STERLING'S LATEST LAWSUIT AND AVOIDING THE CLIPPERS' "DEATH SPIRAL"

The ongoing saga of Donald Sterling's attempts to regain, or retain, ownership of the Los Angeles Clippers continues. Last night, Donald filed a lawsuit against Shelly Sterling (his estranged wife), the Los Angeles Clippers, the NBA, and NBA Commissioner Adam Silver. This lawsuit alleges 12 causes of action, including:

1. Violation of section 25401 of California's Corporations Code (fraud)
2. Unfair business practices in violation of section 17200 of the California Business and Professions Code (fraud)
3. Breach of contract
4. Breach of fiduciary duty
5. Breach of implied covenant of good faith and fair dealing
6. Fraud
7. Negligent misrepresentation
8. Conversion
9. Intentional infliction of emotional distress
10. Negligent infliction of emotional distress
11. Injunction
12. Declaratory relief

This lawsuit is the third that Donald has filed in his attempt to regain, or retain, ownership of the Clippers. His original two lawsuits focused on the propriety of the NBA's sanctions against him and the propriety of Donald being declared mentally incompetent, resulting in his supposed loss of ownership of the team to Shelly. 

Legal issues in this new case aside, what this does entail is that the ownership of the Clippers will not be a settled matter (according to the courts) for some time. Attorneys for Sterling have stated that this case may take several years to resolve. But what does that mean to the Clippers organization? 

Dick Parsons, the interim CEO of the Clippers, testified in court yesterday that he fears if Donald were to remain owner of the team, it would plunge the organization into a "death spiral." He indicated that in the event Donald remains owner, Doc Rivers would not want to continue as head coach of the team. Further, Parsons testified that he has spoken with many of the team's players and sponsors who do not wish to remain with the Clippers should Donald remain Owner. Specifically, Parsons testified that sponsors who have yet to commit to the team for next year have indicated "We're in so long as Donald Sterling is out."

Sponsors generally have the ability to cancel their sponsorship agreements through the use of morals clauses in their contracts. Players don't have that option, although they can request to be released and/or traded. 

Parsons testimony echoed the scenario that began when the Sterling audio tape was first released in April. In a few short weeks, sponsors canceled or paused their sponsorship agreements with the team. Further, rumors of a team-wide, and league-wide, boycott surfaced prior to Commissioner Silver banning Donald for life. 

Parsons statements should not be taken lightly, as they are illustrative of the reality the Clippers will find itself in should Donald remain Owner. Unfortunately, Donald Sterling's three lawsuits can result substantial harm to the clippers. If the litigation is not voluntarily dismissed before the season commences, or if Donald manages to prevail in his litigation, then Parsons' "death spiral" comment will be realized. That is, unless the NBA takes action. 

The NBA has yet to commence its formal proceeding to remove Donald Sterling as Owner from the Clippers and force the sale of the team. Pursuant to Article 13 of the NBA's Constitution and Bylaws, an Owner can be removed by a vote of three-fourths of the Board of Governors (made up of other team Owners) if an Owner commits any of the following:

1. Willfully violate any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association
   
2. Transfer or attempt to transfer a Membership or an interest in a Member without complying with the provisions of Article 5 of the Constitution and Bylaws
   
3. Fail to pay any dues or other indebtedness owing to the Association within thirty (30) days after Written Notice from the Commissioner of default in such payment
   
4. Fail or refuse to fulfill its contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect the Association or its Members adversely
   
5. Wager or countenance wagering by its officers or employees on any game in which a Team operated by a Member of the Association participates
   
6. Willfully permit open betting, pool selling, or any other form of gambling upon any premises owned, leased, or otherwise controlled by the Member or an Owner, except, subject to Article 8(a), for gambling activities that are lawful in the applicable jurisdiction and do not involve in any way, directly or indirectly, gambling with respect to any aspect of the Association's games, events, property, players, or other personnel
   
7. Offer, agree, conspire, or attempt to lose or control the score of any game participated in by a Team operated by a Member of the Association, or fail to suspend immediately any officer or any Player or other employee of the Member who shall be found guilty, in a court of law or in any hearing sanctioned by this Constitution and By-Laws, of offering, agreeing, conspiring, or attempting to lose or control the score of any such game or of being interested in any pool or wager on any game in which a Team operated by a Member of the Association participates
   
8. Disband its Team during the Season, dissolve its business, or cease its operation
9. Willfully fail to present its Team at the time and place it is scheduled to play in an Exhibition, Regular Season, or Playoff Game
10. Willfully misrepresent any material fact contained in its application for Membership in the Association
    

Donald disputes in his first lawsuit against the NBA that he has not violated any of these provisions, although he has likely violated provisions numbered 1, 3 and 4 noted above. In particular, he has at least violated provision 4 by refusing to pay the $2.5 million fine. (Note: For a full analysis of the propriety of Sterling's sanctions, see my upcoming publication Not So Sterling: Assessing Donald Sterling's Breach of Contract Claims Against the NBA [Forthcoming Summer 2015])

The NBA had planned to have the Board of Governors vote to remove Donald's ownership of the Clippers on July 15, 2014. This date was set to be following the conclusion of the trial between Donald and Shelly Sterling about Donald's mental capacity. However, the trial has run long. The NBA intends to have Donald removed as owner prior to the start of next season, and has set a deadline of September 15 for any transfer of ownership through sale. Presumably, the NBA fears the "death spiral" that Parsons testified would occur should Donald remain Owner. However, if September 15, 2014, comes to pass and the team is not sold, the NBA will seek to remove ownership from Sterling and auction the team.

Although Donald Sterling's latest lawsuit delays the court's determination of ownership of the team, the NBA could move forward and remove Donald's ownership interest, even if the lawsuit about Donald's mental capacity is not resolved. Once the team is sold, the NBA could commence an action for interpleader, where Donald and Shelly can sort out who is entitled to the proceeds, or just await the determination of the suit between Donald and Shelly. 

Donald Sterling's litigation tactics may be designed to delay the sale of the Clippers, but the NBA has the ability to initiate a proceeding to remove his ownership. Only time will tell if the NBA is able to accomplish its goal of removing Sterling prior to the start of next season. If the NBA fails to do so, we may see the "death spiral" of the Clippers that Parsons is warning about.