Spencer Haywood case
In the Spencer Haywood case,Spencer Haywood was a star basketball player who successfully challenged a bylaws provision of the National Basketball Association prohibiting players from competing in the professional league until at least four years after high school.
Captioned The Denver Rockets v. All-Pro Management, Inc., 325 F. Supp. 1049 (C.D. Cal. 1971), the court granted partial summary judgment to Haywood on antitrust grounds under Section 1 of the Sherman Antitrust Act. 15 U.S.C. § 1. The court invalidated Section 2.05 of the bylaws of the NBA as follows:
- High School Graduate, etc. A person who has not completed high school or who has completed high school but has not entered college, shall not be eligible to be drafted or to be a Player until four years after he has been graduated or four years after his original high school class has been graduated, as the case may be, nor may the future services of any such person be negotiated or contracted for, or otherwise reserved. Similarly, a person who has entered college but is no longer enrolled, shall not be eligible to be drafted or to be a Player until the time when he would have first become eligible had he remained enrolled in college. Any negotiations or agreements with any such person during such period shall be null and void and shall confer no rights whatsoever; nor shall a Member violating the provisions of this paragraph be permitted to acquire the rights to the services of such person at any time thereafter.
Section 6.03 provided as follows:
- Persons Eligible for Draft. The following classes of persons shall be eligible for the annual draft:
- (a) Students in four year colleges whose classes are to be graduated during the June following the holding of the draft;
- (b) Students in four year colleges whose original classes have already been graduated, and who do not choose to exercise remaining collegiate basketball eligibility;
- (c) Students in four year colleges whose original classes have already been graduated if such students have no remaining collegiate basketball eligibility;
- (d) Persons who become eligible pursuant to the provisions of Section 2.05 of these By-laws.
Text of Decision
The Court, in ruling for Haywood, held as follows:
- Haywood alleges that the effect of this provision is a group boycott on the part of the NBA and its teams against himself and other qualified players who come within those terms. The provisions prevent Haywood, a qualified professional basketball player, from contracting with any NBA team, even though he does not desire to, or may not be eligible to, attend college and even though he does not desire to, and is ineligible to, participate in collegiate athletics.
- Haywood also challenges the so-called "reserve clause" and the college draft, among other NBA provisions, as being similarly violative of the antitrust laws. However, those allegations are not subject to this partial summary judgment motion, and the court expresses no view with regard to the legality of those practices.
- It should be pointed out initially that this case does not involve the question of whether Spencer Haywood is qualified to play basketball at the high level of competency required of NBA players. It is uncontested that he is so qualified. In fact, Haywood is now playing for the Seattle team. The sole question involved here is whether the NBA can prevent Haywood from playing in the NBA pursuant to his contract with Seattle until four years after his high school class graduated.
- Application of the four-year college rule constitutes a "primary" concerted refusal to deal wherein the actors at one level of a trade pattern (NBA team members) refuse to deal with an actor at another level (those ineligible under the NBA's four-year college rule).
- The harm resulting from a "primary" boycott such as this is threefold. First, the victim of the boycott is injured by being excluded from the market he seeks to enter. Second, competition in the market in which the victim attempts to sell his services is injured. Third, by pooling their economic power, the individual members of the NBA have, in effect, established their own private government. Of course, this is true only where the members of the combination possess market power in a degree approaching a shared monopoly. This is uncontested in the present case.
- The basic standard by which a motion for summary judgment is decided is derived from Fed. R. Civ. P. 56. Summary judgment is proper where "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law". A motion for summary judgment may be properly entertained at any time after the expiration of 20 days from the commencement of the action.
- Rule 56 clearly authorizes summary adjudication which falls short of a final and complete adjudication, even of a single claim. See generally, 6 Moore's Federal Practice P56.20 [3.-2], at 2750-51. Rule 56(a) authorizes any claimant to move for a summary judgment in his favor as to "all or any part thereof" of his claim. Rule 56(c) provides for a summary judgment in favor of the claimant on the issue of liability, although the issue of damages must be tried because of a genuine factual issue. Finally, Rule 56(d) states that the court should, if the case is not fully adjudicated on the motion, direct "such further proceedings in the action as are just."
- Summary judgments have been frequently used by the courts in group boycott cases. See, e.g., Silver v. New York Stock Exchange, 373 U.S. 341, 10 L. Ed. 2d 389, 83 S. Ct. 1246 (1963). In fact, group boycotts were specifically mentioned by the Supreme Court as one type of case which was appropriate for resolution without trial. White Motor Co. v. United States, 372 U.S. 253, 260, 9 L. Ed. 2d 738, 83 S. Ct. 696 (1963). A partial summary judgment is similarly appropriate in antitrust cases. See, e.g., United States v. Bausch & Lomb Optical Co., 3 F.R.D. 331 (S.D.N.Y. 1943).
Id. at 1060-61.
The Court continued:
- There are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable -- an inquiry so often wholly fruitless when undertaken. Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 210, 84 L. Ed. 1129, 60 S. Ct. 811; division of markets, United States v. Addyston Pipe & Steel Co., 85 F. 271, aff'd, 175 U.S. 211, 44 L. Ed. 136, 20 S. Ct. 96; group boycotts, Fashion Originators' Guild v. Federal Trade Comm'n, 312 U.S. 457, 85 L. Ed. 949, 61 S. Ct. 703; and tying arrangements, International Salt Co. v. United States, 332 U.S. 392, 92 L. Ed. 20, 68 S. Ct. 12." Northern Pacific v. United States, 356 U.S. 1, 5, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1957).
- In Fashion Originators' Guild v. F.T.C., 312 U.S. 457, 85 L. Ed. 949, 61 S. Ct. 703 (1941), a combination of manufacturers of women's garments and manufacturers of textiles used in garment making, sought to suppress competition by others who copied their designs. They did this by registering their designs and refusing all sales to manufacturers and retailers of garments who dealt in the copies. The Supreme Court affirmed the "cease and desist" order entered by the Federal Trade Commission. In doing so, the Court found no error in the refusal of the Commission to hear evidence on the reasonableness of the methods pursued by the combination. Such evidence "is no more material than would be the reasonableness of the prices fixed by the unlawful combination". 312 U.S. at 468. The Court went on to note that even if systematic copying of dress designs was tortuous under the laws of all states, that circumstance would not justify a group boycott.
- In Klor's v. Broadway-Hale Stores, 359 U.S. 207, 3 L. Ed. 2d 741, 79 S. Ct. 705 (1959), Klor's, a retail appliance dealer, brought a treble damage suit against a competing retailer, Broadway-Hale, and several manufacturers and distributors of appliances, alleging that Broadway-Hale had used its buying power to induce the others to stop dealing with the plaintiff. The defendants responded that it was purely a "private quarrel" between Klor's and the others and submitted affidavits to show that the boycott had no discernible effect on competition. The Supreme Court held that the concerted boycott by defendants violated the Sherman Act. The Court noted that "group boycotts, or concerted refusals by traders to deal with other traders, have long been held to be in the forbidden category". 359 U.S. at 212.
- These two cases have been frequently cited for the proposition that a concerted refusal to deal cannot be justified by any motive or ultimate goal, however reasonable. See Handler, Recent Developments in Antitrust Law: 1958-1959, 59 Colum. L. Rev. 843, 862-64 (1959). However, by its very nature the per se approach paints with a very broad brush and eliminates economic cooperation which may be both necessary and desirable. For this reason, lower courts have been reluctant to apply it and have frequently found reasons for not doing so. See, e.g., Bridge Corp. of America v. American Contract Bridge League, Inc., 428 F.2d 1365, 1369-70 (9th Cir. 1970), petition for cert. filed, 401 U.S. 940, 28 L. Ed. 2d 220, 91 S. Ct. 940, 39 U.S.L.W. 3338 (1970).
- The possibility that all concerted refusals to deal were not per se illegal was given considerable impetus in Silver v. New York Stock Exchange, 373 U.S. 341, 348-49, 10 L. Ed. 2d 389, 83 S. Ct. 1246 (1963), where the Court recognized that a "justification derived from the policy of another statute or otherwise" might save a collective refusal to deal from per se illegality.
- Silver, a securities dealer, while not a member of the New York Stock Exchange, maintained direct private telephone and tickertape connections with several member firms. Pursuant to Exchange rules, the member firms involved applied for approval of the connections. After granting temporary approval, the Exchange disapproved the applications and under the Exchange's constitution the member firms were then required to discontinue the services. This they did. Silver brought a treble damage suit, alleging that the cut-off was a concerted refusal to deal. The district court granted summary judgment in Silver's favor. The Second Circuit Court of Appeals reversed, on the grounds that the Securities Exchange Act, which gave the Commission the power of self-regulation, had exempted the Exchange from the restrictions of the Sherman Act.
- The Supreme Court began by noting that "absent any justification derived from the policy of another statute or otherwise", the action of the Exchange would constitute a group boycott, per se illegal under the Sherman Act. The Court then stated that the exemption of the Exchange did not extend to action which could not "be justified as furthering legitimate self-regulative ends". In concluding that the self-regulation involved was not justified, the Court focused on the absence of notice and hearing prior to Exchange action.
- Thus, Silver seems to envision the application of the per se rule to group boycott cases, with one narrow exception. A factual situation falling into this exception would be governed by the "rule of reason". To qualify for this exception it would have to be shown that:
- (1) There is a legislative mandate for self-regulation "or otherwise". In discussing the history of the New York Stock Exchange in Silver, the Court suggests that self-regulation is inherently required by the market's structure. From this basis, it has been argued that where collective action is required by the industry structure, it falls within the "or otherwise" provision of Silver. Note, Trade Association Exclusionary Practices: An Affirmative Role for the Rule of Rea-son, 66 Colum. L. Rev. 1486 (1966).
- (2) The collective action is intended to (a) accomplish an end consistent with the policy justifying self-regulation, (b) is reasonably related to that goal, and (c) is no more extensive than necessary.
- (3) The association provides procedural safeguards which assure that the restraint is not arbitrary and which furnish a basis for judicial review.
- The question then arises as to whether this court can, without a lengthy factual inquiry and a complex balancing of values, determine whether the present fact situation falls into the narrow exception which is governed by the "rule of reason". The importance of this question is obvious. If a trial court cannot do this, it will be required to evaluate all of the evidence and make all of the value judgments necessary to apply the "rule of reason" in order to determine whether the case falls into the exception. This would destroy the benefits of the per se approach.
- This is, primarily, a question of the administration of the antitrust laws. For this reason, it should be remembered that the per se rule and the "rule of reason" constitute polar opposites on the spectrum of possible approaches.
- The answer to this question is found in the Court's reasoning in Silver. There the Court focused on the issue of notice and hearing. According to the Court, the requirement of a hearing will, in itself, act as a check on illegitimate self-regulation. In addition, it will provide the antitrust court with a record from which it can determine whether the self-regulation is justified, necessary and sufficiently limited. "Hence the affording of procedural safeguards not only will substantively encourage the lessening of anticompetitive behavior outlawed by the Sherman Act but will allow the antitrust court to per-form its function effectively." 373 U.S. at 363.
- The Silver ruling explains the apparent inconsistency between the two ninth circuit decisions most similar factually to the present case. In Deesen v. Professional Golfers' Ass'n, 358 F.2d 165 (9th Cir.), cert. denied, 385 U.S. 846, 17 L. Ed. 2d 76, 87 S. Ct. 72 (1966), the circuit held that the Professional Golfers' Association's eligibility requirements for professional golf tournaments did not violate the antitrust laws. The PGA had terminated Deesen's approved tournament status only after a committee reassessed his performance against established standards; opportunities were also provided for Deesen to apply for reinstatement and to play "test rounds" in an effort to prove he was qualified for tournament play. The court found (a) that eligibility requirements were required by the industry structure, (b) that the requirements in question were intended to meet this goal, not improperly motivated, flexible and reasonably limited, and (c) that the procedural safeguards mentioned above were present.
- On the other hand, in Washington State Bowling Prop. Ass'n v. Pacific Lanes, Inc., 356 F.2d 371 (9th Cir.), cert. denied, 384 U.S. 963, 16 L. Ed. 2d 674, 86 S. Ct. 1590 (1966), the court applied a per se rule to invalidate the regulatory scheme of the Bowling Proprietors Association of America. In this case, there was no provision for a hearing comparable to that found in Deesen. BPAA eligibility rules required that tournament bowlers restrict their league and tournament bowling to member establishments. The ostensible purpose was to prevent "sandbagging" -- the inclusion of substandard scores in computing a bowler's average to gain a larger handicap. In holding the rules illegal, the court specifically rejected the defendant's argument that the per se rule applied only to commercial boycotts.
- With regard to the facts of the instant case it can readily be determined that the case does not fall within the "rule of reason" exception provided by Silver. It is clear from the constitution and by-laws of the NBA that there is no provision for even the most rudimentary hearing before the four-year college rule is applied to exclude an individual player. Nor is there any provision whereby an individual player might petition for consideration of his specific case. Due to the lack of any such provisions, this court must conclude that on the basis of undisputed facts, the NBA rules in question fall outside the Silver exception and are subject to the per se rule normally applicable to group boycotts.
- In addition, it is uncontested that the rules in question are absolute and prohibit the signing of not only college basketball players but also those who do not desire to attend college and even those who lack the mental and financial ability to do so. As such they are overly broad and thus improper under Silver. Summary judgment for violations of the antitrust laws is proper where less restrictive means than those used could have been employed. International Salt Co. v. United States, 332 U.S. 392, 397-98, 92 L. Ed. 20, 68 S. Ct. 12 (1947); International Business Machines Corp. v. United States, 298 U.S. 131, 139-40, 80 L. Ed. 1085, 56 S. Ct. 701 (1936).
- Throughout the briefs and affidavits of the NBA, there is the suggestion that the purpose of the rules in question removes those rules from the normal coverage of the antitrust laws. Three reasons have been suggested for having the four-year college rule. First, the NBA has suggested that it is financially necessary to professional basketball as a business enterprise. It seems clear from Klor's that this does not provide a basis for exemption from the antitrust laws with regard to group boycotts, unless it qualifies under the ruling of Silver. As discussed earlier, Silver does not exempt the present rules from illegality.
- A second reason given by the NBA is that this type of regulation is necessary to guarantee that each prospective professional basketball player will be given the opportunity to complete four years of college prior to beginning his professional basketball career. However commendable this desire may be, this court is not in a position to say that this consideration should override the objective of fostering economic competition which is embodied in the antitrust laws. If such a determination is to be made, it must be made by Congress and not the courts.
- Finally, Haywood has suggested that at least one of the reasons for the four-year college rule is that collegiate athletics provides a more efficient and less expensive way of training young professional basketball players than the so-called "farm team" system, which is the primary alternative. Even if this were true, it would not, of course, provide a basis for antitrust exemption.
- Pursuant to the requirement of Fed. R. Civ. P. 56(d), the court finds that the following material facts are not in dispute:
- (1) The NBA conducts its business in such a manner as to constitute interstate commerce.
- (2) The member teams of the NBA have conspired not to deal with persons whose high school classes are not four years beyond graduation.
- (3) The NBA has applied Sections 2.05 and 6.03 of its by-laws so as to render Spencer Haywood ineligible to play in the NBA.
- (4) The NBA does not provide procedural safeguards whereby an individual may contest his exclusion under Sections 2.05 and 6.03.
- (5) Sections 2.05 and 6.03 impose an absolute exclusion on all persons whose high school class has not been graduated for more than four years.
- By reason of these undisputed facts, and for the reasons stated above, the court orders that partial summary judgment in favor of plaintiff Haywood be granted, to the limited extent of ruling that the NBA's four-year college rule -- as embodied in Sections 2.05 and 6.03 -- is a violation of Section 1 of the Sherman Act. The court does not make any ruling at this time with regard to what remedy might be appropriate in light of this illegality.
- Due to the fact that this action has not been fully adjudicated on this summary judgment motion, Rule 56(d) requires the court to direct "such further proceedings in the action as are just". As set forth herein, the issue of whether permanent injunctive relief, monetary damages, or both, are appropriate must be deter-mined at a later date following a full evidentiary hearing. This determination should be in conjunction with the trial of the other antitrust issues raised by the complaint. In order to maintain the status quo and prevent irreparable harm, the preliminary injunction already issued in this case will continue in effect pending the final determination of this action.
- Pursuant to the provisions of Rule 52(a) of the Federal Rules of Civil Procedure, this memorandum opinion shall constitute the findings of fact and conclusions of law of the court.
- Pursuant to the provisions of Rule 58, a judgment shall be entered as follows:
- "1. Sections 2.05 and 6.03 of the by-laws of the National Basketball Association are declared to be illegal under Section 1 of the Sherman Act. 15 U.S.C. § 1.
- "2. The preliminary injunction granted by this court on February 2, 1971, will remain in full force and effect pending final determination of all matters raised by the crossclaim. That injunction reads as follows:
- ' It Is Ordered and Adjudged that Cross-defendant NBA, its members, officers, agents, servants, employees, attorneys and all persons in active concert or participation with them, pending the final hearing and decision in this action, are enjoined from applying the Constitution, By-laws, Rules and Regulations of the NBA in any manner so as to prevent or interfere with, or from taking any other action, directly or indirectly, to prevent or interfere with Cross-claimant Haywood playing professional basketball as a player on the playing roster of the Seattle Supersonics. Nothing in this order shall prevent the NBA from sanctioning Haywood in the normal manner for improper behavior unrelated to the subject matter of this suit.'
- "3. The court retains jurisdiction to enforce the provisions of this judgment, for the purpose of issuing orders to clarify, modify, or amend any of the provisions hereof, and for all other purposes."
Id. at 1063-67.