The Rule in Shelly’s Case: Mrs. Sterling, Donald Sterling, and the Divestiture of Ownership of the Los Angeles Clippers by the NBA

Visitors from Mars may have missed the recent controversy over Donald Sterling, the owner of the Los Angeles Clippers. However, what happened may be briefly outlined. Donald had a taped telephone conversation in September 2013 with a girlfriend in which he broached the subject of his and her relationship with African-Americans.

Shelly, Donald’s wife, had filed a lawsuit against the girlfriend to recover gifts of community property from Donald to the girlfriend. (See Cal. Family Code section 1100) The taped conversation somehow got to the media and among the various offended auditors was the National Basketball Association.

Donald, previously fined by the NBA in 1982 for making an unfortunate remark about deliberately finishing low in the standings in order to get a high draft pick, and in 1984 for moving the team without NBA permission, was, on April 29, banned for life from his team and NBA activities, forums, meetings, etc. and assessed a hefty fine of $2,500,000 by Adam Silver, the NBA Commissioner. In addition, Silver stated the NBA would begin immediately proceedings to remove Donald from ownership of the Clippers.

However, Shelly was not involved in Donald’s racist remarks and no NBA action against her is contemplated. Indeed, the Commissioner never mentioned her when he discussed Donald’s misdeeds and even allowed Shelly to attend a Clippers game on April 30, the day after the suspension of Donald. There are no media reports that Shelly in any way participated in team ownership and lNBA membership as a Member or Governor or in any other role.

On the other hand, the Sterlings have been married since 1955 and Donald bought the Clippers in 1981. As property acquired after the marriage, there may be an argument that Shelly owns the Clippers, with Donald, as community property.

Initial Actions by the Commissioner

Donald was immediately fined $2,500,000 and suspended for life by the Commissioner on April 29 for his racial remarks.

These actions were predicated on Article 35A of the NBA Constitution. Article 35A, which deals specifically with misconduct of Members and Owners, provides that:

“[A Member or Owner] who gives, makes, issues, authorizes or endorses any statement having, or designed to have, an effect prejudicial or detrimental to the best interests of basketball or of the Association or of a Member or its Team, shall be liable to a fine not exceeding $1,000,000.“

The $2,500,000 fine is apparently grounded in Article 24(l), which gives the Commissioner authority to fine this much where there is a violation of a rule for which no penalty is specified. How the more specific fine, $1,000.000, was supplanted by the higher fine is unclear as Article 35A is a rule with a specified, albeit lower, fine.

Article 35A allows the Commissioner to suspend an offender for an indefinite period, impose the fine, or impose both punishments on any person “who, in [the Commissioner’s] opinion, shall have been guilty of conduct prejudicial or detrimental to the Association.”

Ultimately, no reasonable reading of Articles 24 and 35A together will support the $2,500,000 fine.

NBA Process for a Misbehaving Member

This process is based on the NBA Constitution and By-Laws. Silver stated the NBA’s intentions as follows:

“As for Mr. Sterling’s ownership interest in the Clippers, I will urge the Board of Governors to exercise its authority to force a sale of the team and will do everything in my power to ensure that that happens. . . . The owners have the authority subject to three quarters vote of the ownership group, of the partners, to remove him as an owner.”

Although Silver declined to describe the process in detail, leaving that to the lawyers, he summarized the proceedings:

“I’ll let the lawyers lay out for you the specific provisions of our constitution. . . . The process will begin immediately. We will most likely use a standing committee of the NBA. The equivalent of our executive committee is our advisory finance committee. I’ve had several discussions with Glen Taylor, who is our chairman of the board and also the leader of the advisory finance committee, and we will begin that process immediately.”

Silver predicted success: “I fully expect to get the support I need from the other NBA owners to remove him.”

Article 13 of the Constitution outlines how a Member may be ousted.

“The Membership of a Member or the interest of any Owner may be terminated by a vote of three fourths (3/4) of the Board of Governors if the Member or Owner shall do or suffer any of the following:
(a) Willfully violate any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association.”

Article 14 describes the procedure for termination. Any Member or the Commissioner may allege a violation of Article 13. Within three business days after the filing of the charge, a copy will be served on the offending Member. Five days thereafter, the Member shall file an answer, with a hearing to be had within ten days after the answer.

The hearing itself will be chaired by the Commissioner and heard by the Board of Governors. At the hearing, the Member shall have the right to be represented by counsel. Strict rules of evidence shall not apply, and all relevant and material evidence submitted prior to and at the hearing may be received and considered.

As Silver stated, the hearing will actually take place before the advisory finance committee, chaired by Glen Taylor. Taylor, the owner of the Minnesota Timberwolves, is also the Chairman of the Board and who, on April 29, issued a statement firmly supporting the Commissioner’s actions under Article 35A.

The affirmative vote of three-fourths (3/4) of all the Governors shall be required to sustain the charges.

The crucial penalty provision is subdivision (g):

“If, by a three-fourths (3/4) vote, the Board of Governors votes to sustain the charges, the Membership of the guilty Member or the Member in which the guilty Owner has an interest shall automatically be terminated, unless, following a motion duly made and seconded, two-thirds (2/3) of all the Governors vote instead to terminate the ownership interest of the guilty Owner or to invoke the provisions of Article 15.”

The consequences of either termination of Membership or of ownership are grave indeed. As outlined in Article 14A.

“When the Membership of a Member is terminated, such Member and its assets, properties and operations shall be placed under the management and control of the Commissioner, . . . [and] either to transfer such Member’s Membership (including its Player Contracts and other assets) . . . or to liquidate the Player Contracts and other assets of the Member in an orderly manner in the best interests of the Member and its creditors, and the Association, in each case at such prices and on such terms as the Commissioner shall deem reasonable and appropriate.”

When the interest of an Owner is terminated, the team shall be placed under the management and control of the Commissioner, “who shall have the power to exercise all of the rights otherwise exercisable by the Owner of that interest, including, but not limited to, any management or voting rights and the right to transfer all or any portion of that interest . . . at such prices and on such terms as the Commissioner shall deem reasonable and appropriate.”

“All proceeds from any transfer of a Member’s Membership or the liquidation of its Player Contracts and other assets, or of an Owner’s interest in a Member, shall be applied first to discharge the liabilities and obligations to all creditors of the Member (or Owner), including the Association and its Members but excluding any Owner of the Member, second to discharge the liabilities and obligations to any Owner of the Member, and any balance shall be remitted to the Member (or Owner).”

Article 15 allows the Board to impose a fine in lieu of termination of Membership or Ownership.

Article 14 allows no resort to any other forum: “The decisions of the Association made in accordance with the foregoing procedure shall be final, binding, and conclusive, and each Member and Owner waives any and all recourse to any court of law to review any such decision.”

Absent constitutional defects in the due process accorded Donald, it must be noted that the Commissioner punishment meted out on his own authority under Article 35A may coexist with a Board punishment awarded under Article 14A and 15.

One must first ask if Donald is liable to two fines, one under Article 35A by the Commissioner and one possibly given by the Board as an alternate punishment under Article 15. Of course, this is an idle question, as the Board probably has no intention of using anything less than the ultimate sanction contained in Article 14A.

Still, the nature of the Commissioner punishments under Article 35 and the Board remedy in Article 14A do not clearly appear to be conflicting. The crucial turning point is whether the basis for divestiture of ownership set forth in Article 13(a), willful violation of “any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association,” is the same as the conduct condemned in Article 35A, the making of a statement having “an effect prejudicial or detrimental to the best interests of basketball or of the Association.”

Although Donald’s misconduct was a single incident of racism, it is possible for one act to trigger two separate criminal charge, e.g. speeding and vehicular manslaughter. Assuming that, under Article 35A, Donald made a racist statement and that under Article 13(a), such a statement violates the anti-racist stance of the NBA, it is possible that Donald can suffer punishments imposed by the Commissioner and the Board.

Resolution of Shelly’s Case

Under California Family Code sections 760 and 802, all property acquired during marriage is presumed to be community property. As of now, any theory that Shelly has an interest in the Clippers is pure speculation which may be debunked by any documents indication the form of ownership which Donald created in 1981 and the source of the funds used to purchase the team.

However, one should note what options are available to the NBA if this is the case. If Article 14A is only applied to Donald’s interest in the team, the NBA can only administer and sell the team and hypothecate the proceeds as to Donald’s share.

This is simple enough, but the NBA has to have as a predicate to this limited action a firm determination as to Shelly’s interest in the team. Of course, the NBA could assume that the ownership set forth in Donald’s purchase agreement, whatever it might be, is determinative, but family law attorneys know that nothing is quick or easy about litigating whether marital property is community property.

It would hardly be prudent for the NBA to make its own decision about her interest and take over and sell the team. If Shelly has an interest, it is doubtful that selling the team and remanding one-half of the proceeds to Shelly in the end would be satisfactory, as this arbitrarily denies Shelly the benefits of ownership, including the right to engage in management decisions and to sell her share herself.

As to management decisions, what if the NBA were to move the team or trade Chris Paul to the Lakers without Shelly’s participation? Management decisions are crucial to the value of the team. The damages as to the NBA’s sale of her share are more than theoretical, as Shelly could establish that her share would sell at a premium if Donald’s share was marketed separately.

Moreover, who would buy any part of the team with only the NBA’s determination as to whether it owned what it was selling? The new owner would be purchasing a lawsuit, not a basketball team.

In summary, the NBA cannot speedily divest Donald of his interest, whether within the minimum 18 days after he has been given the charge or by the start of next season, without certainty as to Shelly’s share.

Without a settlement with Shelly, the NBA could spend several years litigating ownership in the Superior Court and the appellate courts. And the simplest settlement would be to transfer ownership to Shelly, a quick, legally expeditious alternative to letting the matter drift for years. Despite the objections expressed in the press about her supposed unfitness to be a Member, it would not be surprising to find that she will take Donald’s ownership in the near future.

More by | James Ching James Ching , Law.com Contributor
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