05 November 2015

Judge Rules In Favor Of MASN

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Since 2014, MASN and MLB have been involved in a court case over the amount that MASN needs to pay each club via media rights fees. Yesterday, another chapter in this situation has ended as Justice Marks ruled in favor of MASN and decided to vacate the RSDC's award. As stated in the decision, it is common for parties to apply to courts that an arbitration award should be vacated but it is one that is rarely granted. Justice Marks ultimately felt that only one of MASN's arguments were worthy of forcing him to vacate the award.

MASN argued that the decision should be vacated because MLB advanced the Nationals $25M while agreeing that repayment was an obligation of MASN's. If the Bortz Methodology is ultimately implemented, then MLB will not receive repayment from the Nationals and be forced to eat the loss.

Justice Marks agreed that MASN did make a persuasive argument that until the award was issued it was merely in draft form and subject to revision at any time, but also noted that the RSDC decided and notified the parties about the decision and approximate amounts of rights fees by early summer 2012. Since each party understood the amount that the RSDC would force MASN to pay the two teams, it didn’t raise any serious questions about the fairness of the arbitration process.

Justice Marks argued that MASN was unable to prove that there was a conspiracy between MLB and the Nationals to reset the media rights fees to the Nationals advantage or that MLB improperly controlled or influenced the arbitration process.

Justice Marks argued that the RSDC offered a more than sufficient explanation for why it used its methodology. Legally, their explanation only needs to be sufficient to offer “a barely colorable justification for the outcome” and therefore “must be upheld even if this court were to conclude that the RSDC's interpretation of its own established methodology was legally and factually incorrect”.

Nationals fans seem to think that this means that the Bortz Methodology is dead and doesn't need to be considered. I disagree with this interpretation because the judge made it clear that he wasn't passing judgement on whether the RSDC's interpretation is necessarily correct, but rather that he felt it wasn’t in the courts’ jurisdiction. He further stated that the RSDC explanation "must be upheld even if this court were to conclude that the RSDC's interpretation of its own established methodology was legally and factually incorrect." The RSDC decision doesn't need to be right to be upheld but rather merely reasonable.

However, Justice Marks did agree that while MASN accepted an “inside baseball” arbitration, MASN didn’t accept a situation where their arbitration opponent was represented in the arbitration by the same law firm that was concurrently representing MLB and the arbitrator clubs in other matters. He argued that MASN and the Orioles made many well-documented protests about this, but MLB and the Nationals took no actions in response. He felt that this gave the Nationals an unfair advantage and therefore allowed him to vacate the decision.

This doesn’t mean that the Bortz Methodology will be implemented and that the Nationals will receive what MASN offers. Nor does it necessarily mean that this case will be forced to go to a neutral arbitrator. What it does mean is that the RSDC decision no longer exists. MASN will be allowed to pay its proposed rights fees for the near future and the parties involved will need to agree on next steps. The two solutions that Justice Marks suggested were that the parties either go to a neutral arbitrator, such as the American Arbitration Association or that the Nationals use different counsel to retry this case in the RSDC. Alternatively, MLB can try appealing this decision to a higher court or try to come to a settlement now that the RSDC opinion has been vacated and each of the parties has more flexibility.

It’s impressive that MASN has gotten this far because courts rarely overturn internal arbitration cases and certainly this is far preferable to losing the case. However, it’s also questionable how much MASN has actually won. For starters, the decision was ultimately very close. Justice Marks claimed that he didn’t uncover any precedent involving a substantially similar factual scenario decided under the FAA and that this was an extraordinarily rare case. He claimed that if MLB, the arbitrators, the Nationals or Proskauer had taken some reasonable step to address petitioners’ concerns about the Nationals’ choice of counsel in the arbitration, then the Court might well have been compelled to uphold the arbitral award under the FAA. It seems plausible that such a decision could be reversed upon appeal and certainly the Nationals have also taken heart in the fact that only one of MASN's claims were upheld.

If the case isn’t reversed upon appeal, the Court still decided that it was unable to re-write the parties’ agreement to allow a panel of neutral arbitrators to judge this case. Justice Marks recommended that one possible way forward would be for the Nationals’ to retain different counsel that doesn’t represent MLB or the individual arbitrators or clubs and then return to arbitration by the RSDC. Given that MLB will lose money if the RSDC doesn’t return an award similar to the previous one, it is questionable whether a second hearing will be different than the first. If MASN is unable to get its case in front of an unbiased arbitrator, then it’s hard to see how the decision will change in the future.

That stated, there is a major issue with sending this case back to the RSDC. Justice Marks ruled that the $25 million that MLB advanced to the Nationals didn’t induce bias because all of the parties knew what a deal would look like and therefore how much the Nationals would receive. Ultimately, he wasn’t swayed by the fact that the deal could change because it was clear what the deal looked like at the time. Justice Marks also wrote that:
Petitioners’ argument on this point would be stronger if the advance had been made before the parties were informed of the RSDC’s internal decision. However, petitioners’ argument seems to confuse cause and effect. MLB set the amount of the advance with full knowledge of the amount of the planned RSDC Award.
MASN's argument about the $25 million would have been given more weight if it had been made before each side knew what the decision would look like. It's only logical that MASN's argument will be given more weight now that there's no longer any decision. It is highly likely that this advance now possibly biases MLB and thus any decision made by the RSDC would be challenged in court. At minimum, MASN would be able to delay a final ruling for years if this case went back to the RSDC.

Justice Marks also recommended that the parties could consider a neutral dispute resolution process with neutral arbitrators. It would be surprising if MLB agreed to this, but it would avoid many complications and ensure that there is no possibility of bias.

It is also possible that MLB and MASN could come to an agreement where perhaps MASN agrees to pay MLB $25 million while the MLB creates instructions for the RSDC insisting that it uses the Bortz Methodology. MASN has shown a willingness to compromise if it meant that Bortz would be used both now and in the future. Such a deal would anger the Nationals, but they have a considerably weaker legal position. Meanwhile, MASN would able to continue to pay its proposed rights fees to the Nationals and therefore a lawsuit wouldn’t really have an impact on anything. Now that the RSDC decision has been vacated, MLB has far more freedom to act.

MASN is clearly very happy about this decision because their remaining options would be limited if they has lost. Now they have leverage to potentially convince MLB and the Nationals to make a deal or possibly have this case heard by an independent arbitrator who could rule in MASN's favor.

It should thus come as no surprise that Arnold Weiner, counsel for the Baltimore Orioles, stated that “We are delighted that the court vacated Baseball’s arbitration decision today. As we argued, Major League Baseball’s arbitration over the rights fees lacked the fundamental fairness that the Orioles had a right to deserve. We are hopeful that this fairness will be achieved in a future and independent process.” While Alan Rifkin stated that “While we are very pleased that the court vacated the award, and did so for good reason, it is unfortunate that we had to bring this matter to the courts in the first place. Contracts are meant to be honored, and that includes honoring the integrity of the rights fee-setting process. We look forward to a fair and neutral process before an objective decision-maker in the future.” As far as I can tell, the Nationals are the only ones that mentioned possibly appealing this decision yesterday.

It is rare that an arbitration award is vacated. The fact that this one was shows MLB's complete disregard for fairness and the strength of MASN's position as articulated by their legal team.


Anonymous said...

Manfred really seems to have a grudge against the Orioles, and I wonder when the next OPACY All-Star game will be.
1) Have the worst and best-case results changed after this decision?
2) does this improve Baltimore chances of spending more on free agents?

Matt Perez said...

#1) They haven't changed. However, the worst-case scenario is considerably less likely to happen while the best-case scenario is more likely. There's still a lot to do.

#2) It improves them but the increase probably won't be large. A loss could have increased the chances that they would spend some $10M less.

Chicago Curmudgeon said...

Counsel, not council.

Matt Perez said...

Thanks Curmudgeon.

weams said...

Well written and informative.

Matt Perez said...

Thanks weams.

You may be interested also in this WTOP article quoting Eric Fisher from SBJ. It states:

The Nationals can still appeal the ruling, but that would mean another year or two of court filings and legal fees without any guarantee of an amicable solution. Additionally, this whole affair has dragged on so long, that the next window to renegotiate rights fees (per the original contract) will be upon us in 2017.

“There are really two choices — either reach a settlement, or use a third-party arbiter, such as the American Arbitration Association,” says Eric Fisher of the Sports Business Journal, who has covered the dispute.

Considering the acrimony that persists between the sides, the former doesn’t really seem to be a viable option. That means bringing the issue before another third-party decision maker, which leaves the status of the entire situation just as up in the air as it has always been.