Breaking news:  An arbitrator for Major League Baseball (MLB) has issued a final decision determining that New York Yankee third baseman Alex Rodriguez should be suspended for 162 games – the complete 2014 MLB season – plus any and all postseason games.  This decision reduces the suspension initially imposed by MLB (211 games), and, because it will be without pay, costs A-Rod $25 million.  (Perversely, the suspension benefits the Yankees, who will not only be freed from their payroll obligations to A-Rod for 2014, but relieved of certain luxury tax obligations as well under MLB rules.)

Via a statement released earlier today, A-Rod says that he and his lawyers are headed to federal court.  What awaits him there?  To understand that, we need to understand the legal landscape that applies to major league baseball players.

The relationship between Alex Rodriguez, the New York Yankees, and MLB is governed by the Basic Agreement, a contract that was negotiated in 2012 between the existing MLB teams and the players’ union, called the Major League Baseball Players Association (“MLBPA”).  The current Basic Agreement runs until 2016, at which point the union and MLB will sit down and collectively bargain for a new one.

Under the Basic Agreement, disputes between a player and his team are governed by Article XI (the “Grievance Procedure”).  Id. at 38.  Those disputes, in turn, are ultimately settled by arbitration pursuant to XI.B.  Id. at 44.  The Basic Agreement provides that the “decision of the Arbitration Panel shall constitute full, final and complete disposition of the Grievance appealed to it.”  Id.

That’s where we are now; A-Rod has followed the Grievance procedures and has now obtained a “full, final and complete disposition” of his Grievance, reducing his suspension from 211 to 162 games.  How does he get from there into federal court?

The answers are two-fold:  first, because the Basic Agreement is a product of private collective bargaining, it is subject to the federal Labor-Management Relations Act, which in turn provides for federal jurisdiction over disputes regarding rights created by or substantially dependent upon a collective bargaining agreement (such as the Basic Agreement).  29 U.S.C. § 185(a); see also Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987).  So that means A-Rod can file suit in federal court based on federal law, regardless of what the Basic Agreement or any state laws happen to say.

But what does that federal law say?  As it turns out, this is a topic we’ve discussed frequently here at Suits by Suits; the same law that governs virtually all individual arbitration clauses contained in employment agreements also governs here:  the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq.  The FAA, in turn, provides four ways in which a litigant can vacate an arbitration award:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a).  If you want to skip to the punch line, our own Jason Knott summarized it perfectly a few months ago:  “When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen.  But when a court tosses an arbitrator’s decision, it creates headlines.”  So why exactly does A-Rod face such an uphill scenario?

The biggest reason isn't what the FAA says; it's what it doesn't say.  Note that those four statutory grounds for reversing an arbitration award do not include “mistake of law” or even “gross mistake of law.”  They don’t include incompetence, stupidity, or carelessness.  As the U.S. Supreme Court has noted, when a collective bargaining agreement specifies that an arbitrator’s award is “final,” a court may not evaluate whether the arbitrator applied “correct principles of law” or not.  United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 598-99 (1960).  Thus, even if the arbitrator had no basis for imposing a 162-game suspension on A-Rod, that fact standing alone would not be sufficient to permit a federal court to overturn the arbitration award under the FAA.

Summarizing this (and other) holdings, we lawyers typically describe the FAA’s standards for vacating an arbitration award as procedural rather than substantive; that means that a successful challenge must show that there was something wrong with the way in which the arbitration was conducted, and not just the result the arbitrator reached.  This is the dual-edged nature of binding arbitration; like it or not, you’re usually stuck with even an egregiously wrong outcome.  (For this reason, we told you how some employers are reconsidering whether mandatory arbitration clauses with their executives are good business policy.)

We do not yet know what transpired during A-Rod’s arbitration.  But what we do know is that, if Rodriguez is going to prevail in federal court, he’s almost certainly going to need to show that the process itself was unfair in some way.  Maybe he can do this; perhaps there were key pieces of evidence that the arbitrator refused to admit (9 U.S.C. § 10(a)(3)).  So far, however, A-Rod’s allegation is that the arbitrator “blatantly disregarded the law and the facts.”  That allegation – even if true – is probably not enough for him to succeed in overturning the arbitration award.

As more details are forthcoming – and if Alex Rodriguez and/or his lawyers detail allegations that fit more closely within the four grounds set forth for vacatur under the FAA – we’ll continue to update and evaluate.

• Arbitration

After writing a basic primer on Alex Rodriguez’s appeal, there’s one question I’ve gotten more than any other:

Q:  How does the arbitrator have the authority to impose a 162-game suspension on A-Rod?  Doesn’t the Joint Drug Agreement (titled “Major League Baseball’s Joint Drug Prevention and Treatment Program” and referred to as the “JDA”) specify that the punishment is a 50-day suspension for a first offense and 100 days for the second?

A:  Sort of.  Section 7.A. of the JDA provides that a player who “tests positive for a Performance Enhancing Substance, or otherwise violates the Program through the use or possession of a Performance Enhancing Substance, will be subject to the discipline set forth below,” and those punishments are the ones you see quoted in popular sports media; i.e., 50 days for a first offense, 100 for a second, and a “permanent suspension” from MLB subject to the right to apply for reinstatement for a third.  Id. at 22 (emphasis added).  There’s also a catch-all provision, Section 7.G.2, which provides that any player “may be subjected to disciplinary action for just cause by the Commissioner for any Player violation of Section 2 not referenced in Section 7.A through 7.F above,” and Section 2 in turn covers all Prohibited Substances.  Id. at 25.

Note those italics.  MLB didn’t charge A-Rod with one (or even multiple) test violations; it charged him with generally violating MLB’s Program through the alleged use of performance enhancing substances and suspended him for 211 games.  Now one could argue – and Alex Rodriguez’s lawyers almost certainly did argue during the arbitration – that MLB had no authority to impose a 211-game suspension under the JDA.  The arbitrator thus presumably heard and responded to those arguments; if he refused to hear them, A-Rod certainly has a great argument on his side on appeal pursuant to 9 U.S.C. § 10(a)(3), as I discuss in the previous post.  (I note that, so far, neither A-Rod nor his lawyers have suggested that they were denied the opportunity to make that or any other argument.)

But let’s assume A-Rod made that argument to the arbitrator and lost.  Now the question is:  what must the arbitrator do with it?  The arbitrator’s authority to address grievances comes from Article XI of the Basic Agreement, as previously discussed.  Subsection B, in turn, provides that the arbitrator, after hearing all evidence and argument relating to any grievance, “may affirm, modify, or reverse the decision from which the appeal is taken.”  Id. at 44.  MLB’s decision was to suspend A-Rod for 211 games, and the arbitrator thus modified it downward to 162 games.  A-Rod is free to argue that the arbitrator’s decision to do so was erroneous (or even arbitrary); I’ve already explained why that’s not likely to be a winning argument.

Could A-Rod characterize an argument that the arbitrator “exceeded [his] powers” in imposing a 162-game suspension in light of Section 7.A of the JDA?  He could, but in my experience, courts have generally not been receptive to such an argument.  See, e.g., Certain Underwriters at Lloyd’s, London v. Ashland, Inc., 967 A.2d 166 (D.C. 2009).  The bottom line is that even if the arbitrator disregarded the 50/100/lifetime structure set out in the JDA, that fact standing alone is unlikely to provide grounds for reversal of the award by a federal court.

• Arbitration

We’ve written frequently about the long-standing practice in the corporate world of including mandatory arbitration clauses in employment contracts.  Specifically, we’ve pointed out that although the practice may make sense for the employer when it comes to deterring potentially costly lawsuits brought by employees, those equities can shift when it concerns upper-level executives who generally have more means and wherewithal to fight a prolonged legal battle, be it in court or in front of an arbitrator.

In those cases – what we here at Suits by Suits consider our bread-and-butter cases – the employer may want to think twice about binding arbitration due principally to the risks of being stuck with an almost entirely unappealable adverse ruling; we’ve previously discussed how this has turned out poorly for employers such as Merrill Lynch and BDO.

Today, we continue to beat the drums of caution for both sides in our examination of a recent Texas appellate decision that makes it clear that many courts are looking for any way to kick a case out of the legal system in favor of arbitration.

• Arbitration
• Arbitration and ADR
• Releases

There’s a famous aphorism in journalism: “When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.”

The same is true of arbitration awards.  When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen.  But when a court tosses an arbitrator’s decision, it creates headlines.

On October 28, the Fourth Circuit made news by vacating an arbitration award issued to a former employee of an accounting firm.  Kiran M. Dewan, C.P.A., P.A. v. Walia, No. 12-2175 (4th Cir. 2013).  The former employee (Walia) was a native of Canada on a work visa who joined the Dewan firm as an accountant.  When he was terminated, he signed a release in which he gave up any tort or contract claims he had against the company in exchange for a payment of $7,000.  Three months later, the firm filed an arbitration against Walia, alleging that he had violated noncompete and nonsolicitation provisions in his employment agreement.  Walia filed counterclaims alleging that the firm underpaid him in violation of visa regulations, breached his employment agreement, and fraudulently sought to withdraw its sponsorship of his visa.  The arbitrator found that Walia’s release was legally enforceable, but also found that Dewan (the president of the firm) brought baseless claims and purposely sought to injure Walia’s immigration interests.  As a result, the arbitrator awarded Walia over $450,000.

In the build-up to its decision, the Fourth Circuit recognized the dog-bites-man principles of confirming arbitration awards.  It wrote that under the Federal Arbitration Act, “the scope of judicial review for an arbitrator’s decision is among the narrowest known at law because to allow full scrutiny of such awards would frustrate the purpose of having arbitration at all—the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.”   The Federal Arbitration Act and the common law only allow an arbitration award to be vacated when

• the award was “procured by corruption, fraud, or undue means”;
• there was “evident partiality or corruption” in the arbitrators, or either of them;
• the arbitrators “were guilty of misconduct”;
• the arbitrators “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made”; or

• “an award fails to draw its essence from the contract, or the award evidences a manifest disregard of the law.”

In other words, to vacate an arbitration award, a party must show that the winning party bought the award; the arbitrators were crooked or obviously biased; the arbitrators botched the arbitration to such a degree that a final and definite award wasn’t even made; or the arbitrators didn’t follow the contract at issue and/or disregarded binding law.

• Arbitration
• Arbitration and ADR
• Breach of Contract
• Releases
• Severance Agreements

That’s a straightforward question, and the Virginia Supreme Court has given a rather straightforward answer: yes. 

The question came up in Schuiling v. Harris, which we noted as coming over the transom but bears a little more scrutiny.  Initially, let’s set aside some of the curious facts about this case.  It’s not too curious that the plaintiff, William Schuiling -- owner of a collection of car dealerships in Virginia -- hired a housekeeper, Samantha Harris.  It is a bit unusual, however, that Schuiling had his housekeeper sign an arbitration agreement as part of her employment – and that the agreement only addressed arbitration, and no other conditions of employment, such as how socks were to be folded or dusting the ceiling fans.  It’s also odd that whatever happened in the employment relationship between Schuiling and Harris was pretty serious: it led Ms. Harris to file a “10-count complaint against Schuiling alleging multiple torts, statutory violations, and breach of contract,” as the Virginia Supreme Court explained – giving no details of the underlying allegations.  

• Arbitration
• Arbitration and ADR

Earlier this week, a New York state court declined to second-guess an arbitrator’s decision that BDO, USA does not have to indemnify or pay the legal bills of its former CEO, Denis M. Field, in his criminal case.

As we have noted here before, the first battle in a legal dispute between a company and its former executive is often over whether the dispute will be decided by a judge (and, ultimately, a jury) or a private arbitrator. Field v. BDO underscores why the stakes for that battle are so high: if you don’t like the arbitrator’s decision, you almost certainly will be stuck with it. That’s because the standard that courts apply in reviewing arbitrators’ decisions – even decisions about what the law requires – is a very forgiving standard. By contrast, the standard that appellate courts apply in reviewing trial judges’ decisions is less forgiving, which means that losers in the courts have a better shot at reversing decisions they don’t like than losers in arbitration.

• Arbitration
• Arbitration and ADR
• Indemnification and Advancement
• The Basics

We have had an ongoing conversation at Suits by Suits about the rapid proliferation of mandatory arbitration clauses in employment contracts, from the top of the company on down.  In April, we noted that one of employees’ chief strategies in trying to defeat a mandatory arbitration clause is to argue that the clause is unfair or, in legalese, “unconscionable.”  If an arbitration provision is drastically unfair to the employee, a court can strike it down under the doctrine of “unconscionability,” which permits a court to throw out a contractual provision that is so one-sided as to be “shocking to the conscience.”

The thing is, what is palatable under state law in one place may shock the conscience under state law in a different state.

• Arbitration
• Arbitration and ADR

One of the most important trends in the relationship between employers and employees is the proliferation of mandatory arbitration clauses in the employment contract.  In particular, we’ve noted that once an employment contract contains an agreement to arbitrate, courts frequently send non-contractual claims to the arbitration forum as well under the theory that such claims “arise out of” the employment agreement.

Because arbitration is generally perceived as being employer-friendly – although we’ve cautioned employers that isn’t always the case – employee plaintiffs are on the lookout for ways to convince a court that their arbitration clauses should not apply.

One approach is for the employee to argue that the employer has waived his or her right to arbitrate because the employer has “acted inconsistently” with the right to arbitrate claims.  We looked at the legal basis for this argument (as well as indulged in some trash TV) in a two-part series just a few months ago.  (Part one, Part two)

Another approach is for plaintiffs to challenge the clause as unfair.  The argument goes something like this:  for many employees – although typically not executives – the employment contract is presented on a “take it or leave it” basis; that is, it is a contract of adhesion over which the employee has little to no ability to negotiate particular provisions.  Accordingly, if an arbitration provision is drastically unfair to the employee, the court can strike it down under the doctrine of “unconscionability,” which permits a court to throw out a contractual provision that is so one-sided as to be “unusually harsh and shocking to the conscience.”

The latter approach is vividly illustrated by a recent California appellate decision, Compton v. American Management Services.

• Arbitration
• Arbitration and ADR

Before you read this, go ahead and open your desk drawer.  Look beyond what may be some rather odd contents, and the fact that those contents may speak volumes about you.

Dig down and find the employee handbook that’s likely buried in there.  There’s a good chance you got this on your first day of work, put in in the drawer, and haven’t looked at it since.  But move those ketchup packets aside and pull it out, because the question for today is: does that book form a contract between you and your employer (or you and your employees, if you’re the owner of the business)?

• Arbitration
• Breach of Contract
• Wrongful Termination

We have written previously about litigants’ attempts to compel arbitration under a theory of “equitable estoppel.”  For example, last July we discussed the move by Silicon Valley venture capital firm Kleiner Perkins to force its former partner, Ellen Pao, to arbitrate their sexual harassment dispute on the theory that, despite the absence of an agreement to arbitrate between the parties, it would be inequitable to allow Pao to avoid arbitration.  Although the trial court rejected this argument, Kleiner Perkins appealed and is awaiting a decision.

Since then, the issue of equitable estoppel has cropped up again in the California courts.  Just last week, in a decision that may have ramifications for Pao and Kleiner Perkins, the California Supreme Court declined to review (subscription required) a decision by a California appeals court affirming the denial of The Sports Club Company’s motion to compel arbitration against its former employee, Susan Gorlach.

• Arbitration
• Discrimination