Now what can you tell us about the reserve and option clauses?

The reserve clause primarily is a device used by the owners to create stability in their organization, especially when you have a professional sports league. Basically, it is a clause whereby the owners could designate a certain number of players as indispensable players that other teams could not negotiate with and basically lock that player into playing for the team he was with if he was designated as one of those indispensable players.

Now that’s the reserve clause. But the unique thing about the reserve clause in this case is that teams had a right to designate five players at one point. Then they had increased that to eleven players, and that’s significant because there were only fourteen players on a team. So the whole team was designated…

Everybody except the ball boy, I’m assuming.

So, basically they were trying to prevent exactly what happened. Raids on their team, other people coming in and offering to pay a bit more money and getting them.

Now, the option clause was a little different. The option clause was that the team had a right to exercise an option in the contract to say, “Look, we’re gonna bind you to another two or three years of work for us.” That could only be done  by exercising this option to play for two or three more years. But there was no corresponding right of the player to say, “No, I can play for somebody else.” What it boiled down to was this: He either had to take it or leave it.

And the team also had the other side of it. They could say, “Look, we don’t want you to play for us any more,” give you ten days notice and begone with you. So the gist of this option clause was that these teams could lock in the players for three years by exercising the option, yet kick them out in ten days if they didn’t want them around any more. Hardly a fair deal.

Rogers, having drafted the clauses, is obviously convinced that they’re great because he’s a giant egomaniac who think he can do no wrong. Why would the American league think these clauses were unenforceable?

Let’s go back to Rogers himself. First off, we’re dealing with contract law. Written documents. And there’s been contract law in existence for two to three hundred years, from the English common law. A basic contract requires an offer, acceptance, consideration, burdens on both sides, a meeting of the minds, intent to be bound by the contract, and certainty of terms.

The reason contracts were deemed inviolate — your word is your bond, your written word is your badge of honor, so to speak, you live up to you word — so what was written and signed was considered inviolate.

So that’s one of the reasons why, I suppose, that Rogers thought he was invincible and walk into because one, Nap signed the contract. He agreed to all the stuff he now disagreed with him. The contract was clear and unambiguous as written by Rogers. Everybody knew what was going on. The ten day clause was in there, the reserve clause was in there. Whether Lajoie understood it, we don’t know, but he signed it anyhow.

Rogers also felt he could prove irreparable harm if the contract wasn’t enforced, which is that the Phillies would lose a lot of money because Nap wasn’t going to play for them. And that was a big deal because Lajoie was a very very big draw. When he did go play for the A’s, the A’s got 10,500 people to see him on the first day. The Phillies only had 750 or so.

Then, also, Rogers thought, “Hey, the A’s are stealing my players and I’m not getting any money from them. So I’m losing all the way around, and this wasn’t right. Somehow or other I have to have some way, some remedy available to me so I can have this contract enforced.” And the only way he could go into court and do that was to request for an injunction.

We talked about the reserve clause and the option clause. But we didn’t talk about specific performance. “Here’s the contract, I’m going to pay you $2,400, you have to play for the Phillies.” The contract also had a clause for specific performance, which is that Lajoie agreed to that remedy in court. If there was a violation of contract, the Phillies could go into court and order him to specifically play for the Phillies. Lajoie signed that too.

And that’s why Rogers was so firm that he thought he would prevail, that it was ironclad, and that he couldn’t lose.

Why the American League thought it was objectionable and they thought they would win was basically the fairness side of the argument. The contract was one-sided. It was either play, or not play and he could dictate all the terms and that wasn’t fair. And it was an unconscionable deal. He was basically bound to life to the Phillies, where the  Phillies could just cut him adrift in ten days.

Those arguments have always been present in the law, especially the written law, when one side has more power than the other in a bargaining agreement. So that’s basically the forces that were set up for resolution by the court.

Judge Ralston’s decision here seems to hinge on mutuality of contract. Can you briefly describe the principle of mutuality.

Mutuality is a very confusing concept because sometimes it gets broken down into two other concepts. But it begins with the idea that there’s equality of burdens to a certain extent.

But they break it down even further, and that’s where it gets confusing. You can have mutuality of obligation — it’s a fair deal all the around, you’ll play baseball for me, I’ll pay you $2,400. That seems like a fairly simple easy deal. Mutual burden.

That’s the burden. The remedy, what can somebody do for you, what are your rights to compensation or relief if the contract is breached? Well the remedies were a little different.

So mutuality of obligation is one thing, mutuality of remedy is other, and that’s when people get confused, when those two terms are intertwined. And it’s almost impossible to get them un-intertwined, if you know what I mean. Because the remedy in this case was the Phillies could keep him on for three years just by exercising the option.

Lajoie had no other right or remedy. He could get kicked out in ten days or his contract could be terminated in ten days. But he had no similar right against the Phillies to say “You must pay me for three years.” No.

To a certain extent that makes some sense in terms of professional sports. As we all know people get hurt, they lose their skills, they lose their abilities…

Sham retirements…

True! But the mutuality of what the court considered in this case was the ten day clause where Nap could be let go after ten days notice. They thought that wasn’t a fair deal. They thought the remedy wasn’t mutual, therefore they struck the whole contract as void for lack of mutuality of remedy, not mutuality of obligation.

The split between law and equity. Law… if you’re in a contract of law. Say you enter into a contract, I’ll pay you a dollar a horseshoe for 500 horseshoes and you deliver me 500 horseshoes. Simple deal, it’s a simple contract, it’s a legal and it’s enforceable in a court of law, okay? But only enforceable to the extent that we’ll pay you money if you breach the contract. One side will have to pay the other side money if the contract is breached.

Pragmatically speaking, you know and we all know that there are other things that are involved in a breach of contract that don’t involve money, or can’t be solved by payment of money. So if he signs a contract to play for the Phillies and now he’s paying for someone else, no amount of money is going to bring him back if he doesn’t want to play.

Nap doesn’t have enough money to pay the Phillies for all their loss of profit in any given year…

And for that matter, how much could you prove that profit was due to Nap? Certainly there are other factors as well.

There are thirteen other members of the team. Exactly. Bottom line is, you then go to the consideration of the equity side of the court.

A court also has two hats. One hat is the law side, the other hat is the equity side. And the equity side is the fairness, the reasonableness, you can’t do contracts against public police, you have to be reasonable. Those sort of considerations. But specifically when it comes to ordering things other than money.

In this case, they wanted specific performance. The Phillies went into court to require Lajoie to play for the Phillies, or to stop him from playing from the Philadelphia Athletics or any other team. That doesn’t involve money. That involves prohibition or enjoining, they call it enjoining certain conduct.

And that’s the fairness side of the courts. The fairness side, the equitable side, which involves something more than basic contract analysis.

My understanding as I’m reading this is that the Supreme Court considered the mutuality of remedy here a Hobson’s choice. Lajoie could either take it or leave it. That was his mutuality of remedy, sign or not sign.

That was part of it. But yet they also noted he wasn’t getting nothing, he was getting $2400 if he signed the contract. Yes, there was a reserve clause in it. And the court basically said, “He could have objected.”

Now where that would have got him, I don’t know, but the court said he could have objected to that provision of the contract. Whether the Phillies would have taken that out, I don’t know. But he signed, and again we come back to that your contract is inviolate, your written word is your bind so to speak.

So their basic consideration here is that because Lajoie has the option of not playing baseball at all, the contract is still mutual.

Uh, I’m going to say this. This is not the finest hour of the Pennsylvania Supreme Court.

I tried reading the ruling and it seemed like some pretty dense legalese. So it was hard to read and even harder for a layman to understand. Did you find it similar?

Yes I do. Even the modern commentators who try to analyze it have some difficulty in boiling it down to its essence. But the bottom line, they say, “You sign the contract, you’re bound by it.”

Now, why would it be unenforceable outside of Pennsylvania? Obviously, we have intra-state contracts signed all the time. Criminal law obviously has special things where if you flee across state lines there are federal organizations to enforce that. But why would contract enforcement not be possible across state lines?

Well, “full faith and credit” may apply to  certain types of orders of the Supreme Court of one state, but when there is lack of jurisdiction…

Remember now, this is a Philadelphia case. It started out in the Philadelphia Court of Common Pleas and eventually made its way to the Pennsylvania Supreme Court. And at the time Lajoie was in Philadelphia, and the Philadelphia Phillies were in Philadelphia, and the Philadelphia A’s were in Philadelphia. So everything was concentrated in Philadelphia. Hence it was easy for a Philadelphia court to say, “We’re going to void the contract.” The bottom line is all the parties were in Pennsylvania.

When you go to another court, another state, and the parties, maybe one party isn’t a resident of that other state. They call it in personum jurisdiction. If all the parties aren’t there sometimes the court doesn’t believe they have the power or right to enter any orders that affect those other people.

The actual ruling was that the Ohio court was not compelled to enforce a decree for specific performance of a Pennsylvania contract. They didn’t actually disagree with the ruling, and they sort of gave it lip service and said, “That’s a nice decision but we’re not going to enforce it because it calls for specific performance of a contract made in Pennsylvania, here were are in Ohio, we’re not going to do that.”

How much of that was because the judges were in the pocket of the Cleveland Indians, we’ll never know, will we?

Would you say the Pennsylvania’ Supreme Court’s ruling had any influence on sports law going forward?

Well, strangely, and even though a bunch of other courts have refused to abide it, it does have some ongoing significance in terms of basic contract law. Let’s set this up a little bit.

You have decision issued by the Supreme Court of Pennsylvania, which is the highest court of one state. And we all know there’s a hierarchy of laws. It goes from the lower courts to the trial courts to the superior court, intermediate state… the law of any given state is whatever the supreme court says it is.

But here you’ve got rinky-dink courts in Missouri saying this contract, the same contract that the Pennsylvania Supreme Court looked at in essence, was inequitable, unconscionable, contrary to public policy, violated anti-trust provisions, deprived players of due process, and even one said constituted involuntary servitude! Which… I can see that. It’s a little stretch.

To find a civil rights claim in a baseball law argument is strange.

Another interesting facet of this is this guy Rogers, who must have had immense hubris, went into federal court in Philadelphia a month after the Supreme Court of Pennsylvania’s decision. One month later he went into federal court, but not in a Phillies case. It was a case where he was suing on behalf of the Brooklyn baseball club. It was a Brooklyn case. All the parties were in New York but he filed this case in the federal court in Philadelphia. And the federal court in Philadelphia completely rejected the argument of the Supreme Court of Pennsylvania and said that this was not a unique contract, it was an unfair and inequitable contract, and that the injunction should not have been granted, at least for the Brooklyn team.

Now we’ve got a case where multiple courts are arrayed against the Pennsylvania Supreme Court on this issue. But yet over time the notion of mutuality of contract and its ruling on mutuality of contract has actually taken hold. Because it’s the highest court of a state. When other states start looking at decisions for precedential value and to support it, they don’t go looking for the Court of Common Pleas of Cuyahoga County or some local low court in Missouri. They look for the highest decision of any given state. And so the Pennsylvania Supreme Court is given some credence among legal scholars.

And in this case the mutuality of contract determination of the Pennsylvania Supreme Court has given significance that the ten day provision does not in and of itself render a contract void for lack of mutuality.

Even though at the contemporary time that argument was rejected by almost every other state court and federal court that heard the case, years of time have stripped out the context so the ruling itself is seen out of context and still has precedential value, essentially.

That’s correct. Very succinct synopsis.