After initially agreeing to sell the Clippers, Donald Sterling has opted to continue his suit vs. the NBA.
Mark J. Terrill/AP
(PhatzRadio / SI) — He’s back. Just five days after banned Los Angeles Clippers owner Donald Sterling pledged he would allow the sale of the team to former Microsoft CEO Steve Ballmer for $2 billion and drop his $1 billion lawsuit against the NBA, it was reported late Monday night the deal was off. The eighty-year old apparently thought the NBA would cancel both his lifetime ban and $2.5 million fine in exchange for his acquiescence. This is despite widespread reporting that no such concessions would be made by the NBA..
From a practical standpoint, it is hard to believe Sterling — who along with his wife and co-owner, Shelly Sterling, project to receive about $1.34 billion post-tax from the sale — would attempt to nix a $2 billion deal based on a relatively miniscule fine. It is also difficult to understand why Sterling would care so much about a lifetime ban from the NBA when he agreed he would no longer be an NBA owner and undoubtedly understood he would never again become an NBA owner. Perhaps Sterling thought he might continue in some indirect relationship with the team, such as involvement with an affiliated team charity. Reports in recent days suggested Shelly Sterling would be involved in a Clippers charity after Ballmer becomes the team’s owner. Maybe Donald Sterling expects a similar role, but one not currently possible due to his lifetime ban. More likely, Donald Sterling has other reasons for changing his mind. As has been emphasized by Robert Raiola, senior manager in the Sports & Entertainment Group of the Accounting Firm O’Connor Davies, LLP, Sterling possesses clear incentives under capital gain tax laws to hold onto the team. Contrary to some media accounts, however, Sterling’s motivations are probably not attributable to the “involuntary conversion” provision of the Internal Revenue code, as he is unlikely to benefit from it.
The NBA was prepared for Sterling to change his mind. Over the weekend, NBA commissioner Adam Silver expressed doubts in an interview with CNN’s Rachel Nichols that Sterling would honor his pledge. Silver emphasized Sterling had not signed any agreement with the NBA and Sterling’s lawsuit remains before the U.S. District Court for the Central District of California.
NBA’s legal strategy to counter Donald Sterling
The NBA is poised to take several steps in response to Donald Sterling’s reversal.
First, expect the league to resume treating Sterling as a plaintiff in a federal complaint filed against the league. The league will answer Sterling’s complaint by June 23, the date the answer is due in court. The answer will deny Sterling’s accusations and argue his lawsuit has no merit. In addition to answering Sterling’s complaint, the NBA might counter-sue Sterling, perhaps for tortious interference with contractual relations or fraud. A judge will then schedule further proceedings for later in the year. Sterling’s lawsuit is currently assigned to U.S. District Judge Fernando Olguin, a former civil rights attorney who was nominated to the bench by President Obama in 2012 and confirmed by the U.S. Senate later that year. Olguin will be assisted by U.S. Magistrate Judge Stephen Hillman, who will hear arguments between Sterling and the NBA over pretrial discovery motions.
Secondly, the league will prepare for Sterling to petition a court for a restraining order to temporarily block the NBA from selling the team to Ballmer. This action would be separate from his lawsuit. In his petition, Sterling would argue, among other points, that he would suffer irreparable harm if he lost an NBA team, as he would never again own one. The NBA would likely be well-poised to defeat the petition, as such orders are considered extraordinary forms of relief and a court would evaluate NBA decision-making under a deferential form of review.
Thirdly, the league will otherwise ignore Sterling. The league will continue its review of Ballmer’s offer and the NBA’s Board of Governors will almost certainly approve the offer later this summer. The NBA likely feels emboldened to proceed with the sale. Keep in mind, Sterling’s lawsuit is unlikely to succeed. Just as important, even if Sterling’s lawsuit beats the odds and wins, “success” would only constitute money damages — the Clippers would already be owned by Ballmer and no judge would disturb Ballmer’s ownership. Moreover, Shelly Sterling and the Sterling family trust, both of which have indemnified the NBA against Donald Sterling, would likely pay those damages. Sterling effectively owns half of his wife’s wealth and half of the trust, meaning that if the indemnity agreement holds up in court, Sterling would effectively be paying himself half of the damages owed to him by the NBA.
Also consider how long Sterling’s lawsuit might take in order to succeed. Unless Sterling overcomes the odds and obtains a temporary injunction against the team’s sale, he could only defeat the NBA in a trial or pretrial settlement. It would likely take years for him to a win a trial against the NBA. Antitrust litigation is notoriously lengthy, often taking three or more years before a trial occurs. Then there are appeals. In the unlikely event Sterling defeats the NBA in a trial, he’d probably be in his mid- or even late-80s.
Lastly, and not to be glib, the NBA may seek to better understand why Donald Sterling is upset about the impact of a lifetime ban after he would no longer an NBA owner. If Sterling’s reservations are about something relatively trivial — such as being able to buy a game ticket as a fan and attend an NBA game — presumably the NBA could work out an arrangement with him.
Donald Sterling’s legal strategy against the NBA and perhaps against Shelly Sterling
Donald Sterling is an attorney and highly successful businessman. He knows as well as any NBA owner his odds of remaining owner by suing the NBA are close to zero. Sterling’s strategy against the NBA is likely not so much to hold onto the Clippers, but to prove a point and cause the NBA damage.
Sterling’s point is undoubtedly that he should not be forced to sell a team over fundamentally private and perhaps unlawfully recorded comments. This is true even if those comments are widely considered racist and even if publication of those comments hoisted the NBA into an intense crisis with players, sponsors and various leaders. The damage Sterling could cause the NBA would be in the form of pretrial discovery. If Sterling’s lawsuit advances past the NBA’s motion to dismiss, Sterling would be able to depose fellow NBA owners and league officials, most notably Silver and former commissioner David Stern, about their knowledge of other owner misconduct and how the league responded or did not respond. At a minimum, Sterling might depict the NBA as hypocritical and perhaps even tolerant of racism and bigotry until now.
While suing the NBA probably won’t allow Sterling to hold onto the Clippers, he may have another legal angle that could pose a major challenge for the NBA. Sterling could sue his wife, arguing she had no legal right to seize control of the trust and thus had no right to sell the team. According to reports, Shelly Sterling took over the family trust after her husband was declared mentally incompetent due to early dementia. It remains unclear how Donald Sterling was declared incompetent and whether a judge agreed or would agree with this declaration.
A dispute over mental competency could prove lengthy and acrimonious. For Donald Sterling, it may prove a worthwhile fight: if he was not mentally incompetent, then Shelly Sterling may have lacked the legal authority to act on behalf of the family trust. In that scenario, it is unclear how she could strike a deal with Ballmer or indemnify the NBA on behalf of the trust (she would still be able to indemnify the NBA on behalf of herself). It would be similarly unclear how she became the official voice of the Clippers when she is not the Clippers’ representative on the Board of Governors.
Only one thing is certain: the surreal legal saga of Donald Sterling and the NBA appears to have no end in sight. Stay tuned.
Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.
NBA: With Clippers sale off, a look at legal strategies for Sterling, NBA is a post from: PhatzRadio.com
