By Jeff Birren, Senior Writer
In August 2023, the New York Knicks, LLC sued the Maple Leaf Sports & Entertainment LTD, d/b/a Toronto Raptors, alleging that the Raptors lured a Knicks employee to jump to the Raptors, absconding with trade secrets. Additional defendants included alleged perpetrator Ikechukwu Azotam, the head of video and player development assistant, head coach Darko Rajakovic, assistant video coordinator and player development coach Noah Lewis, plus ten John Doe’s, all “unknown” Raptors’ employees. The Raptors responded with the obvious motion to compel arbitration according to the NBA Constitution and an order sealing Azotam’s contract with the Knicks. The District Court sent the dispute to NBA Commissioner Adam Silver for arbitration and partially granted the motion to seal the contract (Opinion and Order, 23-CV-7394 (JGLC) (U.S.D.C., S.D.N.Y.) (6-28-2024)).
Undisputed Facts
Both the Knicks and Raptors are subject to the NBA’s Constitution and By-laws. Beginning in 2020, the Knicks employed Azotam in several roles. He “oversaw the Assistant Video Coordinators and was responsible for planning, organizing and distributing video scouting responsibilities for the Knicks’ coaching staff.” Like all the individual defendants, he contractually agreed to be bound by all NBA rules. He further agreed to “maintain in strictest confidence all confidential or proprietary information” concerning the Knicks. The contract had a forum selection clause, selecting either New York State or Federal Court.
Pled Facts
The Knicks stated that in July 2023 the Raptors began discussing potential employment with Azotam. The team and its staff “recruited and used Azotam to serve as a mole within the Knicks organization to convey information that would assist the Raptors” “in trying to manage their team.” He “began to illegally convert and misappropriate the Knicks’ confidential and proprietary data.” This theft “was done at the direction of Defendant Rajakovic and the Defendant Raptors.” Allegedly Azotam sent emails using his Knicks account to the Raptors that attached confidential files, “including scouting reports, play frequency data, opposition research, opposing play tendencies, lists and diagrams of opponents’ key plays, and the Knicks’ prep book.” He also “shared over 3,000 video files” “through a Knicks-operated file-sharing website.” Azotam joined the Raptors on August 14, 2023.
Three days later, the Knicks wrote to the Raptors complaining about the theft, demanding that the Raptors destroy the files and provide an accounting of the stolen files. The Raptors side-stepped. They claimed that they “did not know ‘what information Mr. Azotam has relating to his work with the [Knicks],’ and that the Raptors have ‘no interest in any of the information described in the letter.’” The team promised to meet with Azotam “before advising the Knicks on how it would proceed.” This is not New York time, so on August 21, 2023, the Knicks sued for breach of contract, tortious interference, unfair competition, unjust enrichment, and various statutory claims.
The Raptors wrote to the NBA to “request” that the NBA Commissioner accept jurisdiction over the dispute. The Knicks opposed the request. The NBA stated that it would “abide further proceedings in the S.D.N.Y. court for a determination of whether this dispute” should be adjudicated in court or NBA-arbitration. It “issued no determination” as to the proper place to decide the dispute. On October 16, 2023, the defendants moved to compel arbitration.
Contest Rules
Second Circuit opinions acknowledge that the Federal Arbitration Act “‘reflects a liberal policy favoring arbitration agreements and places arbitration agreements on the same footing as other contracts.’ (Meyer v. Uber Techs., Inc, 868 F. 3d 66, 73 (2nd Cir 2017) (cleaned up).” The “role of the court is ‘limited to determining two issues: i) whether a valid agreement or obligation to arbitrate exists, and ii) whether one party to the agreement has failed, neglected or refused to arbitrate.’ Shaw Grp. Inc. v. Triplefine Int’l Corp, 322 F. 3d 115, 120 (2nd Cir. 2003).” Arbitration applies “only those disputes—that the parties have agreed to submit to arbitration.” “Ordinary principles of contract law” are applied to “whether an arbitration agreement was validly formed and whether the parties consented to arbitrate a particular dispute. (First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995)).”
Any doubts “‘should be resolved in favor of arbitration.’ Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25-26 (1983).” The Court reviews “all relevant, admissible evidence,” but the “‘party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration.’ Green Tree Fin. Corp-Ala. v. Randolph, 531 U.S. 79, 91 (2000).” General “denials of facts” are not enough.
Tip Off
Here, an arbitration agreement exists. The NBA Constitution gives the commissioner “exclusive, full, complete, and final jurisdiction of any dispute involving two (2) or more members of the Association.” In addition, the “Parties have agreed to arbitrate the threshold question of arbitrability.” The Knicks sought a judicial determination of arbitrability. Courts “should not assume that the parties agreed to arbitrate arbitrability.” The party seeking arbitration bears “the burden of establishing this by clear and unmistakable expression of the parties.” However, “rarely do arbitration agreements directly state” whether court or arbitrator will decide this issue. In the absence of such language, “courts must look to other provisions of the agreements to see what contractual intention can be discerned from them.”
The Court examined the breadth of the agreement to arbitrate; whether the parties intended to arbitrate particular dispute; whether the parties incorporated procedural rules for the arbitral body to decide issues of arbitrability; the presence of provisions that limit the scope of the arbitrator; and the presence of provisions waiving the right to sue or seek remedies in court.
“The breadth of the Arbitration Clause,” the Constitution states, “weighs heavily in favor” of finding that “the Commissioner must determine arbitrability.’” It has broad language and there was no “qualifying provision.” “Under such circumstances, ‘all disputes necessarily includes disputes as to arbitrability.’” That it involved a breach of contract claim against Azotam “does not change this result.” The Knicks argued that this claim did not involve the Raptors, but “by its own terms, the claim at issue expressly involves the Raptors.”
The Knicks asserted that because the Arbitration Clause did not expressly incorporate language giving the Commissioner the right to decide arbitrability, it was dispositive that the Commissioner lacked that authority. However, a Second Circuit opinion previously held that “broad language” encompassing “‘all disputes—when coupled with incorporation of rules delegating the question of arbitrability to the arbitrator is sufficient to provide clean and unmistakable evidence of the parties’ intention to arbitrate arbitrability.’ DDK Hotels, LLC. v. Williams-Sonoma, Inc., 6 F.4th 308,319 (2nd Cir. 2021).” The language “any dispute” thus, “sweeps broadly.” No “other aspects of the contract” create ambiguity.
The Knicks supplied no language in the Constitution that limited the scope of what was delegated to the Commissioner. The team contended that the forum selection clause in Azotam’s contract superseded the Constitution, but as “a matter of black letter law, parties cannot modify a contract without the assent of all of the parties.” A “later contract’s forum-selection clause cannot supersede” the prior agreement, here the NBA Constitution, “when not all the parties to the prior agreement sign the later one. Wildfire Prods., L.P. v. Team Lemieux LLC, 2022 WL 2342335, at 7 (Del. Ch. June 29, 2022).” In Wildfire a dispute involving a potential sale of the Pittsburgh Penguins was sent to the NHL Commissioner for arbitration.
Furthermore, “the lack of an express arbitration clause” in Azotam’s contract does not nullify the Constitution. The Raptors were not a party to that contract, and it cannot therefore supersede the Constitution. The same, too, applies to the portion of the contract that provided that New York law would apply to any dispute between Azotam and the Knicks. The Knicks suggestion to the contrary “completely reads the arbitration clause out of the [NBA Constitution] and, therefore, is not preferred and will be avoided.” The “more natural construction” is that disputes solely between Azotam and the Knicks only “are to be litigated in the New York courts.”
The Challenge to the Enforceability of the Arbitration Clause “As Applied to the Instant Dispute”
The Knicks insisted that the Court should decide the “question of arbitrability.” In the first place, the clause was “indefinite,” too broad, and too remote from the present dispute. The team relied on cases that had applied such logic, but “this dispute has a plain nexus to the NBA Constitution itself. The alleged theft of confidential information from an NBA team—including scouting reports, play frequency data, opposition research, opposing play tendencies, lists and diagrams of opponents’ key plays, and the Knicks prep book…” in order to give “another team an on-court competitive advantage, plainly relates to NBA basketball and the NBA Constitution.”
The Commissioner is charged with “protecting the integrity of the game” and can “direct the dismissal and perpetual disqualification from any further association with the Association or any of its members.” This dispute “appears to fall squarely within the type of dispute about cheating over which the NBA Constitution vests the Commissioner with exclusive jurisdiction.” The Court declined to contemplate the Knicks’ “hypothetical boundaries” and applied the same logic to the individual defendants. The Complaint stated that the Raptors “directed Azotam’s behavior and/or knowingly benefited” thereby. The claims therefore “indisputably involve the Raptors.” Even the simple breach of contract claim against Azotam “expressly involves the Raptors.” Any concerns “do not counsel against compelling arbitration here.”
Statutory Claims as a Basis to Avoid Arbitration
The Knicks claims included “(1) violations of the “Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. §1030, et seq; and (2) violations of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. §1832, et seq.” They argued that the NBA Constitution limited their damages to $10M “while the DTSA and CFAA do not cap damages (and, in fact, permit double damages) and the DTSA provides attorneys’ fees for the prevailing party.” The team stated that courts will not enforce arbitration agreements “that prevent a party from effectively vindicating their statutory rights and securing their statutory remedies.”
However, statutory “claims are arbitrable unless ‘Congress has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issued’ (Gilmer v. Interstate /Johnson Lane Corp., 500 U.S. 20, 26 (1991)).” Nothing suggests Congress intended that claims under either statute were nonarbitrable.
Moreover, the Arbitration Clause does not restrict the Knicks’ right to bring these claims, nor “does it purport to limit recovery of attorneys’ fees.” The Knicks cited “no cases in which a prospective cap in arbitration—rather than a waiver of the right to pursue a species of claim or remedy altogether—was found to prevent” arbitration of statutory rights. Finally, assuming the $10M cap did apply, “there is no indication that this threshold would be reached aside from the Knicks’ conclusory assertion.” That “does not suffice to convince the Court at a procedural level akin to summary judgment.” The Court stated that it “need not inquire further into the damages that would be recovered in the event of success.” These assertions are “not a convincing challenge.”
“Commissioner Bias”
The Court spent over three pages of its opinion responding to the Knicks’ arguments “that the Arbitration Clause is unenforceable because the designated arbitrator, Commissioner Adam Silver, is biased due to his relationship with Larry Tannenbaum, a minority owner of the Raptors who serves as Chairman of the NBA Board of Governors.” The attack on Silver’s “fitness” according to the Court,“is premature; it is akin to a complaint about the officiating before the game has started.” A district court “cannot entertain such an attack” until the conclusion of the arbitration, Hojnowski v. Buffalo Bills, Inc., 995 F. Supp, 2d 232, 239 (W.D.N.Y. 2014), “(rejecting a challenge to the NFL Commissioner as arbitrator.)”
The Knicks relied on Erving v. Virginia Squires Basketball Club, 349 F. Supp. 716, 179-20 (E.D.N.Y. 1972), but Erving involved a third-party, the-then commissioner had previously represented the team, and was a partner at the firm that represented team and ABA, aff’d, 468 F. 2d 1064 (2nd Cir. 1972). Similarly, “the Commissioner of Major League Baseball should not arbitrate a dispute of claims that are asserted against Major League Baseball (Nostalgic Partners, LLC. v. New York Yankees Partnership, et al, ECF No. 37-1, No. 656724/2020 (N.Y.
Sup. Ct. Dec. 17, 2021)).” However, the Court wrote, “These cases are not akin to a member versus member dispute in which the Commissioner and the League do not stand on, or appear to have a vested interest in favoring either side of the ligation.”
The Knicks cited a Missouri state court opinion that “declined to enforce an arbitration agreement appointing the NFL commissioner in a dispute brought by a former employee against the Rams. The Commissioner who “‘is employed by the league; i.e., the team owners,’ was in a ‘position of bias’ when effectively ‘required to arbitrate claims against his employers.’” The designation of the commissioner “was unconscionable under Missouri law. (State ex rel. Hewitt v. Kerr, 461 S.W. 3d 798, 813 (Mo. 2015)).”
Unfortunately for the Knicks, that “argument at this stage is foreclosed by Second Circuit precedent. (See Flores v. Nat’l Football League, 658 F. Supp. 3d 198, 218 n.25 (S.D.N.Y. 2023).” Flores stated that Hewitt was contrary to Second Circuit precedent. Moreover, in the “Deflategate” case, the Circuit “rejected the argument that, as a matter of law, the NFL Commissioner cannot fairly arbitrate claims regarding the NFL’s conduct. See Nat’l Football League Mgmt. Council v. Nat’l Football League Players Ass’n, 820 F.3d 527, 548 (2nd Cir. 2016).” Naturally, there is a risk of bias, but “arbitration is a matter of contract.” The Knicks agreed to the NBA Constitution. As the Circuit stated in Deflategate, the remedy came during the prior negotiations.
The Knicks’ next failed contention was that the NBA Constitution was unfair because it did not provide a mechanism for providing an alternative arbitrator. This, too, the Court ruled “is unpersuasive at this stage.” Finally, if Silver proves to be biased, the Knicks can return to court as it “retains the authority to review” the decision and reverse it, due to either “evident partiality or corruption (9 U.S. § 10(a)(2)).”
Opinion Conclusions
As stated previously, the defendants sought an order sealing Azotam’s contract with the Knicks. The Court spent two-and-a-half pages reviewing prior precedent, the Circuit’s “three-part test,” and balanced “competing considerations.” Ultimately, the Court held that the “Raptors Defendants have no privacy interest” in Azotam’s Employment Agreement with the Knicks, but the defendants included the contract as part of their motion to compel arbitration. The Court decided that Azotam’s income from the Knicks was not material to the disposition of the motion or the “public’s ability to understand it,” so his interest “narrowly outweighs the presumption of public access.” It sealed only those portions of his contract related to compensation and bonus.
The Court sent the parties on the road to arbitration, but with a requirement that no “later than December 13, 2024” they file “a joint letter updating the Court on the status of the arbitration.” If Silver determines that the dispute “is not arbitrable, the parties are to inform the Court within seven days via a joint letter.” (No need to hold one’s breath on that account.) The Raptors declared victory, and the Knicks stated that they were reviewing their options (Ryan Wolstat, “U.S. court sends Knicks’ legal dispute with Raptors back to arbitration: Report”, Toronto Sun (6-30-24)).
Editorial Comments
Logic suggests a presumption of guilt. The Knicks maintain access to their email system, and it seems unlikely that they would have sued asserting as fact that Azotam sent thousands of emails attaching files to Toronto, immediately prior to his employment there, without having proof that this happened. If not, the Knicks would have legal difficulties. It also strains credulity to think that there is an innocent explanation for Azotam’s alleged behavior. Cross examination of Azotam, and the recipients of the emails, will be more entertaining to some lawyers than any show the NBA puts on the hardwood, wherever this contest is played.
If Azotam did purloin the files, the Knicks have lost leverage by being bounced from court. A New York jury would wallop the Raptors and their acquisition-minded employees in the proverbial New York second. The awarded damages might exceed the requested damages. The Knicks did gain a potential for justice. Silver is the one person who can permanently ban miscreants. He just did so to a former Raptors’ player. He can do so again.
On the other hand, the NBA has gained damage control over a potential public scandal. However, Mr. Silver cannot take the punishment low road. A pinky pat punishment of a one million dollar fine and the loss of a mere second round draft choice would be laughable, and the NBA would be excoriated by New York media. That matters in a way that wailing from Toronto does not. Unless the punishment includes the loss of a first-round draft choice, Silver will tacitly be approving such chicanery.
The Knicks “options” are limited. They may seek review in the arbitration-friendly Second Circuit. Perhaps they will tell NBA Commissioner that he is biased. One must wonder about the wisdom of that idea, but the Knicks ignored the reality that both teams’ owners are Silver’s employers, and media based in New York creates far more of the NBA’s financial footing than does Toronto. That leads to more silver for Silver. Bias? If so, which way?
