New York Knicks v. Toronto Raptors: Commissioner’s Authority to Arbitrate Team Disputes Upheld
The New York Knicks (“Knicks”) brought suit against the Toronto Raptors and several employees (“Raptors”) in the United States District Court for the Southern District of New York. The Knicks argued that the Raptors poached a front office employee and instructed him to take the Knicks confidential and proprietary information on the way out the door to gain a competitive advantage. The Knicks set forth claims under the Computer Fraud and Abuse Act, the Defend Trade Secrets Act, misappropriation of trade secrets under New York state law, breach of contract, tortuous interference with contractual relations, conversion, unfair competition, and unjust enrichment.
The Raptors filed a motion to compel arbitration arguing the dispute should be brought before the Commissioner of the National Basketball Association (“NBA”) and not in court. Both the Knicks and the Raptors are governed by the NBA Constitution and By-Laws (“NBA Constitution”). Article 24(d) of the NBA Constitution states the Commissioner “shall have exclusive, full, complete and final jurisdiction of any dispute involving two (2) or more Members of the Association.” For the purposes of the NBA Constitution, “an action on behalf of a Member by any of its Owners, employees, officers, directors, managers, agents or representatives … shall be the action of a Member,” thus any matter involving the actions of an employee are inputted and considered the actions of the Member (i.e., the team). Additionally, Section 24(m) of the NBA Constitution states “all actions duly taken by the Commissioner pursuant to this Article 24 … shall be final, binding and conclusive, as an award in arbitration….” The former Knicks front office employee at issue had an employment agreement stating “that he shall be bound and governed by the Constitution and By-Laws, rules, regulations, resolutions and agreements of the NBA….”
As an initial matter, the Court found that 24(d) of the NBA Constitution represents a valid agreement to arbitrate “at least some disputes” and sets forth “broad language” requiring an arbitral determination of arbitrability. The Knicks, however, challenged the enforceability of the arbitration clause as to the instant matter. Although the Knicks challenged enforceability on several legal grounds, the primary focus of this post is on the assertions of Commissioner bias. Specifically, the Knicks argued that the arbitration provision is unenforceable due to Commissioner Silver’s relationship with Larry Tanenbaum, a minority owner of the Raptors and the Chairman of the NBA Board of Governors. First, the Court stated “the attack on the fitness of Commissioner Silver to arbitrate this dispute is premature; it is akin to a complaint about the officiating before the game has even started” because a district court “cannot entertain an attack upon the qualifications or partiality of arbitrators until after the conclusion of the arbitration and the rendition of an award.” Second, the Knicks point to a series of cases where commissioners were disqualified from serving as the arbitrator in cases involving players and teams, but the Court concluded “[t]hese 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 litigation.” Third, the Knicks pointed to Hewitt v. Kerr where a Missouri court declined to enforce an arbitration provision appointing the NFL commissioner as arbitrator, but the Court concluded that prior Second Circuit precedent has refused to follow Hewitt and stated “the Knicks agreed in the NBA Constitution to the jurisdiction of the Commissioner, they cannot at this early stage ‘ask the Court to provide them with an arbitrator who is more neutral than the one to whom they agreed.’” Fourth, the Knicks’ insistence to appoint an “alternative arbitrator” for the purposes of “fairness” was not persuasive “at this stage.” Finally, the Court notes if the Commissioner is “improperly biased”, then the Court retains the authority to review the award issued by the Commissioner and vacate that award.
The Court compelled arbitration for the Commissioner “to determine the threshold issue of arbitrability” and stayed the case while the parties arbitrate.
For any questions, contact Christian Dennie at cdennie@denniefirm.com.
