The NBA’s handling of what the NBA concluded was Donald Sterling’s now-infamous, racist-language-laden phone call with V. Stiviano has generated a lot of commentary (including my own).  As one might expect, the incident has led to some oft-repeated assertions that are not quite right.  So, in taking a break from my grading, I thought I’d deal with a couple of those issues right now. 

To start, if Sterling is forced to sell the Clippers, the NBA and the other team owners are not “taking” anything away from him that he has a right to keep.  He is an owner subject to an agreement that, according to NBA Commissioner Adam Silver, allows the league to force Sterling to sell upon a three-fourths vote of other league owners.  As such, the league has, and has always had, the power to decide if Sterling would be allowed to own a team.  (Why the league owners didn’t act twenty years ago is a legitimate question, but one for another day.)

 That Sterling can be forced to sell should not be news to lawyers, at any rate.  This case reminds me of Lawlis v. Kightlinger & Gray, 562 N.E.2d 435 (Ind. App. 4th Dist. 1990). The case is taught in many Business Organizations courses. In that case, Lawlis was a partner the Kightlinger & Gray law firm. At some point, his alcoholism became a problem, and eventually he told the partners of his issues. Lawlis and his partners reached an agreement about how to move forward (one with a “no-second chances” provision).  Lawlis got things together for a bit, then returned to drinking, and he was given a second chance.  Lawlis apparently got sober and eventually insisted the firm should increase his partnership participation.  Instead, the firm decided to expel him by a 7-to-1 vote (Lawlis was the sole vote against expulsion).  Lawlis sued. 

The court was not convinced, and I would hope any court would look the same way at a vote to remove Sterling as an NBA owner. Even if they needed cause, I would opine that the league has it, but the likely don’t need it.  The Lawlis court explained: 

All the parties involved in this litigation were legally competent and consenting adults well educated in the law who initially dealt at arm’s length while negotiating the . . .  agreements here involved. At the time the partners negotiated their contract, it is apparent they believed . . . the “guillotine method” of involuntary severance, that is, no notice or hearing, only a severance vote to terminate a partner involuntarily need be taken, would be in the best interests of the partnership. Their intent was to provide a simple, practical, and above all, a speedy method of separating a partner from the firm, if that ever became necessary for any reason. We find no fault with that approach to severance.

 Where the remaining partners in a firm deem it necessary to expel a partner under a no cause expulsion clause in a partnership agreement freely negotiated and entered into, the expelling partners act in “good faith” regardless of motivation if that act does not cause a wrongful withholding of money or property legally due the expelled partner at the time he is expelled.

Lawlis,562 N.E.2d at 442-43.

Some have lamented that Sterling will still be a rich man from this, no matter what.  That is true, and the NBA has no way to change that.  Sterling must be properly compensated if he were forced to sell the team. But that’s the point.  In America, Sterling (like anyone else) is permitted (within the bounds of the law) to say racist and misogynist things and be a generally awful person without anyone taking away property.  On the other hand, it appears Sterling agreed to buy a team in a league with an agreement that has a guillotine clause that allows the league to force him to sell.  So be it.

Here are five other related points worth noting (at least, I think so), even if they are not as business-law focused. Click below for more.