National Basketball Ass'n v. Williams (45 F.3d 684, 1995)

WINTER, Circuit Judge:

Appellants, who are professional basketball players and their union, appeal Judge Duffy’s dismissal of their counterclaim and grant of declaratory relief to the National Basketball Association (the “NBA”) and its member teams (collectively, the “NBA Teams”). Judge Duffy held that: (i) the antitrust laws have no application to the collective bargaining negotiations between appellants and the NBA Teams; and (ii) even if the antitrust laws apply, the “College Draft,” “Right Of First Refusal,” and “Revenue Sharing/Salary Cap System” survive scrutiny under the Rule of Reason. We affirm on the first ground.

BACKGROUND

The NBA is comprised of 27 member teams, each of which is an appellee on this appeal. Appellants are a class of present and future players on NBA member teams, and the National Basketball Players Association, the exclusive bargaining representative of all players presently on the roster of NBA Teams (collectively the “Players”).

For nearly 30 years, the NBA Teams have bargained as a multiemployer bargaining unit with the Players Association. Since October 1967, the NBA and the Players Association have entered into ten successive collective bargaining agreements (“CBAs”). The most recent CBA went into effect on November 1,1988 (the “1988 CBA”), and expired on June 23, 1994, the day following the last playoff game of the 1993-94 NBA season. During negotiations over a new CBA in April and May 1994, the Players demanded the elimination of three provisions contained in the 1988 CBA: the “College Draft,” the “Right of First Refusal,” and the “Revenue Sharing/Salary Cap System.”

The College Draft is the process by which exclusive rights to negotiate with eligible college players are apportioned among the NBA Teams. In general, the College Draft allows teams with the worst records to select earlier than teams with better records. The NBA Teams select 54 players in the Draft. A player who is drafted by a particular team may negotiate only with that team. A player who is not drafted may negotiate with any NBA team.

The Right of First Refusal permits a team to match any offer made to one of its current players by another team and thus to retain the player’s services. The Right of First Refusal applies only to Restricted Free Agents — players who have either completed fewer than two contracts or have fewer than four years of experience in the NBA.

The Revenue Sharing/Salary Cap System establishes an overall wage framework that provides that: (i) total player salaries and benefits paid by all NBA Teams will be no less than a specified percentage of revenues; and (ii) the total salary paid to players by each team is subject to both a maximum and a required minimum. The Right of First Refusal and the present version of the College Draft have been incorporated in all the CBAs signed by the parties since 1976; the Revenue Sharing/Salary Cap provision has been included in every CBA since 1983.

On May 4, 1994, the Players refused to negotiate further with the NBA Teams until the 1988 CBA formally expired. On June 17, 1994, the NBA Teams began the instant action in the Southern District of New York, seeking a declaratory judgment against the individual appellants and a class of all present and future NBA players. The NBA Teams sought two principal declarations: (i) that the continued imposition of the disputed provisions of the CBA would not violate the antitrust laws because that imposition is “governed solely by the labor laws and is exempt from antitrust liability under the nonstatutory exemption to the antitrust laws”; and (ii) that the disputed provisions are lawful even if the antitrust laws apply. On June 27, 1994, the Players counterclaimed, asserting that continued imposition by the NBA Teams of the College Draft, Right of First Refusal, and Revenue Sharing/Salary Cap System violated the Sherman Act because they were no longer embodied in an unexpired CBA. They sought a temporary restraining order and preliminary injunction barring the NBA Teams from entering into contracts with players until the ease could be decided on the merits. On June 28, 1994, Judge John F. Keenan issued the requested TRO and set a July 8 date for a preliminary injunction hearing.

On July 8, Judge Duffy, to whom the case was assigned, consolidated the preliminary injunction hearing with the trial on the merits pursuant to Fed.R.Civ.P. 65(a)(2). The trial was conducted on July 12, 1994. The Players called nine witnesses — three players, three player agents, the Executive Director of the Players’ Association, and two economists. Because Judge Duffy allotted only one day for the trial, the Players proffered their direct testimony largely through affidavits, followed by cross-examination. The NBA Teams called NBA Commissioner David J. Stern as a live witness and introduced the affidavit of Deputy Commissioner Russell T. Granik.

On July 18, Judge Duffy granted the NBA’s request for declaratory relief and dismissed the Players’ counterclaim. Relying on Powell v. National Football League, 930 F.2d 1293, 1304 (8th Cir.1989), cert. denied, 498 U.S. 1040, 111 S.Ct. 711, 112 L.Ed.2d 700 (1991), Judge Duffy concluded that the non-statutory labor exemption from the antitrust laws applied, and that “[ajntitrust immunity exists as long as a collective bargaining relationship exists.” Accordingly, he held that the NBA was entitled to a declaration that the continued imposition of the College Draft, Right of First Refusal, and Revenue Sharing/Salary Cap provisions does not violate the antitrust laws so long as there is a collective bargaining relationship between the NBA and the Players’ Association.

Judge Duffy further held that, even if the NBA Teams have no antitrust immunity, the Players had nevertheless failed to show that the provisions in question are “unreasonably anti-competitive.” In so concluding, he relied upon the benefits of competitive athletic balance that he found are promoted by those provisions. He thus held that the disputed provisions do not violate the antitrust laws even if the nonstatutory labor exemption does not apply.

The Players appealed.

DISCUSSION

A. The Players’ Antitrust Claim and the NBA Teams’ Defense

The gravamen of the Players’ claim is not that the College Draft, Right of First Refusal, or Revenue Sharing/Salary Cap System result in a restraint on competition unique to those provisions (although they discuss the restrictiveness of those particular provisions with regard to the Rule of Reason issue). Rather, the vice on which their claim relies is that the NBA Teams have agreed jointly to impose these provisions as terms and conditions of employment pending agreement on a new CBA. Their “main point” is that “these are naked restraints between competitors; they prevent competition; they fix prices; they suppress salaries.” Appellants’ Brief at 11. At oral argument, counsel for the Players stated that the “underlying offense” is that “horizontal competitors for labor have entered into what is essentially a price-fixing agreement.” Although the Players concede that employers may act jointly with regard to terms of employment where a particular union agrees to those terms, see Wood v. National Basketball Ass’n, 809 F.2d 954 (2d Cir.1987), they dispute the legality of any joint conduct going beyond proposals to that union. Logically, the Players’ position is that multiemployer groups should be barred from insisting upon, or using economic force to obtain, the desired terms of employment. Therefore, by acting collectively to impose terms of employment after expiration of the CBA, the NBA Teams are, in the Players’ view, acting as a cartel and committing a per se violation of the Sherman Act. See Appellants’ Brief at 39 (characterizing the disputed provisions as “naked agreements among competitors designed ... to fix ... labor costs”). They might add, moreover, that the cartel’s decision is enforced by a joint boycott — that is, a failure by a Team to abide by the cartel’s rules would result in sanctions imposed by the NBA, including perhaps expulsion from the league — another per se violation.

The claim is fashioned to rely upon classic principles of antitrust law. Absent justification under the Rule of Reason or some defense, employers who compete for labor may not agree among themselves to purchase that labor only on certain specified terms and conditions, see Anderson v. Shipowners’Ass’n, 272 U.S. 359, 47 S.Ct. 125, 71 L.Ed. 298 (1926), and such a cartel may not enforce its will through an agreement to boycott those who do not abide by its rules, see Eastern States Retail Lumber Dealers’ Ass’n v. United States, 234 U.S. 600, 34 S.Ct. 951, 58 L.Ed. 1490 (1914). Such conduct would be per se illegal.

The Players’ claim does limit the application of normal antitrust principles in recognition that some accommodation must be made to labor law. For example, if the NBA Teams are a naked price (wage)-fixing cartel as the per se claim asserts, there would be no reason to allow them even to discuss prices (wages). See Arizona v. Maricopa County Medical Soc’y, 457 U.S. 332, 362, 102 S.Ct. 2466, 2482, 73 L.Ed.2d 48 (1982) (“a per se price-fixing agreement meriting condemnation ... is a naked restraint of trade with no purpose except stifling of competition”). At oral argument, appellants took the position that the NBA Teams may consult over and “suggest,” but not “impose,” terms and conditions of employment pending a new CBA. In their view, consultation and proposal are protected by the so-called nonstatutory antitrust exemption, whereas the imposition of terms, or, logically, insistence upon them, is subject to antitrust sanctions. However, because the NBA Teams are simply maintaining the status quo under the expired 1988 CBA, the question arises as to what terms and conditions of employment should govern the parties’ relationship until a. new CBA is reached if maintenance of the status quo is an antitrust violation. For lack of any discernible alternative, we conclude that the Players’ answer must be that the Players’ Association will impose those terms and conditions.

The NBA’s defense is a two-fold, alternative response: (i) the Players’ antitrust claim is entirely trumped by the legislative scheme governing labor relations and collective bargaining, see Powell v. National Football League, 930 F.2d 1293 (8th Cir.1989), cert. denied, 498 U.S. 1040, 111 S.Ct. 711, 112 L.Ed.2d 700 (1991), in particular by the protection afforded multiemployer bargaining by that scheme, see NLRB v. Truck Drivers Local Union No. 449 (“Buffalo Linen”), 353 U.S. 87, 77 S.Ct. 643, 1 L.Ed.2d 676 (1957); and (ii) even if the antitrust laws do apply, the College Draft, Right of First Refusal, and Revenue Sharing/Salary Cap provisions survive scrutiny under the Rule of Reason because the efficiencies these provisions afford in the way of competitive athletic balance among NBA teams outweigh their effect on competition for the services of the Players, see NCAA v. Board of Regents, 468 U.S. 85, 117, 119-20, 104 S.Ct. 2948, 2968, 2969-70, 82 L.Ed.2d 70 (1984).

We conclude as follows. Relevant legal authority, including importantly the lack thereof, strongly suggests that the antitrust laws do not prohibit employers from acting jointly in bargaining with a common union. Multiemployer bargaining was commonplace and essentially unchallenged — despite the existence of the antitrust laws — long before the passage of the federal labor laws. The labor laws, moreover, embody a conscious congressional decision to permit multiemployer organizations to bargain hard and use economic force to resolve disputes with unions over terms and conditions of employment. Because the Players’ position appears to be inconsistent with the approach taken under the antitrust laws regardless of labor law and, in any event, collides head-on with the labor laws’ endorsement of multiemployer collective bargaining, we conclude that the Players’ claim must fail. We need not, therefore, address the various arguments pro and con regarding the Rule of Reason.

B. The Nature and Purposes of Multiem-ployer Bargaining

Multiemployer bargaining is a very common practice throughout the United States and literally involves millions of employees and thousands of employers. See Charles D. Bonanno Linen Serv., Inc. v. NLRB, 454 U.S. 404, 410 n. 4, 102 S.Ct. 720, 724 n. 4, 70 L.Ed.2d 656 (1982). The practice is probably as old as unionism itself. See Clarence E. Bennett, Employers’ Associations in the United States: A Study of Typical Associations 21 (1921) (employer associations can be traced to middle-ages). It is a process by which employers band together to act as a single entity in bargaining with a common union or unions. Typically, the employers are competitors in the products and services they provide to buyers. Quite often, they are