Baseball and the Antitrust Laws Part III: Baseball Reaches the Supreme Court

Published 13 December 2019 by Bona Law PC

This article—the third in a series—focuses on the Supreme Court’s decision in Federal Baseball Club v. National League, in which the Court unanimously held that federal antitrust laws did not apply to professional baseball. It is a curious decision, indeed, preceded by two prior decisions that helped to set the table.

Despite the focus of this series of articles on baseball’s unusual treatment under the antitrust laws, the first two articles did not actually address antitrust law. Instead, the focus was, primarily, contract law. Despite the clear anti-competitive implications of baseball’s reserve clause, which owners used to tie players to a team in perpetuity and to suppress player salaries, the initial challenges to these provisions were based on the law of contracts. And the initial lawsuits did not involve affirmative litigation brought by players but were instead brought by the owners, with the players raising these arguments in their defence.

Now the stage was set for the antitrust laws to enter the picture full force, and not just as a shield to protect players from teams’ requests for injunctions, but also as a sword to affirmatively attack professional baseball as an unlawful trust.

You can find the other parts to this series below:

Baseball and the Antitrust Laws Part 1: The Origins of the Reserve Clause

Baseball and the Antitrust laws Part 2: The Owners Strike Back (and Strike Out)

The antitrust laws and baseball finally intersect: the Hal Chase case

The first antitrust baseball case fully litigated on the merits was American League Baseball Club v. Chase, 149 N.Y.S. 6 (N.Y. Sup. Ct. 1914), a dispute involving Hal Chase, a star first baseman who moved from the Chicago White Sox of the American League to the Buffalo Buff-Feds of the Federal League.

The suit was brought in New York by the White Sox, who sought to enjoin Chase from playing for Buffalo. At the conclusion of the matter, Judge Bissell rejected Chase’s “novel argument . . . presented with much earnestness” that baseball violated federal antitrust laws. The Sherman Act makes it unlawful to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States . . . .” Judge Bissell had no doubt that baseball was a monopoly, but he concluded that it was not involved in interstate trade or commerce. Instead, he reasoned: “Baseball is an amusement, a sport, a game that . . . is not a commodity or an article of merchandise subject to the regulation of congress . . . .” (Congress is constrained by the Commerce Clause of the U.S. Constitution. Thus, the connection to interstate commerce was essential. If baseball did not affect interstate commerce, Congress had no power to regulate it.)

Interestingly, Judge Bissell did rule that baseball had violated New York state law, meaning that the preliminary injunction initially granted could no longer be maintained. And his reasoning suggested that he also would have found baseball to have violated federal antitrust laws had it affected interstate commerce:

“A court of equity insisting that ‘he who comes into equity must come with clean hands’ will not lend its aid to promote an unconscionable transaction of the character which the plaintiff is endeavouring to maintain and strengthen by its application for this injunction. The court will not assist in enforcing an agreement which is a part of a general plan having for its object the maintenance of a monopoly, interference with the personal liberty of a citizen and the control of his free right to labour wherever and for whom He pleases; and will not extend its aid to further the purposes and practices of an unlawful combination, by restraining the defendant from working for anyone but the plaintiff.”

Thus, with his legal victory, Chase was able to play with Buffalo for 1914 and 1915. While it was not a devastating blow for organized baseball—because “the question of the dissolution of this combination on the ground of its illegality” was not before the court—it must have seemed like an ominous conclusion to the ruling.

Chase ended up having a remarkable career for several reasons. Many players, including Babe Ruth and Walter Johnson, considered him the best first baseman ever, and he is sometimes considered the first true star of the franchise that would eventually become the New York Yankees. But Chase was also ultimately exposed as a notorious cheater, betting extensively on games and paying and receiving money to fix games. Indeed, he was indicted as part of the Chicago “Black Sox” scandal (though his role is disputed), but the State of California refused to extradite him due to a problem with the arrest warrant. He was ultimately blackballed from professional baseball and spent his remaining years on the west coast.

The Federal League takes on Organized Baseball: Round 1

In 1913, the Federal League emerged as a serious competitor to the National and American Leagues. And it intended to do so in court, as well as on the field, where it would wield the threat of a serious antitrust challenge. Indeed, in January 2015, the Federal League finally filed its affirmative suit against the National and American Leagues in federal court in Illinois, alleging that they amounted to a combination in violation of federal and state antitrust laws.

 

As fate would have it, the suit was assigned to Kenesaw Mountain Landis, a federal judge sitting in Chicago. (As some readers are aware, Landis would go on to become a key figure in professional baseball, serving as the first commissioner from 1920 to 1944.)

Landis had been appointed to the federal bench by President Teddy Roosevelt in 1907. Roosevelt is, of course, remembered for, among other things, his trust-busting ways. He also was an avid sports enthusiast but was not, however, a baseball fan. He believed it to be a “mollycoddle game,” and preferred other sports that were “more vigorous.” Still, he received a lifetime pass, made of gold, from professional baseball, an honour which has been bestowed on every U.S. president since that time. (Although he politely accepted the honour, it is believed that Roosevelt never used his pass.)

After the Federal League filed suit, a hearing on the preliminary injunction request was quickly set just a few weeks later in late January 1915. During the hearing, Judge Landis remarked, “Both sides must understand that any blows at the thing called baseball would be regarded by this court as a blow to a national institution,” suggesting that he was disinclined to levy such a blow.

Regardless, the parties assumed they would receive a quick decision, ideally before spring training began in March. Yet, spring training came and went without any word from Judge Landis, and as the season wore on, both sides grew anxious. Indeed, the season ended—with the Red Sox winning the World Series over the Phillies in five games—yet still no ruling from Judge Landis. With this uncertainty, the sides began looking for a way to settle the matter. The Federal League’s season had been a financial disaster—causing the League to have no appetite for another season. Thus, by January 1916, despite having waited a full year for Judge Landis to render a decision, the parties reached a settlement, with various Federal League teams agreeing to be acquired by the American or National League teams for various sums of money. (Charles Weeghman, the owner of the Federal League’s Chicago team, was able to purchase the National League’s Chicago Cubs at a discount. He merged the two teams’ rosters and moved them into the new Weeghman Field, today known as Wrigley Field, renamed after Weeghman sold the Cubs to William Wrigley, the chewing gum industrialist.)

There was one Federal League team, however, that did not reach a settlement: the Baltimore Terrapins. The Terrapins were offered $50,000 to settle, but they rejected the offer. The team was unique in that it was owned by more than 500 local shareholders, similar to the ownership structure for the Green Bay Packers. The goal of the shareholders was not simply to make a quick buck but to bring major league baseball to Baltimore, which had been without a major league team since 1903.

(The Terrapins were competition for a minor league club in town: the Baltimore Orioles, and so the Leagues were not inclined to boost another team. Indeed, after the 1914 season, and due to the competition from the Terrapins and to cut costs, the Baltimore Orioles sold several players, including their star prospect, George Herman “Babe” Ruth, to the Boston Red Sox.)

During settlement negotiations, the Terrapins tried in vain to reach a deal that would bring a major league team to Baltimore, but the owners of the American and National League clubs would not hear it. The Terrapins had little leverage, so there was not much they could do, though they did refuse to participate in the settlement.

In February 1916, the parties formalized their settlement before Judge Landis. The Terrapins objected but, because the Federal League was folding, they saw little reason to continue with the suit. Importantly, however, they did ask Judge Landis to confirm that they had a right to bring a future antitrust suit, which he did.

Judge Landis also dropped a remarkable bombshell on the parties. He admitted that he had delayed rendering his decision for more than a year because he had been prepared to rule in the Federal League’s favour but was reluctant to do so because the decision could have potentially destroyed professional baseball. According to Judge Landis, reaching this outcome, though legally supported, “would have been if not destructive, vitally injurious” to the game and that the court “had a right . . . to postpone the announcement of any such order.”

Four years later, Judge Landis would be named the first commissioner of baseball, though he did not immediately give up his federal judgeship, presiding for two more years, simultaneous with his roles as commissioner, until resigning as a judge in 1922.

The Federal League takes on Organized Baseball: Round 2

Finally, it was time for baseball’s antitrust date with the Supreme Court, culminating in one of the most notorious decisions in Supreme Court history—Federal Baseball Club of Baltimore v. National League, 259 U.S. 200 (1922).

The suit precipitated from baseball’s failure to reach a resolution with the Baltimore Terrapins, which filed their initial complaint in March 1916 in federal court in Philadelphia. They claimed $300,000 in damages, though they did not seek a dissolution of the baseball monopoly, unlike the suit before Judge Landis. (Because no other Federal League teams existed at that point, the Terrapins had little incentive for such an outcome.)

There were various starts and stops for the case, as the parties appeared close to settlement on several occasions. (Indeed, the suit was initially dismissed four days into the trial, only to be refiled later, in Washington, D.C.) Finally, the matter was set for trial in March and April 1919. The trial judge was another Roosevelt appointee, Judge Wendell Stafford.

Much of the Federal League’s case turned on testimony by some of the more mediocre players in professional baseball, who had been repeatedly bought and sold and shipped around the country from team to team. The American and National Leagues attempted to counter with evidence that the players enjoyed substantial salaries and noted that evidence relating to players was irrelevant, as the suit had been brought by the Federal League, not any individual players. (The American and National Leagues also pointed out that the Federal League should not be heard to complain about any monopoly when only a few years earlier it had attempted to join it.) Judge Stafford was unmoved. At the conclusion of the trial, he entered a directed verdict on liability, concluding it had been proved beyond doubt that baseball had violated the Sherman Antitrust Act. Thus, the only question for the jury was what damages, if any, the Terrapins suffered. The jury awarded $80,000—and treble damages pushed the award to $240,000—but the damages amount was much less consequential than the ruling itself: that organized baseball constituted an illegal monopoly.

It was a momentous decision that shocked nearly all parties involved, as well as much of the general public. Most assumed that baseball would appeal the decision. The Terrapins suggested that they would be willing to settle for much less than the $240,000 awarded, an offer the American and National League’s lead attorney recommended they accept, but baseball refused and vowed to fight to the finish. A date with the Supreme Court seemed inevitable.

The ruling was appealed to the D.C. Circuit Court of Appeals and heard by Chief Judge Constantine Smyth and Judges Charles Robb and Josiah Van Orsdel. All three were former government prosecutors, a fact that must have concerned the attorneys for the American and National Leagues. Oral argument was held in October 1920, the same day Cleveland clinched the World Series title over the Brooklyn Dodgers / Robins. (The Dodgers were often referred to as the Robins during this era, as a nod to their manager Wilbert “Uncle Robbie” Robinson.) It was also just a month after the grand jury began its investigation into the infamous Black Sox scandal in the 1919 World Series.

The D.C. Circuit issued its opinion on December 6, 1920, reversing the trial court and ruling in favour of the American and National League teams. See National League of Professional Baseball Clubs v. Federal Baseball Club, Inc., 269 F. 681 (D.C. Cir. 1920). As expected, the court’s ruling turned on the question of whether professional baseball amounted to interstate commerce—the court concluded that it did not. “It must be obvious that the restrictions thus imposed relate directly to the conservation of the personnel of the clubs, and did not directly affect the movement of the appellee on interstate commerce.” Id. at 688.

According to the court, interstate trade and commerce “require the transfer of something, whether it be persons, commodities, or intelligence, from one place to another.” Yet, a “game of baseball is not susceptible to being transferred.” While “the players and their equipment travelled from place to place . . . they are not the game. Not until they come into contact with their opponents on the baseball field and the contest opens does the game come into existence. It is local in its beginning and in its end.”

In hindsight, it is certainly an interesting interpretation of interstate commerce, which seemed to ignore certain aspects of the game that suggested otherwise, including the fact that the players’ contracts clearly contemplated their travel to and from games in other states. Though, to be sure, the term “interstate commerce” had a much narrower legal definition with courts and Congress in the 1920s than it has today. Nevertheless, baseball finally had won a court decision on the question of its antitrust validity.

The D.C. Circuit initially ordered the matter to be remanded to the trial court for a new trial because the lower court had not considered the Federal League’s common law claims. But the Federal League petitioned the court for a modification of the judgment, noting that it was not interested in pursuing the common law claims and simply wanted to perfect its appeal to the U.S. Supreme Court as quickly as possible. The D.C. Circuit granted the request. Baseball was finally to get its antitrust date with the Supreme Court.

Notably, in 1922, the Supreme Court was required by statute to accept nearly every matter that was appealed to it. This, of course, differs from today where nearly all matters on the Supreme Court’s docket are discretionary. This change was brought about just a few years after the Federal League case, courtesy of the Judiciary Act of 1925, also known the Judge’s Bill, which meant that the Court would conduct virtually all its business by way of writ of certiorari. It is an interesting question to consider whether the Supreme Court would have even entertained the appeal in 1922, had it had any choice in the matter.

On May 29, 1922, the Supreme Court issued its opinion, just six weeks after the argument was held—a unanimous decision in favour of organized baseball. (The initial vote was 8-1, with Justice Joseph McKenna as the lone dissenter, but the practice at the time was to publish dissenting opinions only if the Justices felt it was important to do so. Apparently, Justice McKenna did not feel such an urge, and he switched his vote and joined the Court’s opinion.)

The relatively short opinion—just three paragraphs of reasoning—was authored by Justice Oliver Wendell Holmes, Jr., who agreed that the Sherman Act did not apply to baseball due to its local nature and only incidental impact on interstate commerce: “The business is giving exhibitions of baseball, which are purely state affairs.” To the extent that individuals did cross state lines for the game, “the transport is a mere incident, not the essential thing.” According to the court, “personal effort not related to production is not a subject of commerce. That which in its consummation is not commerce does not become commerce among the states because the transportation that we have mentioned takes place.” The court then reiterated an analogy offered by the D.C. Circuit: “a firm of lawyers sending out a member to argue a case, or the Chautauqua lecture bureau sending out lecturers, does not engage in such commerce because the lawyer or lecturer goes to another state.” Thus, the Court concluded that “the restrictions by contract that prevented the plaintiff from getting players to break their bargains and the other conduct charged against the defendants were not an interference with commerce among the states.”

And that was it. Baseball was relieved. Having spent nearly a $1 million on attorneys’ fees, settlements, and court costs over the prior decade—a not-insignificant amount back then for two still rather fledgeling leagues—baseball could finally put these lingering legal issues to rest. Though, as we will see, as the Court’s understanding of interstate commerce evolved, new challenges for baseball would emerge.