September 12, 2012 by Guest Author in Analysis, News with 0 comments
Legal developments in the AUDL-Constitution-Rhode Island dispute keep pouring in, with Ultiworld learning yesterday that the AUDL sent both teams a letter outlining the league’s intention to terminate their contracts. Our legal analyst, a third year law student, shines some light on the legal implications below. It is not legal advice and should not replace consultation with a trained legal professional.
The first thing fans should consider is, despite the legal language and maneuvering, not much has changed. The two parties are locked in an adversarial posture that had already resulted in cancelled games and a suspension of any meaningful business relationship. This letter does little to change that. Assuming that the conventional wisdom on the parties’ financial positions is correct (that is, neither the league nor the teams are making significant amounts of money), one should still think (or at least hope) that any actual litigation or trial is an unlikely final outcome. Why should they continue to eat up legal fees when there is no clear-cut payday for anyone at the end of this?
There is a second reason why the intent to terminate letter might matter even less than it seems: Connecticut and Rhode Island retain their territorial rights even if the AUDL cancels their contracts.
Section Five of the licensing agreement, which concerns the restrictive covenants, says that “regardless of the cause of termination,” the AUDL will not violate the teams’ 100-mile radius territory. Essentially, if the AUDL did not have the right to put teams in Boston or New York before they sent this intent to terminate letter, then they still lack the ability to establish such teams even if the termination is a valid contractual action. Of course, whether the AUDL has the right to establish such teams is at the center of the legal controversy.*
To be blunt, one possible summary of these events is that the AUDL is planning to cancel relations with teams, one of which has already refused to play AUDL games. And arguably the teams’ top asset, the right to stop expansion in larger markets, in unaffected by the letter. That is why this is just another step in the larger dispute process, one that is unlikely to affect the final settlement.
Understanding the legal position requires unpacking the contract a bit. As mentioned last week, only the AUDL (not the teams) has a right to terminate the contract in the case of material breach followed by a failure to cure. That failure to cure is outlined in both the contract and the letter, which essentially says that you have to give the allegedly breaching party (the teams in this case) notice and a chance to resolve the breach before actually terminating the contract.
The first issue that we run into with this letter is the AUDL’s attempt to incorporate the operations manual as a contract that binds in the same force and manner as the licensing agreement. The existence of an operations manual is not explicitly spelled out in the licensing contact. Given the documents that Ultiworld possesses, it seems more apt to say the licensing agreement and the operations manual are two separate contracts between the league and the teams.**
This is unlikely to be a fatal problem to the AUDL’s position, though. They can argue breaches of each contract separately. One strong argument is that the requirement that teams have a financial capacity to run their franchises blocked the Constitution’s action in July — to stop playing games on the grounds that they couldn’t afford to play lawsuit and play ultimate at the same time. The counterargument to that, again, is that the AUDL initiated the lawsuit — it seems a bit unfair for them to then argue the financial capacity clause applies.
The arguments resulting from the violations of the operations manual seem a bit more suspect to me. The positive for the AUDL is that the teams agreed to be bound by the manual:
[quote]“. . .As an owner within the AUDL I agree to adhere to the items listed therein. I understand these responsibilities, and I agree to comply with all policies and procedures, and any additional policies and procedures as voted by the league and its owners. I understand that the AUDL reserves the right to revoke my ownership if I violate one or more of these policies.”[/quote]
The league is alleging non-compliance with various items contained within the manual such as the failure to pay fines, to pay referees, and to provide showering facilities. My concern is to wonder how uniformly said policies were applied: Is the AUDL singling out the Constitution and the Rampage because of the litigation, or are they fining and threatening all teams equally?
While there is a long body of case law that generally supports the proposition that commissioners in sports leagues enjoy broad powers, there is also the expectation of fair dealing, a right to a hearing before the commissioner, and a potential check on powers if the league is acting in either a self-interested or an arbitrary way.
It is impossible to predict how such legal concepts would be applied to a nascent league like the AUDL. But if I were a lawyer for the Constitution or Rampage, I would be cataloging examples of other teams’ non-compliance with the operations manual and using that to support my case. And, looking forward, I think ultimate fans in general should hope that all of the parties involved look for more contractual control provisions that would allow disputes to be resolved in an orderly way (like a hearing before a neutral sports arbitrator) that didn’t necessarily lead to litigation.
*In all fairness to the AUDL, it is possible a court would examine the territory restriction and uphold the clause except for the part stating that it survives past contract termination. I think this contingency is an unlikely interpretation, but these clauses are often evaluated under a vague reasonableness and public policy framework which makes it difficult to predict.
**As with all journalism concerning the AUDL dispute, the Ultiworld team is limited by the documents to which we were given access. While we don’t know of any substantial contracts outside of these documents, we are always investigating that possibility and note that our speculation could be based on an underdeveloped factual record.