The reserve system,1 in professional athletics, has been the subject of exhaustive and spirited discussion both in the sports and in the legal world. Its supporters urge that it stimulates athletic competition between the teams of a sports league; its opponents urge that it stifles economic competition among those same teams. We have no doubt that there is a measure of truth in both claims.
I. NHL RESERVE SYSTEM
Involved in this appeal is the validity, under federal antitrust laws, of the reserve system currently in effect in the National Hockey League. In its present form, the system has been termed a "modified Rozelle Rule" because it closely resembles the rule promulgated for the National Football League by its commissioner, Pete Rozelle, but has been modified to the extent that arbitration is not by the commissioner himself but by a professional and independent arbitrator.
At the heart of the NHL reserve system is By-Law Section 9A, which is attached as Appendix A. This section provides the rules governing the acquisition of free agents of other clubs in the league and is specifically made applicable to the players in the league by paragraphs 17 and 18 of the Standard Players Contract,2 which each player in the NHL is required to sign. Further, the Standard Players Contract, expressly including Paragraph 17, was approved by both the NHL team owners and the National Hockey League Players Association (NHLPA) in the current collective bargaining agreement, Sections 9.03(a) and (b).3
As can be seen from its terms, By-Law Section 9A mandates that when a player becomes a free agent and signs a contract with a different club in the league, his original club has the right under the By-Law to exact an "equalization payment" from the acquiring club. That payment may be by the assignment of contracts of players, by the assignment of draft choices, or "as a last resort," by the payment of cash. If mutual agreement is not reached, each club submits a proposal to a neutral arbitrator, selected by majority vote of the Board of Governors of the League, who then must select, without change, one of the two proposals submitted.
II. THIS LITIGATION
On October 10, 1977, Dale McCourt, a 21-year-old hockey player from Canada, signed a NHL Standard Players Contract (1974 form) with the Detroit Hockey Club, Inc. to play professional hockey for three years with the Detroit Red Wings.4 McCourt was to be paid $325,000 over three years. He subsequently played his rookie year, 1977-78, with the Red Wings and was the leading scorer.
Rogatien Vachon had been a star goaltender for the Los Angeles Kings for six years when he became a free agent in 1978. After rejecting a substantial offer by the Kings, Vachon entered into a contract with the Red Wings at a salary of $1,900,000 for five seasons. By signing Vachon, the Red Wings obligated itself to make an equalization payment under By-Law Section 9A to the Kings and, when no agreement was reached, each club submitted to arbitrator Houston a proposal pursuant to By-Law Section 9A.8. The Red Wings offered two of its players as compensation and the Kings proposed that McCourt's contract be assigned to it. The arbitrator selected the Kings' proposal and accordingly, the Red Wings assigned McCourt's contract to Los Angeles. Rather than report to the Kings, however, Dale McCourt brought suit in the United States District Court for the Eastern District of Michigan.
Named as defendants in that suit were the National Hockey League, the Los Angeles Kings, the National Hockey League Players Association, and the Detroit Red Wings. Count I of McCourt's complaint alleged that the reserve system, and consequently the assignment of his contract to the Los Angeles Kings as the compensation for free agent Vachon, violated Section 1 of the Sherman Act, 15 U.S.C. § 1 (1976), and sought injunctive relief under Sections 4 and 10 of the Clayton Act, 15 U.S.C. §§ 15 and 26 (1976), to prevent the defendants from enforcing the arbitration award and to require that his contract be reassigned to the Detroit Red Wings.5
On September 19, 1978, following an extensive evidentiary hearing, the district court entered a preliminary injunction restraining the defendants from enforcing the arbitration award and from penalizing McCourt for refusing to play professional hockey with the Los Angeles Kings pursuant to the award. This appeal followed.6
In an opinion accompanying the preliminary injunction and reported at 460 F. Supp. 904, the district judge held that By-Law Section 9A unreasonably restrains trade in commerce, in violation of Section 1 of the Sherman Act:
Like the "Rozelle Rule," bylaw 9A applies to all players without regard to status or ability; it applies to the average player and to the superstar alike; it is unlimited in duration and acts as a perpetual restriction upon a player's ability to freely contract for his services. Bylaw 9A cannot be justified by any legitimate business purpose to achieve the NHL's announced goal of maintaining competitive balance. It inhibits and deters teams from signing free agents, decreases a player's bargaining power in negotiations, denies players the right to sell their services in a free and open market, and it depresses salaries more than if competitive bidding were allowed. Thus, we conclude that plaintiff has sufficiently established that bylaw 9A, as applied, unreasonably restrains trade and commerce and is violative of Section 1 of the Sherman Act. See Mackey v. National Football League, 543 F.2d 606 (8th Cir. 1976).
460 F. Supp. at 907 (footnote omitted).
Having thus ruled, the trial judge went on to hold that the defendants were not entitled to the benefit of the non-statutory labor exemption from antitrust sanctions because "(t)he preponderance of evidence . . . establishes that bylaw 9A was not the product of bona fide arm's length bargaining over any of its anticompetitive provisions. The evidence establishes that the bylaw was unilaterally imposed upon the NHLPA and was incorporated into the collective bargaining agreement in the identical language it contained when it was first adopted by the League." 460 F. Supp. at 910.
III. ANTITRUST LIABILITY
While the Supreme Court has ruled that other professional sports do not enjoy the unique exemption from antitrust laws which has historically been reserved for the game of baseball, Flood v. Kuhn, 407 U.S. 258, 92 S. Ct. 2099, 32 L. Ed. 2d 728 (1972), it has never directly ruled upon whether the reserve system common to most professional athletics comes within the ban of the Sherman Act, nor has it expressly determined whether the reserve system is a mandatory subject of collective bargaining and, therefore, exempt under federal labor policy from the operation of the federal antitrust laws.7
Assuming without deciding that reserve systems such a those here are subject to Section 1 of the Sherman Act and could otherwise be violative of it, we proceed to determine whether the non-statutory labor exemption applies upon the facts here.
IV. LABOR EXEMPTION
A. Legal Standards
The trial court and the parties before us in this appeal have all relied upon Mackey as properly enunciating the governing principles in determining whether the non-statutory labor exemption applies to the reserve system provisions of a collective bargaining agreement in professional sports. Mackey v. National Football League, 543 F.2d 606 (8th Cir. 1976), Cert. dismissed, 434 U.S. 801, 98 S. Ct. 28, 54 L. Ed. 2d 59 (1977). There Judge Lay set forth three broad principles:
We find the proper accommodation to be: First, the labor policy favoring collective bargaining may potentially be given pre-eminence over the antitrust laws where the restraint on trade primarily affects only the parties to the collective bargaining relationship. See Connell Co. v. Plumbers & Steamfitters, supra (421 U.S. 616, 95 S. Ct. 1830, 44 L. Ed. 2d 418 (1975)); Meat Cutters v. Jewel Tea, supra (381 U.S. 676, 85 S. Ct. 1596, 14 L. Ed. 2d 640 (1965)); Mine Workers v. Pennington, supra (381 U.S. 657, 85 S. Ct. 1585, 14 L. Ed. 2d 626 (1965)). Second, federal labor policy is implicated sufficiently to prevail only where the agreement sought to be exempted concerns a mandatory subject of collective bargaining. See Meat Cutters v. Jewel Tea, supra; Mine Workers v. Pennington, supra. Finally, the policy favoring collective bargaining is furthered to the degree necessary to override the antitrust laws only where the agreement sought to be exempted is the product of bona fide arm's-length bargaining. See Meat Cutters v. Jewel Tea, supra. See also Smith v. Pro-Football, 420 F. Supp. 738 (D.D.C.1976); Philadelphia World Hockey Club v. Philadelphia Hockey Club, 351 F. Supp. 462, 496-500 (E.D.Pa.1972); Boston Professional Hockey Ass'n, Inc. v. Cheevers, 348 F. Supp. 261, 267 (D.Mass.), Remanded on other grounds, 472 F.2d 127 (1st Cir. 1972).
1. Mr. Ziegler, the President of the National Hockey League, testified concerning the objectives the National Hockey League's version of the reserve system is designed to serve. According to Ziegler, the reserve system prevents deterioration in competitive balance among the NHL teams, thereby allowing the presentation of an attractive form of competitive entertainment. We note, however, the effectiveness of a reserve system in preserving competitive athletic balance depends in great measure upon its restraint of the free market forces that would otherwise control player movement within the sports league. Historically and continuing to the present day, professional sports leagues have employed various forms of the reserve system. See, e.g., Flood v. Kuhn, 407 U.S. 258, 259 n. 1, 92 S. Ct. 2099, 32 L. Ed. 2d 728 (1972) (baseball); Smith v. Pro-Football, Inc., 193 U.S. App. D.C. 19, 593 F.2d 1173 (1978) (football); and Robertson v. National Basketball Ass'n., 389 F. Supp. 867, 874 (S.D.N.Y.1975) (basketball).
2. Paragraph 17 describes a player's rights and duties upon the expiration of the term of his contract. In relevant part, Paragraph 17 states: (a) The Club may no later than August 10th of the final year of this contract, tender the Player a Player's Termination Contract and notify him that he has the choice of executing said Player's Termination Contract and delivering it to the Club on or before September 10th of that year or automatically being unconditionally released from any further obligation to provide services under this contract as of midnight, September 10th of that year. The Player's Termination Contract shall be on the same terms and conditions as this contract except that it shall be for only one additional season at the Player's previous year's salary and shall provide for the Player's unconditional release from any further obligation to provide services under said Player's Termination Contract effective the following June 1st. (b) If the Club does not take the action permitted under subsection(a), it shall no later than September 1st of the final year of this contract (August 10th if the Player is a "protected" player or played at least fifty NHL games in the preceding season), tender the Player a new Standard Player's Contract upon the same terms and conditions (including this Section 17) as this Standard Player's Contract except that salary and the number of years of its fixed term may be different. (c) Without regard to any action taken by the Club under subsections (a) or (b), the Player may notify the Club no later than September 10th of the final year of this contract that he wishes to sign a Player's Option Contract. If the Player gives such notice, the Club shall no later than September 25th of that year tender the Player a Player's Option Contract, and the Player shall forthwith enter into said contract. The Player's Option Contract shall be on the same terms and conditions as this contract except that it shall be for only one additional season at the Player's previous year's salary and shall provide that effective the following June 1st the Player will be a free agent, without any further obligation to provide services under said Player's Option Contract, and as such will have the right, as provided by Section 9A of the League By-Laws, the text of which Section is printed on the reverse side hereof, to negotiate and contract with any club in the League, or with any other club. (d) If the Club does not take the action permitted under subsection (a) and the Player does not give notice to the Club in accordance with subsection (c), then the parties shall enter into a new Standard Player's Contract by mutual agreement or, failing such agreement, the parties shall enter into a new one-year Standard Player's Contract for the succeeding season upon the same terms and conditions (including this Section 17) as this Standard Player's Contract, except as to salary, which shall be determined by neutral arbitration under the applicable collective bargaining agreement providing a mechanism for such arbitration, provided, however, that if no such collective bargaining agreement is then in effect, the Player's salary shall be the same as his salary for the previous year. Paragraph 18 goes further. By Paragraph 18, the parties "mutually promise and agree to be legally bound by the Constitution and By-Laws of the League and by all the terms and provisions thereof . . . ."
3. Section 9.03, in part, provides: (a) Each hockey player employed by each Club in the National Hockey League shall enter into the form of Standard Players Contract, . . . hereby recognized as valid and binding. (b) The Association, recognizing that the Clubs have entered into this Agreement in reliance on Section 9.03(a), represents that it has been duly authorized to collectively agree to paragraph 17 of the Standard Players Contract . . . and to the applicability of the provisions of Section 9A of the National Hockey League By-Laws as fair and reasonable terms of employment . . . . The Association hereby so agrees in its capacity as the exclusive bargaining representative of hockey players in the National Hockey League under this Agreement.
4. McCourt has claimed that the Red Wings admitted that his contract included an unwritten understanding with the club that he would not be involuntarily traded. Nevertheless, his contract provided, in Paragraph 11: It is mutually agreed that the Club shall have the right to sell, assign, exchange and transfer this contract, and to loan the Player's services to any other professional hockey club, and the Player agrees to accept and be bound by such sale, exchange, assignment, transfer or loan, and will faithfully perform and carry out this contract with the same purpose and effect as if it had been entered into by the Player and such other Club . . . . If the Player fails to report to such other Club he may be suspended by such other club and no salary shall be payable to him during the period of such suspension . . . . The testimony was that such side agreements were not infrequent, but that any contract which formally incorporates a no-trade provision would automatically be rejected by the Commissioner. This is obviously true, since By-Law Section 9A.8(d), incorporated in McCourt's contract by Paragraphs 17 and 18, specifically provided that the contracts of all players under an acquiring club at the time a free agent is acquired shall be available for equalization purposes. The breach of contract counts have not as yet been decided below or appealed to this court.
5. Three other counts in the complaint asserting state contract and antitrust claims and one count alleging a violation of the U.S. Arbitration Act, 9 U.S.C. § 1 Et seq. (1976), are not the subject of this appeal.
6. The defendants brought this appeal from the issuance of the preliminary injunction. Following oral argument, the parties filed a stipulation stating: It is hereby stipulated by and between all the parties to this action: (1) that all parties waive their rights to a trial on the merits of this action as to Count I of plaintiff's Complaint; (2) that the record and the oral and written findings of fact and conclusions of law now before this Court, which were developed at the hearing on plaintiff's motion for preliminary injunction, shall be deemed to constitute the final record and findings of fact and conclusions of law after a trial on the merits as to such Count I; (3) that the appeals filed by defendants under 28 U.S.C. § 1292(a)(1) from the order granting a preliminary injunction may be treated by this Court as appeals, under 28 U.S.C. § 1291, from a final decision of the District Court and (4) that plaintiff may renew his remaining claims following this appeal.
7. Jacobs and Winter, in Antitrust Principles and Collective Bargaining by Athletes: Of Superstars in Peonage, 81 Yale L.J. 1 (1971), strongly suggest that the antitrust issue is altogether irrelevant in considering the validity of the reserve system. This article and its conclusion were specifically noted, without comment, by Mr. Justice Blackmun in Flood v. Kuhn, supra. In Radovich v. National Football League, 352 U.S. 445, 77 S. Ct. 390, 1 L. Ed. 2d 456 (1957), the Supreme Court reversed the dismissal of a complaint charging Sherman Act violations by the National Football League and in so doing held that a complaint by a former guard on the Detroit Lions team charging that the National Football League had boycotted him and prevented him from becoming a player-coach in the Pacific Coast League, adequately stated a cause of action under the antitrust laws. A majority of the Court made it clear that while Radovich was entitled to an opportunity to prove his charges, it expressed no opinion as to whether or not the respondents had in fact violated the antitrust laws. The precise language of the reserve system provisions does not appear to have been considered by the Supreme Court in Radovich, its emphasis rather having been to hold that its prior decisions relating to the game of baseball did not invariably apply to all team sports. Lower court activity has almost uniformly indicated that the restraints of the reserve system in sports other than baseball amount to a type of group boycott against a player who desires to sell his professional athletic services to another team after having earlier been engaged by a competing team. See, e.g., Smith, supra, 593 F.2d at 1177-1181; Mackey, supra, 543 F.2d at 618-22; Robertson, supra, 389 F. Supp. at 893; Kapp v. National Football League, 390 F. Supp. 73, 80-83 (N.D.Cal.1974), Aff'd in part and appeal dismissed in part as moot, 586 F.2d 644 (9th Cir. 1978), Cert. denied, 441 U.S. 907, 99 S. Ct. 1996, 60 L. Ed. 2d 375 (1979); Denver Rockets v. All-Pro Management, Inc., 325 F. Supp. 1049, 1056-57 (C.D.Cal.1971), Injunction reinstated sub nom. Haywood v. National Basketball Ass'n., 401 U.S. 1204, 91 S. Ct. 672, 28 L. Ed. 2d 206 (Douglas, J., in chambers, 1971). See generally 7 J. O. Von Kalinowski, Antitrust Law and Trade Regulation, § 50.01 Et seq. (1978).
8. Indeed, the most logical third party to complain about the reserve system, the World Hockey Association, expressly accepted this system in a settlement to the litigation which produced Philadelphia World Hockey Club, Inc. v. Philadelphia Hockey Club, Inc., 351 F. Supp. 462 (E.D.Pa.1972).
9. Section 8(d) of the National Labor Relations Act, 29 U.S.C. § 158(d), describes good faith collective bargaining and makes it clear that the Act does not compel either party to alter its initial stance on an issue. Section 8(d), in relevant part, states: (d) For the purposes of this section, to bargain collectively is the performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment, or the negotiation of an agreement, or any question arising thereunder, and the execution of a written contract incorporating any agreement reached if requested by either party, but Such obligation does not compel either party to agree to a proposal or require the making of a concession . . . (emphasis added).
10. Other circuits have reached the same conclusions. NLRB v. Almeida Bus Lines, Inc., 333 F.2d 729 (1st Cir. 1964); NLRB v. Landis Tool Co., 193 F.2d 279 (3rd Cir. 1952); NLRB v. Norfolk Shipbuilding & Drydock Corp., 195 F.2d 632 (4th Cir. 1952); Chevron Oil Co. v. NLRB, 442 F.2d 1067 (5th Cir. 1971); Wal-Lite Div. of United States Gypsum Co. v. NLRB, 484 F.2d 108 (8th Cir. 1973); NLRB v. MacMillan Ring-Free Oil Co., 394 F.2d 26 (9th Cir.), Cert. denied, 393 U.S. 914, 89 S. Ct. 237, 21 L. Ed. 2d 199 (1968); NLRB v. Tomco Communications, Inc., 567 F.2d 871 (9th Cir. 1978).
11. Since the NHLPA represented 100% Of the players, such action would have a profound effect, and thereby, the threat must have carried substantial weight.
12. Mr. Eagleson, the Executive Director of the NHLPA, testified that the union agreed to the provisions of By-Law Section 9A in return for many player benefits. In addition to the benefits described in the district judge's opinion, our review of the record indicates that the players bargained for substantial benefits: (1) increased pension benefits; (2) increased bonus money to players on teams finishing high in their divisions and participating in the Stanley Cup Playoffs; (3) sharing with the owners receipts from international hockey games; (4) greater salary continuation for players injured as a result of playing hockey; (5) increased training camp expense allowances; (6) modification of NHL waiver procedures; and (7) modification in scheduling of games and travel during the season.
13. The collective bargaining agreement, Sections 9.03(c) and (e), provides that: (c) It is expressly understood that if the National Hockey League enters into an agreement to merge with the World Hockey Association, the National Hockey League Players Association shall forthwith be entitled to terminate either this entire agreement, or its agreement contained in this Section 9.03 with respect to the said paragraph 17, . . . and the said Section 9A upon written notice to the Clubs within 15 days after notice of said agreement to merge. If the Association elects to terminate as provided in the preceding sentence, the subjects covered by the said termination shall then be reopened for collective bargaining at the request of either party. (e) The parties hereto recognize that recent court decisions affecting professional sports other than hockey, may give rise to uncertainty as to whether the provisions of Paragraph 17 of the Standard Players Contract . . . and Section 9A of the National Hockey League By-Laws are lawful subjects of collective bargaining. The Association further recognizes that the provisions of this agreement beneficial to the Association and the (sic) the players were entered into by both parties in the good faith belief that subparagraphs (a) and (b) above are lawful subjects of collective bargaining and are valid, and that the Clubs agreed to said beneficial provisions in reliance thereon. In the event of a final judicial determination not subject to appeal that Paragraph 17 of the Standard Players Contract . . . or Section 9A of the National Hockey League By-Laws are not lawful subjects of collective bargaining or are otherwise invalid, the Clubs may within 30 days thereafter terminate this Collective Bargaining Agreement upon written notice to the Association. If the Clubs elect to terminate as provided in the preceding sentence the parties shall promptly thereafter commence collective bargaining negotiations in an effort to arrive at a new collective bargaining agreement.
1. Obligation to make equalization payment 9A. 6. Each time that a player becomes a free agent and the right to his services is subsequently acquired by any Member Club other than the club with which he was last under contract or by any club owned or controlled by any such Member Club, the Member Club first acquiring the right to his services, or owning or controlling the club first acquiring that right, shall make an equalization payment to the Member Club with which such player was previously under contract, as prescribed by subsection 8 of this By-Law. Each Member Club may acquire the right to the services of as many free agents as it wishes, subject to the provisions of subsection 9 of this By-Law.