Hello baseball fans and contract law fans! (That would be an interesting Venn diagram.) Anyway, this morning Major League Baseball sued Biogenesis (among others) for allegedly tortiously interfering with the “Joint Drug Agreement” between MLB and the MLB Players Association. The basic theory is (1) that MLB and the MLBPA have a contract pursuant to which the players agree not to use drugs and (2) that Biogenesis interfered with that contract by giving drugs to certain players.
Craig Calcaterra is one of my favorite baseball writers–and he also happens to be a former lawyer. He’s got a post up at NBC’s Hardball Talk in which he helpfully provides a copy of MLB’s Complaint; he concludes that the “lawsuit is crazy on its face” and “should be thrown out of court.” Indeed, Calcaterra is “shocked Major League Baseball found someone who would file it.”
Well, I’m not so sure…
First of all, it’s not as if MLB got some fly-by-night paper pushers to file this lawsuit. The lawyers who signed the Complaint are from Proskauer Rose and Kobre & Kim — not exactly small fries in the litigation world. Though just because a lawsuit has a big name or two behind it doesn’t mean it has any merit. See, for example, Hogan & Hartson representing Fox News in its case against Al Franken.
So let’s go to the merits. There are always all sorts of problems with tortious interference claims. But let’s assume for a minute that MLB could make out the basic elements — knowledge of the contract, some sort of improper motive, etc. Calcaterra still thinks the lawsuit is bogus because:
Major League Baseball could not show damages as a result of these acts. . . . [T]he contract MLB claims interference with is the Joint Drug Agreement, in which MLB has no direct financial interest. Indeed, it EXPECTS the JDA to be breached and has built in a punishment system because of it. When a player takes PEDs he violates it, by definition. Major League Baseball does not have a cause of action for breach of contract against them. How Major League Baseball expects to get greater satisfaction from an alleged third party tortfeasor than it could get from a party to the contract is … interesting.
Okay. I have to admit, that is interesting — at least to me. But I don’t think it’s so obvious that MLB has no case because of this damages issue. First of all, let’s forget about the third-party stuff for a second. When MLB and the MLBPA sat down to negotiate the JDA, I bet the MLB thought that drugs in baseball were hurting baseball’s profits or at least had the strong potential to hurt baseball’s profits in the future. Otherwise, why sign the JDA? If MLB thought there was more money to be made by just letting players juice and take whatever they want, MLB would look the other way and let players juice and take whatever they want. In fact, I remember not too long ago when that was MLB’s position. But for whatever reason — public backlash, fear of losing the antitrust exemption, whatever — MLB now thinks it is in its financial interest to crack down on the use of drugs. So, putting aside issues of proof, I think it’s pretty safe to say that MLB strongly believes that the use of drugs in baseball is going to cost it money.
To avoid that loss of money, MLB entered into this contract with the players. But what does the contract do? Calcaterra says that players do not breach the contract when they take drugs; rather, they just fall into another part of the contract. I don’t think that’s exactly right. The JDA states:
All Players shall be prohibited from using, possessing, selling, facilitating the sale of, distributing, or facilitating the distribution of any Drug of Abuse, Performance Enhancing Substance and/or Stimulant . . . .
If a player violates that obligation, I think that’s a breach. The JDA, however, provides a remedy for that breach in the form of various suspensions and whatnot. I read those provisions not as other parts of the contract with which the players must comply, but as a liquidated damages clause for the breach. Otherwise, how would the players breach the contract, by not “performing” their suspension? No, I think the best reading is that the breach is the use of the drugs, and the suspensions are the liquidated damages for that breach.
Indeed, this is the sort of situation where a liquidated damages clause works quite well. While drugs in baseball may create a general sort of harm to MLB, that harm is difficult if not impossible to quantify — and it’s certainly impossible to quantify in any particular instance of a single player’s drug use. How much money did MLB lose when Melky Cabrera got caught using PEDs? There’s no way to know. Sure, the JDA could have been written where, after a positive test, the MLB had to prove general damages related to that player’s individual use, and then fine the player that amount, but that would be nuts. So the JDA includes a specified penalty for breach — suspension.
And here is where Calcaterra’s point gets really interesting. Since baseball either has suspended or has the power to suspend players under the JDA, baseball can get full performance under the JDA against the players. In other words, MLB can recover for the players’ breach by suspending the players pursuant to the terms of the JDA. Therefore, according to Calcaterra, they shouldn’t be able to get double or extra recovery by suing Biogenesis for tortious interference.
Generally, Calcaterra is right. See, for example, this line from a recent note in the Yale Law Journal:
[C]ourts in several jurisdictions already refuse to grant promisees awards for tortious interference with contract when the contract remedy is fully compensatory, for example, in cases where a liquidated damages clause is specified and enforced in the original contract.
Deepa Varadarajan, Tortious Interference and the Law of Contract: The Case for Specific Performance Revisited, 111 Yale L.J. 735, 757 (2001); see also Wichita Clinic, P.A. v. Columbia/HCA Healthcare Corp., 45 F. Supp. 2d 1164 (D. Kansas 1999).
But this rule seems to assume that the liquidated damages amount is fully compensatory. And it may well be in many/most cases. But there is no reason to believe that the provisions of the JDA fully compensate MLB for the lost profits resulting from player drug use. First of all, MLB doesn’t get any money under the JDA. Second, because the JDA was negotiated with the MLBPA, and the MLBPA may have resisted the imposition of the JDA if it were fully compensatory, and MLB and the MLBPA have an ongoing relationship that MLB needs to keep at least somewhat amicable, there is reason to believe MLB would settle for less than full compensation just to get something the MLBPA would agree to.
If the JDA is not fully compensatory, I don’t see why MLB would be barred from seeking full compensation from a third party. In other words, while the MLB may have reason to agree to less-than-full value from the MLBPA, it has no reason to agree to less-than-full value from Biogenesis. Why should Biogenesis benefit from MLB’s horsetrading with the MLBPA? The burden would likely be on MLB to prove that there are extra non-contractual damages it has suffered, but it should be given that chance.
Take a look at it the other way. Let’s say A and B enter into a contract with a liquidated damages clause. It’s really really a big number — not punitive/unenforceable, but it’s big. Now, assume B breaches because of inducement by T. A can’t sue (or chooses not to sue) B because B is judgment proof. So A goes after T for tortious interference. A seeks the liquidated amount from T. But T argues that (1) he’s not a party to the contract so he should not be bound by the LD clause and (2) the actual damages suffered by A are actually much lower than the LD clause.
I think T’s argument makes sense in that hypo. So shouldn’t the flip hold true as well? If the LD suspension clauses in the JDA are not fully compensatory to MLB, why should Biogenesis benefit from that surplus, which was bargained for by the MLBPA?
Now, that doesn’t mean that MLB will have an easy time proving its actual damages. But if, as Calcaterra suspects, Biogenesis just defaults, then MLB will get a chance to put on its damages case. And it would not surprise me at all if MLB had some sort of internal numbers or some sort of consultant study showing how steroid use depressed fan interest and cost the league some revenue. The key, as I see it, is that once the fact of damages is certain, then the amount of damages may be proven with some guesswork. I doubt that is actually MLB’s game plan here — they probably just want the subpoena power — but hey, it might be good enough to survive a motion to dismiss and it’s probably good enough for Rule 11!