American and National Leagues of Professional Baseball Clubs v. Major League Baseball Players Association

In February 1974, James A. Hunter signed a two-year contract to pitch for the Oakland Athletics Division of Charles O. Finley & Company, Inc. (Oakland) (plaintiff), which was owned by Charles O. Finley, for $100,000 per season. The contract required Oakland to pay $50,000 of that amount annually to aid Hunter’s desire for favorable federal-tax treatment. On August 1, after consulting with the Internal Revenue Service (IRS), Hunter’s counsel sent Finley documents for him to sign to help establish a deferred income compensation account (DCIA) and related annuity contracts with an insurance company that Hunter’s counsel expected would facilitate the desired tax treatment, and Hunter’s counsel asked Finley to pay the $50,000 to the insurer. The DCIA contemplated (but did not require) that Oakland might purchase annuity contracts from the insurer in connection with the plan. Over the next approximately six weeks, Finley offered various justifications for not signing the papers or paying the money. On September 15, Finley declared that he would not sign the papers, leading Hunter’s counsel and the Major League Baseball (MLB) Players Association (union) (defendant) to demand that Finley promptly sign the papers and pay the insurance company. When Finley did not do so, the union filed arbitration grievances against Oakland with MLB’s Player Relations Committee seeking payment of the $50,000 and a declaration that Hunter was a free agent (i.e., allowed to sign with any MLB team). The arbitration panel granted both requests. Oakland then petitioned the superior court to vacate the award; the court rejected the petition. Oakland appealed, arguing that the DCIA and insurance-company payment (1) might fail to provide Hunter with his desired tax benefit and (2) would be illegal and subject Oakland and Finley to criminal prosecution for aiding tax evasion if the IRS were unaware of the full transactions. Oakland further argued that the arbitration award was illegal or against public policy because it would encourage tax evasion and that the arbitrators erred in declaring Hunter a free agent.