Seventh Circuit Reverses Arbitration Ruling in Soccer Players Case
November 17, 2016
by Jerry Glover
An arbitrator’s decision is rarely overturned by a trial or appellate court. Most arbitration agreements, and the federal Arbitration Act, give parties the right to grant arbitrators sweeping authority in making his/her decisions. But a recent case out of the U.S. Court of Appeals for the Seventh Circuit, based in Chicago, illustrates the limited circumstances in which an arbitrator’s decision will be reversed. United States Soccer Federation, Inc. v. US National Soccer Team Players Assoc., 838 F.3d 826 (7th Cir. 2016).
A collective bargaining agreement (CBA) between the Soccer Federation and the players union contained a typical integration clause (also called a merger clause) which said the agreement contained the complete understanding between the Federation and the players concerning the subject matter of that agreement and that modifications or amendments to the agreement could only be made in a writing signed by the parties. The CBA also required arbitration of disputes arising from the interpretation or application of or compliance with the terms of the agreement. It gave the arbitrator the right to “interpret, apply and determine compliance with any provision of this [a]greement.” But this provision also prohibited the arbitrator from adding to, subtracting from or altering in any way the provisions of the CBA.
The CBA contained another provision which was at the heart of the dispute in this case. Section 6 of the players’ agreement (which was part of the CBA) required the Federation to get Players Association approval of video commercial spots that included the likenesses of one or more players (the Spots). But it did not require the Association’s approval if the promotion was a non-commercial video or print piece (the non-Spots) that included the likenesses of six or more players. The Federation could, however, ask the sponsor of the non-Spot to make a contribution in an amount determined by the sponsor to the player’s fund but such a contribution was not required. According to the arbitrator and despite the fact that the agreement did not require the Federation to get the Association’s approval of non-Spots, the Federation frequently did run non-Spots by the Association for their OK.
And that’s just what the Federation did in 2013. The Federation sought the Association’s approval of a print promotion sponsored by a tequila brand (a non-Spot). The Association disapproved the non-Spot. The Federation issued a declaration to the Association stating that the federation had no contractual obligation to submit non-Spots to the Association for their approval and would no longer do so. The Association filed a grievance under the CBA and demanded arbitration. The arbitrator noted in his ruling that he would only be required to interpret the contract if the language of the relevant provisions was ambiguous or the contract was silent on the matter at issue. He noted there was no provision in the CBA requiring the Federation to submit non-Spots to the Association for approval. He jumped from there to hold that the CBA was silent on that point. And since the contract is silent on this issue, the arbitrator had to determine the intent of the parties regarding non-Spot approvals. The arbitrator noted that the Federation had in the past asked for the Association’s approval of non-Spots. He declared this was a mutually acted upon customer or past prac5tice which can be used to interpret contractual ambiguity (or, in this case, silence). Thus the past practice of submitting non-Spots to the Association for approval became, in the arbitrator’s mind, an implied term of the CBA. He found for the Association.
The Federation appealed. The trial court confirmed the award. Even though the trial judge believed that the arbitrator’s interpretation of the CBA may have been “unsound” and the arbitrator’s frequent use of the terms “silence” and “ambiguity” was too “cavalier”, this was not enough to overturn the award.
The Seventh Circuit reversed the trial court’s decision upholding the arbitration award. The court first noted the well-trod rules about review of arbitrators’ decision:
–judicial review is extremely limited;
–as long as the award draws its essence from the CBA the award is legitimate;
–the question is not whether the arbitrator erred in interpreting the contact
–the question is not whether the arbitrator clearly erred in interpreting the contract;
–the question is not whether the arbitrator grossly erred in interpreting the contract’;
–the question is whether the arbitrator interpreted the contract.
But if the arbitrator goes beyond contract interpretation in his/her decision, then courts can step in and overturn the award. The Federation argued that the CBA made it clear that it did not have to get the Association’s approval for non-Spots and that by requiring the Association’s approval the arbitrator had exceeded his authority in interpreting the CBA. The Seventh Circuit agreed.
The appellate court noted that the arbitrator was incorrect to hold that there was an ambiguity in the CBA because it was silent about the approval process for non-Spots like the approval requirement for Spots. The court noted, however, that an ambiguity is defined as something that makes it possible to interpret a document reasonably in more than one way. That ambiguity must arise from contract language or “some yawning void that cries out for an implied term.”
The court held that the CBA was not silent about the approval process for non-Spots because it clearly requires the Federation to request of non-Spot sponsors a donation to the player’s fund. The court noted there was only one way to construe this provision and that way did not require the addition of an approval requirement. The arbitrator’s use of past practice leading to a requirement of player approval added a term to the CBA that was complete without that addition. The court also noted that the CBA prohibited the arbitrator from adding to, subtracting from or altering the CBA. When the arbitrator added the approval requirement he violated this provision.
The Association argued that only the arbitrator, not the court, determines whether contract language is ambiguous. A court can intervene, it continued, only if the arbitrator ignores that ambiguity that he had found. The Seventh Circuit, however, noted that the Association’s position would undercut any meaningful judicial review of arbitrator awards because an arbitrator could declare something ambiguous in an agreement and, if he did not somehow contradict that finding later in the award, his decision would be completed insulated from judicial review. The trial court’s affirmation of the arbitrator award was reversed.