Archives for August 2013

A few more disclaimers before jumping in. While we are expected to learn of suspensions in short order, it is important to remember that among the players mentioned below, only one (Ryan Braun) has been disciplined to date. Even if suspensions are levied, they could be challenged through MLB's grivance process. Accordingly, I do not intend in any way to comment upon the actual truth of any allegations. Likewise, none of the analysis should be mistaken for a suggestion that any particular team is actually considering any litigation against one of its players.

Part III: Potential Litigation Targets

Potential Targets

Needless to say, high-stakes litigation is extremely risky and costly. And it is far from guaranteed to result in a real monetary return. For those reasons, as well as others noted below, it seems likely that a team would only pursue a suit against a big-money player.

While other names could always surface, a look at the latest list of possible suspension targets reveals relatively little to gain outside of two players: Alex Rodriguez (ten years, $275MM) and Ryan Braun (13 years, $150MM over two contracts). Clearly, Rodriguez and Braun represent real money.

Next on the list is Jhonny Peralta, who is playing on a $6MM option year on the same deal that paid him $5.5MM last year and $5.25MM in 2011 (for a total of $16.75MM). Nelson Cruz is on a two-year, $16MM deal that expires after this year. Not one of the remaining players currently earns more than $1.275MM this year or is guaranteed any salary after 2013. I think you can safely scratch off everyone on the list beneath Peralta and Cruz.

Looking at those two players, it remains difficult to see how litigation would be worth pursuing, even before you get to the non-economic risks. Peralta and Cruz were paid relatively modest sums on their current deals and are owed nothing beyond the time period that they are expected to be suspended for (the rest of this season). If suspended, then, they would already stand to lose the remaining value of their contracts. Neither player is among its team’s most marketable assets. From a common sense perspective, the stats are in the books and the games have been won and lost; there has been no discussion of retrospective forfeits due to the use of ineligible players. In sum, there is far too little to gain to make a lawsuit against these players a realistic consideration.

Let’s turn, then, to the two players whose prominence and contract size make a lawsuit at least a hypothetical possibility.

Ryan Braun

At this point in time, Braun is not only the best player involved in the Biogenesis scandal but is also probably most important to his team’s brand and market. He also signed a big extension (five years, $105MM) in April of 2011, which does not kick in until 2016. In addition to pursuing direct contract remedies through an MLB arbitration forum, the team could potentially go to court in an effort to avoid that extension and/or recover for broader harms arising out of Braun’s conduct.

At the time of Braun’s extension, agent Nez Balelo of CAA Sports acknowledged that “the commitment on the club’s part is huge.” Balelo also characterized the deal in an interesting manner: “we basically view it as a partnership between Ryan and the organization moving forward.” Brewers GM Doug Melvin, meanwhile, explained that Braun had “already reached extraordinary milestones that are comparable to many of the great players in baseball history” and had “shown a tremendous commitment to the Milwaukee market.”

While obviously intended only as a positive reflection on a mutually-agreeable extension, such statements could come up in litigation. Balelo’s statements lend fodder to the concept that contracts of this magnitude include salary considerations for far more than just on-field performance. They also potentially speak to the reasonableness of the team’s reliance on any assurances on PED non-use it may have received. Finally, the statements could help to prove the foreseeability of consequential damages (because the player was aware of the nature of the commitment that was being made) and support damages arguments regarding the degree of harm sustained (certainly, a “partnership” implies a great deal of mutual reliance and mutual risk). This also points to an avenue for investigation during the discovery process: was anything said or done in private to assure the team it was safe to make such a major, distant commitment?

Two other aspects of Braun’s situation are also worth addressing. First, he tested positive for a prohibited substance not long after inking his big extension. The positive test that led to his suspension occurred on October 1, 2011 –- after he had already inked his deal. Of course, he ultimately challenged that suspension through MLB’s grievance process, resulting in the suspension being overturned. He reportedly testified that he had never used PEDs in the course of that proceeding. Braun later told the press that “this substance never entered my body at any point” and said that he had told the player’s association that “I have not done anything that could have possibly led to this test result.” Braun also made many statements regarding his upright personal character and gave assurances of his pure intentions as a ballplayer. Arguably, Braun’s actions in the wake of the suspension led the team to double down on its star attraction.

There is much we don’t know. What has Braun said to the Brewers’ brass (including owner Mark Attanasio, with whom he is reportedly close), or others that could be called upon to testify? Is there any evidence that his early-career successes were procured by illicit drug use, and supported by his protestations of innocence, leading the Brewers to rely on an essentially falsified performance history in signing his new deal? Such hypothetical facts are among the kinds of evidence that would be needed to support a claim that Braun fraudulently induced the Brewers to ink him to a long-term extension that kicks in well down the road. Standing alone, Braun’s statements could aid a potential claim for fraudulent misrepresentation during the performance of his original extension, which might seek recovery for damage to the team’s brand, wasted marketing expenditures, or other harms.

Second, let’s turn to Braun’s more recent suspension, which took quite a different path. After reportedly being presented with “overwhelming” evidence, Braun apparently agreed to accept an immediate 65-game suspension rather than challenging a potentially lengthier ban. Reports also indicate that the evidence against Braun demonstrated that he had “used ‘a sophisticated drug regimen’ for an extended period of time.” The timeline of PED use, which is not publicly known, would (as noted above) be critical in assessing any fraudulent inducement claim. Looking forward, of course, his admission and suspension (along with whatever more detailed information is ultimately culled) could be utilized in a fraudulent misrepresentation claim.

One key piece of information that remains unreported is the actual agreement (if any) that was entered between Braun and the league (and/or the Brewers). We know that Braun is accepting his suspension and foregoing a direct challenge through the grievance procedure, but did the parties negotiate any other terms, such as disclaimers of legal claims? It is certainly possible that Braun’s representatives sought (or will seek) to limit his exposure by getting the team or league to bargain away any rights to pursue contract or tort remedies. Of course, it could be forced to make concessions on future salary obligations as a price for doing so.

At present, Brewers owner Mark Attanasio has expressed that the team’s “full expectation is to keep” Braun in the team’s fold. He also noted, however, that he has yet to learn the full details of the allegations that Braun was faced with. While it seems far more likely that a final resolution will be accomplished without resort to the courts, that possibility could at least be something of a bargaining chip in the team’s pocket.

Alex Rodriguez

Finally, let’s turn to the pink elephant in the room: Alex Rodriguez, who re-signed with the Yankees as a free agent on December 13, 2007. While Braun is the better player at this point and is more central to his team’s brand, Rodriguez is the highest-paid player of all-time and plays for baseball’s most valuable and marketable franchise.

Rodriguez’s current deal includes the remainder of this year’s $28MM salary, as well as $86MM in obligations over 2014-17. The contract also provides for a $30MM marketing agreement, with a series of $6MM bonuses for various home run milestones. (Rodriguez is just 13 long balls away from triggering the first of those, for 660 homers.)

Immediately after signing that contract, Rodriguez was interviewed by Katie Couric of CBS News. When queried for his reaction to the just-released Mitchell Report on the use of PEDs in baseball, Rodriguez said he was “disappointed” and called it a “huge black eye” on the game. Rodriguez directly and unequivocally denied that he had “ever used steroids, human growth hormone, or any other performance enhancing substance.” Of course, just over a year later, he went on to admit to ESPN’s Peter Gammons that he had used a banned substance while playing with the Rangers over 2001-2003. Since joining the Yankees in 2004, he said, he had “been clean.”

While we do not know what (if any) assurances Rodriguez gave to the Yankees before signing his extension, the timing of his statements to Couric certainly places his denial right at the time that the deal was reached. It is not outside the realm of possibility, then, that a fraudulent inducement claim could be made out. Of course, unlike Braun, Rodriguez has already performed for much of the duration of that contract, which would make it more complicated to parse out damages relating to salary.

Another interesting facet of the Rodriguez situation relates to the fact that, as noted above, he admitted in 2009 that he had previously used PEDs. On the one hand, his insistence that he had not used since that time (again, potentially accompanied by any currently non-public information) could support a claim that Rodriguez made fraudulent misrepresentations that led the Yankees to continue to market him and associate him with their brand.

On the other, that prior admission could function (in a somewhat perverse way) to limit any argument that a (still-unannounced) suspension caused additional harm. For one, there may be statute of limitations issues, which bar claims after a certain amount of time elapses. (There is far too much we don’t know to assess that possibility at this point.) It could also be argued that, having already identified himself as a player who had relied on PEDs, any new PED revelations have a more limited impact. Rodriguez could claim that the Yankees chose to market him in spite of the known badge of PED use, choosing to associate themselves with an already-tarnished brand. This could go to several ends: for instance, disproving that the Yankees reasonably relied on any assurances Rodriguez may have given regarding continued PED use, disrupting the connection between a suspension and damages, or driving down the damages in a potential award.

Finally, let’s turn to the unique marketing aspect of Rodriguez’s deal. Unlike most baseball contracts, the $30MM in marketing incentives are somewhat analogous to the Lance Armstrong situation discussed in Part II. This clause helps to substantiate an argument that Rodriguez was paid for services beyond simply showing up to the ballpark, and reflects Rodriguez’s unique status as the game’s biggest name at the time he signed his extension.

Further, the clause itself could be subject to attack, either on an unjust enrichment theory (as in the Armstrong case) or other basis. Rodriguez has already acknowledged that at least some of his earlier home run tallies were tainted, and a suspension could discredit future long balls. Of course, it remains to be seen whether Rodriguez will even have the chance to notch the various milestones. And unlike Armstrong’s vacated titles, A-Rod’s past and future home runs will presumably stay in the Yanks’ scorebooks.  While the team’s ability to market those milestones has undoubtedly been greatly impaired, finally, the overall value at play here seems likely to be relatively limited as a practical matter. Still, if the team chose to go after him at all, I’d expect a claim along these lines to show up.

Conclusion

We’ve covered a lot of ground, but this preliminary look at a team’s creative legal option serves primarily to highlight the vast complications, costs, and risks involved. By pursuing litigation, even if successful, teams would risk further damage to their (and the league’s) brand through the discovery process, to say nothing of runaway legal costs, labor issues, adverse legal rulings, or even government intervention. Those concerns very likely outweigh the potential benefits, after discounting any potential returns based upon the likelihood of success. If claims along these lines come up at all, it will likely be in private negotiations rather than a public forum.

Litigation (along with the underlying legal relationships that it addresses) is far more uncertain and variable, I think, than many people realize. My purpose here, then, was to take a somewhat real-world (but admittedly non-expert) look at the suggestion that litigation was a potential option, and to provide MLBTR readers with a sketch of how an attorney might approach the investigation and research of such a proposition. While I certainly do not claim to have been correct or exhaustive in all accounts — and heartily discourage anyone from relying in any way on what I've written! — I hope it has at least been an interesting thought experiment. I look forward to addressing any criticisms or observations in the comments.