Finding that trust in the neutrality of the adjudicative process is the bedrock of the FAA, New York Supreme Court Judge Lawrence Marks vacated an award in favor of the Washington Nationals in a dispute over television fees. TRC Sports Broadcasting Holding v. WN Partner, 652044/2014, Nov. 4, 2015. The Court found that Proskauer Rose’s representation of Major League Baseball, the arbitrators and the Nationals over the objections of Petitioner MASN (previously TRC Sports) and the Baltimore Orioles was ‘unquestionably inconsistent with impartiality’.
In 2005, MLB, the Nationals, the Orioles and the Mid-Atlantic Sports Network (MASN) entered into an agreement establishing a two-club regional sports network (known as MASN) and granted it the exclusive right to broadcast Nationals’ and Orioles’ games. The Agreement set forth the annual rights fees to be paid by MASN to the Orioles and the Nationals in 2005-2011 and included a mechanism for determining future rights fees. In the event the parties were unable to reach an agreement, the fair market value of the rights were to be determined by the MLB’s Revenue Sharing Definitions Committee (RSDC). The RSDC is a standing committee of the MLB with changing representatives from three MLB teams.
In January 2012, the parties were unable to resolve their dispute through negotiations and submitted it to the RSDC pursuant to their agreement. The MLB staff administered the arbitration.
At a pre-arbitration organizational meeting, run by Rob Manfred, then Executive Vice President of MLB, MASN objected to the participation of Proskauer as counsel for the Nationals in light of its representation of MLB. Manfred permitted the objection but advised that the RSDC lacked authority to disqualify Proskauer from representing the Nationals. After a hearing on the merits, RSDC issued its award calculating the telecast rights fees for the Nationals over a five year period. While the Nationals valued the rights for 2012 at $109 million and MASN valued those same rights at $34 million, the RSDC awarded the Nationals $53 million for 2012 with increases each year culminating in $66 million in 2016. Thereafter MASN petitioned the Court to vacate the award.
In its petition, MASN claimed that the award was procured through corruption, fraud, undue means, was beyond the scope of the arbitrators’ authority and in manifest disregard of the law, was unfair due to prejudicial misconduct, and was procured through bias and evident partiality. Recognizing the deference given to arbitration awards, the Court rejected the majority of MASN’s claims but found that without neutrality, the deference given to arbitrators by the courts under the FAA is not warranted.
In considering whether the award was procured through evident partiality, Judge Marks noted that the Court of Appeals has adopted the Second Circuit’s ‘reasonable person standard’ when considering the federal evident partiality standard. Evident partiality ‘will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’ The Second Circuit determined that a mere appearance of bias was not enough but also recognized that proof of actual bias was rarely adduced.
In addressing MASN’s claim that Proskauer’s concurrent representation of the Nationals, MLB, and the individual arbitrators or their interests showed evident partiality, Judge Marks focused on the time period from the date the arbitration was noticed through the issuance of the award. During this period, he found that Proskauer represented the Nationals in this arbitration while representing MLB, it executives and related entities in nearly 30 other matters. Moreover, he found that although Proskauer has over 700 lawyers, the four attorneys who represented the Nationals in the arbitration also represented ‘MLB entities’ in 27 matters during the pendency of the arbitration. While MASN and the Orioles agreed to an ‘inside baseball’ arbitration, the Court concluded they did not agree to this situation.
Judge Marks then addressed the question of whether Proskauer’s representations of virtually every participant in the arbitration with the exception of MASN and the Orioles created a situation in which a ‘reasonable person would have to conclude that the arbitrators were partial to the Nationals’. Here the Court found that MLB did nothing to address MASN’s and the Orioles’ repeated concerns over the fairness of the process, which the Court said ‘fell on entirely deaf ears’. Judge Marks concluded that MLB could have taken some steps to protect the arbitral process and enumerated potential approaches including instructing Proskauer to screen the lawyers representing the Nationals from the other representations of MLB, the arbitrators and/or the arbitrators’ clubs.
Ultimately, the Court concluded that “this complete inaction objectively demonstrates an utter lack of concern for the fairness of the proceeding that is ‘so inconsistent with basic principles of justice’ that the award must be vacated.’”