Sports Arbitration: a perspective from the United States

This is the eighth article in Clyde & Co’s international arbitration series covering the topic of Sports Arbitration. In this piece, Dana Baiocco explores the controversy surrounding disciplinary sanctions imposed by the Major League Baseball Players Association against Certified Agent William Arroyo and his colleagues.

The sports industry in the United States uses alternative dispute resolution (“ADR”) methods to resolve a wide range of disputes among its participants. The most common form of ADR in this industry is Arbitration, which is most commonly defined as a method for resolving disputes by a final and binding decision issued by an arbiter. The applicable rules, however, vary among the different sporting organizations. In most cases, the rules which govern a particular dispute are based on some accord reached between the players, owners, and other relevant parties in a specific sport.

Major League Baseball (“MLB”) is well-known for its use of Arbitration to resolve disputes between its players (and their agents) and the MLB Clubs. MLB players in the U.S. are represented by the Major League Baseball Players Association (“MLBPA”), a labor union organized under federal law. That federal law gives the Player’s Union the power to bargain on behalf of their members. There are complex rules and regulations that govern this arrangement, which are agreed upon by the MLB Clubs and MLBPA on behalf of the players. However, while the agreement to arbitrate is well-established, the parties do not always agree on what law should govern a particular dispute. In the case study below, that issue is at the center of the controversy.    

Background

The federal court will decide whether an Arbitrator’s decision regarding disciplinary sanctions imposed by the MLBPA against Certified Agent William Arroyo and his colleagues, Noah Assad and Jonathan Miranda, will be confirmed and enforced, or whether the matter will be subject to additional adjudication. A series of legal strikes and counterstrikes began with a recent Notice of Discipline in which the MLBPA decertified Arroyo and barred Assad and Miranda from becoming certified MLBPA agents.¹ The Notice of Discipline also informed these three individuals that other MLBPA Certified Agents were prohibited from working for or associating with them or any entity owned by or affiliated with them, including Diamond Sports, LLC d/b/a Rimas Sports (“Rimas Sports”), and Rimas Entertainment, LLC.² The three individuals, but not Rimas Sports, were jointly and severally fined $400,000.

Rimas Sports is a Puerto Rican business founded in 2021 by Assad, Miranda, and Benito Martinez-Ocasio a/k/a “Bad Bunny.”³ The agency’s founders wanted to build a marketing and management firm that focused on the representation of the Latin American community in the sporting world. Rimas Sports also aimed to amplify branding and sponsorship opportunities and endorsements for Latin American athletes. Assad managed the company’s general operations and Miranda oversaw the baseball-management side of the business.⁴    

To facilitate its goals, Rimas Sports hired MLBPA-Certified Agent William Arroyo and other support personnel. Between 2021 and 2024, Rimas Sports signed several Major (and Minor) League Baseball players, including New York Mets players Francisco Alvarez and Ronny Mauricio, San Francisco Giants first baseman Wilmer Flores, and Colorado Rockies shortstop Exequiel Tovar.⁵     

MLBPA issued the Notice of Discipline at issue to Arroyo, Assad, and Miranda on April 10, 2024, following a two-year investigation into accusations that the Rimas representatives were violating a series of MLBPA Regulations, including those prohibiting inducements and unlawful recruiters.⁶ The MLBPA ultimately found that the allegations were justified despite their respective failures to cooperate with MLBPA during its investigation. The MLBPA decertified Arroyo and denied Assad and Miranda’s pending certification applications, calling their conduct “some of the most egregious violations ever committed under the MLBPA Regulations.”⁷ The MLBPA further informed these individuals that Certified MLBPA Agents were prohibited from associating with them or the Rimas companies with which they were affiliated, “until and unless they have obtained certification by MLBPA certification.”⁸ Also on April 10, 2024, MLBPA issued an Order to Show Cause to Michael Velazquez, a Certified Agent that Rimas Sports had been recruiting, reflecting MLBPA’s intent to suspend Valazquez as a Player Agent if he continued his employment or otherwise associated with Arroyo, Assad or Miranda, or any of their affiliated businesses, including Rimas Sports.⁹   

MLBPA is a labor union under the National Labor Relations Act (“NLRA”), 29 U.S.C. § 152. It is the sole collective bargaining representative for all current and prospective MLB players, managers, and coaches. Id., § 159.¹⁰ The authority to collectively bargain in this manner is rooted in the NLRA, which allows MLBPA and other players associations to “monopolize the representation of all employees in the bargaining unit.” 29 U.S.C. § 159. The enabling language provides: “[r]epresentatives designated or selected for the purposes of collective bargaining by the majority of the employees in a unit appropriate for such purposes, shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining in respect to rates of pay, wages, hours or employment, or other conditions of employment. Id., § 159(a). The collective bargaining agreement (a/k/a “Basic Agreement”) confirms that MLB Clubs (as employers) may not bargain with any agent other than those designated by the MLBPA. Stated differently, the Clubs may not negotiate with a player’s representative, who is not authorized by the MLBPA to do so.¹¹         

A labor union, like the MLBPA, has the authority to delegate all or some of its representational authority, and has done so by creating “Player Agents” and “Expert Agent Advisors,” which must be certified by the MLBPA.¹² The conduct of Agents is governed by the MLBPA “Regulations Governing Players Agents” (and amendments thereto as reflected in a March 27, 2023 memorandum) (collectively “Regulations”), which contain uniform standards of conduct and fiduciary responsibility for all Player Agents and Applicants seeking Certification.¹³ MLBPA promulgated its Regulations to “afford each Player the opportunity to make better-informed decisions about his choice of [a] certified Player Agent,” and to ensure that those Agents act in the best interest of the Players they represent.¹⁴ Player Agents (and Applicants) agree that failure to comply in any material respect with MLBPA’s Regulations may result in a denial, revocation, limitation, or suspension of certification or other disciplinary action.¹⁵           

MLBPA Regulations also provide for a binding arbitration process as the exclusive method for resolving “[a]ll disputes between a Player Agent, Applicant, or Expert Agent Advisor or his or her employer or entity through which he or she conducts business or Agency or affiliated persons or entities and the MLBPA, its officers, employees and representatives including but not limited to any appeal by a party aggrieved by an appealable decision of the MLBPA with respect to this or her certification or discipline… .”¹⁶ This provision is intended to ensure that all disputes, which involve relationships and dealings among individual Players, Player Agents…., affiliated persons or entities, and the MLBPA, are “handled expeditiously and privately by the impartial tribunals established in these regulations, instead of through most costly, time-consuming and public formal court proceedings.¹⁷ The Regulations also contain a confidentiality provision making the proceedings private. However, if the parties ultimately seek federal court intervention, which they are permitted to do, then that confidentiality protection could be waived.   

The Arbitration Proceeding

On April 15, 2024, pursuant to that arbitration provision, Arroyo, Assad, and Miranda sought from an Arbitrator a temporary restraining order (TRO) to staying the disciplinary action pending their appeal on the merits of the MLBPA action.¹⁸ By agreement of the parties, a hearing by videoconference was held by a designated Arbitrator on April 15, 2024. The Arbitrator denied the TRO on April 19, 2024, making the discipline effective immediately.       
The MLBPA brought its New York Lawsuit on April 22, 2024, seeking confirmation and enforcement of the Arbitrator’s decision under the Labor Management Relations Act, 29 U.S.C. § 185 et seq., and the Federal Arbitration Act, 9 U.S.C. § 9. MLBPA asserted that Arroyo, Assad, and Miranda availed themselves of the arbitration process as they were required to do, the Arbitrator issued a decision, it was final, and therefore the Arbitrator’s decision should be confirmed and enforced by the Court.

In response, Arroyo, Assad, and Miranda argued that the Arbitrator’s decision was nothing more than an “interim” denial of a stay of enforcement, which is not a final arbitration award and therefore not ripe for adjudication by the New York District Court.¹⁹ They argued that the Arbitrator made no findings of facts and issued no decision regarding the veracity of the Notice of Discipline, all of which remain subject to appeal before the American Arbitration Association.²⁰ They filed a cross-motion seeking a stay of the New York Lawsuit to allow them to pursue their appeal on the merits of MLBPA’s Notice of Discipline.      

After MLBPA initiated its New York Lawsuit, but before MLBPA filed its Motion to Confirm and Enforce the Arbitrator’s Decision, Rimas Sports filed a lawsuit of its own on May 31, 2024, in a Puerto Rico federal court. In that case, Rimas Sports sought a TRO, Preliminary and Permanent Injunction, which it said was necessary to prevent irreparable harm to its business caused by MLBPA’s “extraordinary and unprecedented” prohibitions forbidding MLBPA-Certified Agents from working for or associating with Rimas Sports. Such blanket prohibitions, it argued, would effectively eliminate it from the sports industry, going well beyond MLBPA’s authority under the National Labor Relations Act.^₂₁ Rimas Sports also accused MBLPA of wrongfully scrutinizing its agency in a discriminatory manner, with a goal of putting Rimas Sports permanently out of business.  

Rimas Sports asked the Court for a Declaratory Judgment finding that MLBPA’s disciplinary actions and conditional agent certifications cannot be enforced against Rimas Sports. Rimas Sports also argued that the Arbitrator’s decision was not binding on Rimas Sports (or Rimas Entertainment) in any event because neither was nor could not be a party to the arbitration proceeding as an entity (as opposed to an individual) is not subject to MLBPA Certification Regulations. According to Rimas Sports, MLBPA has no power over Rimas Sports or its business because the Regulations to not apply to businesses and has no power to compel Rimas Sports to dispute this matter in arbitration.²² 

Rimas Sports also brought tort claims in their Puerto Rico Lawsuit against MLBPA for improperly interfering with non-MLB employment agreements and third-party sponsorship agreements, endorsements, and marketing deals. They also asserted that MLBPA’s actions improperly left certain MLB players, who chose Arroyo and/or Rimas Sports for representational purposes, without appropriate representation while their contract negotiations were in progress.  

The Puerto Rico District Court denied Rimas Sport’s request for TRO but scheduled a hearing on its Motion for Preliminary Injunction for June 18, 2024. That hearing, however, was postponed pending a determination on MLBPA’s Motion to Compel Arbitration and Stay Proceedings Pending Arbitration, which it filed in the Puerto Rico Lawsuit on June 3, 2024. In that Motion, the MLBPA objected to the jurisdiction of the federal court sitting in Puerto Rico arguing that it could not adjudicate Rimas Sport’s case because all issues raised in the matter belong in arbitration pursuant to the MLBPA Regulations. The Court issued an Order to Show Cause by June 10, 2023, why MLBPA’s Motion should not be granted. Rimas Sports timely filed its Opposition to MLBPA’s Motion, and both parties filed respective Replies with exhibits.

Conclusion

As of July 5, 2024, neither the Puerto Rico District Court nor the New York District Court had ruled on the pending motions before them, although rulings are imminent. The scope and reach of MLBPA’s authority are directly at issue and a sweeping decision against it could impact Major League Baseball. On the other hand, Player’s Unions have broad and exclusive authority under the NLRA, which presumably will favor MLBPA. If the New York District Court finds that the Arbitrator’s decision on April 19 was a final decision, the legal standard by which the Court will evaluate that decision will be highly deferential to the Arbitrator. An Arbitrator’s award generally will not be overturned unless it was made arbitrarily, exceeds the arbitrator’s jurisdiction or otherwise is contrary to law.²³ How this matter is ultimately resolved, will be worth watching.    

The series continues next week with a perspective from Singapore. 

¹ The facts contained in this article and any references to the Notice of Discipline were obtained from documents publicly filed by the parties in Major League Baseball Players Association v. Williams Arroyo, Noah Assad, and Jonathan Miranda (Case No. 1:24-cv-3209) (S.D.N.Y. 2024) (the “New York Lawsuit”) and/or Diamond Sports, LLC d/b/a Rimas Sports v. Major League Baseball Players Association (Case No. 3:24-cv-01222-CVR) (S.D.P.R. 2024) (the “Puerto Rico Lawsuit”), as indicated. The sixty-one (61) page Notice of Discipline was filed under seal in the Puerto Rico Lawsuit See Verified Complaint, 4, n.2. Consequently, the full details regarding the conduct complained of by MLBPA are not publicly available. 

²Rimas Entertainment was founded by Assad and Miranda to produce, promote, market, and distribute music and entertainment products and services by Puerto Rican rapper, singer, and record producer, “Bad Bunny,” and other artists.  Assad was awarded Billboard’s Music Executive of the Year in 2023 for his work with Rimas Entertainment. See Puerto Rico Lawsuit, Verified Complaint, 

³See Puerto Rico Lawsuit, Verified Complaint, 30,33.  Bad Bunny is described as a “semi-passive” investor in Rimas Sports. Id., 35.

⁴Id., 1-2, 32-37.

⁵Id., 36, 42.

⁶See New York Lawsuit, Complaint, 13.  Presumably, the MLBPA investigated whether Asaad and Miranda were working on behalf of players without the proper certification contrary to Section 3 of the MLBPA Regulations, “Conduct Requiring Certification as a Player Agent or Expert Agent Advisor,” which provides: “[n]o person is authorized to engage in, or attempt to engage in, any of the conduct described in either Section 3(A) [Negotiation, Administration or Enforcement of Player Agreements and Rights] or Section 3(B) [Recruitment or Maintenance of Players as Clients] without first obtaining the appropriate certification from the MLBPA as a Player Agent or Expert Agent Advisor.” 

⁷See New York Lawsuit, MLBPA’s Motion to Confirm and Enforce the Arbitration Decision (“Motion to Confirm”), p. 5.

⁸See Puerto Rico Lawsuit, Verified Complaint, 49; New York Lawsuit, Complaint, 13-14; Motion to Confirm, p. 5. 

⁹Id., 53-54.

¹⁰This relationship between the MLB Clubs and the MLBPA is reflected in a 2022-2026 “Basic Agreement.”  See New York Lawsuit, Complaint, 7-8 (citing Basic Agreement, Art. II).
 
¹¹New York Lawsuit, Complaint, 8 (citing Basic Agreement, Art. IV); see also Puerto Rico Lawsuit, Verified Complaint, 18.

¹²The definition of Player Agent” and “Expert Agent Advisor” expressly refers to individuals who are certified by the MLBPA. 

¹³ An Applicant is defined as “an individual who has competed, signed and filed with the MLBPA an Application for Certification as a Player Agent or Expert Agent Advisor and whose Application is still pending approval or denial by the MLBPA.”  MLBPA Memo in Support of Motion to Confirm and Enforce the Arbitration Decision (“Memo in Support”), p. 2 (citing Regulations, Sec. 2(H)).  

¹⁴ A player must execute a Player Agent Designation form with the MLBPA identifying his chosen Player Agent.

¹⁵See Motion to Confirm, p. 3 (citing Regulations, Sec. 4).

¹⁶See New York Lawsuit, Complaint, 9-11 (citing Regulations, Sec. 7); Motion to Confirm, p 4 (citing same).

¹⁷Id.  

¹⁸See New York Lawsuit, Complaint, 15.  By signing and filing an Application for Certification, Asaad and Miranda agreed to comply with, and be bound by the Regulations, including the exclusive arbitration remedy set forth in Section 7 of the Regulations.  See Motion to Confirm, p. 3 (citing Regulations, Sec. 4).

¹⁹Interim awards are generally not reviewable unless the interim award provides equitable relief to preserve the integrity of a final award.

²⁰See Opposition to MLBPA’s Motion to Confirm, pp. 1-3.
 
²¹See Puerto Rico Lawsuit, Verified Complaint, 3-5.  During its investigation, MLBPA allegedly conditioned certain Agent certifications on Applicants’ agreements not to work for or with Rimas Sports.   

²²Rimas Sports pointed to several Regulations to support its position. Rimas Sports relied primarily on Section 4(B), which it claimed pertains only to individuals: “[a]ll Applications must be signed by and filed on behalf of a single individual Applicant.  Similarly, Section 4(B) indicates that the MLBPA will not accept any Application filed by, nor will it certify as a Player Agent…any company, partnership, Corporation, or other artificial legal entity…”  See also Regulations, Section 2(c) (The Regulations also provide that the MLBPA will certify “only individuals” as Player Agents or Expert Agent Advisors but not “firms or business entities.”)  

²³ See, e.g., NFL Mgmt. Council v. NFL Players Association, 820 F. 3d 527, 532 (2d Cir. 2016).