By Jonathan Wynne
A federal District Court Judge in Texas reiterated the strongly held congressional policy favoring arbitration in a September 2022 Order of a payment dispute between NBA Center Nerlens Noel and his then agents, Rich Paul and Klutch Sports. Paul and Klutch sought payment for fees earned under the Standard Player Agent Contract (SPAC) that Noel had signed in 2017. Paul filed a grievance against Noel, triggering arbitration pursuant to the SPAC.
The underlying dispute came at the end of a years-long and at times tumultuous relationship between the two that saw Noel reject a four-year, $70 million contract offer at Paul’s recommendation in the summer of 2017. Paul convinced Noel that he could secure a league-maximum deal at $100 million or more in the future. He recommended that Noel essentially bet on himself, take a one-year, $4.1 million deal with Dallas, and seek a massive deal the next offseason.
However, a combination of injuries, limited play, and allegations that Paul lost interest in Noel as a client, lead to a series of short-term, league minimum deals between $3 million and $5 million, a far cry from a nine-figure payday. Noel signed with Oklahoma City for 2018-19 at the league minimum and tested free agency once more the following year. Once again, the NBA rumor mill yielded no long-term proposals and Noel signed another league-minimum deal with Oklahoma City for the 2019-20 season.
During this phase, Noel learned Philadelphia wanted to sign him but could not get Paul to pick up his phone or return calls. Noel alleged this became a pattern with multiple teams and contemplated firing his representatives in January of 2020. He stated he was then told by an employee at Klutch to expect a 3-year deal between $7 and $10 million annually. The deal never materialized. Noel withheld agent fees in a subsequent short-term deal with the Knicks, giving rise to Paul’s grievance.
Noel answered Paul’s grievance and then separately brought claims in federal court against Paul and Klutch. The action included breach of fiduciary duty, negligence and gross negligence, and breach of the duty of good faith and fair dealing, with an additional claim for breach of the SPAC against Paul. Noel also sought a declaratory judgment that arbitration under the SPAC was invalid, void, and unenforceable.
Arbitration Clause Found Enforceable
The Court first explained that under the Federal Arbitration Act, an arbitration clause in a contract will be enforced unless grounds exist in law or equity to revoke the contract. The two-step process to answer this question first asks whether the contract contains a valid agreement to arbitrate and second, whether the current dispute falls within the scope of a valid agreement. State law governs the analysis for both questions.
In addressing the first question of whether a valid arbitration agreement existed between the parties, the Court found that New York law governed the SPAC. Noel argued the clause was illegal under both New York and Texas law. The Court disagreed, finding that the union, which operates out of New York, worked for the players to, among other things, draft the SPAC. The Court detailed many SPAC provisions supporting the relationship, including rules certifying and governing player agents, and agent compensation. A reasonable basis thus existed for selecting New York law to govern the SPAC.
Noel next argued that the 30-Day Grievance Filing Period invalidated the SPAC’s arbitration clause. The Court defined this dispute as a “gateway dispute” concerning whether the parties were bound by a clause. Such instances are properly determined by a court instead of an arbitrator, whereas procedural questions bearing on the final disposition of a case are for the arbitrator to decide. The narrow issue before the court was whether or not the 30-day limitation in the SPAC was enforceable, not whether Noel complied with it.
30-Day Provision Found Sufficient
The Court then considered Noel’s argument that the 30-Day provision was unreasonably short and thus unenforceable under New York law. The analysis is a factual determination of whether the period of time within which an action must be brought is fair and reasonable under the circumstances of the case. The Court noted that the circumstances, not the actual amount of time, was the determining factor.
Upon review, the Court found that the 30-Day provision was not unreasonable under the circumstances because the clock did not start until at least the date Noel knew or should have known of the facts giving rise to his claim. There was thus no risk that Noel’s claims would have extinguished before he had the chance to assert them. Additionally, the Court noted the 30-day limit and the SPAC itself exists in thanks to collective bargaining by the players’ union, a body tasked with representing the interests of the players, such as Noel.
Though the provision was found enforceable, the Court left the question of compliance to an arbitrator. It would be for future argument whether Noel complied with the 30-day limit because he was reasonably unaware of the facts giving rise to his grievance.
Klutch as a Nonsignatory Could Compel Arbitration
The Court also found that Noel was estopped from avoiding arbitration with Klutch despite the latter being a non-signing party to the SPAC. The Court determined that the issues Klutch sought to resolve in arbitration were clearly intertwined with the agreement (SPAC) that Noel had signed with Paul.
The Court also found a sufficient relationship among the three parties such that Noel could not agree to arbitrate with Paul but not with Klutch if the dispute was the same or similar. Accordingly, the court concluded that Noel’s claims against Klutch were “bound up” with his claims against Paul, all of which arose from the SPAC.
These answers in hand, the Court concluded that Noel’s claims clearly fell within the scope of the agreement. The SPAC provided clear instruction to arbitrate, and Noel’s claims boiled down to complaints against his representation based upon the relationship created in the SPAC. His claims in federal court were dismissed. The dispute ultimately resolved with Noel agreeing to pay around $200,000 in earned fees in January of 2023.
Jonathan Wynne is a Civil Litigator and Certified NFL Contract Advisor in Boston, MA.
