Charles O. Finley & Co., Inc. v. Kuhn, 569 F.2d 527 (7th Cir. 1978)

The two important questions raised by this appeal are whether the Commissioner of baseball is contractually authorized to disapprove player assignments which he finds to be "not in the best interests of baseball" where neither moral turpitude nor violation of a Major League Rule is involved, and whether the provision in the Major League Agreement whereby the parties agree to waive recourse to the courts is valid and enforceable.

* The plaintiff, Charles O. Finley & Co., Inc., an Illinois corporation, is the owner of the Oakland Athletics baseball club, a member of the American League of Professional Baseball Clubs (Oakland). Joe Rudi, Rollie Fingers and Vida Blue were members of the active playing roster of the Oakland baseball club and were contractually bound to play for Oakland through the end of the 1976 baseball season. On or about June 15, 1976, Oakland and Blue entered a contract whereby Blue would play for Oakland through the 1979 season, but Rudi and Fingers had not at that time signed contracts for the period beyond the 1976 season.

If Rudi and Fingers had not signed contracts to play with Oakland by the conclusion of the 1976 season, they would at that time have become free agents eligible thereafter to negotiate with any major league club,¹  subject to certain limitations on their right to do so that were then being negotiated by the major league clubs with the Players Association.² 

On June 14 and 15, 1976, Oakland negotiated tentative agreements to sell the club's contract rights for the services of Rudi and Fingers to the Boston Red Sox for $2 million and for the services of Blue to the New York Yankees for $1.5 million. The agreements were negotiated shortly before the expiration of baseball's trading deadline at midnight on June 15, after which time Oakland could not have sold the contracts of these players to other clubs without first offering the players to all other American League teams, in inverse order of their standing, at the stipulated waiver price of $20,000.

The defendant Bowie K. Kuhn is the Commissioner of baseball (Commissioner), having held that position since 1969. On June 18, 1976, the Commissioner disapproved the assignments of the contracts of Rudi, Fingers and Blue to the Red Sox and Yankees "as inconsistent with the best interests of baseball, the integrity of the game and the maintenance of public confidence in it." The Commissioner expressed his concern for (1) the debilitation of the Oakland club, (2) the lessening of the competitive balance of professional baseball through the buying of success by the more affluent clubs, and (3) "the present unsettled circumstances of baseball's reserve system."

Thereafter on June 25, 1976, Oakland instituted this suit principally challenging, as beyond the scope of the Commissioner's authority and, in any event, as arbitrary and capricious, the Commissioner's disapproval of the Rudi, Fingers and Blue assignments. The complaint set forth seven causes of action: (I) that the Commissioner breached his employment contract with Oakland by acting arbitrarily, discriminatorily and unreasonably; (II) that the Commissioner, acting in concert with others, conspired to eliminate Oakland from baseball in violation of federal antitrust laws; (III) that Oakland's constitutional rights of due process and equal protection were violated; (IV) that Oakland's constitutional rights were violated by the first disapproval of a player assignment where no major league rule was violated; (V) that the defendants (the Commissioner, the National and American Leagues and the Major League Executive Council) induced the breach of Oakland's contracts with Boston and New York; (VI) that the Commissioner did not have the authority to disapprove Oakland's assignments "in the best interests of baseball"; and (VII) that Oakland have specific performance of its contracts of assignment with Boston and New York.

On September 7, 1976, the district court granted the Commissioner's motion for summary judgment as to Counts II, III and IV. Count II was dismissed on the ground that the business of baseball is not subject to the federal antitrust laws. Counts III and IV were dismissed on the ground that Oakland did not allege sufficient nexus between the state and the complained of activity to constitute state action.

A bench trial took place as a result of which judgment on the remaining four counts of the complaint was entered in favor of the Commissioner on March 17, 1977.

On August 29, 1977, the district court granted the Commissioner's counterclaim for a declaratory judgment that the covenant not to sue in the Major League Agreement is valid and enforceable. The court had not relied on that covenant in reaching its two earlier decisions.

Oakland appealed from the judgments of September 7, 1976, March 17, 1977, and August 29, 1977, arguing (1) that the court's failure to issue a finding on the question of procedural fairness constituted error; (2) that the exclusion of evidence of the Commissioner's malice toward the Oakland club constituted error; (3) that other errors were committed during trial; (4) that the antitrust count was not barred by baseball's exemption from federal antitrust law; and (5) that baseball's blanket waiver of recourse to the courts is not enforceable.

II

Basic to the underlying suit brought by Oakland and to this appeal is whether the Commissioner of baseball is vested by contract with the authority to disapprove player assignments which he finds to be "not in the best interests of baseball." In assessing the measure and extent of the Commissioner's power and authority, consideration must be given to the circumstances attending the creation of the office of Commissioner, the language employed by the parties in drafting their contractual understanding, changes and amendments adopted from time to time, and the interpretation given by the parties to their contractual language throughout the period of its existence.

Prior to 1921, professional baseball was governed by a three-man National Commission formed in 1903 which consisted of the presidents of the National and American Leagues and a third member, usually one of the club owners, selected by the presidents of the two leagues.³  Between 1915 and 1921, a series of events and controversies contributed to a growing dissatisfaction with the National Commission on the part of players, owners and the public, and a demand developed for the establishment of a single, independent Commissioner of baseball.⁴ 

On September 28, 1920, an indictment issued charging that an effort had been made to "fix" the 1919 World Series by several Chicago White Sox players. Popularly known as the "Black Sox Scandal," this event rocked the game of professional baseball and proved the catalyst that brought about the establishment of a single, neutral Commissioner of baseball.⁵ 

In November, 1920, the major league club owners unanimously elected federal Judge Kenesaw Mountain Landis as the sole Commissioner of baseball and appointed a committee of owners to draft a charter setting forth the Commissioner's authority. In one of the drafting sessions an attempt was made to place limitations on the Commissioner's authority. Judge Landis responded by refusing to accept the office of Commissioner.⁶ 

On January 12, 1921, Landis told a meeting of club owners that he had agreed to accept the position upon the clear understanding that the owners had sought "an authority . . . outside of your own business, and that a part of that authority would be a control over whatever and whoever had to do with baseball."⁷  Thereupon, the owners voted unanimously to reject the proposed limitation upon the Commissioner's authority,⁸  they all signed what they called the Major League Agreement, and Judge Landis assumed the position of Commissioner. Oakland has been a signatory to the Major League Agreement continuously since 1960.⁹  The agreement, a contract between the constituent clubs of the National and American Leagues, is the basic charter under which major league baseball operates.¹⁰ 

The Major League Agreement provides that "(t)he functions of the Commissioner shall be . . . to investigate . . . any act, transaction or practice . . . not in the best interests of the national game of Baseball" and "to determine . . . what preventive, remedial or punitive action is appropriate in the premises, and to take such action . . . ." Art. I, Sec. 2(a) and (b).¹¹ 

The Major League Rules, which govern many aspects of the game of baseball, are promulgated by vote of major league club owners.¹²  Major League Rule 12(a) provides that "no . . . (assignment of players) shall be recognized as valid unless . . . approved by the Commissioner."¹³ 

The Major Leagues and their constituent clubs severally agreed to be bound by the decisions of the Commissioner and by the discipline imposed by him. They further agreed to "waive such right of recourse to the courts as would otherwise have existed in their favor." Major League Agreement, Art. VII, Sec. 2.¹⁴ 

Upon Judge Landis' death in 1944, the Major League Agreement was amended in two respects to limit the Commissioner's authority. First, the parties deleted the provision by which they had agreed to waive their right of recourse to the courts to challenge actions of the Commissioner.¹⁵  Second, the parties added the following language to Article I, Section 3:

No Major League Rule or other joint action of the two Major Leagues, and no action or procedure taken in compliance with any such Major League Rule or joint action of the two Major Leagues shall be considered or construed to be detrimental to Baseball.

The district court found that this addition had the effect of precluding the Commissioner from finding an act that complied with the Major League Rules to be detrimental to the best interests of baseball.¹⁶ 

The two 1944 amendments to the Major League Agreement remained in effect during the terms of the next two Commissioners, A. B. "Happy" Chandler and Ford Frick.¹⁷  Upon Frick's retirement in 1964 and in accordance with his recommendation, the parties adopted three amendments to the Major League Agreement: (1) the language added in 1944 preventing the Commissioner from finding any act or practice "taken in compliance" with a Major League Rule to be "detrimental to baseball" was removed;¹⁸  (2) the provision deleted in 1944 waiving any rights of recourse to the courts to challenge a Commissioner's decision was restored;¹⁹  and (3) in places where the language "detrimental to the best interests of the national game of baseball" or "detrimental to baseball" appeared those words were changed to "not in the best interests of the national game of Baseball" or "not in the best interests of Baseball."²⁰ 

The nature of the power lodged in the Commissioner by the Major League Agreement is further exemplified "(i)n the case of conduct by organizations not parties to this Agreement, or by individuals not connected with any of the parties hereto, which is deemed by the Commissioner not to be in the best interests of Baseball" whereupon "the Commissioner may pursue appropriate legal remedies, advocate remedial legislation and take such other steps as he may deem necessary and proper in the interests of the morale of the players and the honor of the game." Art. I, Sec. 4.²¹ 

The Commissioner has been given broad power in unambiguous language to investigate any act, transaction or practice not in the best interests of baseball, to determine what preventive, remedial or punitive action is appropriate in the premises, and to take that action. He has also been given the express power to approve or disapprove the assignments of players. In regard to nonparties to the agreement, he may take such other steps as he deems necessary and proper in the interests of the morale of the players and the honor of the game. Further, indicative of the nature of the Commissioner's authority is the provision whereby the parties agree to be bound by his decisions and discipline imposed and to waive recourse to the courts.

The Major League Agreement also provides that "(i)n the case of conduct by Major Leagues, Major League Clubs, officers, employees or players which is deemed by the Commissioner not to be in the best interests of Baseball, action by the Commissioner for each offense may include " a reprimand, deprivation of a club of representation at joint meetings, suspension or removal of non-players, temporary or permanent ineligibility of players, and a fine not to exceed $5,000 in the case of a league or club and not to exceed $500 in the case of an individual. Art. I, Sec. 3.²² 

The district court considered the plaintiff's argument that the enumeration in Article I, Section 3²³  of the sanctions which the Commissioner may impose places a limit on his authority inasmuch as the power to disapprove assignments of players is not included. The court concluded that the enumeration does not purport to be exclusive and provides that the Commissioner may act in one of the listed ways without expressly limiting him to those ways.

The court further concluded that the principles of construction that the specific controls the general, or that the expression of some kinds of authority operates to exclude unexpressed kinds, do not apply since the Commissioner is empowered to determine what preventive, remedial or punitive action is appropriate in a particular case and the listed sanctions are punitive only.²⁴  In fact, from 1921 until 1964, Article I, Section 3, expressly described the enumerated sanctions as "punitive action."²⁵ 

In view of the broad authority expressly given by the Major League Agreement to the Commissioner, particularly in Section 2 of Article I, we agree with the district court that Section 3 does not purport to limit that authority.

III

Despite the Commissioner's broad authority to prevent any act, transaction or practice not in the best interests of baseball, Oakland has attacked the Commissioner's disapproval of the Rudi-Fingers-Blue transactions on a variety of theories which seem to express a similar thrust in differing language.

The complaint alleged that the "action of Kuhn was arbitrary, capricious, unreasonable, discriminatory, directly contrary to historical precedent, baseball tradition, and prior rulings and actions of the Commissioner." In pre-trial answers to interrogatories, Oakland acknowledged that the Commissioner could set aside a proposed assignment of a player's contract "in an appropriate case of violation of (Major League) Rules or immoral or unethical conduct."

It is clear from reading the findings of fact that the district court determined through the course of the trial that Oakland was contending that the Commissioner could set aside assignments only if the assignments involved a Rules violation or moral turpitude.

In its briefs on appeal, Oakland summarized this branch of its argument by stating that the Commissioner's "disapproval of the assignments . . . exceeded (his) authority under the Major League Agreement and Rules; was irrational and unreasonable; and was procedurally unfair." The nub of this diffuse attack seems best expressed in a subsequent heading in the brief that the Commissioner's "abrupt departure from well-established assignment practice and his retroactive application of this change of policy to disapprove (Oakland's) assignments was made without reasonable notice and was therefore procedurally unfair."

The plaintiff has argued that it is a fundamental rule of law that the decisions of the head of a private association must be procedurally fair. Plaintiff then argued that it was "procedurally unfair" for the Commissioner to fail to warn the plaintiff that he would "disapprove large cash assignments of star players even if they complied with the Major League Rules."

In the first place it must be recalled that prior to the assignments involved here drastic changes had commenced to occur in the reserve system and in the creation of free agents.²⁶  In his opinion disapproving the Rudi, Fingers and Blue assignments, the Commissioner said that "while I am of course aware that there have been cash sales of player contracts in the past, there has been no instance in my judgment which had the potential for harm to our game as do these assignments, particularly in the present unsettled circumstances of baseball's reserve system and in the highly competitive circumstances we find in today's sports and entertainment world."

Absent the radical changes in the reserve system, the Commissioner's action would have postponed Oakland's realization of value for these players.²⁷  Given those changes, the relative fortunes of all major league clubs became subject to a host of intangible speculations. No one could predict then or now with certainty that Oakland would fare better or worse relative to other clubs through the vagaries of the revised reserve system occurring entirely apart from any action by the Commissioner.

In the second place, baseball cannot be analogized to any other business or even to any other sport or entertainment. Baseball's relation to the federal antitrust laws has been characterized by the Supreme Court as an "exception," an "anomaly" and an "aberration."²⁸  Baseball's management through a commissioner is equally an exception, anomaly and aberration, as outlined in Part II hereof. In no other sport or business is there quite the same system, created for quite the same reasons and with quite the same underlying policies. Standards such as the best interests of baseball,²⁹  the interests of the morale of the players and the honor of the game,³⁰  or "sportsmanship which accepts the umpire's decision without complaint,"³¹  are not necessarily familiar to courts and obviously require some expertise in their application. While it is true that professional baseball selected as its first Commissioner a federal judge,³²  it intended only him and not the judiciary as a whole to be its umpire and governor.

As we have seen in Part II, the Commissioner was vested with broad authority and that authority was not to be limited in its exercise to situations where Major League Rules or moral turpitude was involved. When professional baseball intended to place limitations upon the Commissioner's powers, it knew how to do so. In fact, it did so during the 20-year period from 1944 to 1964.

The district court found and concluded that the Rudi-Fingers-Blue transactions were not, as Oakland had alleged in its complaint, "directly contrary to historical precedent, baseball tradition, and prior rulings." During his almost 25 years as Commissioner, Judge Landis found many acts, transactions and practices to be detrimental to the best interests of baseball in situations whether neither moral turpitude nor a Major League Rule violation was involved, and he disapproved several player assignments.³³ 

On numerous occasions since he became Commissioner of baseball in February 1969, Kuhn has exercised broad authority under the best interests clause of the Major League Agreement. Many of the actions taken by him have been in response to acts, transactions or practices that involved neither the violation of a Major League Rule nor any gambling, game-throwing or other conduct associated with moral turpitude. Moreover, on several occasions Commissioner Kuhn has taken broad preventive or remedial action with respect to assignments of player contracts.³⁴ 

On several occasions Charles O. Finley, the principal owner of the plaintiff corporation and the general manager of the Oakland baseball club, has himself espoused that the Commissioner has the authority to exercise broad powers pursuant to the best interests clause, even where there is no violation of the Major League Rules and no moral turpitude is involved.³⁵ 

Twenty-one of the 25 parties to the current Major League Agreement who appeared as witnesses in the district court testified that they intended and they presently understand that the Commissioner of baseball can review and disapprove an assignment of a player contract which he finds to be not in the best interests of baseball, even if the assignment does not violate the Major League Rules and does not involve moral turpitude.³⁶  Oakland contended that the district court erred in admitting this testimony since parties are bound "only by their objective manifestations and their subjective intent is immaterial." In this bench trial where Oakland was contending that it was not put on notice that transactions alleged to otherwise conform to the Major League Rules might be invalidated, the court could certainly consider what most of the current parties to the agreement believed they were put on notice of when they became signatories.

Oakland relied upon Major League Rule 21, which deals, in Oakland's characterization of it, with "(a) throwing or soliciting the throwing of ball games, (b) bribery by or of players or persons connected with clubs or (c) umpires, (d) betting on ball games, and (e) physical violence and other unsportsmanlike conduct" as indicating the limits of what is "not in the best interests of baseball." However, Rule 21(f) expressly states:

Nothing herein contained shall be construed as exclusively defining or otherwise limiting acts, transactions, practices or conduct not to be in the best interests of Baseball; and any and all other acts, transactions, practices or conduct not to be in the best interests of Baseball are prohibited, and shall be subject to such penalties including permanent ineligibility, as the facts in the particular case may warrant.

Oakland also took issue with language in the district court's judgment order of March 17, 1977, which relied upon Milwaukee American Ass'n v. Landis, 49 F.2d 298 (N.D. Ill. 1931).³⁷  Oakland contended that the Landis case was distinguishable inasmuch as it involved the violation of a certain rule. In that case Judge Lindley held that the Commissioner "acted clearly within his authority" when he disapproved a player assignment after several assignments of the same player to and from different clubs owned by a single individual. The court said in 49 F.2d at 302:³⁸ 

Though there is nothing in the rules to prohibit an individual owning control of a Major League club from likewise owning control of Minor League clubs, the intent of the code is such that common ownership is not to be made use of as to give one individual, controlling all of the clubs mentioned, the absolute right, independent of other clubs, to control indefinitely a player acquired and switched about by apparent outright purchases.

We conclude that the evidence fully supports, and we agree with, the district court's finding that "(t)he history of the adoption of the Major League Agreement in 1921 and the operation of baseball for more than 50 years under it, including: the circumstances preceding and precipitating the adoption of the Agreement; the numerous exercises of broad authority under the best interests clause by Judge Landis and . . . Commissioner Kuhn; the amendments to the Agreement in 1964 restoring and broadening the authority of the Commissioner; . . . and most important the express language of the Agreement itself are all to the effect that the Commissioner has the authority to determine whether any act, transaction or practice is 'not in the best interests of baseball,' and upon such determination, to take whatever preventive or remedial action he deems appropriate, whether or not the act, transaction or practice complies with the Major League Rules or involves moral turpitude."³⁹  Any other conclusion would involve the courts in not only interpreting often complex rules of baseball to determine if they were violated but also, as noted in the Landis case, the "intent of the (baseball) code," an even more complicated and subjective task.

The Rudi-Fingers-Blue transactions had been negotiated on June 14 and 15, 1976. On June 16, the Commissioner sent a teletype to the Oakland, Boston and New York clubs and to the Players' Association expressing his "concern for possible consequences to the integrity of baseball and public confidence in the game" and setting a hearing for June 17. Present at the hearing were 17 persons representing those notified. At the outset of the hearing the Commissioner stated that he was concerned that the assignments would be harmful to the competitive capacity of Oakland; that they reflected an effort by Boston and New York to purchase star players and "bypass the usual methods of player development and acquisition which have been traditionally used in professional baseball"; and that the question to be resolved was whether the transactions "are consistent with the best interests of baseball's integrity and maintenance of public confidence in the game." He warned that it was possible that he might determine that the assignments not be approved. Mr. Finley and representatives of the Red Sox and Yankees made statements on the record.

No one at the hearing, including Mr. Finley, claimed that the Commissioner lacked the authority to disapprove the assignments, or objected to the holding of the hearing, or to any of the procedures followed at the hearing.⁴⁰ 

On June 18, the Commissioner concluded that the attempted assignments should be disapproved as not in the best interests of baseball. In his written decision, the Commissioner stated his reasons which we have summarized in Part I. The decision was sent to all parties by teletype.⁴¹ 

The Commissioner recognized "that there have been cash sales of player contracts in the past," but concluded that "these transactions were unparalleled in the history of the game" because there was "never anything on this scale or falling at this time of the year, or which threatened so seriously to unbalance the competitive balance of baseball."⁴²  The district court concluded that the attempted assignments of Rudi, Fingers and Blue "were at a time and under circumstances making them unique in the history of baseball."⁴³ 

We conclude that the evidence fully supports, and we agree with, the district court's finding and conclusion that the Commissioner "acted in good faith, after investigation, consultation and deliberation, in a manner which he determined to be in the best interests of baseball" and that "(w)hether he was right or wrong is beyond the competence and the jurisdiction of this court to decide."⁴⁴ 

We must then conclude that anyone becoming a signatory to the Major League Agreement was put on ample notice that the action ultimately taken by the Commissioner was not only possible but probable. The action was neither an "abrupt departure" nor a "change of policy" in view of the contemporaneous developments taking place in the reserve system, over which the Commissioner had little or no control,⁴⁵  and in any event the broad authority given to the Commissioner by the Major League Agreement placed any party to it on notice that such authority could be used.

Oakland has argued that the district court erred in not finding on the issue of procedural fairness. To the extent that Oakland made this an issue during the course of the trial, the court responded with adequate findings, many of which we have discussed in this Part III.

Finally, Oakland has also argued that the court excluded evidence which tended to show the Commissioner's malice toward Mr. Finley. Finley's own testimony on this subject, as well as the Commissioner's deposition covering the subject, were admitted as part of the record. When counsel for the Commissioner attempted to cross-examine Finley in regard to the same subject, Oakland's counsel objected on the ground of relevancy and the court sustained the objection on the ground that the Commissioner's motivation was not a serious issue in the case.⁴⁶  When the Commissioner was being cross-examined the same objection was sustained. However, since the subject had not been covered in direct examination, the court in its discretion could restrict the cross-examination to the scope of the direct; and since the subject of malice and motivation had been covered in Finley's testimony and in the Commissioner's deposition, the court could exclude it as cumulative regardless of its relevancy. The court made an express finding that the Commissioner had not been motivated by malice.⁴⁷ 

IV

The district court granted the defendant's motion for summary judgment as to Count II of the complaint, which sought to establish a violation of the Sherman Antitrust Act. The court said that "Baseball, anomaly of the antitrust law, is not subject to the provisions of that Act." The plaintiff on appeal has argued that any exemption which professional baseball might enjoy from federal antitrust laws applies only to the reserve system.⁴⁸ 

The reserve system "centers in the uniformity of player contracts; the confinement of the player to the club that has him under the contract; the assignability of the player's contract; and the ability of the club annually to renew the contract unilaterally, subject to a stated salary minimum."⁴⁹ 

The Supreme Court has held three times that "the business of baseball" is exempt from the federal antitrust laws.

In Federal Baseball Club of Baltimore v. National League, 259 U.S. 200, 208, 42 S. Ct. 465, 466, 66 L. Ed. 898 (1922), Mr. Justice Holmes said that "(t)he business is giving exhibitions of base ball, which are purely state affairs."

In Toolson v. New York Yankees, 346 U.S. 356, 356-57, 74 S. Ct. 78, 98 L. Ed. 64 (1953), the Court said in a short per curiam opinion:

In Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, . . . this Court held that the business of providing public baseball games for profit between clubs of professional baseball players was not within the scope of the federal antitrust laws. Congress has had the ruling under consideration but has not seen fit to bring such business under these laws by legislation having prospective effect. The business has thus been left for thirty years to develop, on the understanding that it was not subject to existing antitrust legislation. The present cases ask us to overrule the prior decision and, with retrospective effect, hold the legislation applicable. We think that if there are evils in this field which now warrant application to it of the antitrust laws it should be by legislation. Without re-examination of the underlying issues, the judgments below are affirmed on the authority of Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, supra, so far as that decision determines that Congress had no intention of including the business of baseball within the scope of the federal antitrust laws.

(Emphasis added).

In Flood v. Kuhn, 407 U.S. 258, 282, 284, 92 S. Ct. 2099, 2112, 32 L. Ed. 2d 728 (1972), the Court said that "Professional baseball is a business and it is engaged in interstate commerce" and "we adhere once again to Federal Baseball and Toolson and to their application to professional baseball."

Finally, in holding that the antitrust laws do apply to "the business of professional football," the Supreme Court, speaking through Mr. Justice Clark, made a substantive pronouncement regarding the baseball cases in Radovich v. National Football League, 352 U.S. 445, 451, 77 S. Ct. 390, 394, 1 L. Ed. 2d 456 (1957):

. . . (S)ince Toolson and Federal Baseball are still cited as controlling authority in antitrust actions involving other fields of business, we now specifically limit the rule there established to the facts there involved, i. e., the business of organized professional baseball.

Despite the two references in the Flood case to the reserve system,⁵⁰  it appears clear from the entire opinions in the three baseball cases, as well as from Radovich, that the Supreme Court intended to exempt the business of baseball, not any particular facet of that business, from the federal antitrust laws.⁵¹ 

V

Following the bench trial, the district court reached its decision in favor of the Commissioner without considering the impact of Article VII, Section 2 of the Major League Agreement, wherein the major league baseball clubs agreed to be bound by the Commissioner's decisions and discipline and to waive recourse to the courts.⁵²  In Parts II and III, we have affirmed the March 17, 1977, judgment, also without considering the impact of Article VII, Section 2. In this part we consider the district court's judgment of August 29, 1977, granting the Commissioner's counterclaim for a declaratory judgment that the waiver of recourse clause is valid and enforceable.

The Commissioner's counterclaim was based upon diversity of citizenship jurisdiction. In diversity cases a federal court must follow the conflict of laws principles prevailing in the state in which it sits. Klaxon Company v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). Under Illinois conflict of law principles, the law of the place of performance governs the construction and obligations of the contract when the place of making and place of performance differ, if the agreement is to be wholly performed in one jurisdiction. If more than one place of performance is involved, the place of making of the contract governs its construction and obligations. Oakes v. Chicago Fire Brick Co., 388 Ill. 474, 58 N.E.2d 460 (1944); P. S. & E., Inc. v. Selastomer Detroit, Inc., 470 F.2d 125, 127 (7th Cir. 1972). The Major League Agreement was and is to be performed in more than one state so that we are directed to its place of making.

The original agreement including Article VII, Section 2,⁵³  was made at Chicago, Illinois on January 12, 1921.⁵⁴ 

Oakland has urged us to apply the substantive law dealing with the "policies and rules of a private association" to the Major League Agreement and actions taken thereunder.⁵⁵  Illinois has developed a considerable body of law dealing with the activities of private voluntary organizations⁵⁶  and we agree that the validity and effect of the waiver of recourse clause should initially be tested under these decisions.

Even in the absence of a waiver of recourse provision in an association charter, "(i)t is generally held that courts . . . will not intervene in questions involving the enforcement of bylaws and matters of discipline in voluntary associations." American Federation of Technical Engineers v. La Jeunesse, 63 Ill. 2d 263, 347 N.E.2d 712, 715 (1976). In La Jeunesse the Illinois Supreme Court held that a private association could not bring suit to enforce fines imposed against some of its members. Thus the court upheld the rule that the courts are generally not available to an association or its members to review actions of a voluntary association with respect to its own members. Accord, Engel v. Walsh, 258 Ill. 98, 101 N.E. 222 (1913); Werner v. International Association of Machinists, 11 Ill.App.2d 258, 137 N.E.2d 100 (1956).

Viewed in light of these decisions, the waiver of recourse clause contested here seems to add little if anything to the common law nonreviewability of private association actions. This clause can be upheld as coinciding with the common law standard disallowing court interference. We view its inclusion in the Major League Agreement merely as a manifestation of the intent of the contracting parties to insulate from review decisions made by the Commissioner concerning the subject matter of actions taken in accordance with his grant of powers.⁵⁷ 

A second situation in which the waiver of recourse clause must be tested is in conjunction with the provision immediately preceding it which provides that "(a)ll disputes and controversies related in any way to professional baseball between clubs . . . shall be submitted to the Commissioner, as Arbitrator who, after hearing, shall have the sole and exclusive right to decide such disputes and controversies." Art. VII, Sec. 1. These clauses combine to place the Commissioner in the role of binding arbitrator between disputing parties as compared to his power to act upon his own initiative in the best interests of baseball as in the present case.

Considering the waiver of recourse clause in its function of requiring arbitration by the Commissioner, its validity cannot be seriously questioned. Illinois has adopted the Uniform Arbitration Act allowing contracting parties to require that all existing and future disputes be determined by arbitration.⁵⁸  Illinois is joined by numerous other states in encouraging a policy of arbitration, thereby providing private resolution of disputes and reducing litigation.⁵⁹  Moreover, it has been made clear that the United States Arbitration Act, 9 U.S.C. §§ 1-14, provides for arbitration of future disputes concerning contracts evidencing transactions in interstate commerce and that this federal law controls state law to the contrary. Prime Paint v. Flood & Conklin, 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967); Erving v. Virginia Squires Basketball Club, 468 F.2d 1064 (2d Cir. 1972). The federal courts have also upheld provisions in private agreements to waive all review of an arbitrator's decision. Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S. Ct. 2449, 41 L. Ed. 2d 270 (1974); Rossi v. TWA, 507 F.2d 404 (9th Cir. 1974), aff'g 350 F. Supp. 1263 (C.D. Cal. 1972); Euzzino v. London & Edinburg Insurance Co., 228 F. Supp. 431 (N.D. Ill. 1964). We conclude that the waiver of recourse clause is valid when viewed as requiring binding arbitration by the Commissioner for disputes between clubs.

Even if the waiver of recourse clause is divorced from its setting in the charter of a private, voluntary association and even if its relationship with the arbitration clause in the agreement is ignored, we think that it is valid under the circumstances here involved. Oakland claims that such clauses are invalid as against public policy.⁶⁰  This is true, however, only under circumstances where the waiver of rights is not voluntary, knowing or intelligent, or was not freely negotiated by parties occupying equal bargaining positions. The trend of cases in many states⁶¹  and in the federal courts⁶²  supports the conclusion of the district court under the circumstances presented here that "informed parties, freely contracting, may waive their recourse to the court."⁶³ 

Although the waiver of recourse clause is generally valid for the reasons discussed above, we do not believe that it forecloses access to the courts under all circumstances. Thus, the general rule of nonreviewability which governs the actions of private associations is subject to exceptions 1) where the rules, regulations or judgments of the association are in contravention to the laws of the land or in disregard of the charter or bylaws of the association⁶⁴  and 2) where the association has failed to follow the basic rudiments of due process of law.⁶⁵  Similar exceptions exist for avoiding the requirements of arbitration under the United States Arbitration Act.⁶⁶  We therefore hold that, absent the applicability of one of these narrow exceptions, the waiver of recourse clause contained in the Major League Agreement is valid and binding on the parties and the courts.

We affirm the district court's judgments of September 7, 1976, March 17, 1977 and August 29, 1977.⁶⁷ 

AFFIRMED.

FAIRCHILD, Chief Judge, concurring.

Jurisdiction, both of the Finley claim that the actions of the Commissioner were not authorized by the Major League Agreement and of the Commissioner's counterclaim based on the waiver of recourse to the courts provision is predicated on diversity of citizenship. To the extent that this is a diversity action, the choice of law rules of the State of Illinois are controlling. Under Illinois choice of law decisions, the law of the place of formation governs where the contract is to be performed in more than one state. Because the contract was made in Illinois and performance is nationwide, Illinois law governs the contract issues: whether the actions of the Commissioner are authorized by the Agreement, and whether the waiver of recourse provision is valid.

With respect to whether the actions of the Commissioner were authorized by the Major League Agreement, the first question is whether the Agreement gives the Commissioner the power to void player assignments when no rules have been violated. This question, like the analogous question of determining when a grievance is arbitrable, requires a judicial interpretation of the contract. Two contractual bases exist for the Commissioner's action. Major League Rule 12(a) provides that no assignment of a player contract is valid until "approved by the Commissioner." More generally, Art. I, Sec. 2 of the Agreement states that the Commissioner shall have the power to investigate any act "suspected to be not in the best interests of . . . baseball" and to take whatever "preventative, remedial or punitive action is appropriate . . . ." Neither of these provisions in any way expressly limits the power of the Commissioner to situations involving rules violations. In my view, Finley has simply failed to establish that these provisions bestowing broad discretionary powers upon the Commissioner were intended by the parties only to apply in cases of rules violations.¹  Certainly the history carefully summarized in Judge Sprecher's opinion does not demonstrate that such a limitation was intended.

Once it is established that the Commissioner has the power under the contract to invalidate player assignments absent rules violations, the next problem is determining the standard of review applicable to the Commissioner's actions. Under Illinois law, this standard of review is extremely limited. In Illinois, courts will not as a general rule review the decisions of the governing body of a private association, e. g., American Federation of Technical Engineers v. La Jeunesse, 63 Ill. 2d 263, 347 N.E.2d 712, 715 (1976); Van Daele v. Vinci, 51 Ill. 2d 389, 282 N.E.2d 728, 731 (1972); Engel v. Walsh, 258 Ill. 98, 101 N.E. 222, 223 (1913). This is particularly true where, as here, the parties have voluntarily given the Commissioner such broad authority. The waiver of recourse to the courts provision strongly emphasizes the limited scope of judicial review intended by the parties of the Commissioner's actions. I agree with the suggestion in Judge Sprecher's opinion that the inclusion of the clause merely emphasizes the limited scope of review which would obtain in any event.

I would not, however, proceed with the majority to the more sweeping holding that the waiver of recourse to the courts provision, unless narrow exceptions exist, is "valid and binding on the parties and the courts" (presumably where Illinois law is found to control). While the Illinois case law is sparse, the latest judicial pronouncement on the subject strongly suggests that waiver of recourse to courts provisions are unenforceable and void in Illinois.² 

While the scope of review of the Commissioner's decision is extremely narrow, I believe it could be overturned if Finley could establish that he was denied a fair hearing because the Commissioner was biased or motivated by malice. Van Daele v. Vinci, supra, 282 N.E.2d at 732. La Jeunesse, supra, 347 N.E.2d at 715, Engel v. Walsh, supra, 101 N.E. at 2. The district court, however, made express findings that Finley received a fair hearing and the Commissioner was not motivated by malice. The finding does not seem to me to be clearly erroneous. Such problems as there are with the finding arise out of comments by the court implying that malice of the Commissioner would be irrelevant, and the court's sustaining of objections to some of the questions concerning possible ill will. Notwithstanding the comments, the court did make the finding, and did hear some of the evidence. In the absence of an offer of proof it is hard to believe that the sustaining of the objections was prejudicial. Moreover, appellant had made no objection to the proceeding before the Commissioner on the ground of bias.

I concur in Part IV of the majority opinion holding that baseball's exemption from the antitrust laws is not limited to the reserve clause. I only add that Federal Baseball Club of Baltimore v. National League, 259 U.S. 200, 42 S. Ct. 465, 66 L. Ed. 898 (1922), the case establishing the exemption, did not involve the reserve clause. See discussion. State v. Milwaukee Braves, Inc., 31 Wis.2d 699, 722-725, 144 N.W.2d 1 (1966), cert. denied sub nom. Wisconsin v. Milwaukee Braves, Inc., 385 U.S. 990, 87 S. Ct. 598, 17 L. Ed. 2d 451.

TONE, Circuit Judge, concurring.

With respect to the testimony of the 21 owners as to their understanding of the meaning of the Major League Agreement, I read Judge Sprecher's opinion as holding that testimony admissible on the issue of notice, not on the issue of their intent at the time of contract formation. The uncommunicated intent of a party to a contract is not admissible on the issue of the meaning of the contract. (See, in addition to the Union Bank case cited by Judge Fairchild, Judge Learned Hand's statement in Hotchkiss v. National City Bank, 200 F. 287, 293-294 (S.D.N.Y. 1911), aff'd 201 F. 664 (2d Cir. 1911).) Here, however, appellant argues that the Commissioner's action was an "abrupt departure from well established assignment practice and his retroactive application of the change of policy to disapprove appellant's assignments was made without reasonable notice and was therefore procedurally unfair"; and that "the reasonable expectations of a member of a private association may not be denied by a retroactive ruling lacking reasonable notice." It is to be remembered that

"Relevant evidence" means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.

Rule 401, Fed.R.Evid. The understanding of the other owners over a period of many years concerning the Commissioner's authority tended to make less probable the alleged facts on which appellant based the argument of lack of reasonable notice, viz., the existence of the asserted "well established assignment practice" that was changed contrary to appellant's "reasonable expectations." There was other, more probative evidence, including actual exercises of authority inconsistent with the asserted practice and conduct of appellant's president indicating an opinion consistent with that of the 21 other owners, that made the challenged evidence cumulative but not inadmissible unless the judge exercised his discretion under Rule 403, Fed.R.Evid., to exclude it.

Because the evidence was admissible on the notice issue, error could lie only in considering it on the interpretation issue, on which it was not admissible. Any such error was harmless, because neither the district judge's interpretation of the agreement nor ours depends upon the challenged evidence.