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NFL v. NFLPA and Brady – Beware the Downside of a Broad Arbitration Clause Before You Agree

By David TeSelle

April 27, 2016   Blog, Commercial Law, Commercial Litigation

A three judge panel of the Second Circuit Court of Appeals issued its opinion re-instating the NFL commissioner’s four game suspension of Tom Brady for his role in “deflate-gate”, the NFL sideshow over whether Tom Brady was complicit in intentionally deflating footballs during a playoff game to gain an unfair competitive advantage over the opponent. While the investigation and hearing led to no “smoking gun” evidence, the Commissioner found that Brady was complicit and assessed a four game suspension. Brady appealed and the battle continued.

While the headlines have focused on the weight of the evidence and whether or not the four game suspension was appropriate, the true lesson for the lawyers from this case is the power of a general arbitration clause and the broad deference that courts will give arbitrators to decide cases, even where their decisions or logic appear to be flawed.

This case arose under the NFL Collective Bargaining Agreement (“CBA”), a labor agreement intensely negotiated and agreed to by the NFL and the NFL Players Association. While the Second Circuit put great weight on the fact that the case is a labor case governed by the LMRA, there are many lessons to be drawn from this case about the pros and cons of agreeing to broad arbitration clauses.

The arbitration clause in the CBA essentially made the NFL Commissioner the arbitrator of any “conduct detrimental” to the league. The clause gave him broad discretion on exercising that power. In this case, the NFL Commissioner did several things that had a judge done them in court, would likely have resulted in reversal and a new trial.

Lesson One: Courts will give great deference to an arbitration clause in a contract.

The Courts see these as bargained for agreements between the parties, where the parties have presumably both agreed in advance that their disputes will be decided outside the Court system and, absent agreement to the contrary, outside the normal procedural and appellate protections of a typical court case. When the parties agree that one person will be the “decider” of issues, that person’s decision – whether it is legally sound or not – will prevail right or wrong, because that is what the parties agreed to. As the Second Circuit wrote:

It is the arbitrator’s view of the facts and the meaning of the contract for which the parties bargained, courts are not permitted to substitute their own.

This may not sound like much, but it is an extreme difference from the protections provided in Court.

Lesson Two: Arbitrators don’t have to follow the law. An Arbitrator just has to “Decide”.

One of my colleagues often describes pure arbitration as giving a private person the power to just drive up in a pick-up truck, get out, say “you win and you lose” and then get back in the truck and drive off, game over. While that example is extreme, and may touch on some fundamental fairness or due process issues, the critical point is that an arbitrator appointed with broad discretion and power does not have to be right, does not have to follow the law, and does not necessarily have to use sound judgment in making his/her decision. The arbitrator just needs to “decide”.

Lesson Three: While Arbitration provides some important benefits, it is important to beware up front of the risks associated with a broad arbitration clause.

To be sure, there are many “pros” to arbitration. Arbitration clauses are often the best choice in a given circumstance. Court case often proceed slowly and can be time-consuming and expensive. Court cases are also often unable to address business or labor issues that need to be resolved swiftly so that the parties can move on with their business. Arbitration often also allows for an arbitrator with more experience in the area of dispute (labor, securities, etc.). In fact, a broad arbitration clause that avoids forcing the arbitrator from following court-like procedures can be a more efficient and expedient way to proceed than to get bogged down in technicalities that often slow down the same process in a Court.

Lesson Four: When you agree to a broad arbitration clause, there is no “safety net” if the Arbitrator “gets it wrong”.

The Brady case emphasizes yet again the risks of broad binding arbitration. There is no “safety net” of a court of appeals or supreme court to reverse the “decider’s” mistakes of law or fact. You get one shot, and absent specific agreement to the contrary, the arbitrator need not follow the law or be what others believe would be “prudent” about their approach to the decision. They just need to decide. And once decided, absent proof that something serious went wrong with the process, i.e. fraud, disregard of the parties’ express agreements about the arbitration, etc., you are stuck with the decision you get from that arbitrator, whether it is just or not. When it comes to agreeing to an arbitration clause to resolve disputes that may arise in the future, it is important to beware of the pitfalls of such a process before you agree. Appropriate care and review to ensure that the “rules” of the arbitration will achieve your goals while protecting your rights is critical. Certainly, the NFLPA and Tom Brady wish that more time had been spent negotiating and drafting the broad arbitration clause giving the Commissioner almost unfettered control. But instead they agreed to live under the rules as written, and in the end, the Courts are most likely to enforce the rules you agreed to live by, regardless of the fairness or justice of the outcome.

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