In a ruling that reaffirms the NFL’s legal power to privately mediate intra-team ownership battles, Maryland federal Judge Peter Messitte on Wednesday dispatched to NFL-supervised arbitration a business dispute raised by the Washington Football Team’s three limited partners (Robert Rothman, Dwight Schar and Frederick Smith) against majority owner Daniel Snyder.
Although the litigation, which began last month in Maryland federal court, has generated sensational headlines as well as accusations of sexual impropriety and other transgressions, it centers on a relatively banal question: whether Snyder’s contractual right of first refusal with respect to a proposed sale of the limited partners’ shares to a third-party bidder allows him to block the sale.
The ruling is a decisive win for NFL attorneys, who intervened in the litigation and sought to restrain public access and the attendant drama. Benjamin Block, a partner at Covington & Burling and longtime counsel to the NFL and other sports organizations, made a compelling argument that regardless of the merits of the legal arguments raised by each side, those arguments are for the NFL—not a court—to decide.
Block’s reasoning was first reported by Sportico. The league’s constitution and bylaws, which owners contractually assent to follow, explicitly give the commissioner “full, complete and final jurisdiction and authority to arbitrate… any dispute involving two or more holders of an ownership interest in a member club.” Owners also accept the league’s dispute resolution guidelines, which call for confidential arbitration. Further, under federal law (specifically, the Federal Arbitration Act), judges are obligated to enforce arbitration agreements.
WFT documents only enhanced these points. The team’s stockholders agreement dictates that arbitration must come before any litigation. As excerpted in a court filing obtained by Sportico, the agreement instructs “any controversy or claim between or among the parties hereto… shall be determined by binding arbitration in accordance with the Federal Arbitration Act.”
Here, the three limited partners initiated an arbitration matter against Snyder in June. Within weeks, NFL commissioner Roger Goodell ordered the four parties to adhere to their contractual obligations of confidentiality. However, before the arbitration was resolved, the limited partners sued Snyder in court.
While Judge Messitte agreed that the case should return to arbitration, he limited the scope of his order. The judge recognized that while the NFL “unquestionably” possesses the “authority to ultimately determine who may become a franchise owner,” he cast doubt on whether the NFL has a right to become involved at the bidding stage. Judge Messitte noted that bidders are “merely prospective owners” rather than petitioners for NFL approval.
For that reason, Judge Messitte ordered that the limited partners “have the right to continue to negotiate with their current proposed third-party bidder… without interference by Defendant Snyder, the NFL, or any arbitrator.” This means Snyder can’t block negotiations between the limited partners and bidders; whether he can block a sale through a right of first refusal is, for now, a question for the arbitrator.
It’s still possible the case could generate high-profile filings.
For one, the case is not over. Judge Messitte pointedly noted that he will retain jurisdiction in the dispute. He also warned that he will grant injunctive relief if he finds Snyder or the NFL interfering with the limited partners’ negotiations.
Also, the limited partners could appeal Judge Messitte’s ruling to the U.S. Court of Appeals for the Fourth Circuit. However, such an attempt would face long odds. Appellate courts rarely review cases until there is a final judgment at the district court level.
Alternatively, the arbitrator could decide the right-of-first refusal question is not explicitly contemplated as a matter for arbitration and is thus not arbitrable. In that scenario, the limited partners would petition Judge Messitte to resume review of the key legal questions.
Lastly, the arbitrator could render an “award” (arbitration’s word for ruling) that is then challenged in court. While judges are obligated to give awards high deference, and while owners accept that the league’s final say is final say, the award’s loser could argue the dispute was arbitrarily decided or lacked basic elements of legal fairness. More on that should it arise.
(This story has been corrected in the first and second paragraph to show that the federal court in this case lies in Maryland, not Virginia.)