Breaking it Down: Judge Dismisses Donald Sterling’s $1 Billion Lawsuit against the NBA

After Donald Sterling was fined $2.5 Million and banned from the NBA, he did what Donald Sterling does, and sued everyone. In this one (Sterling also sued V. Stiviano and TMZ in a separate suit), he claims that the NBA, Commissioner Adam Silver, former Commissioner David Stern, his wife Rochelle Sterling, and two doctors who gave Sterling neurological examinations, played a part in forcing the sale of the Los Angeles Clippers for less than market value.

As a brief background, here is a timeline of events that led up to the filing of this lawsuit:

• In 2005, Donald Sterling transferred the Clippers to the Sterling Family Trust, in which he and his wife Rochelle were co-trustees. The trust agreement stated, “[a]ny individual who is deemed incapacitated … shall cease to serve as Trustee.”

• On September 12, 2013, Sterling’s “former friend” V. Stiviano (this is actually what the lawsuit refers to her as) recorded conversations between herself and Sterling, which included numerous racially insensitive remarks by Sterling. The audio was disseminated on TMZ on April 26, 2014.

• The next day, the NBA hired lawyer David Anders to investigate the authenticity of the recordings. On May 18, 2014, Anders spoke with Sterling who admitted the male voice on the recordings was his.

• On April 29, 2014, the NBA fined Sterling $2.5 Million and banned him “from having any involvement with the business operations or management of the Clippers [and] from attending and NBA games.”

• On May 18, 2014, the NBA began proceedings to terminate Sterling’s ownership interest in the Clippers and provided Sterling with notice that the NBA Board of Governors would vote to terminate his ownership on June 3, 2014.

• On May 19 and 22, 2014 Sterling underwent separate neurological examinations, which found him to be mentally unfit.

• On May 22, 2014, Sterling signed a letter permitting his wife to negotiate with NBA and others for the sale of the Clippers. The results of Sterling’s neurological tests left Shelly as the sole trustee of the Sterling Family Trust, clearing the path for her to sell the team.

• On May 29, 2014, it was announced that Rochelle had agreed to sell the Clippers to Steve Ballmer for $2 Billion.

• Sterling filed this lawsuit in federal court the next day.

Sterling raised two federal legal arguments: (1) the NBA violated the 14^th and 15^th amendments of the U.S. Constitution by not giving him a chance to be heard regarding the $2.5 Million fine, lifetime ban, and termination of his ownership interest in the Clippers; and, (2) the NBA violated federal antitrust laws by restraining Sterling’s ability to sell the team.

In this week’s order, the court emphatically rejected both claims. As to the constitutional claims, the court found that because the NBA is a private entity (and not a state actor), it is immune from the constitutional violations alleged by Sterling. In other words, Sterling could not bring these claims against a private entity “no matter how discriminatory or wrongful” they were.

Moreover, even if the NBA were a state actor, Sterling was required to allege that he was deprived of a constitutionally protected interest (i.e., notice and an opportunity to be heard). The court held the opposite, noting three instances that Sterling was able to respond to the allegations: (1) when he spoke on the phone with a NBA investigator (Sterling canceled an in-person meeting with the investigator); (2) when he wrote a 26 page response to the NBA’s announcement to terminate his ownership interest; and, (3) when he permitted Shelly to negotiate the sale of the Clippers, alleviating the need for the NBA Board of Governors to conduct a June 3^rd vote over whether to strip him of his interest in the team.

The court also abruptly shot down Sterling’s antitrust claims, which required that he show actual injuries to competition and an anticompetitive effect. Sterling’s antitrust theory was that the sale of a NBA franchise is “only open to members of the billionaires club” and that the looming June 3^rd vote restricted the amount of time available to solicit buyers from this exclusive club.

[pullquote align=”left” cite=”” link=”” color=”” class=”” size=””]The court stated it was “skeptical that Sterling suffered any injury at all.”[/pullquote]

First, the court found that “Sterling’s claims of antitrust injury are not an injury to competition, but rather, disappointment that he lost ownership of the Clippers…” Next, the court found no anticompetitive effect because even if he was excluded, the Clippers continue to operate as a team.

In a final blow to Sterling, the court stated it was “skeptical that [he] suffered any injury at all,” noting that he had no basis for speculating a sale price of $2.6 to $8 billion.

Sterling also brought a number of claims under California state law, however, the Court declined to rule on these issues because it declined jurisdiction as a federal court. This raises the possibility that Sterling could bring a separate lawsuit in state court based on the leftover causes of action. In fact, Sterling’s attorney confirmed that they are looking into appealing this decision in federal court and/or filing a state court lawsuit. Sterling has until April 21, 2016 to appeal the dismissal order.  Knowing Sterling’s history, I wouldn’t expect this one to be over with just yet.