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Lessons in Arbitration From the Lance Armstrong Ruling

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By Mark Wilson, Esq. on February 18, 2015 12:19 PM

Remember all that money Lance Armstrong won as a Tour de France champion? Yeah, he's losing it all. Of course you'll remember that he admitted all of his wins happened thanks to performance-enhancing drugs, resulting in his titles being stripped.

Earlier this week, Armstrong found himself on the short end of an order to pay $10 million to SCA Promotions, in a sharp reversal of an arbitration agreement that everyone thought was finalized 10 years ago.

You can reverse arbitration awards? Who knew!

It's Not Such a Final Agreement, After All

SCA, a sports promotion company, refused to pay Armstrong a bonus in 2004, like it had in 2002 and 2003, because it heard the murmurs that he used performance-enhancing drugs. Armstrong sued and won a $7.5 million settlement.

Then he went on TV with Oprah, admitted to doping, and a month later, SCA came knocking at his door. It wanted the money back, plus penalties, because Armstrong had lied under oath in 2004 when he said he didn't take any performance-enhancing drugs.

Turns out a "final" arbitration proceeding isn't so final after all. An arbitration panel agreed, 2-1, to reverse the settlement and sanction Armstrong $10 million for using perjury and fraud to get the original settlement. The dissenting panel member questioned the panel's ability to reopen a settled agreement like this. "No court or arbitrator has ever reopened a matter which was fully and finally settled voluntarily," said Ted Lyon, claiming that no statute in Texas, or any language in the contract, permitted reopening a settlement.

That might be true, as the majority acknowledges Lyon "is not alone in asserting that arbitrators lack such authority" to modify an award. That's in Texas, though. Arbitration in other states, and at the federal level, may nevertheless be amenable to subsequent modification. (Notably, 9 USC § 10 authorizes a federal court to vacate an arbitration award that was "procured by corruption, fraud, or undue means.")

That Ain't Right

If your jurisdiction doesn't provide for modifying or vacating awards, it may be wise to insert language to that effect into the arbitration agreement. Litigants shouldn't be able to obtain money by fraud. The majority on the arbitration panel has had to do a bit of legal finagling to come up with an ethically correct ruling that is tangentially supported by state law. (Texas doesn't recognize the implied covenant of good faith and fair dealing -- go figure.)

Nevertheless, it's not likely the award will get overturned. As the ABA's Indisputably blog points out, "Failing to correctly interpret Texas law is not a basis for overturning the award," and certainly the arbitration panel needs the authority to sanction parties who obtain awards through fraud.

In order to avoid costly litigation later on, make sure your arbitration agreements explicitly don't allow one side to freely lie in order to get what they want.

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