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 sportbook.com, 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 . . . .

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