MASN Decision: Justice Delayed, Not Justice Denied

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As all of you know by now, the Judge issued a decision today in the long-running saga of MASN/Orioles [Peter Angelos, for all intents and purposes] vs. MLB. For those interested in the text of the opinion, you can find it here. In the opinion the Judge vacated the award of the arbitration panel. As an attorney, I found the opinion fascinating, and decided to post my analysis for consideration.

Background - feel free to skip this, since we've all lived it to a certain extent

To buy off Angelos and keep him from suing MLB for relocating the Expos to DC, MLB came up with the Mid-Atlantic Sports Network (MASN). Under the agreement, the Nationals would be the only team in MLB that does not control its own local broadcasting rights. Instead, MASN would pay a "fair" rights fee to each team. The kicker is that the leftover profits would go 89% to the Orioles, 11% to the Nationals. This changes by 1% every year in favor of the Nationals, but the Nationals cannot own more than 33% of MASN. This creates a huge incentive for Angelos to low ball the rights fees (split evenly) so he can keep the lion's share of MASN's income. It also creates a huge incentive for the Nationals to maximize the rights fees. The fees are reset after every five years with the first period expiring after 2011. Yes, the teams are arguing over the fees due for the five year time period that expires after the 2016 season - when a new five year period begins.

Unsurprisingly given the incentives and the (pig headed) ownership of both teams, the teams failed to agree on a "fair" value for the 2012-2016 five year period. In the event of a failure to agree, the MASN agreement provides for a mandatory 30-day negotiation period. When that failed, it required a non-binding mediation ... which also failed. As a last resort, the matter goes to the Revenue Sharing Definitions Committee (RSDC), a standing committee composed of representatives from three MLB teams that are appointed by the Commissioner. The RSDC sets the fair market value "using the RSDC's established methodology." The panel met in early 2012, but held off its decision in the vain hope that someone would cave and make the problem go away. The Nationals stuck to their guns ($109 million) and Angelos stuck to his ($34 million). After two years of twiddling their thumbs, MLB finally released the panel's decision last year, setting the fees for 2012 at $53 million, rising ~$3 million a year to $66 million for 2016. Notwithstanding that the figures were closer to his figures than the Nationals' figures, Angelos/MASN sued right away.

Today's Decision - a win for Angelos?

The nominal win for Angelos, however, will likely turn out to be a bitter one. Interestingly, the judge vacated the award on process grounds, but tossed out every other substantive argument Angelos made:

(1) Angelos alleged fraud or conspiracy by MLB with the Nationals. The court held that "while MASN and the Orioles have established that they are disappointed in the RSDC award, they have not provded 'abundantly clear' evidence of the alleged fraud or conspiracy." Therefore, Angelos lost on this point

(2) Angelos claimed that the arbitrators exceeded the scope of their authority, largely because they did not rely on the "Bortz methodology" - in particular MASN's interpretation of the Bortz Methodology. The court tossed this out in its entirety, pointing out that the MASN agreement does not specifically define the methodology to be used at all - and that the RSDC's methodology was "reasonable on its face." Reading between the lines a bit, to me the Judge seemed to go out of his way to praise the work of the panel without formally endorsing their award. At any rate, Angelos loses. This is actually a big deal, because the use of the "Bortz methodology" was THE lynchpin of Angelos's low-balling of the rights fees.

(3) Prejudicial misconduct in the proceedings. The court noted that "very little was establish [sic] by those seeking to vacate the award, who have the burden of proof." Angelos loses here, too.

(4) Angelos urged that evident partiality to the Nationals was shown by the $25M loan from MLB to the Nationals. The court again dismissed his argument. The court notes that "[MASN] confuses cause and effect ... MASN and the Orioles have not demonstrated that the circumstances of the advance raise any serious questions about the fairness of the arbitration process."

So, Angelos lost all of these grounds. The court vacated the award solely on the fact that the Nationals retained the firm (Proskauer Rose) that also represented MLB, AND that the MLB and the Nationals didn't undertake any screening mechanisms or other various means of mitigating the appearance of a conflict. The court listed several ways that MLB (or even the firm) could have dealt with this problem (but didn't). And the court noted that this was not an exhaustive list of potential remedies; many other solutions were possible. Again, none of which MLB or Proskauer undertook. If MLB (as administrator of the arbitration) had done any of these "simple" things, the applicable legal standard would have "dictated a simple decision from this court to confirm this award." That didn't happen. The court reiterates this point later - if MLB had taken any of the steps described by the court, or indeed "any step at all - the court might well have been compelled to uphold the arbitral award [under the applicable legal standard]." I note that the emphasis there is the court's, not mine.

So, while MASN and the Orioles agreed to an "inside baseball" (the Court's words) process, "where the parties and arbitrators would all be industry insiders who knew each other and inevitably had many connections," this combined representation with no steps to mitigate the potential conflict was too far. So the court vacated the panel's decision.

Aftermath: So, NOW What?

While the court vacated the panel's decision, the Judge essentially provided a road map for the way to remedy the problem - and this way doesn't bode well for Angelos. He's lost on all the substantive grounds, but won on process. In a follow up, Angelos argued that "remand to the RSDC would be futile, and therefore the matter should be referred to 'a panel of neutral arbitrators that is not subject to Baseball's corrupting influence." The court expressly rejected that argument, pointing out that re-writing the parties' agreement is outside the scope of the court's authority. Indeed, the court "emphasizes that because it is ultimately the Nationals' choice of counsel that created the conflict," that if the "Nationals are willing and able to retain counsel who do not concurrently represent MLB or the individual arbitrators and their clubs, and thereby return to arbitration by the RSDC, however currently constituted" that they could do so "pursuant to the parties' agreement." Alternatively, if the current conflict remains, "the parties might meet and agree to a different neutral resolution process."

The road map for the Nationals couldn't be clearer - if the Nats retain different counsel they can go back to the RSDC - that has already awarded them substantially more than Angelos offered - and get a new decision. That's the safe play. Indeed, there would be nothing to prevent the panel from awarding the Nats substantially more in a second decision. The initial award was made with the expectation that RSN profits would decline from 2012-2016. They now have actual figures, and that hasn't happened. With Angelos having lost on the other alleged grounds for overturning an award, he could appeal but he would run afoul of res judicata (the matter is already judged). His chances to overturn the RSDC's award would go from difficult to essentially impossible.

There are two riskier options for the Nationals: (1) appeal the court's decision that the Proskauer representation represented a conflict that justifies vacating the award; or (2) retain Proskauer and try their luck with a neutral panel, if they can agree on a process with Angelos. Personally I don't like either option. The first would confine the Nats to the RSDC's award, and would risk losing the trial court's extremely favorable rulings on the other grounds raised by Angelos. This is why, incidentally, I think that Angelos is more likely to appeal than MLB/Nationals, despite his nominal "victory." The second would be problematic because Angelos could run the clock for a decade or more, first dragging his feet on the method to be used and introducting limitations at every step that would be favorable to him. No, given that the next five year period is about to start, I'd say take the easy fix proffered by the court and go for the rights fees fairly ready to hand, and start the argument over for 2017-21. But we'll see what the Nats do (MLB probably doesn't really care about appealing, they just want the process over with).

Bottom line

Angelos won the day, but the victory looks from here like a pyrrhic one. The grounds for vacating the decision are easily remedied, and the court has already disposed of every other argument advanced by Angelos. As I noted in the title, the ruling is justice delayed, but ultimately justice will not be denied.

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