The End Of Round One At The Appellate Court

The latest chapter in the MASN saga was written on Thursday, when the appellate court released a decision about the latest set of appeals. As a refresher, back in 2012, MASN and the Nationals attempted to agree upon fair rights fees for 2012-2016. Using the Bortz methodology, MASN proposed that fair rights fees for the 5 year period was $198 Million. The Nationals, based on models built by Chris Bevilacqua, felt that fair rights fees were $590 million over the 5 year period. The two sides were unable to come to an agreement, so they requested that the RSDC decide.

MLB decided that it was in the interests of all parties for MASN, the Nationals and the Orioles to come to an agreement instead of the RSDC mandating a solution, so they did their best to buy time until it became clear that the two sides would not come to an agreement. When MLB did decide to release the RSDCs solution in 2014, MASN felt that they didn’t receive a fair hearing from the RSDC and appealed this decision in court. Judge Marks ruled in November 2015 that the RSDC decision was indeed unfair and should be vacated but that the RSDC was a possible venue to re-arbitrate this case. Both the Orioles and the Nationals appealed this court ruling and on Thursday, the appellate court ruled on this set of appeals.

The first decision they made was a unanimous decision that the original RSDC decision should be vacated. The second decision they made is that the appropriate venue to re-arbitrate the case is the RSDC by a margin of 3-2. A party is only allowed to appeal a decision that was agreed upon by three judges, so MASN is able to appeal the decision that the RSDC is the appropriate venue to make a decision about rights fees, but the Nationals are unable to appeal the decision to vacate the RSDCs original decision.

The only permanent consequence of this latest ruling by the appellate court is that the RSDCs original decision can’t be reinstated and that the only remaining discussion is which venue will re-arbitrate the case. The Nationals and MLB want the RSDC to be that venue while MASN and the Orioles want an independent forum such as the AAA to be that venue. However, the Nationals feel that this court ruling suggests that the full appellate court will decide that the appropriate venue to hear this case is the RSDC and not an independent venue.

The concurring opinion decided that the RSDC is the appropriate venue because there is no proof that the current members of the RSDC are biased against MASN or the Orioles and that the Nationals have agreed to use different representation in this rehearing.  They further claimed that all the parties made an educated decision to use the RSDC as the arbitrating venue in the original contract, despite knowing the fact that MLB has significant influence over the RSDCs decision.

The authors were not sympathetic to MASNs claim that the $25 million that MLB paid the Nationals will bias the RSDCs decision against MASN. They believe that this $25 million payment gave the parties more time to come to a mutually agreeable decision about rights fees and MLB had good intentions when making the loan. Therefore, they felt it would not be right to punish MLB for making this loan by saying that it would give MLB a stake in the decision and motivate them to bias the new members on the RSDC to make an unfair decision against MASN.

Finally, the authors also felt that there was no guarantee that arbitrators selected by the AAA could also be free of all bias. All arbitrators would be required to have expertise in professional sports and broadcast fees. Such experts may well not be independent of MLB and therefore this could mean that even independent arbitrators wouldn’t solve the problem.

The minority dissenting opinion, issued by the Chief Justice, stated that this case should be re-arbitrated in a different forum because the RSDC will be biased due to MLBs interest in the case. Unlike the concurring opinion issued by a plurality, this opinion feels that the court has the right to change an agreed upon venue if “the forum is shown to be so corrupt or biased as to undermine the reasonable expectations of the parties to have a fundamentally fair hearing”. He believes that MASN is correct to suspect that they won’t receive a fundamentally fair hearing in part due to MLB’s apparent lack of fairness at the first hearing, MLBs direct monetary stake in the case of $25M, evidence that MLB is supporting the Nationals and actively opposing MASN, and evidence of the current Commissioner's personal involvement in the prior arbitration, including the drafting of the vacated award, and his publicly stated views about the dispute.

Ultimately, the primary point that this case will hinge upon is the connection between the members of the RSDC and MLB. The majority of judges that decided not to send this case to a different venue did so because they aren’t convinced that the current set of members of the RSDC are biased and therefore feel that MASN can receive a fair arbitration hearing in this venue. The two judges that disagreed did so because they felt that MLB is able to bias the RSDC. MASN will need to convince the members of the court that the RSDC is vulnerable to pressure from MLB. In general, courts don’t like to change the terms in a contract unless there are extraordinary events that compel them to do so.

MASN should probably point out some inconsistencies in the concurring opinion’s argument. For example, the concurring opinion argues that MASN was well aware that the RSDC is significantly influenced by MLB. It further argues that MASN decided to waive the opportunity to mediate this dispute in front of the AAA or JAMS, electing to have this dispute heard in front of the RSDC and that the only reason why MASN has changed its mind is because they’re unhappy with the decision the RSDC made the first time.

Such an argument seems unreasonable. It is more plausible that MASN was perfectly willing to submit to the RSDC for arbitration until they and MLB went through a process in which MASNs concerns were completely ignored, and the whole arbitration hearing itself was ultimately thrown out for evident partiality. Given that few arbitration results are thrown out for evident partiality, it seems unreasonable to presume that MASN could have predicted the lengths that MLB would go to in order to receive its desired result. Certainly, this case would have been resolved by now if the first hearing was fairly run.

It is interesting that the Nationals put out a press release stating that they won a major legal victory when the court ruled that the case should be reheard in front of the RSDC instead of a different venue. Yet, the alternative to this was having the case heard in front of an independent arbitrator such as the AAA. Certainly, the AAA can’t be accused of being biased for MASN or the Orioles. If MASNs request isn’t fair, then the AAA will decide a different amount. So, if the Nationals think that they won a huge legal victory by having this case reheard by the RSDC, it perhaps suggests that they think that they’ll have an unfair advantage in this forum.

This becomes more evident when one considers that the RSDC originally determined that the fair rights fees should be closer to what MASN suggested than what the Nationals requested. If the Nationals felt that their request was credible, then they should hope to have their case heard in front of a different forum. The fact that they think that having this case heard in a forum that offered them less than what they requested is a “major legal victory” suggests that they know something about the forum that isn’t public knowledge.

One might think that this point is largely irrelevant to the overall picture. After all, the case will hinge on whether the appellate court thinks the arbitrators can judge this case fairly. However, the dissenting opinion did mention that the commissioners’ public statements were a reason why they decided that the RSDC wasn’t a proper forum for this case. It very well could be that unwise comments will convince the court to rule one way or another.

MASN and the Orioles are expected to appeal the decision by the appellate court to have this case judged by the same venue. In addition, it is possible that the Nationals and MLB will attempt to force MASN to submit to another arbitration in front of the RSDC.

Thursday’s decision had the potential to have a significant impact on the MASN dispute by determining where the second ruling will take place. A decision decisively in favor of one of the parties would have gone a long way towards bringing this dispute to its ultimate end. Instead, the appellate court was unable to come to a decisive decision and therefore this case will go for a second round at the appellate court.

The MASN Lawsuit: Orioles And MASN File An Appellate Brief

The next act in the MASN Lawsuit started a few weeks ago after MASN filed an appeal of the original decision by Justice Marks. As a refresher, the underlying dispute concerns the amount of telecast right fees payable to the Nationals. In 2014, MLBs Revenue Sharing Definitions Committee (RSDC) ruled that MASN would need to pay the Nationals $300 million in rights fees from 2012-2016. The RSDC is an MLB committee comprised of three MLB club owners, each of whom is appointed and at the sole discretion of the Commissioner of Baseball.

MASN argued that the RSDCs ruling was due to an unfair process and appealed their ruling in court. In 2015, Justice Marks agreed with MASN that the process was unfair and vacated the RSDCs original decision. However, Justice Marks didn’t agree to order a rehearing in front of a different arbitral court, but rather that the sides should come to a consensus about the next step. Now, MASN will argue that this case should be reheard in front of a neutral arbitral panel instead of going back to the RSDC.

MASNs argument is that the RSDC can’t rehear the case because MLB is incurably partial, irredeemably biased and financially interested in the outcome. Arbitrators are supposed to be neutral and therefore able to judge fairly. If the RSDC has been biased by MLB, then a rehearing in that forum would ultimately end up being overturned and would simply be a waste of time and judicial resources. There are three primary reasons why MASN argues that this is the case.

MASN notes that the Commissioner of Baseball has stated in a public forum that “sooner or later” MASN will be required to pay the amounts reflected in the now vacated award. The Commissioner has stated publicly how he thinks the RSDC should rule. Due to his ability to appoint owners to the RSDC at his own whim, this could potentially bias their decision. As I’ve mentioned on a number of occasions, it was extremely unwise for the Commissioner to make a number of his public pronouncements. Why give MASN ammunition to claim that MLB and the RSDC is biased?

MLB first attempted to prevent judicial review of the award threatening both the Nationals and Orioles with sanctions if they went ahead with court proceedings. After this threat failed, MLB actively litigated against MASN. This puts into question MLBs ability to be impartial. While it’s understandable that MLB would not be in favor of this, parties have the right to judicial review if they’re unhappy with the result of an arbitration. Again, one has to question the prudence of some of MLBs actions in this case. If MLB stayed on the sidelines and let MASN exercise its rights, they’d be in a much better position to demand that the case be reheard in front of the RSDC.

MLB also decided to give the Nationals $25 million in 2013 to ensure that the Nationals wouldn’t take legal action to demand the release of the award. MLB promised the Nationals that they wouldn’t be required to pay this money back to MLB. Rather, MLB would be repaid from any additional money that MASN would be forced to pay the Nationals for their 2012 and 2013 media rights. Justice Marks felt that this $25 million didn’t bias the RSDC because the award was written before MLB agreed to give the Nationals this cash. However, it seems plausible that it could bias a future RSDC decision because MLB has a current financial stake in the outcome of the case.

It is reasonable to presume that MLB had good intentions when giving the Nationals the $25 million. MLBs hope was that this payment would buy the parties enough time to come to a mutually agreeable decision to avoid a messy court battle. While it is unquestionably true that arbitral bodies like the AAA would never make a payment to a party, it is reasonable to expect different behavior from MLB due to MLBs relationship with each of its clubs. Furthermore, given that MLB made this payment with the knowledge of the RSDCs decision, it’s fair to say that this payment didn’t bias MLB. But now that the decision has been vacated, this payment makes it extremely difficult for MLB or the RSDC to judge the case fairly. While MLB had good intentions, it was irresponsible not to get buy-in from all the parties before giving the Nationals money. MLB may have an interest in ensuring that each of its clubs resolve their differences peacefully, but that doesn’t give MLB the right to make a deal that hurts another party.

MASN also discussed the relationship between MLB and the RSDC. MASN makes the claim that MLB was in charge of conducting the prehearing conference, determining which data was provided to the parties, provided data and instructions to the arbitrators, discussed the case with the arbitrators and ultimately wrote the final award. Manfred also wrote a set of e-mails to Alan Rifkin discussing scenarios where MLB would look into either not issuing the RSDCs award or giving the RSDC different instructions in the future. There is a substantial amount of evidence showing that the RSDC has very little independence from MLB and therefore can’t be trusted to give an independent decision.

MASN also notes that MLB primarily used the Bortz Methodology to determine the fair amount of rights fees for team controlled RSNs. This methodology was used at least 19 times over a decade and a half to determine fair market value. However, soon after Bortz sided with MASN in this court case, MLB decided to end its relationship with Bortz and Mr. Wyche. This just further shows how MLB will punish any party that dares disagree with their dictates.

MASN did an excellent job tying the RSDC to MLB and showing how MLB is biased against MASN. Simply put, fair arbitrators don’t argue for one side. If the appellate court ultimately does agree with MASN, then this will largely be due to some poor decisions by MLB. The Commissioner didn’t have to make public remarks suggesting that MASN would lose and indeed this made him look biased. Nor was MLB required to join the lawsuit in support of the Nationals. MLB could have ensured that all parties were willing to let MLB give the Nationals the $25 million instead of doing it behind the Orioles’ and MASN’s back. Finally, MLB could have done a better job ensuring that the arbitral body was able to make a fair and impartial decision. Due to this collection of errors, MASN has a strong stronger chance of convincing the arbitral body that the RSDC is unable to be partial and that this case needs to go in front of a different arbitral panel. If this occurs, MLB can only blame itself for the embarrassment and loss of prestige that it will suffer.

To the best of my knowledge, neither the Nationals nor MLB has written a response to this brief. It will be easier to understand these parties’ positions after they write such a response. Both the Nationals and MLB wrote a pre-argument statement when filing their appeal against Justice Marks’ decision, but failed to explain why they felt his decision should be overturned. Indeed, the Nationals have argued that Justice Marks’ decision should be overturned solely if the appellate court feels that this case should be arbitrated by a different panel. In addition, MLB and the Nationals will argue that the parties in this arbitration have chosen their method of dispute resolution, and can ask no more impartiality than inheres in the method they have chosen.

A number of things will occur before this case is heard by the appellate court. Both MLB and the Nationals will appeal Justice Marks’ decision because they don’t think the RSDCs original decision should have been vacated. If the arbitral court agrees with MLB, then the original decision will be reinstated and MASN will be largely out of legal options. In addition, the Nationals want to appeal Justice Marks’ decision that the parties shouldn’t go back in front of the RSDC a second time before the appeals are completed. Ironically, despite the Nationals’ claims that they want this matter judged expeditiously, this appeal will do nothing more than waste time. The Washington Post believes that the appellate court will hear oral arguments in December.

The next act may have started, but there will be a lot of documents written before it is complete.