On January 10, 2024, the Nevada Supreme Court heard oral arguments regarding the NFL’s appeal (Case No. 85527) from a state court decision denying its motion to compel arbitration of claims filed by former Raiders head coach Jon Gruden. The state Supreme Court paused the underlying case, Gruden v. National Football League (Case No. A-21-844043-B), while the arbitration decision is resolved.
In November 2021, Gruden sued the NFL and Commissioner Roger Goodell (but not the Raiders) in the Eighth Judicial District Court for Clark County, Nevada, alleging that Goodell and the NFL intentionally and tortiously interfered with Gruden’s contract with the Raiders by leaking offensive emails, which ultimately forced his resignation as head coach of the Raiders. The NFL quickly filed a motion to compel arbitration of Gruden’s claims, relying on two separate provisions.
First, the NFL pointed to Article 8.3(e) of the NFL Constitution which gives the Commissioner “full, complete, and final jurisdiction and authority to arbitrate . . . (a)ny dispute involving . . . any employees of members of the NFL . . . that in the opinion of the commissioner constitutes conduct detrimental to the best interests of the NFL or professional football.” Gruden’s contract with the Raiders included a provision acknowledging that he read and understood the NFL Constitution and Bylaws, and that he agreed to “abide by and be legally bound by” them. But notably, the NFL did not provide Gruden with a copy of the NFL Constitution prior to executing his contract with the Raiders.
Second, the NFL pointed to Gruden’s employment agreement with the Raiders which contained an arbitration agreement stating that “all matters in dispute between Gruden and [the Raiders], including without limitation any dispute arising from the terms of this Agreement, shall be referred to the NFL Commissioner for binding arbitration, and his decision shall be accepted as final, conclusive, and unappealable.” The NFL argued that this arbitration provision provides independent grounds to compel arbitration because all of Gruden’s claims arise out of the Gruden-Raiders contract.
Ruling from the bench, Judge Nancy Allf denied the NFL’s motion to compel. As to the NFL’s argument regarding the NFL Constitution, Judge Allf found no reason to conclude that Article 8.3(e) is applicable to Gruden’s claims. The court also rejected the NFL’s reliance on the arbitration agreement in Gruden’s employment contract because that arbitration provision covered disputes only between Gruden and the Raiders. In addition, Judge Allf concluded that enforcing arbitration would be both procedurally and substantively unconscionable.
The NFL made several arguments on appeal relating to Judge Allf’s determination that neither Article 8.3(e) nor the arbitration agreement in Gruden’s contract with the Raiders required Gruden to arbitrate his claims against the NFL. But perhaps the most interesting issue on appeal is Judge Allf’s conclusion that enforcing arbitration would be unconscionable—an issue that the Nevada Supreme Court Justices questioned the NFL about during oral argument.
Like any contract, an agreement to arbitrate may be invalidated as unconscionable where it is both procedurally and substantively unconscionable. Procedural unconscionability focuses on the circumstances of negotiation, such as the bargaining power of the parties or unfair surprise, whereas substantive conscionability pertains to the fairness of the agreement’s actual terms.
Judge Allf found that procedural unconscionability was present in this case because Gruden lacked the ability to negotiate the terms of the NFL Constitution and could not negotiate the selection of the Commissioner as the arbitrator after the dispute arose. Judge Allf also concluded that enforcing arbitration would be substantively unconscionable because the arbitration provisions made Commissioner Goodell the arbitrator.[1] In the court’s opinion, this necessarily deprived Gruden of a neutral arbitrator. Finally, Judge Allf determined that the arbitration provision in the NFL Constitution was illusory (and thus unconscionable) because it gave Goodell unilateral authority to determine whether a particular dispute was arbitrable or not.
Judge Allf’s finding of procedural unconscionability finds support from a recent opinion from the U.S. District Court for the Southern District of New York, wherein a federal district court similarly concluded that an arbitration provision included in the NFL Constitution was unconscionable (and thus unenforceable against the plaintiff-coach) because it gave the NFL and its member clubs unilateral authority to modify the terms of the NFL Constitution, and to do so without providing notice to the plaintiff. See Flores v. Nat’l Football League, 2023 WL 2301575, at *1 (S.D.N.Y. Mar. 1, 2023).[2] In the instant case this conclusion is bolstered by the NFL’s failure to give Gruden a copy of the NFL Constitution at the time he signed his contract with the Raiders.
Judge Allf’s determination that Commissioner Goodell could not serve as a neutral arbitrator, on the other hand, contradicts other courts’ rulings on the issue. As the NFL points out, the Second Circuit has rejected the argument that, as a matter of law, the NFL Commissioner cannot fairly arbitrate claims regarding the NFL’s conduct. See Nat’l Football League Mgmt. Council v. Nat’l Football League Players Ass’n, 820 F.3d 527, 548 (2d Cir. 2016). Here, however, Gruden may argue that in addition to the Second Circuit decision having no binding effect on the Nevada State Supreme Court, the instant case is readily distinguishable because Gruden has alleged that Commissioner Goodell was personally and directly involved in the tortious misconduct at issue. In addition, Gruden has claimed that Goodell would likely be a material fact witness to the case. Accordingly, Goodell’s ability to serve as a neutral arbitrator is arguably more likely to be compromised than in cases involving discipline of NFL players, as was at issue in Nat’l Football League Mgmt. Council.
Questions asked at oral argument suggest that the state Supreme Court Justices are likewise concerned about Goodell’s ability to serve as an unbiased arbitrator under the particular facts of this case. The NFL, however, maintains that the court’s concerns over Goodell’s ability to remain impartial should not disturb the parties’ clear intent to designate Goodell as the arbitrator of any disputes arising between them. Moreover, the NFL insists that any problems related to fairness that might arise from improper bias by Goodell can and should be addressed after arbitration, in accordance with § 10 of the FAA which permits courts to overturn arbitration decisions where there is “evident partiality or corruption.”
Finally, Judge Allf’s finding that the arbitration agreement was illusory because it grants Commissioner Goodell the ability to decide whether a particular suit is arbitrable may warrant closer inspection by the Nevada Supreme Court. As the NFL points out, the FAA allows parties to delegate to an arbitrator question concerning the scope of the arbitration agreement. However, a court must defer to the arbitrator to decide threshold questions of arbitrability only where there is “clear and unmistakable” evidence of the parties’ intent to delegate those questions to the arbitrator. See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019).
The delegation provision at issue here, Article 8.3(e), gives the Commissioner authority to arbitrate “(a)ny dispute . . . that in the opinion of the commissioner constitutes conduct detrimental to the best interests of the NFL or professional football.” (Emphasis added). Though the NFL argues that this provision simply delegates the “conduct detrimental” determination to Commissioner Goodell, a legitimate question remains as to whether that delegation is “clear and unmistakable.” Gruden argues that it is not. And even if Article 8.3(e) is sufficient evidence of the parties’ intent to arbitrate arbitrability, perhaps the Nevada Supreme Court will find that this case is distinguishable given that the delegation clause at issue grants authority to decide the issue of arbitrability to not just any arbitrator, but an arbitrator who is also a party to—and potentially a witness in—the relevant dispute.
To be sure, the NFL could have taken several steps to mitigate concerns of unconscionability. For example, the NFL could have provided Gruden a copy of the Constitution at the time he signed his contract with the Raiders. Moreover, the NFL could have included all substantive provisions of Gruden’s arbitration obligations in the contract itself, rather than merely incorporating by reference those provisions. Additionally, the NFL could have required Commissioner Goodell to appoint a neutral third-party arbitrator, rather than give him discretion to make himself the arbitrator. Any of these steps would have weakened Gruden’s argument that enforcing arbitration is unconscionable.
While it remains to be seen how the Nevada Supreme Court will rule on the NFL’s appeal, the case certainly raises interesting questions about unconscionability as it relates to agreements to arbitrate, as well as the NFL’s ability to force coaches (rather than players) into arbitration via their employment agreements with NFL member clubs.
Footnotes
[1] As the NFL pointed out, the NFL Constitution gives Commissioner Goodell the option to appoint a third-party arbitrator instead of arbitrating the case himself. But because Goodell alone has the discretion to make this decision, and because nothing requires Goodell to appoint a third-party arbitrator, the court did not find that this caveat mitigated its concerns.
[2] Notably, the NFL argued that unlike Massachusetts law (which the court applied in Flores), under California law (which applied here), a unilateral modification clause does not make an arbitration provision itself unconscionable.
Alec McNiff (Twitter: @Alec_McNiff) is currently completing a federal district court clerkship after spending a year as a litigation associate at a major law firm. Alec earned his J.D. from University of Michigan Law School and holds a business degree from University of Southern California. All opinions are his own.
