By Christopher Deubert, Senior Writer
[Disclosure: As referenced below, I represented Scott Pearson, Kaku’s representative, in a lawsuit brought by MLS arising out of the dispute described in this article; I also represented Kaku in a separate matter in which he was a co-defendant with MLS and the New York Red Bulls.]
FIFA’s Dispute Resolutions Chamber (DRC) has frequently held that unilateral options in favor of a club are unenforceable on the grounds that they unfairly restrain a player’s freedom of contract and employment. For this reason, the MLS Standard Player Contract contains a lengthy provision in which MLS and the players agree that FIFA’s regulations are not applicable. Although a decision handed down on April 5, 2024 might have provided players with a backdoor.
Kaku and the Red Bulls
The case at hand concerns Alejandro Sebastian Romero Gamarra, better known as “Kaku,” an Argentinian globetrotting soccer star.
On February 9, 2018, Kaku and MLS agreed to a three-year contract whereby Kaku would play for the New York Red Bulls. The contract also included two unilateral options through which MLS could extend Kaku’s contract through 2021, and then also 2022. To exercise the options, MLS needed to provide Kaku with written notice on or before December 1, 2020 for the 2021 season, and December 1, 2021 for the 2022 season.
In 72 games between 2018 and 2020, Kaku, a midfielder, registered 13 goals and 25 assists for the Red Bulls.
MLS claims that on March 3, 2020, then-Red Bulls Sporting Director Denis Hamlett hand delivered a letter to Kaku exercising its option for the 2021 season. MLS also claims to have sent the letter to Kaku’s representative, Scott Pearson.
Kaku denies ever having received the letter from the Red Bulls or that Pearson was authorized to receive any such letter on his behalf. Consequently, in December 2020, Kaku took the position that he was a free agent permitted to sign with any club anywhere in the world. In a January 18, 2021 letter to MLS, the MLS Players Association (MLSPA) supported Kaku’s position.
MLS Fights Back
In January 2021, amid reports that Kaku was prepared to sign with Saudi club Al-Taawoun, MLS sent multiple letters to Kaku and Al-Taawoun asserting that it continued to control Kaku’s rights.
Nevertheless, in February 2021, the Saudi Arabian Football Federation requested a “provisional registration” permitting Kaku to play for Al-Taawoun. FIFA granted the request over the objections of MLS and U.S. Soccer. The registration was likely granted because of the DRC’s historical aversion to unilateral options.
In light of Kaku’s pending agreement with Al-Taawoun, and with its letters unanswered, MLS commenced an expedited arbitration proceeding against the MLSPA on behalf of Kaku pursuant to the terms of the standard player agreement agreed upon by MLS and the MLSPA as part of the parties’ collective bargaining agreement.
Shyam Das, a reputable sports arbitrator, held hearings in March 2021 to adjudicate whether MLS had properly exercised its option on Kaku’s contract. In an April 2, 2021 decision, Das held that MLS had done so properly, crediting Hamlett’s version of events over Kaku’s. Das therefore found that Kaku had breached his contract and ordered him “to not play, attempt to play or threaten to play soccer for any team other than a Team in Major League Soccer[.]”
On May 12, 2021, MLS filed a petition in New York federal court to confirm the arbitration award. The MLSPA did not oppose the petition, which was granted on August 31, 2021.
[On July 21, 2021, MLS also sued Pearson in New Jersey federal court for alleged tortious interference. I represented Pearson in that action, which was voluntarily dismissed by MLS without any consideration from Pearson on September 15, 2021.]
While the legal process unfolded, Kaku moved on with his career, playing 11 games for Al-Taawoun in the 2020-21 season and netting seven goals. He now plays for Al Ain FC, an Emirati club.
FIFA Rejects the Red Bulls
On November 12, 2021, the Red Bulls (but not MLS) filed a complaint against Kaku and Al-Taawoun with FIFA seeking to prevent Kaku from playing for six months and asserting damages of $6.8 million.
On December 1, 2021, FIFA denied the Red Bulls’ claim on res judicata grounds, the legal principle that a matter which has been fairly heard and decided in one forum cannot later be brought in another forum. FIFA reasoned that the Red Bulls had already had their claim against Kaku fully heard in the prior arbitration and thus could not bring a new claim under FIFA’s rules.
After additional correspondence on the matter, in a March 28, 2022 decision, the DRC affirmed that it could not hear the Red Bulls’ case.
CAS Substantially Affirms
The Red Bulls appealed the DRC’s decision to a three-arbitrator CAS panel. Although a hearing was held in December 2022 on the case, no decision was issued until last week.
The CAS panel held that res judicata did apply as to three issues: (1) whether MLS validly exercised its option; (2) whether Kaku breached his contract; and (3) the consequences of that breach. On this last item, it is crucial to point out that the language of the Standard Player Contract only permitted Das to issue the injunctive relief he did – he had no authority to award damages nor did MLS seek any in that proceeding.
Consequently, the CAS panel held that the Red Bulls’ claim against Kaku was not barred by res judicata. Instead, it was barred by the lengthy provision in the contract declaring that FIFA’s regulations were not applicable.
The CAS panel did, however, remand the Red Bulls’ claims against Al-Taawoun back to the DRC for a full hearing.
The Potential Fallout
This was not the result MLS intended. The Standard Player Contract contains a provision which says that an arbitration decision – like that issued by Das – “may be immediately taken by either party to the relevant FIFA body or tribunal to be entered and enforced.” But, CAS ruled, MLS and the player had already renounced the applicability of FIFA’s regulations.
MLS had seemingly and mistakenly intended for a decision from a tribunal of first instance to then be able to be entered in another tribunal of first instance. Both FIFA and CAS rejected this process as impermissible forum shopping.
Without recourse to FIFA, it seems that MLS would have been stuck with the option of trying to have the order it received in federal court confirming the arbitration award enforced in Saudi Arabia. Good luck.
MLS’ ability to enforce unilateral options moving forward is questionable. If a player were to ignore the option in favor of signing a contract in any league but MLS, then MLS’ only recourse is to obtain injunctive relief in an MLS-MLSPA arbitration proceeding, relief that is of dubious and difficult enforceability outside the United States.
MLS will likely be seeking to address this issue with the MLSPA as soon as possible. Indeed, the CAS panel noted “that the wording of the CBA and/or the standard contract should be amended accordingly in order to create a sufficient legal basis” for MLS or a club to receive financial compensation from a player that has breached his contract. Without that potential liability, there does not seem to be much preventing players from walking away from exercised options.
Christopher Deubert is Senior Counsel with Constangy, Brooks, Smith & Prophete LLP
