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SCA v. Armstrong: Anatomy of an Arbitration Award—Part I

February 23rd, 2015 Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, State Courts Comments Off on SCA v. Armstrong: Anatomy of an Arbitration Award—Part I By Philip J. Loree Jr.

Armstrong Arbitration Award: Introduction

yay-15106666-digitalArmstrong-e1424717219396On Monday morning, February 16, 2015 attorneys for SCA Promotions, Inc. (“SCA”) and SCA Insurance Specialists, Inc. (“SCA Insurance”) (collectively, the “SCA Entities”) filed a petition in a Dallas County, Texas state court to confirm a $10,000,000.00 arbitration award recently made in the Matter of the Arbitration between Lance Armstrong and SCA Promotions, Inc. Ordinarily something like that is an event accompanied with all the fanfare of a tree falling in a deserted forest.

But this petition is different. It seeks to confirm an arbitration panel’s award of $10,000,000.00 in sanctions levied against cyclist Lance Armstrong for having lied under oath to the arbitration panel and the SCA Entities in an earlier arbitration proceeding. So its filing was widely reported and discussed by major national and international media providers.

Here’s a condensed and simplified version of the background:

  1. SCA, a sports promotor, agreed to pay Armstrong and Tailwind a $7,500,000.00 bonus in the event he won the 2004 Tour de France cycling race. SCA Insurance acted as a prize insurer for the contingent bonus.
  2. The contract between the SCA entities and Armstrong and Tailwind contained an arbitration agreement.
  3. Armstrong won the 2004 Tour de France, his sixth of what would be seven such victories, but the SCA entities would not pay the bonus because, said the SCA Entities, it had evidence showing that Armstrong had taken performance enhancing drugs to win the 2004 race.
  4. A dispute arose and it was submitted to arbitration before a panel of three arbitrators, one appointed by each party, and the third (the “chair” or “neutral”) appointed by the other two.
  5. Armstrong claimed he never took performance enhancing drugs, let alone during the 2004 Tour de France, and asked the arbitrators to award him the $7,500,000.00 bonus.
  6. The arbitration proceeded, a hearing was held, and Armstrong, among other things, denied under oath that he had ever used performance enhancing drugs, let alone during the 2004 Tour de France.
  7. The hearings were concluded, but before the Panel issued an award, Armstrong and the SCA Entities agreed to a settlement under which (a) the SCA Entities would pay Armstrong $7,500,000.00, representing his bonus for winning the 2004 Tour de France; and (b) the SCA Entities and Armstrong would jointly request the Panel to enter a consent award in the amount of $7,500,000.00.
  8. The parties’ settlement agreement contained an arbitration agreement under which the same arbitration panel that presided over the arbitration would preside over any arbitration that might in the future arise concerning the settlement or the consent award.
  9. The arbitrators issued the consent award, and the SCA Entities paid Armstrong in full.
  10. In the meantime, the SCA Entities provided to the United States Anti-Doping Agency (the “USADA”) evidence about Armstrong’s then alleged use of performance enhancing drugs.
  11. The USADA is a non-profit, non-governmental organization. According to its website (http://www.usada.org/about/): “The U.S. Anti-Doping Agency (USADA) is the national anti-doping organization (NADO) in the United States for Olympic, Paralympic, Pan American, and Parapan American sport. The organization is charged with managing the anti-doping program, including in-competition and out-of competition testing, results management processes, drug reference resources, and athlete education for all United States Olympic Committee (USOC) recognized sport national governing bodies, their athletes, and events. Additionally, USADA contributes to the advancement of clean sport through scientific research and education & outreach initiatives focused on awareness and prevention.”
  12. The SCA Entities also provided evidence to the U.S. Department of Justice concerning evidence adduced at the arbitration.
  13. The USADA ultimately revoked official recognition of Armstrong’s seven Tour de France victories.
  14. Armstrong subsequently admitted on national television (the Oprah Winfrey show) that he had taken performance enhancing drugs during the 2004 Tour de France, which was, in practical effect, an admission that he committed perjury during the prior arbitration proceedings.
  15. That prompted the SCA Entities to request the Panel to award sanctions against Armstrong and Tailwind because it obtained the settlement and consent award via perjury and fraud. The Panel ruled 2-1 that Lance Armstrong and Tailwind Sports Corp. had to pay SCA Promotions, Inc. and SCA Insurance Specialists, Inc. (collectively “SCA”) $10,000,000.00 in sanctions.

 

yay-15968658FraudDeter-e1424717913279The opening paragraph of the majority’s award summarized and stated in no uncertain terms its view of the case and its importance:

 

 

 

 

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. This Arbitration Tribunal awards sanctions of Ten Million Dollars ($10,000,000.00) against Mr. Lance Armstrong and Tailwind Sports Corporation. 

(Award at 1.)

 

yay-8353254Lies-e1424718576144According to the Panel:

 

 

 

 

Ample evidence was adduced at the hearing through documents and witnesses that Claimants [i.e., Armstrong and Tailwind] commenced this proceeding knowing and intending to lie; committed perjury before the Panel with respect to every issue in the case; intimidated and pressured other witnesses to lie; or influenced others to help them lie and to hide the truth; used a false personal and emotional appeal to perpetuate their lies to the Panel; used perjury and other wrongful conduct to secure millions of dollars of benefits from Respondents; used lies and fraud to falsely claim that the Panel exonerated them, thereby further allowing them to profit further from additional endorsements and sponsorships; expressed no remorse to the Panel for their wrongful conduct; and continued to lie to the Panel throughout the final hearing even while admitting to prior falsehoods and other wrongful conduct. Claimants admitted in substantial part the substance of all (but the last) of the foregoing conduct.

(Award at 17.)

 

yay-15529552-digitalAristotle-e1424719133720Armstrong’s and Tailwind’s party-appointed arbitrator dissented. He wrote: “In Book III of his Politics, Aristotle wrote that it is well that we have a government of laws and not of men because even the best men are overruled by their passion.” He “respectfully dissent[ed]” “because [he] believe[d] the majority’s award [was] not based on the law.”

That statement might have been influenced in part by the dissenting arbitrator’s own understandable passion, for the majority’s award unquestionably interpreted, thoroughly analyzed and applied the law, and did so in a way that is the exception rather than the rule in arbitration. Given the circumstances, however, it is easy to see why the majority wanted to issue not only a reasoned award, but a well-reasoned one supported by authorities.

 

yay-6524652-e1424719946209-(1)Putting aside for a moment the question of who had the better side of the argument, we think all three arbitrators took their jobs very seriously. Mr. Armstrong is undoubtedly unhappy with the result, but it seems to us that both parties got the benefit of their arbitration bargain, and at least from the standpoint of fairness and personal responsibility, the outcome is unquestionably reasonable.

But apparently the case is not over quite yet. According to press reports, Armstrong may file a cross-petition to vacate the award on the ground that it exceeded the arbitrators’ authority. Although no such petition or motion has been filed yet, press reports indicate that Armstrong may argue the settlement agreement and consent award precluded the arbitrators from awarding sanctions.

yay-4011310-e1424720416151Whether or not Armstrong challenges it, the award raises some interesting issues that are worthy of discussion, principally because they provide a good excuse for reviewing, among other things, the basics of arbitrability, the limited scope of Section 10(a)(4) outcome review, and the interplay between state and federal law. In subsequent posts we’ll look at the award in detail; identify and analyze the issues, including issues pertaining to Armstrong’s putative challenge of the award; and explain why we think it more likely than not that the courts will ultimately confirm the award.

 

yay-14482672-digitalDisclosure-e1424720773685While this case does not involve arbitrator disclosure, some commentator disclosure is called for here. The Chair of the Panel is Richard D. Faulkner, who happens to be a good friend and colleague of mine. Rick and I have spoken together on a number of different occasions and have collaborated on various billable and nonbillable matters. A few years back Rick also introduced me to Richard Chernick, and I was (and remain) very impressed with him, which should come as no surprise when you learn about all he’s done in the arbitration field.

That said, my intention here (and in future Armstrong-related posts) is to discuss the award and the issues it raises from as objective a standpoint as possible. While I’m confident in my ability to do that, human beings will be human beings, and I’d rather let readers make their own informed decisions about what risk, if any, there is that I’ll fail in that endeavor; and, even assuming the risk is high, whether it matters.

         

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