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September 03, 2014 Article

Can the City of Los Angeles “Take” the Clippers?

Should City of Angels taxpayers be forced to ante up billions of dollars to take a sports team?

by Anthony F. DellaPelle

Faced with the now public racist statements of Los Angeles Clippers owner Donald Sterling, writer/activist Harvey Wasserman suggested that the City of Los Angeles should use eminent domain to seize the Los Angeles Clippers sports team from its embattled owner. Harvey Wasserman, “Eminent Domain: The Real Solution to Scumbag Sports Owners,” Truthdig, Apr. 29, 2014. Wasserman, who professes to own two shares of the community-owned Green Bay Packers football team, further suggests that eminent domain should also be used to take the Washington Redskins football team because its owner has refused to change the name and logo of the team to a less offensive team name and logo. 

This would not be the first time that the power of eminent domain was stretched far away from its originally intended uses, such as roads, schools, and parks, to assist government in obtaining the property it needed to properly and publicly serve a growing American landscape and population, and this would not the first time a sports franchise was the target. 

The U.S. Supreme Court’s opinion in Kelo v. City of New London, 545 U.S. 469 (2005), catapulted the topic of eminent domain from its historic stealth to unprecedented public awareness, both in the media and in small talk at social gatherings, as the high court permitted the use of eminent domain to take property from one private owner and give to another. Since Berman v. Parker, 348 U.S. 26 (1954), American communities have frequently tried, often without success, to use local redevelopment powers to revitalize failing cities. In the past few years, private enterprise has tried to team up with government to use eminent domain to seize “underwater” mortgages, ostensibly to help borrowers who got “bad,” “predatory” mortgage loans replace them with new ones before they face foreclosure, although that initiative has yet to be implemented. Eminent domain has even been used to take real property for sports franchises, the Barclays Arena in Brooklyn being the latest controversial land acquisition to proceed. 

What many outside the field may forget is that eminent domain was initiated about 30 years ago—in California no less—in an effort to seize a sports franchise, the NFL’s Oakland Raiders, from team owner Al Davis, who ironically wanted to move the team to Los Angeles to make it more profitable, and where the team did move and called home for several years, before he moved it back to Oakland on his own.          

The Oakland Raiders had occupied a stadium known as the Coliseum, which was leased from a county government agency, since the mid-1960s.  It eventually became outdated, and after a few years of failed negotiations to upgrade the property in the late 1970s, Davis decided to move his team to Los Angeles.  In 1980, Oakland filed a condemnation action to acquire all of the Raiders’ franchise rights, and it acquired a temporary restraining order and preliminary injunction prohibiting the team from leaving. The trial court later ruled that the franchise could not be condemned because it was “intangible” property, but that ruling was vacated and the case was remanded by the California Supreme Court in 1982. While on remand, Oakland’s renewed efforts to enjoin the Raiders from moving failed, and the football team relocated to Los Angeles for the 1982 season.  Thereafter, a series of decisions were made at the trial and appellate levels, but these proceedings ultimately resulted in judgment in favor of the Raiders in 1985. The stated basis of the California Court of Appeals for its decision was that the burden that would be imposed on interstate commerce outweighed the local interest in exercising statutory eminent domain authority. City of Oakland v. Oakland Raiders, 220 Cal. Rptr. 153 (Cal. Ct. App. 1985).          

The Raiders saga involved some basic, but important, legal issues, that must be considered before any state or local government agency tries to take a professional sports team in the future.  First, government’s eminent domain power is not limited to real property only—it can also involve the taking of intangible, personal property. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984); Kimball Laundry Co. v. United States, 338 U.S. 1 (1949); City of Oakland v. Oakland Raiders, 646 P. 2d 835, 840 (Cal. 1982). Like any other exercise of eminent domain, the proposed taking must be for a public use.  Most courts are reluctant to review legislative determinations of public use, and the term is interpreted broadly to accommodate the increasing role of government in meeting public needs. Haw. Hous. Auth. v. Midkiff, 467 U.S. 229, 239–40 (1984). Indeed, state and local governments throughout the country have frequently used eminent domain to take real property that is used to build stadiums, arenas, and surrounding commercial uses that promote civic pride and recreational opportunity and stimulate the local economy.  So the next logical step after taking real property to accommodate sports franchises would be to use eminent domain to take the franchise itself.          

While the law might permit the taking of personal property like a sports franchise, there are other legal hurdles in the way, even before any consideration is undertaken as to whether the proposed taking is a good or bad idea. First, as the Raiders case revealed, other constitutional provisions may stand in the way. For Oakland, the fly in the ointment was the Commerce Clause in the U.S. Constitution, as the court there concluded that the “legitimate” local interest was clearly outweighed by the burdens that the taking would place on interstate commerce. Second, where such taking involves a regulated franchise, such as a sports team or other business, the impacts of any proposed taking on the franchise and the business at large need to be evaluated. One of the concerns of the Raiders court was whether the condemnation of a sports franchise would lead to its proliferation around the country. But more important is the consideration of the just compensation that would be awarded to the condemnee.          

Do sports franchises have a market value that is readily determinable as does other property? One might attempt to use a “comparable sales” approach to value a sports franchise, but are the Clippers “comparable” to the last several professional basketball teams that sold voluntarily, like the Milwaukee Bucks or Sacramento Kings? Can the income approach be used to value a sports team, where multiple streams of revenue would likely need to be capitalized to arrive at a market value for the team? Or should the cost to replace the team be considered? As of the writing of this article, it appears that Donald Sterling won’t have to worry about having his Clippers team taken by eminent domain, as a private sale to former Microsoft CEO Stephen Ballmer was allowed to proceed for the whopping price of $2 billion, far in excess of the sale price of any professional basketball team in the past and a handsome profit on Sterling’s $12 million purchase price for the team in the 1980s. But the saga may not be over, as Sterling’s attorney has also indicated that Sterling may be pursuing legal action against the National Basketball Association, although how he can in good faith come up with a viable damage claim given the “sterling” return on his investment remains to be seen.

The use of eminent domain in this fashion raises a host of policy considerations. Should the government punish people who exercise their First Amendment rights to express their insensitive and politically incorrect views by taking their property?  Should the taxpayers of Los Angeles, or any other city, be forced to ante up billions of dollars to take a sports team?  What would such a price tag do to already skyrocketing ticket prices and the cost of a hot dog and a beer at a game?  Even if the people in Southern California really do want to be like the residents of Green Bay and own their own team, how could they possibly afford to do so, when the government is having a hard time finding enough money to fix its roads and bridges and to pay for its schools and parks?  It is ironic that, around the United States, roads, bridges, train stations, parking lots, and other infrastructure are increasingly being owned and run in public-private partnerships, where private investment controls a traditional public use, whereas traditional private businesses and assets, such as for-profit commercial real estate, mortgage loans, and now maybe even sports teams, are being subjected to seizure through eminent domain.  The extent and use of eminent domain remains a balance between the incredible power of the government to seize private property and the restrictions placed on that power by constitutions as well as the constituencies of those governments.

Keywords: real estate litigation, eminent domain, Los Angeles Clippers, Oakland Raiders, franchise, intangible property, community ownership

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