September 5, 2012 by Charlie Eisenhood in Analysis, News with 0 Comments
The following article was written by Ultiworld’s legal analyst, a third year law student. It should not be considered legal advice and should not be used to replace consultation with a trained legal professional.
Little of the American Ultimate Disc League discussion and analysis so far has considered the possibility of a team leaving the league, and, relatedly, whether teams are contractually bound to stay within the AUDL framework. Perhaps rightfully so — most speculation about teams leaving has been based on various teams’ precarious financial positions and it’s hard to imagine that the AUDL would sue an insolvent investor in an attempt to force them to stay around and lose more money.
But the prospect of Indianapolis, Philadelphia, and Connecticut — arguably the league’s three most successful franchises in the first year — bolting to form their own league opens up new legal questions. From a commonsense perspective it may seem outlandish that a league organized like the AUDL, which provides so little financial and other support to the teams, could somehow trap teams and force them to play in the AUDL. But, legally, what does the contract say?
Based on the License Agreement that we’ve seen, teams like the Alley Cats have various contractual obligations to work with the AUDL. The most relevant clause is Membership (Section 3, Part A) which states, “The licensee…shall remain a member of the…league and honor all obligations…for a minimum period of five years.” As we’ve noted before, the contracts are frustratingly vague in terms of defining those obligations. But membership in the league is fairly straightforward and is explicitly spelled out. Leaving the league completely would probably violate that obligation.
The next thing that the Alley Cats would look for is a termination clause — something that would allow them to escape the obligations of that section, or even the contract as a whole. Unfortunately for them, the contract is much more favorable to the AUDL in that regard. It says that it lasts for five years and automatically renews; the parties can give notice to terminate but that only stops the one-year renewal (which takes place only after the original five year period elapses). The AUDL is given the right to terminate the agreement in the event of a contractual breach by a team, but the teams do not hold the same right.
Defining the scope of the contract is easier than predicting exactly what would happen if a lawsuit actually occurred. A five-year lock-in seems a bit long. Given the almost complete lack of support given to the teams by the AUDL, I wonder if the bargain is lacking in the necessary level of “mutuality” which a court would want before enforcing a potential claim against a team.
Similar to what we saw in the Constitution context, the Alley Cats could claim that the five-year period is an unreasonable restraint on their contracting freedom. Such a finding would make the clause unenforceable. In these respects, a potential rogue AUDL team (or group of teams) starting their own league represents almost the reverse case of the Constitution controversy: The league has the win on the plain text while the teams have decent policy arguments that might tempt a court to step outside the text. I might add that my personal (perhaps unsupportable) hunch is that the team’s position here is a bit stronger than the league’s position is against the Constitution; that could be a visceral feeling about the general fairness of this business relationship.
Ultimately, I think it would be a legitimate legal risk for the any team to go off in its own direction, but that team is going to weigh that against the risk of staying within the AUDL anyway.