A New York Supreme Court justice tossed out a Major League Baseball decision Wednesday that would have compelled the Orioles' television network to pay tens of millions of dollars a year more to the Washington Nationals for the right to show their games.
Concluding that the Mid-Atlantic Sports Network was denied a fair hearing, Justice Lawrence K. Marks vacated the decision and suggested the parties settle the matter through a "neutral dispute resolution process."
Marks' ruling was unusual because courts rarely overturn internal arbitration cases involving Major League Baseball and its clubs.
At issue was a 2014 arbitration decision awarding the Nationals about $60 million per year in TV rights fees from MASN — an amount MASN believes is too high. MASN, which is controlled by the Orioles but broadcasts both teams' games, now pays the neighboring club $40 million annually.
The judge said, in effect, that MASN did not receive an impartial hearing. He cited MASN's argument that the same outside counsel — New York-based law firm Proskauer Rose — represented the Nationals, Major League Baseball and the three teams whose owners were on the arbitration panel during the years when the case was being decided.
MASN likened the circumstance to a lawyer representing a client "before a tribunal wherein the lawyer also represents the judge and jury."
Marks said MASN's concerns about Proskauer's representation were not heeded by Major League Baseball. "MASN and the Orioles have established that their well-documented concerns fell on entirely deaf ears," he wrote in the 29-page ruling.
"Had MLB, the arbitrators, the Nationals and/or Proskauer taken some reasonable step to address petitioners' concerns about the Nationals' choice of counsel in the arbitration — or indeed any step at all — the court might well have been compelled to uphold the arbitral award," Marks wrote. "Under the circumstances, the court concludes that this complete inaction objectively demonstrates an utter lack of concern for fairness of the proceeding."
Major League Baseball spokesman Pat Courtney said officials were reviewing the decision and would have no comment Wednesday.
The Nationals "are assessing the ruling," a team spokesperson said.
MASN and the Orioles reacted swiftly.
"While we are very pleased that the court vacated the award, and did so for good reason, it is unfortunate that we had to bring this matter to the courts in the first place," said Alan Rifkin, counsel to the Orioles in its capacity as MASN's managing partner. "Contracts are meant to be honored, and that includes honoring the integrity of the rights fee-setting process."
The judge had several options. He could have affirmed the June 2014 decision of the three arbitrators — the owners of the New York Mets, Pittsburgh Pirates and Tampa Bay Rays. He could have dismissed the panel's decision and sent it back to Major League Baseball with instructions on starting over with a new decision. Or he could have sent the case to a third party, which is what he suggested.
While the judge said it was outside his purview to specify which arbitration group should hear the case, he said the parties "might" go to the American Arbitration Association.
In 2014, MASN filed a complaint with the arbitration association, seeking at least $800 million in damages for breach of contract if Major League Baseball's decision were enforced. The claim was placed on hold while the court case proceeded.
Marks also said the parties "may wish to meet and confer" about whether the Nationals would retain different counsel and return the case to Major League Baseball. But MASN and the Orioles have called repeatedly for an "independent" review.
"As we argued, Major League Baseball's arbitration over the rights fees lacked the fundamental fairness that the Orioles had a right to deserve," said Arnold Weiner, counsel for the Orioles. "We are hopeful that this fairness will be achieved in a future and independent process."
Weiner said he had never heard of another case where a Major League Baseball arbitration ruling "was overturned in this manner."
John Mansell, a Northern Virginia-based sports and media consultant, said it is "pretty rare for most arbitration decisions to be overturned. At the same time, obviously this was a pretty clear conflict."
MASN and the Orioles argued that Major League Baseball was biased against the network and that the commissioner's office improperly influenced the decision of the arbitration panel, which MLB said was independent.
The dispute dates to 2012, when the Orioles and Nationals were unable to agree on the amount of television rights fees the clubs should receive from MASN.
The matter ended up with the arbitration panel which, MASN alleged, applied the wrong standards in deciding that the Nationals should receive about $60 million in rights fees per year. According to Marks' ruling, the panel valued the Nationals' television rights at roughly $53 million in 2012, rising more than $3 million in each succeeding year.
The Nationals contended the fair-market value was about $109 million.
MASN attorneys told the court in a filing last year that the decision would leave the network with an "economically unsustainable 5 percent profit margin."
Analysts say regional sports networks typically maintain profit margins of at least 20 percent. MASN's current profit margin has not been made public.
But the Nationals argue they are not receiving market value, noting in a recent court filing that they occupy "the third-largest designated market area in Major League Baseball (behind New York and Los Angeles)."
The Orioles "seek to deny the Nationals one of the few benefits of the bargain the Nationals were to receive — the fair market value of the rights fees beginning in 2012," said a May 26 letter to the judge from Nationals attorney Stephen Neuwirth.
Local television money is important to clubs in attracting free agents or retaining their own players.
"It's what allowed the Rangers years ago to sign Alex Rodriguez," said Mansell, referring to a 10-year, $252 million contract signed in 2000 after that club reached a new deal with Fox Sports Southwest.
Dan Duquette, the Orioles executive vice president, referred inquiries to the club's spokesman, who declined comment.
The judge decided to hear the case in August 2014, granting MASN and the Orioles' request to block the decision while he studied issues raised in the case.
Procedures for determining TV rights fees were brokered by baseball when the Nationals, formerly the Montreal Expos, moved to Washington in 2005.
A 2005 agreement was weighted toward the Orioles — giving the team a bigger ownership stake in MASN and a proportionately larger share of the profits — after the team argued that the Nationals' arrival in the region deprived Baltimore of a third of its market.
The Orioles own 84 percent of the network, while the Nationals own 16 percent, a stake that grows by a percentage point each year until it tops out at 33 percent.
In court documents, MASN attorneys suggested that the arbitration panel's decision was preordained by Major League Baseball. MASN said MLB telegraphed its intentions by advancing the Nationals $25 million in August 2013 to make up the difference between what the club was receiving from MASN and what it was expected to get from the arbitration panel.
MLB said the loans "were fully justified, were done with the Orioles' and MASN's knowledge and encouragement."
An earlier version misstated the year when the judge decided to hear the case. The Sun regrets the error.