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Lance Armstrong: Finality of arbitration and the wisdom of settlement in a litigation context

Russ Samson Iowa Employment & Labor Law Dickinson Law Des Moines Iowa

Posted on 03/04/2015 at 12:27 PM by Russell Samson

In early February 2015, an arbitration panel directed Lance Armstrong to pay SCA Promotions some $10 million in sanctions for Armstrong’s conduct in procuring the payment of “bonuses” to Armstrong for various “wins” during his career. My interest was piqued by statements that the sanctions to be paid flowed from an arbitration proceeding between Armstrong and SCA that had taken place almost a decade earlier. As explained on its website, SCA is in a very interesting business. As it relates to Armstrong, a sports management company (“Tailwind”) Tailwind had entered into a contract with Armstrong to pay him a “bonus” or additional prize money if Armstrong won Tour de France races -- $1.5 million if Armstrong was the Official Winner of the 2002 race; an additional $3 million if Armstrong was the Official Winner of the 2002 and 2003 races; and an additional $5 million if he was the Official Winner of the 2002, 2003, and 2004 races. SCA and Tailwind entered into what is described as “Contingent Prize Contract #31122.” Under that contract, SCA assumed Tailwind’s risk in exchange for a fee. The Tailwind / SCA agreement included a clause that, “any dispute arising under this contract shall be resolved by binding arbitration pursuant to the Texas General Arbitration Act. The site of such arbitration shall be Dallas, Texas.” Armstrong’s dispute with SCA reportedly began in 2004 when Armstrong sued SCA for not paying a “contingent prize” for winning the Tour de France. Under the underlying agreement, the dispute was submitted to an arbitration panel. Reportedly, during the 2005 arbitration panel hearing, Armstrong “testified under oath that he did not use performance-enhancing drugs” in the Tour de France. [I acknowledge, with my tongue firmly in my cheek, one can’t put anything on the internet that is not true!] Again, based on internet reports, SCA and Armstrong entered into a settlement agreement, which was confirmed by the arbitration panel, under which SCA paid Armstrong $7.5 million. Questions about Armstrong’s conduct remained in the public mind. In 2013, Armstrong acknowledged to Oprah (and anyone else who was watching) that he had used performance-enhancing drugs on all of his Tour de France wins. After Armstrong’s admission to Oprah, SCA sued Armstrong to get back the money it paid Armstrong. That lawsuit is reportedly still pending. SCA also brought claims to the original arbitration panel, seeking “sanctions” for improper conduct; it apparently was not seeking reversal of the original arbitration award (which confirmed the settlement agreement). Labor lawyers in the private sector are well aware of the “federal common labor law” crafted by courts (from the United States Supreme Court on down) that an arbitration award in a collective bargaining context is final and subject to very limited review. Indeed, in January 2014 I posted on this blog my prediction that that A-Rod would be unsuccessful in challenging an arbitration award that affirmed an employer-imposed ban from baseball for the 2014 season. The same notion of favoring arbitration is true in a non-union context. In the last fifteen years, lawyers who practice employment law – and indeed lawyers who practice business law, generally – have seen the Supreme Court provide clear statements favoring arbitration as a means of alternate dispute resolution. In Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) the Supreme Court ruled that arbitration provisions contained in individual employment agreements are enforceable under the Federal Arbitration Act (“FAA”). The Supreme Court in Circuit City focused on the breadth of Section 2 of the FAA, which states: “A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable.” It is hard to imagine a contract that doesn’t evidence a transaction involving interstate commerce. The Supreme Court has also reinforced the FAA’s policy favoring arbitration by confirming limitations on a court’s power to vacate or modify an arbitration award. For instance, in Hall St. Assocs. LLC v. Mattell, 552 U.S. 576 (2008), the Supreme Court confirmed that there are only four very limited grounds listed in the FAA for vacating an arbitration award, namely: (1) fraud, corruption, or undue means by the opposing party in securing the award; (2) the arbitrators’ corruption or partiality; (3) other misconduct by the arbitrators; or (4) the arbitrators exceeded their powers. See also 9 U.S.C. § 10(a). In addition, there are strict procedural requirements for attempting to vacate or modify an arbitration award. For example, Section 12 of the FAA, 9 U.S. Code § 12 requires that a notice of a motion to vacate, modify or correct an arbitration award, “must be served upon the adverse party or his attorney within three months after the award is filed or delivered.” Furthermore, one of the major precepts of law historically has been that there must be some finality in disputes and the parties should move on. Rule 60 of the Federal Rules of Civil Procedure gives a federal judge the power to provide relief from a final judgment on very limited grounds, and then only on motion “made within a reasonable time [generally] no more than a year after the entry of the judgment or order.” Under federal labor law, a hybrid action challenging a grievance arbitrator’s award and an alleged breach of a union’s duty of fair representation must be brought within six months of the decision. Information initially in the media discussing the arbitration panel $10 million award notwithstanding, this was not an arbitration panel reviewing and then reversing a decision it had made earlier. So the notion that “final and binding” still means, apparently, at least “binding.” SCA was challenging the conduct which led to the settlement agreement. The written document that was the settlement agreement specifically provided:

The Arbitration Panel consisting of Richard Faulkner, Richard Chernick and Ted Lyon shall have exclusive jurisdiction over the parties hereto with respect to any dispute or controversy among them arising under or in connection with this SETTLEMENT AGREEMENT or Contingent Prize Contract #31122 and, by execution and delivery of this SETTLEMENT AGREEMENT, each of the parties hereby submits to the jurisdiction of that Panel and waives any objection to such jurisdiction on the grounds of venue or forum non conveniens, the absence of in personam or subject matter jurisdiction and any similar grounds, consents to service of process by mail or any other means permitted by law, and irrevocably agrees to be bound by any order or award issued or rendered thereby in connection with this SETTLEMENT AGREEMENT.

In June 2013, operating under the language quoted above, SCA sought to reconvene the original arbitration panel, making two claims against Armstrong. First, SCA sought to sanction Armstrong for perjury and other fraudulent conduct in connection with the original arbitration and settlement. Second SCA sought forfeiture of all prize money paid to Armstrong by SCA based on the fact that Armstrong had been stripped of all Tour de France titles. Armstrong unsuccessfully sought stays of the arbitration up through the Texas Supreme Court. Valid arbitration provisions can be effective tools for employers who wish to arbitrate, rather than litigate, potential workplace disputes. And, as I frequently counsel clients, settlement sometimes makes good business sense even for a dispute that is subject to arbitration. Here, the fact that SCA settled a dispute that resulted in a final and binding arbitration award most likely was what kept the door open a crack. Especially given that the settlement agreement included a requirement that disputes over that agreement be arbitrated. Alternative dispute resolution, and provisions requiring that all disputes be submitted to final and binding arbitration, has been included in a wide variety of contracts for a long period of time. But have you considered how disputes about “settlement agreements” will be resolved? There is another lesson floating through this. Arbitration is generally private: “The public” has no right to access the decision of the panel. However, if either party seeks some judicial action with regard to the award -- in A-Rod’s case, he attached the award to a court proceeding seeking to have the decision reversed; here SCA attached it to a state court pleading seeking confirmation of the panel’s award – the document becomes in the public domain. The Armstrong decision begins:

Perjury must never be profitable. Justice in courts of law and arbitration tribunals is impossible when parties feel free to deliberately deceive judges or arbitrators. The case yet again before this Tribunal presents an unparalleled pageant of international perjury, fraud and conspiracy. It is almost certainly the most devious sustained deception ever perpetrated in world sporting history.

There is little doubt in my mind where a document that begins like that will end. But, again, this is not a reversal of an earlier arbitration award. The $7.5 million original award stands. The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

 

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