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Thursday, June 29, 2006
Larry Brown is Grieving

Larry Brown has decided to file a grievance concerning whether he is owed any money by the Knicks in connection with his termination. It was not a surprise when the Knicks concocted an excuse to avoid paying Brown. As I pointed out here, MSG is (owned by) a publicly traded company and may have feared a lawsuit by shareholders if it paid Brown the full value of his contract.

Brown claims he is owed $40 million, what he would have been paid under the contract. The Knicks claim he violated a term of the contract and thus is owed nothing. According to the Knicks, Brown gave “roadside interviews” that contradicted a contract provision. Knicks chairman James Dolan says Brown was fired “for cause.” According to a good summary of the events by the San Jose Mercury News,
Dolan is trying to get out of paying Brown the $40 million the Hall of Fame coach is owed, saying that Brown conducted roadside interviews without a public-relations official present. The Knicks also claim that Brown failed to return phone calls to team president Isiah Thomas and that he returned from the NBA predraft camp in Orlando one day early without authorization.
Good luck to the Knicks, who will need it. One league official characterized Brown's supposed breaches as “minor”. Trivial is a better word. Let’s assume that the contract doesn’t say, “if Larry Brown gives a roadside interview the Knicks have no further obligation to pay” (if the contract does say that, Brown should sue whoever negotiated it for him). According to the Restatement of Agency, §409,
A principal is privileged to discharge before the time fixed by the contract of employment an agent who has committed such a violation of duty that his conduct constitutes a material breach of contract or who, without committing a violation of duty, fails to perform . . . a material part of the promised service . . . .
The Restatement of Contracts, §275, defines materiality:
In determining the materiality of a failure fully to perform a promise the following circumstances are influential:
(a) The extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated;
(b) The extent to which the injured party may be adequately compensated in damages for lack of complete performance;
(c) The extent to which the party failing to perform has already partly performed or made preparations for performance;
(d) The greater or less hardship on the party failing to perform in terminating the contract;
(e) The wilful, negligent or innocent behavior of the party failing to perform;
(f) The greater or less uncertainty that the party failing to perform will perform the remainder of the contract.
Applying this law to Brown’s contract, the Knicks' claimed “cause” hardly seems sufficient to relieve the team of an obligation to pay the coach his due. The Knicks may also be done in by timing, since it’s widely believed that the decision to fire Brown (and replace him with Thomas) was made long before Brown’s supposed breaches.

Like most of these disputes, however, a settlement is likely. The real question is, how much will Brown get? At, future traders expect Brown to end up with something, most likely between $10 and $20 million. “Betting is that he will get something, although considerably less, perhaps somewhere between $10 million to $19.9 million (2-1), or $30 million to $34.9 million (3-1), or $20 million to $29.9 million (5-2). At either end, the betting is 7-2 that Brown will collect either under $10 million or closer to what he might be owed, $35 million to $40 million.” The $20-$29.9 million bet would be my choice, although I wouldn’t put money on it.

Another quirky feature of Brown’s contract is that it specified that in any financial dispute with the Knicks, NBA Commissioner David Stern would arbitrate. Is anyone familiar with any other sports employment contract in which the league commissioner was named as the arbitrator of an individual contract dispute? This strikes me as odd. I’d also be concerned about a potential conflict of interest (since Stern works for the owners), although Brown has agreed to have the Commissioner arbitrate the dispute.

Brown will be represented at the arbitration by Washington DC’s Williams and Connolly, which has built a very impressive sports law practice over the last decade.

UPDATE (July 3, 2006): Yale Law School Professors Ian Ayres and John Donahue have a nice Essay in Sunday's New York Times on the parralels and distinctions between the Brown case and that of former Disney executive Michael Ovitz; I discussed that comparison back on May 16. Here's a juicy bit from the Ayres/Donahue piece:
The Cablevision Systems Corporation, which owns the Knicks, is certainly within its rights to terminate a coach or any other employee for cause if he or she has, in fact, materially violated contractual obligations. But the Knicks have been pursuing bad trades for years before Mr. Brown arrived. It seems a bit harsh to hold some of the latest failures as evidence of misconduct by Mr. Brown rather than simple misjudgments.

Mere incompetence generally does not amount to a material breach of an employment contract . . . .


I'd think that in a normal mediation/arbitration, the mediator/arbitrator would also look at (i) whether the Knicks warned Larry and gave him a chance to cure this trivial bad behavior, and (ii) whether Larry did any of these things before (e.g., did not return phone calls) and the Knicks did not make it an issue on those previous occasions.

Hard to see how these trivial offenses deserve a $10M haircut.

What do you think about the reported instances of Larry saying he deserved to be fired? How might that legally impact the result?

Anonymous Senator Blutarski -- 6/29/2006 9:06 PM  

I would not interpret Brown's public comments about deserving to be fired as an admission that he should be fired for cause as that term is defined in his contract.

Of course, we don't know how cause is defined in his contract. At first blush "roadside interviews" seems like a minor event. But isn't the key what he said in those interviews?

Suppose his contract defines cause as "anything disparaging the New York Knicks organization or team..."? Even saying "I deserve to be fired" might fall into that category, since it essentially says "we suck" -- though that fact would be apparent to everyone.

Suppose cause includes "insubordination"? If he is told not to do roadside interviews yet does them anyway, and if he refuses to return his supervisor's phone calls, wouldn't that qualify as insubordination?

Blogger ChapelHeel -- 6/30/2006 8:51 AM  

Having the League decide a contract dispute between a coach and a team is not unusual in professional sports. For example, it is standard language in all NFL coaching contracts. If there is a dispute between a team and a coach, it is referred to Tagliabue's office for resolution.

Anonymous john -- 6/30/2006 11:09 AM  

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Blogger Geoffrey Rapp -- 6/30/2006 12:10 PM  

John, that's an interesting fact. I wonder, though, whether the Brown contract still isn't a bit different from NFL coaching contracts, which, to my understanding (I haven't read very many!), give the leage the power to appoint, rather than serve as, the arbitrator. Is having the commissioner appoint an arbitrator the same thing as having the commissioner serve as arbitrator? For example, when Wade Phillips and Buffalo arbitrated his termination, the NFL appointed an arbitrator but the commissioner didn't play that role. Of course, Tagliabue did help forge an agreement in the whole Parcells affair, but that wasn't formal "arbitration," was it?

I guess it just seems to me that there's a difference between asking the commissioner to appoint an AAA-certificatied arbitrator and having the commissioner play that role.

As for Brown's admission that he deserved to be fired, I imagine he'll ask for a do-over. That is, blame his comments on being emotional or upset.

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