By Jordan Kobritz
If Lance Armstrong doesn’t yet rue the day he submitted to a television interview-cum- confession with Oprah Winfrey in 2013, perhaps he should. His acknowledgement that he had lied repeatedly about his use of performance enhancing drugs spawned a number of
In addition to the lawsuits, SCA Promotions, a Dallas based company that insures promotion related prizes, successfully reopened an arbitration proceeding to recoup the $7.5 million it had agreed to pay Armstrong in 2006. On February 4, by a 2-1 vote with Armstrong’s appointed arbitrator dissenting, the arbitration panel ordered Armstrong and Tailwind Sports, the owner of his former US Postal Service team, to pay $10 million to SCA due to Armstrong’s lies and deception.[1]
The history of the case goes back more than a decade. Tailwind Sports contracted with SCA to pay Armstrong bonuses for winning the Tour de France. SCA paid Armstrong bonuses of $4.5 million each for winning the 2001, 2002, and 2003 Tour events and was on the hook for $5 million for his victory in 2004. However, after allegations of Armstrong’s doping appeared in the book L.A. Confidential written by David Walsh and Pierre Ballaster, SCA refused to pay the 2014 bonus. Armstrong sued and the case ended up in arbitration. After a two-year battle, the company settled for $7.5 million, the bonus of $5 million plus $2.5 million in legal fees and costs, even though it still believed that Armstrong had doped, despite the cyclist’s repeated denials under oath.
The settlement agreement between the parties contained a provision that required arbitration of “any dispute or controversy . . . arising under or in connection with” the settlement agreement. The parties also agreed to “submit to the jurisdiction” of the same panel. That language would have a crucial impact on the latest award by the arbitration panel.
Armstrong’s television confession amounted to an admission that he lied during the arbitration proceeding over his 2004 bonus, prompting SCA to request that the panel award sanctions against Armstrong and Tailwind for obtaining the settlement by perjury and fraud. Armstrong’s attorneys objected on the grounds of “functus officio,” a Latin phrase which in this case means that the arbitration panel had no further authority because its work had been completed. The arbitration panel determined that given the language in the settlement agreement, they had jurisdiction over the “new issue,” i.e., perjury, brought by SCA.
The arbitration opinion raises several interesting questions, including whether the panel can reopen a case that was settled ten years ago. As mentioned previously, arbitrators generally have no continuing jurisdiction on the grounds of functus officio. However, there are a number of exceptions to the doctrine. Courts have allowed arbitrators to revisit their awards to correct mistakes, to rule on issues that were submitted but not decided, to clarify ambiguities, and when the parties have agreed to authorize the same panel to hear a new issue or dispute.
The key words in this latest dispute are “settled” and “new issue or dispute.” If the arbitrators had issued an award, it would have been more difficult for them to revisit their original decision despite Armstrong’s rampant lies and deception. However, before the arbitrators could reach a decision in the original arbitration proceeding, the parties agreed to a settlement. Furthermore, in their settlement agreement the parties authorized the same panel – by specifically naming each arbitrator individually – to hear any new disputes, granted the panel exclusive jurisdiction over future disputes relating to the settlement agreement, and expressly waived any objection to the panel’s jurisdiction to hear any future disputes. Therefore, the arbitrators were neither reopening a prior decision of their own initiative, nor were they assuming jurisdiction where none had been granted. The panel’s authority was derived from the parties’ settlement agreement.
In his dissenting opinion, arbitrator Ted Lyon wrote that, “No arbitration panel in Texas or our nation has ever stretched back so far in time to issue such a sanction.” Lyon may be correct on that issue, but in this instance Armstrong can’t blame the panel for claiming jurisdiction. He has no one to blame for the latest decision save his attorneys for agreeing to the settlement language, or himself for confessing to perjury.
Interestingly, this wasn’t the first time the arbitration panel was asked to arbitrate a dispute arising from the 2006 settlement. On two prior occasions the parties had voluntarily submitted to the jurisdiction of the arbitration panel and on neither occasion did either party object to its jurisdiction. Furthermore, prior to the decision on this latest dispute Armstrong challenged the arbitration panel’s jurisdiction in the Texas courts, which declined to intervene.
Another question raised by the decision is whether the sanction in this case is warranted. On its face, an award of $10 million for perjured testimony may appear to be excessive. However, after reviewing the general authority of arbitration panels, this panel stated: “The Majority is satisfied that this Tribunal has the jurisdiction and authority, indeed, the duty to award sanctions against Claimants for the egregious breach of their contractual obligations to SCA, their obligations to this Tribunal and their calculated affront to the integrity of the arbitration process which Claimants themselves initiated.”
That language suggests that the majority of the panel was outraged by Armstrong’s conduct, a point they emphasized in the opening paragraph of their decision. The 28-page decision begins with this statement:
“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. Tailwind Sports Corp. and Lance Armstrong have justly earned wide public condemnation. That is an inadequate deterrent. Deception demands real, meaningful sanctions.”
The case may not be over quite yet. SCA has asked the Texas court to affirm the award as a “final judgment” which would allow it to collect the money from Armstrong. Armstrong’s attorneys have said they will file a cross-petition to vacate the award on the ground that it exceeded the arbitrators’ authority. The attorneys may argue that the original settlement agreement and consent award precluded the arbitrators from awarding sanctions. Although their argument may have some merit, we may merely be dealing with semantics here. SCA could have asked for rescission and attorneys’ fees, which would amount to a minimum of $9.5 million, hardly a substantial reduction from the sanction amount of $10 million (the arbitration panel said SCA had “additional costs insusceptible of precise calculation,” hence the figure of $10 million).
The Armstrong arbitration, replete with fraud, conspiracy and perjury, may have been unprecedented, but there may be a lesson here for anyone involved in an arbitration proceeding. Even though there is generally only one opportunity to arbitrate your case, if, as was the case with SCA, one party believes the other is hiding something or is being less than truthful, or that new evidence may be discovered at a later date, perhaps the best course of action is to settle the case in the best manner possible. Then include a clause in the settlement agreement that allows the same arbitrators to hear the case again in the future should you uncover the evidence you were looking for. That way you may get two bites at the apple instead of the normal one.
Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner. He is a Professor in the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com Jordan can be reached at jordan.kobritz@cortland.edu.
[1] http://online.wsj.com/public/resources/documents/armstrong02162015.pdf
