Opinion ID: 430940
Heading Depth: 2
Heading Rank: 1

Heading: Single Entity

Text: 21 The NFL contends the league structure is in essence a single entity, akin to a partnership or joint venture, precluding application of Sherman Act section 1 which prevents only contracts, combinations or conspiracies in restraint of trade. The Los Angeles Coliseum and Raiders reject this position and assert the League is composed of 28 separate legal entities which act independently. 22 The district court directed a verdict for plaintiffs on this issue and as a preliminary matter the NFL states the jury should have been allowed to decide the question. A directed verdict may be granted pursuant to Fed.R.Civ.P. 50(a) when, viewing the evidence in a light most favorable to the nonmoving party, the testimony and all the inferences that the jury could justifiably draw therefrom are insufficient to support any other finding. Independent Iron Works, Inc. v. United States Steel Corp., 322 F.2d 656, 661 (9th Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 165 (1963). When there is no substantial evidence to support a claim, i.e., only one conclusion can be drawn, the court must direct a verdict, even in an antitrust case. Cleary v. Nat'l Distillers and Chemical Corp., 505 F.2d 695, 696 (9th Cir.1974). Our review is de novo. Santa Clara Valley Distributing Co. v. Pabst Brewing Co., 556 F.2d 942, 944 (9th Cir.1977). 23 It is true, as the NFL contends, that the nature of an entity and its ability to combine or conspire in violation of Sec. 1 is a fact question. Murray v. Toyota Motor Distributors, Inc., 664 F.2d 1377, 1379 (9th Cir.), cert. denied, 457 U.S. 1106, 102 S.Ct. 2905, 73 L.Ed.2d 1314 (1982). It would be reversible error, then, to take the issue from the jury if reasonable minds could differ as to its resolution. Id. Here, however, the material facts are undisputed. How the NFL is organized and the nature and extent of cooperation among the member clubs is a matter of record; the NFL Constitution and Bylaws contain the agreement. Based on the undisputed facts and the law on this subject, the district court correctly decided this issue. 24 The district court cited three reasons for rejecting the NFL's theory. Initially, the court recognized the logical extension of this argument was to make the League incapable of violating Sherman Act Sec. 1 in every other subject restriction--yet courts have held the League violated Sec. 1 in other areas. 519 F.Supp. at 583. Secondly, other organizations have been found to violate Sec. 1 though their product was just as unitary ... and requires the same kind of cooperation from the organization's members. Id. Finally, the district court considered the argument to be based upon the false premise that the individual NFL clubs are not separate business entities whose products have an independent value. 519 F.Supp. at 584. We agree with this reasoning. 25 NFL rules have been found to violate Sec. 1 in other contexts. Most recently, the Second Circuit analyzed the NFL's rule preventing its member-owners from having ownership interests in other professional sports clubs. North American Soccer League v. National Football League, 670 F.2d 1249, 1257-1259 (2d Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 499, 74 L.Ed.2d 639 (1982). It recognized the cooperation necessary among league members, even characterizing the NFL as a joint venture, but nonetheless applied rule of reason analysis and found the cross-ownership rule violated Sec. 1. Other courts have held the League rules governing player contracts violate Sec. 1 of the Sherman Act. Smith v. Pro Football, Inc., 593 F.2d 1173 (D.C.Cir.1978); Mackey v. NFL, 543 F.2d 606 (8th Cir.1976); Kapp v. NFL, 390 F.Supp. 73 (N.D.Cal.1974), appeal vacated, 586 F.2d 644 (9th Cir.1978), cert. denied, 441 U.S. 907, 99 S.Ct. 1996, 60 L.Ed.2d 375 (1979). As noted by the Second Circuit in Soccer League, a finding of single entity status would immunize the NFL from Sec. 1 scrutiny: 26 To tolerate such a loophole would permit league members to escape antitrust responsibility for any restraint entered into by them that would benefit their league or enhance their ability to compete even though the benefit would be outweighed by its anticompetitive effects. Moreover, the restraint might be one adopted more for the protection of individual league members from competition than to help the league. 27 670 F.2d at 1257. 28 Cases applying the single entity or joint venture theory in other business areas also contradict the NFL's argument. As stated by the Supreme Court: 29 Nor do we find any support in reason or authority for the proposition that agreements between legally separate persons and companies to suppress competition among themselves and others can be justified by labelling the project a joint venture. Perhaps every agreement and combination in restraint of trade could be so labeled. 30 Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 71 S.Ct. 971, 974, 95 L.Ed. 1199, 1206 (1951). Timken involved an allegation of territorial division among three companies that shared partial common ownership. In Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 141-142, 88 S.Ct. 1981, 1985-1986, 20 L.Ed.2d 982, 992 (1968), the Court reiterated that common ownership will not suffice to preclude the application of Sec. 1. While these cases and others have been the subject of some criticism, see, e.g., M. Handler and T. Smart, The Present Status of the Intracorporate Conspiracy Doctrine, 3 Cardozo Law Review 23 (1981), they remain the law. In recognition that a broad application of Timken and Perma Life could subvert legitimate procompetitive business associations, this circuit has found the threshold requirement of concerted activity missing among multiple corporations operated as a single entity when corporate policies are set by one individual or by a parent corporation. General Business Systems v. North American Philips Corp., 699 F.2d 965, 980 (9th Cir.1983); see Thomsen v. Western Electric Co., 680 F.2d 1263, 1266 (9th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 348, 74 L.Ed.2d 387 (1982); Las Vegas Sun, Inc. v. Summa Corp., 610 F.2d 614, 617 (9th Cir.1979), cert. denied, 447 U.S. 906, 100 S.Ct. 2988, 64 L.Ed.2d 855 (1980). The facts make it clear the NFL does not fit within this exception. While the NFL clubs have certain common purposes, they do not operate as a single entity. NFL policies are not set by one individual or parent corporation, but by the separate teams acting jointly. 31 It is true the NFL clubs must cooperate to a large extent in their endeavor in producing a product--the NFL season culminating in the Super Bowl. The necessity that otherwise independent businesses cooperate has not, however, sufficed to preclude scrutiny under Sec. 1 of the Sherman Act. In Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945), the Supreme Court rejected the assertion that the AP was immune from section 1 because it was a necessary cooperative of independent newspapers which produced a product its individual members could not. Id. at 26, 65 S.Ct. at 1427, 89 L.Ed. at 2034 (Frankfurter, J., concurring). More recently, the Court found the cooperation required among ostensible competitors in arranging blanket licensing of copyrighted songs precluded only a finding of per se illegality; instead, rule of reason analysis was the proper method to determine the legality of the arrangement. Broadcast Music, Inc. v. Columbia Broadcast System, Inc., 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979); 3 see also Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963). 32 The case of United States v. Sealy, Inc., 388 U.S. 350, 87 S.Ct. 1847, 18 L.Ed.2d 1238 (1967), is closely on point. Sealy licensed manufacturers to sell bedding products under the Sealy name and allocated territories to the licensees. The facts showed, however, that this arrangement was not vertical but horizontal; the 30 licensees, owning all of the stock of Sealy, controlled all its operations. 388 U.S. at 352-353, 87 S.Ct. at 1849-1850, 18 L.Ed.2d at 1242. Describing the Sealy organization as a joint venture, the Court nonetheless found it a per se violation of the Sherman Act. See also United States v. Topco Associates, Inc., 405 U.S. 596, 609, 92 S.Ct. 1126, 1134, 31 L.Ed.2d 515, 526 (1972) (Court finding a per se violation on facts similar to Sealy). 33 The NFL structure is very similar to that in Sealy. The League itself is only in very limited respects an identity separate from the individual teams. It is an unincorporated, not-for-profit, association. It has a New York office run by the Commissioner, Pete Rozelle, who makes day-to-day decisions regarding League operations. Its primary functions are in the areas of scheduling, resolving disputes among players and franchises, supervising officials, discipline and public relations. The decision involved here on territorial divisions is made by the NFL Executive Committee which is comprised of a representative of each club. Even though the individual clubs often act for the common good of the NFL, we must not lose sight of the purpose of the NFL as stated in Article I of its constitution, which is to promote and foster the primary business of League members. Although the business interests of League members will often coincide with those of the NFL as an entity in itself, that commonality of interest exists in every cartel. As in Sealy, we must look behind the label proffered by the defendants to determine the substance of the entity in question. 388 U.S. at 353, 87 S.Ct. at 1850, 18 L.Ed.2d at 1242. 34 Our inquiry discloses an association of teams sufficiently independent and competitive with one another to warrant rule of reason scrutiny under Sec. 1 of the Sherman Act. The NFL clubs are, in the words of the district court, separate business entities whose products have an independent value. 519 F.Supp. at 584. The member clubs are all independently owned. Most are corporations, some are partnerships, and apparently a few are sole proprietorships. Although a large portion of League revenue, approximately 90%, is divided equally among the teams, profits and losses are not shared, a feature common to partnerships or other single entities. In fact, profits vary widely despite the sharing of revenue. The disparity in profits can be attributed to independent management policies regarding coaches, players, management personnel, ticket prices, concessions, luxury box seats, as well as franchise location, all of which contribute to fan support and other income sources. 35 In addition to being independent business entities, the NFL clubs do compete with one another off the field as well as on to acquire players, coaches, and management personnel. In certain areas of the country where two teams operate in close proximity, there is also competition for fan support, local television and local radio revenues, and media space. 36 These attributes operate to make each team an entity in large part distinct from the NFL. It is true that cooperation is necessary to produce a football game. However, as the district court concluded, this does not mean, that each club can produce football games only as an NFL member. 519 F.Supp. at 584. This is especially evident in light of the emergence of the United States Football League. 37 For the foregoing reasons, we affirm the district court's rejection of the NFL's single entity defense. 4 Of course, the singular nature of the NFL will need to be accounted for in discussing the reasonableness of the restriction on team movement, but it is not enough to preclude Sec. 1 scrutiny. The NFL's related argument that Rule 4.3 is valid as a restraint ancillary to a joint venture agreement will be discussed in the rule of reason analysis that follows. Contrary to the NFL's apparent belief, the ancillary restraint doctrine is not independent of the rule of reason. National Society of Professional Engineers v. United States, 435 U.S. 679 at 689, 98 S.Ct. 1355, 1364, 55 L.Ed.2d 637 at 648; see R. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, 74 Yale L.J. 775, 796-801 (1965).