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March 3, 2000


The opinion of the court was delivered by: Conti, District Judge.



In the above-captioned case, Plaintiff San Francisco Baseball Associates L.P. (the "Giants") brings an action against Defendant United States of America (the "Government") for the refund of employment taxes paid by the Giants in the 1995 calendar year. The dispute arises out of payments made to seven former Giants baseball players from a $280 million settlement of three grievances filed by the Major League Baseball Players' Association (the "Players' Association") against 26 Major League Baseball Clubs (the "Clubs") for the violation of a collective bargaining agreement. The Giants contend that these payments are damages rather than wages, and thus are not subject to taxation pursuant to the Federal Insurance Contribution Act ("FICA") and the Federal Unemployment Tax Act ("FUTA"). The Giants also contend that, even if the payments are wages, they should be allocated to the 1986 and 1987 calendar years to which the payments relate rather than to the 1995 calendar year during which the payments were actually made. Now before the Court are both parties' motions for summary judgment.


The Giants, along with 25 other Clubs, entered into a collective bargaining agreement with the Players' Association called the Basic Agreement, which became effective on January 1, 1980. The Basic Agreement deals with the terms and conditions of the players' employment with the Clubs, such as minimum salaries, benefits, and discipline. In addition, each player uses the Uniform Player's Contract ("UPC"), attached to the Basic Agreement as Schedule A, as the basis of his individually negotiated employment contract.

In 1986, 1987, and 1988, the Players' Association filed three separate grievances against the Clubs, charging that the Clubs had violated the Basic Agreement by acting in concert to interfere with the rights of "free agents" to bargain freely with the Clubs. In each case, the Major League Arbitration Panel*fn1 (the "Panel") held that the Clubs had violated Article XVIII(H) of the Basic Agreement, which prohibits collusion in the market for free agents. Specifically, the Panel found that following the 1985 and 1986 seasons, the Clubs had agreed not to bid for free agents whose present Club wanted to retain their services, and that following the 1987 season, the Clubs shared information regarding bids in order to restrain the market for players.

In subsequent proceedings, the Panel determined that the aggregate salary shortfall, which measures the additional compensation the players would have received if the Clubs had not colluded, was $10,528,086.71 for 1986, $38,000,000 for 1987, and $64,500,000 for 1988. In an informal draft decision, the Panel substantially agreed with the Clubs that the players could not recover for any alleged non-salary related injuries. After the Players' Association objected to the draft decision, the Panel agreed to further consider the matter, but no final decision ever issued.

The parties settled before the Panel considered the salary shortfalls for the years subsequent to 1988, and before the Panel released a final decision relating to the players' non-salary related claims. Under the Settlement Agreement, dated December 21, 1990, the Clubs agreed to pay a total of $280 million to the players, constituting $243,202,104 in settlement of all claims and $36,797,896 in pre-settlement interest. The Settlement Agreement did not allocate the settlement funds to any of the specific claims or years beyond the separation of damages and interest. Instead, it allowed the Players' Association to determine how to allocate the settlement fund among the players, but required all proposed distributions to be approved by the Panel.

Each Club agreed to pay 1/26th of the total settlement amount. The Settlement Agreement provided that until the entire settlement fund was distributed, each Club's share of the settlement fund would be tracked by a separate "Club Subaccount," initially increased by the Club's payments into the overall Settlement Account and then reduced by a proportionate share of any distribution to the players. The Settlement Agreement also provided that each Club's creditors could attach its subaccount but not that of any other Club, and that each Club would be responsible for the payment of taxes on investment earnings attributed to its subaccount.

The Players' Association advanced a Proposed Framework for the Evaluation of Individual Claims (the "Framework"), which was substantially approved by the Panel on September 11, 1991. The Framework permits players to submit a variety of claims, including, inter alia, what it calls "salary related" claims for lost salary, lost bonuses, and lost multi-year contracts as well as what it calls "non-salary related" claims for lost jobs, loss of mobility, and loss of security. While the Framework does not allocate any specific dollar amount for the non-salary related injury claims (other than for lost jobs), it does note that the Players' Association's best judgment was that there was "only a very minimal chance of prevailing" on such claims, and that the Players' Association "does not believe there will be many potentially valid claims of this type."

The Players' Association proposed three distribution plans relating to the salary shortfall claims submitted by the players for the years 1986 and 1987. The Panel substantially approved these plans, which resulted in the distribution of $45,970,701 to the players. The Players' "non-salary related" claims were dealt with in Partial Distribution Plan IV (the "Distribution Plan"), proposed by the Players' Association on January 7, 1994 and approved by the Panel on January 10, 1995. The Distribution Plan covered the players' claims submitted for the years 1986 and 1987 relating to lost jobs, loss of mobility, emotional distress, other non-salary related damages, and lost major league service. The Distribution Plan recommended a total payment of $7,208,355, including $1,890,000 for loss of mobility claims.*fn2

The payments arising out of these loss of mobility claims are the subject of the present action. Players submitted loss of mobility claims to receive compensation for their inability to work in the city of their choice or for the manager they preferred. The Panel approved the Players' Association's proposal to pay all those receiving loss of mobility payments a flat $10,000 award.*fn3

Pursuant to the Distribution Plan, seven former Giants baseball players were paid a total of $90,000, excluding interest, in compensation for their loss of mobility. Specifically, three players received $10,000 each for 1986, and six received $10,000 each for 1987. The Giants paid $6,885 in FICA taxes and $336 in FUTA taxes on these payments in 1995. The Giants then filed a claim for a refund with the Internal Revenue Service ("IRS"), which the IRS denied on March 5, 1997. The present action for a refund of the employment taxes followed.

Both parties now move for summary judgment.


Summary judgment is proper only when there is no genuine issue of material fact and, when viewing the evidence in the light most favorable to the nonmoving party, the movant is clearly entitled to prevail as a matter of law. See Fed.R.Civ.P. 56(c); Cleary v. News Corp., 30 F.3d 1255, 1259 (9th Cir. 1994). Once a summary judgment motion is made and properly supported, the nonmoving party may not rest on the mere allegations of its pleadings, but must set forth specific facts showing that there is a genuine issue for trial. See Fed R. Civ. P. 56(e); Celotex Corp. v. Myrtle Nell Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In addition, to withstand a proper motion for summary judgment, the nonmoving party must show that there are "genuine factual issues that ...

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