become free agents last summer, a potential antitrust suit by the NBPA this summer would've read like a who's who of the biggest stars in the league. But the way this lockout is going, consider this grim possibility: Instead of becoming free agents next summer, Dwight Howard, Chris Paul, Deron Williams and Kevin Garnett might very well be antitrust plaintiffs, instead.
That would only happen if the entire 2011-12 season were lost, a catastrophic possibility for which both sides are privately preparing.
"It could happen," Clifton said. "I hope not, but it's possible. ... When I talked about the NFL, I thought it would end by mid-July and they'd miss one preseason game, at most. Unfortunately, I'm equally pessimistic about the NBA."
