By Breck Hapner
May 1, 2014
By David Hejmanowski
“We stand together in condemning Mr. Sterling’s views. They simply have no place in the NBA.”
—Adam Silver, NBA Commissioner
“While a tactical antitrust suit is possible, it should fail.”
—Jeffrey I. Shinder, Antitrust attorney
The NBA acted quickly this week to punish L.A. Clippers owner Donald Sterling for racist comments that he made and that were caught on a secret recording and released to the press. NBA Commissioner Adam Silver fined Sterling $2.5 million, banned him for life from all league activities and indicated that he would be requesting that the other league owners vote to force Sterling to sell the team. The situation raises a multitude of legal issues.
First, is the basic issue of whether the secret recording of Sterling’s comments was even legal. That is, if Sterling did not know that they were being recorded, was it legal for the other person in the conversation to make the recording? If it was, was it legal for that person to leak the recording to the media? This is the same issue that arose in taped conversations between Linda Tripp and Monica Lewinsky.
The majority of states are one-party consent states as to the legality of recordings. In those states, including Ohio, a conversation between two people can be recorded so long as one of them is aware that the recording is taking place. A person may not record a conversation between two other people, neither of whom know that the recording is happening. And even if one party knows of the recording, it is still illegal for the recording to be made for any unlawful purpose.
California is a two-party consent state, meaning that both parties to the conversation have to consent in order for the recording to be legal. That means that if Ms. Stiviano, who recorded the conversation, did so in California and without Mr. Sterling’s knowledge, then she would have violated the law. Her lawyer told the Los Angeles Times earlier this week that Mr. Sterling was aware and consented to the recording taking place.
Second is the question of Mr. Sterling’s right to free speech. This is, perhaps, the most frequently misunderstood Constitutional law issue. The First Amendment protects a person’s right to free speech only in so far as that right might be infringed by the government. It does nothing to stop a private organization, such as the National Basketball Association, from punishing Mr. Sterling for his speech. If Congress passed a law saying that the federal government could confiscate Mr. Sterling’s team because of his words, that act would violate the First Amendment.
Third, is the sports and contract law question of whether the NBA can force Mr. Sterling to sell his team. Here, it is possible that Sterling can raise a number of counter-claims, including an antitrust claim, however unlikely that claim is to succeed. The NBA constitution contains a provision allowing the other owners to terminate a person’s franchise under certain conditions. But none of those conditions are directly applicable to Sterling’s conduct here. Many relate to financial dealings or the monetary health of the team. The Clippers are financially sound, so those don’t apply.
Others prohibit unethical conduct in business dealings or in contracts. The league will likely make its argument here, claiming that Sterling’s conduct was unethical and that the conduct has a negative impact on the league’s business dealings with the players association and the many sponsors of the league and the team. There is no ‘morality’ clause in the constitution, though, that would directly apply.
Moreover, Sterling has a history of fighting the league on even more obviously direct violations of the league’s constitution. He moved the Clippers (who had started life as the Buffalo Braves) from San Diego to Los Angeles in 1984 without getting permission from the league’s other owners as the league constitution requires. The league fined him $25 million and he sued. The league eventually settled with him for far less than the original fine.
In this situation, he has millions of reasons to sue. If the league forces him to sell the team now, rather than leaving the team to his heirs in his estate, it will cost him millions of dollars in capital gains taxes. That’s because Sterling (who is in his early 80s) would pay a capital gains tax equal to the difference between what he paid for the team in 1981 ($12.5 million) and what he sold it for now (likely $600 million to $1 billion). That would be a tax bill that could top out at $200 or $300 million. If his heirs inherited the team they would pay a capital gains tax that was based only on the difference between the value when he died and the value when they sold. That bill could be minimal if the sale happened quickly.
The NBA has attempted to act to quickly put an end to the Donald Sterling situation, but the legal battle over the penalties they have imposed may possibly last for years.
David Hejmanowski is a Magistrate and Court Administrator at the Delaware County Juvenile Court and a former Assistant Prosecuting Attorney.