On May 30, 2014, Los Angeles Clippers owner Donald Sterling filed a civil suit against the National Basketball Association and its commissioner, Adam Silver, in the United States District Court for the Central District of California, Western Division. The Civil Complaint sets forth five causes of action against the defendants. They include: antitrust violations; conversion; breach of contract; breach of fiduciary duty; and violations for denial of Sterling’s constitutional rights. The Complaint seeks compensatory in excess of $1 billion along with injunctive relief “eliminating [Sterling’s] lifetime ban, eliminating the $2.5 million fine, the reinstatement of longtime Chief Executive Officer of the Clippers, Andy Roeser, the removal of the interim Chief Executive Officer installed by the NBA, Richard Parsons, and the termination of the NBA’s proceedings to strip Donald Sterling and the Sterling Family Trust of their ownership in the Los Angeles Clippers.”
Sterling’s Constitutional Claims:
In his complaint, Sterling alleges that his telephone conversation with his girlfriend, Ms. Stiviano was a private conversation which took place in California. He asserts that unbeknownst to him and in violation of California Penal Code §632(a), that private telephone conversation was recorded. Moreover, his complaint asserts that pursuant to California Penal Code §632(d) “[e]xcept as proof in any action or prosecution for violation of this section, no evidence obtained a result of….recording a confidential communication in violation of this section shall be admissible in any judicial, administrative, legislative, or other proceedings.” Sterling asserts that the NBA’s use of an illegal recording as evidence against him constitutes a violation of his right to privacy. In support of that contention, Sterling will assert that the NBA investigation constitutes an “other proceeding.” His complaint cites two federal court decisions in which secretly recorded telephone conversations were excluded from evidence in civil lawsuits per that statute.
Unlike most states, California’s right to privacy is applicable both to “state actors” (i.e. the government) and non-state actors. For example, in Hill v. National Collegiate Athletic Assn., 865 P.2d 633, 641-642 (Ca. 1994) the California Supreme Court rejected the NCAA’s argument that its drug testing policy did not violate the California Constitutional right to privacy because the NCAA was not a state actor. The California Supreme Court in Hill held that both state and private actors could violate California’s constitutional right to privacy. In 2009, the California Supreme Court revisited and narrowed its previous holding in Hill in the case Sheehan v. San Francisco 49ers, Ltd., 201 P.3d 472, 478 (Ca. 2009) as to the applicability of the right to privacy to non-state actors.
First, I expect the Defendants to argue that they are not subject to California’s constitutional right to privacy because they were in New York State. In other words, I expect a choice of law argument. Assuming the Court applies California law, I expect Silver and the NBA to argue that they are not “state actors” and the “other proceeding” set forth in California Penal Code §632(d) does not apply to the NBA’s internal grievance and discipline system. I also anticipate that the defendants will argue that Sterling suffered no damages because the team sold for a price which met or exceeded the fair market value of the team.
Sterling’s civil lawsuit against the NBA and Commissioner Silver alleges that the forced sale of the Clippers constitutes the civil tort of conversion. Pursuant to California law “conversion” is generally described as the wrongful exercise of dominion over the personal property of another. Gruber v. Pacific States Sav. & Loan Co., 13 Cal.2d 144, 148 (1939) The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages. Burlesci v. Petersen, 68 Cal.App.4th 1062, 1066 (1998).
I expect the NBA and Silver to attack the conversion claims by attacking the “causation” and “damages” elements of the tort. As per the causation element, the NBA and Silver should assert that it did not sell the Los Angeles Clippers. Rather, Sterling’s wife, Shelly sold the team after Mr. Sterling’s doctors determined that he was “impaired” by early onset dementia. The Sterling Family Trust document contains a provision which allows either Mr. or Mrs. Sterling to control the trust in the event the other is deemed to be impaired. Hence, they should argue that they did not cause Sterling to lose the team.
Second, the NBA and Silver should attack damages by asserting Sterling did not suffer any damages because the $2 billion sale price either equaled or exceeded the value of the team.
Breach of Contract Claim:
Sterling’s complaint asserts the NBA’s fine, lifetime ban and initiation of the process which lead to the sale of the team are not authorized by the NBA-Constitution and its By-Laws. He claims that his private actions do not warrant the imposition of the punitive measures imposed by NBA Commissioner Silver. I expect the NBA and Silver to assert that they possess inherit and specific powers to protect the integrity of the game and therefore were authorized by the governing documents to impose those punishments on Sterling. I also expect Silver and the NBA to argue that the NBA-Constitution and By-Laws do not prohibit Sterling’s punishments. Finally, I expect the defendants will also assert that Sterling’s punishments were warranted because of his abhorrent behavior.
Sterling’s Complaint asserts that the forced sale of the Los Angeles Clippers violates federal anti-trust laws because it will result in the team being sold for less than it is actually worth. As stated above, I expect both Silver and the NBA to assert that although they said that the team must be sold, it was Sterling’s wife Shelly who sold the team. She did so prior to the adjudication of the case and had the power to do so pursuant to the trust language.
I also expect Silver and the NBA will argue that their actions do not violate federal anti-trust laws as a matter of law.
Finally, I believe the NBA and Sterling will argue that Sterling did not suffer damages because the team was sold for a price which met or exceeded its fair market value.
Breach of Fiduciary Duties:
Finally, Sterling’s complaint asserts that Sterling, the NBA and its Board of Commissioners owed him certain fiduciary duties, including duties of loyalty, cooperation, good faith and fair dealing, and the exercise of good care by violating his constitutional right to privacy, “imposing harsh and unprecedented penalties disproportionate to the alleged offense and to the offenses of others, by conducting an inadequate investigation, and by expressly denying Plaintiffs an adequate opportunity to prepare and defend themselves.” I expect the NBA and Silver to assert as a matter of law that they neither owed nor violated any fiduciary duties to Mr. Sterling. Furthermore, I expect them to assert, assuming arguendo Sterling can demonstrate a breach of fiduciary duty, that he suffered no monetary damages because the team was sold for a price which met or exceeded its fair market value.
Pursuant to the Federal Rules of Civil Procedure, the NBA and Silver will either file an answer to the complaint or a pre-answer motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b). Assuming the case is not settled or dismissed by way of motion, the parties will be afforded an opportunity to take discovery. After the close of discovery, I expect the parties to file various motions. Assuming the case is not dismissed or settled by then, I expect the case to be tried. Typically, Federal Court Judges try to move their cases along. Hence, if the case is to be tried, I expect a trial in the next 24-36 months.