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From Antitrust Law Daily, March 29, 2018

Student-athletes permitted to proceed against NCAA in grant-in-aid cap litigation

By Robert B. Barnett Jr., J.D.

In the latest antitrust attack on the NCAA rules limiting payments under Division 1 football and basketball scholarships, the federal district court in Oakland, California, has ruled that the Ninth Circuit’s earlier decision in O’Bannon v. NCAA, which permitted student-athletes to receive financial aid up to their cost of attendance, did not preclude these student-athletes from pursuing their claims because the antitrust challenges raised in O’Bannon were different from the ones raised here. Whereas the O’Bannon student-athletes sought the right to share in the revenues generated by videogames and live telecasts, these student-athletes are attacking the cap on their grant-in-aid itself. As a result, res judicata and collateral estoppel did not apply. Furthermore, the court granted the student-athletes summary judgment on both the existence of a contract affecting interstate commerce and the fact that the NCAA rules had significant anticompetitive effects, which left two steps at trial: the NCAA still has to prove that its restraints had legitimate procompetitive benefits and the student-athletes still have to establish that less restrictive alternatives exist (In re: National Collegiate Athletic Association Athletic Grant-in-Aid Cap Antitrust Litigation, March 28, 2018, Wilken C.).

In 2009, student-athletes sued the NCAA, alleging that the NCAA ban on sharing with the student-athletes outside revenue from the licensing of the student-athletes’ images in videogames and live games violated antitrust laws. At trial, the student-athletes, in essence, won, with the court ordering the NCAA to place the money in trust funds for the student-athletes’ use when they finished their eligibility (O’Bannon v. NCAA, 7 F. Supp. 3d 955 (N.D. Cal. 2014). The Ninth Circuit largely affirmed the decision, but it reversed the part of the decision on the trust funds, ruling that allowing student-athletes to receive cash payments untethered to their educational expenses would not promote the NCAA’s procompetitive purposes (O’Bannon v. NCAA, 802 F. 3d 1049 (9th Cir. 2015). As a result of the decision, the NCAA altered its rules to allow additional payments to student-athletes up to the cost of their education.

In 2014 and 2015, student-athletes filed a series of new lawsuits against the NCAA, alleging that the grant-in-aid limits violated antitrust laws. The cases were consolidated in the California federal court (except for one related case). Ultimately, the parties settled their damages claim, with the NCAA agreeing to pay $208.7 million ($208 M settlement, $41 M fee award in NCAA grant-in-aid suit approved), which left only injunctive relief. The court had certified three injunctive relief classes: (1) men’s Division 1 football, (2) men’s Division 1 basketball, and (3) women’s Division 1 basketball. Both parties filed motions for summary judgment.

Res judicata/Collateral estoppel. The NCAA argued in its summary judgment motion that the student-athletes’ claims were barred by the doctrines of either res judicata or collateral estoppel. The court ruled, however, that the plaintiff classes were different, with this current class consisting of both male students who were recruited after O’Bannon and female student-athletes (O’Bannon had addressed only men’s football and basketball). In addition, no privity existed between the two groups, the court said. Furthermore, none of the claims—even those by student-athletes who may have been O’Bannon plaintiffs—were precluded because the general rule is that continuation of conduct under attack in a prior antitrust suit gives rise to a new cause of action. This new class of student-athletes are not attacking the licensing fees or the old grant-in-aid caps—they are attacking the current grant-in-aid caps, the ones implemented after O’Bannon. They are challenging the rules that limit financial aid to the cost of attendance (plus additional permitted benefits, such as having a spouse of child, but not a parent or sibling, attend games). As a result, these claims are new antitrust challenges to conduct, in a different time period, relating to a different set of rules. Res judicata and collateral estoppel, therefore, do not preclude the claims.

Sherman Act claims. As for proof of the Sherman Act claims, the court accepted that a conspiracy or contract affecting interstate commerce was undisputed and granted the student-athletes’ motion for summary judgment on that point. Because the NCAA regulations are subject to antitrust scrutiny, the regulations must be tested using a rule-of-reason analysis. The court also granted summary judgment to the student-athletes on the first element of the rule-of reason analysis: whether the challenged restraints produced significant anticompetitive effects within the identified market for the student-athletes’ athletic services. Those anticompetitive effects were established, the court said, by a showing that the student-athletes would receive greater compensation and benefits if the rules were not in place. The second of the three steps is for the NCAA to establish procompetitive effects of the challenged restraints. The court refused to grant summary judgment on this point for either party, noting that, although the restraints challenged overlapped with O’Bannon, they were not identical. Thus, the fact that the O’Bannon court found procompetitive effects did not necessarily mean that procompetitive effects existed under these facts.

The factual issue at trial, therefore, will be whether the NCAA can establish either of the two contentions for procompetitive effects that it maintained in O’Bannon: (1) integrating academics with athletics and (2) preserving the popularity of the NCAA’s product. The court did, however, grant summary judgment to the student-athletes on the all of the NCAA’s seven additional procompetitive justifications. The final step in the rule-of-reason analysis is the student-athletes’ proof of less restrictive alternatives.

The court will permit the student-athletes at trial to propose two less restrictive alternatives: (1) allow the Division 1 conferences, rather than the NCAA to set the rules regarding expenses that member institutions may provide and (2) enjoin all national rules that prohibit or limit any payments or non-cash benefits that are tethered to educational expenses, or any payments or benefits that are incidental to athletic participation. O’Bannon’s ruling, the court, did not trigger stare decisis because these less restrictive methods applied to all of the NCAA’s rules, including the rules implemented after O’Bannon. Thus, the court denied the NCAA’s motion for summary judgment on the less restrictive methods (the student-athletes did not seek summary judgment on this issue).

The court also noted, however, that, if the NCAA succeeds in demonstrating the same procompetitive justifications as existed in O’Bannon, the court will not consider any less restrictive alternatives that apply to prohibiting member schools from paying student-athletes cash sums unrelated to (1) educational expenses or (2) athletic participation, because that would violate the O’Bannon ruling.

The case is Nos. 14-md-02541-CW and 14-cv-02758-CW.

Attorneys: Jon T. King (Law Offices of Jon T. King) for Shawne Alston. Bart Harper Williams (Proskauer Rose LLP) for Pacific 12 Conference. Christopher John Kelly (Mayer Brown LLP) for The Big Ten Conference, Inc. Nathan Clifton Chase, Jr. (Robinson Bradshaw & Hinson) for Southeastern Conference. Beth Wilkinson (Wilkinson Walsh + Eskovitz LLP) for National Collegiate Athletic Association.

Companies: Pacific 12 Conference; The Big Ten Conference, Inc.; Southeastern Conference; National Collegiate Athletic Association

MainStory: TopStory Antitrust CaliforniaNews

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