District Court goes for Gruden

Mr. Gruden was forced to resign after the revelation of emails in which he engaged in what the NFL described in a legal brief as “racist tropes and misogynistic and homophobic slurs.” At the time, Mr. Gruden was in the fourth year of a 10-year, $100 million contract, the largest contract ever for an NFL coach. 

Notwithstanding the fact that Mr. Gruden and the Raiders quickly reached a confidential settlement concerning his departure, in November 2021, Mr. Gruden sued the NFL and Commissioner Goodell (but not the Raiders) in the Eighth Judicial District Court in Clark County, Nevada, alleging principally that the defendants had intentionally and tortiously interfered with Mr. Gruden’s contract with the Raiders by allegedly leaking the problematic emails.

In January 2022, the NFL filed separate motions to dismiss the lawsuit and to compel arbitration. In its motion to compel, the NFL relied on two provisions of Mr. Gruden’s employment agreement. First, Mr. Gruden agreed generally to be “bound by the Constitution, Bylaws, and rules and regulations of the NFL.” Based on this provision, the NFL argued that Mr. Gruden is bound by Section 8.3(E) of the NFL Constitution, which provides the Commissioner with authority to arbitrate a dispute “that in the opinion of the Commissioner constitutes conduct detrimental to the best interests of the League or professional football.” Second, Mr. Gruden’s contract contained an arbitration provision requiring that “all matters in dispute between Mr. 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.”

On May 26, 2022, the District Court denied both motions ruling from the bench. The court held that the NFL’s first argument on the motion to compel failed because, as pointed out by Mr. Gruden, invoking this authority would supposedly require Commissioner Goodell to predetermine the outcome of the arbitration. Second, the court determined that the NFL’s reliance on the arbitration provision contained in Mr. Gruden’s contract was misplaced because it covered only disputes between Mr. Gruden and the Raiders, and the Raiders are not a party to the litigation. The District Court’s opinion was later expanded on in an order written by Mr. Gruden’s counsel and signed by the District Court, a process permitted by Nevada’s rules.

The Nevada Supreme Court reverses

The Nevada Supreme Court, in a 2-1 decision, determined that the District Court made numerous errors in its decision. First, the Court held that Mr. Gruden failed to prove that his settlement with the Raiders extinguished the relevant arbitration clauses because he did not offer the settlement agreement as evidence in the case and because arbitration clauses are presumed to survive contract termination. Second, the Court determined that Mr. Gruden’s contract incorporated the NFL Constitution by reference because Mr. Gruden agreed to be bound by it and because it was available to him. Third, the Court found that Mr. Gruden’s claims were within the scope of Section 8.3(e) because “[w]hether judged from the perspective of Gruden’s emails becoming public or the NFL Parties’ alleged leaking of those emails, the conduct detrimental to the NFL or professional football requirement appears satisfied.” Fourth, the Court rejected Mr. Gruden’s argument that the arbitration agreement was procedurally unconscionable, finding that he “was the very definition of a sophisticated party” in negotiating his employment agreement. Fifth, concerning substantive unconscionability, although the Court expressed some concern about Commissioner Goodell potentially serving as the arbitrator in a matter in which he is a defendant, “it is not clear that Goodell will act as arbitrator.” Moreover, the Court noted, “issues of arbitrator bias are reviewable post-arbitration.” Finally, the Court rejected Mr. Gruden’s argument that the arbitration agreement is “illusory” because the NFL can amend it unilaterally, noting that the NFL’s ability to do so is restrained by the implied covenant of good faith and fair dealing inherent in every contract.

For all of these reasons, the Court reversed the District Court’s decision and remanded the case with instructions to grant the NFL’s motion requesting that the case be compelled to arbitration.

Justice Linda Marie Bell, writing in dissent, argued that the arbitration agreement did not apply to Mr. Gruden because he is no longer an employee of the Raiders. Additionally, Justice Bell said that incorporation of the NFL Constitution into Mr. Gruden’s contract was procedurally unconscionable because Mr. Gruden had no choice but to accept it and, at 447 pages, it dwarfed the terms of Mr. Gruden’s seven-page employment agreement.

Mr. Gruden’s call

It will soon be up to Mr. Gruden to decide whether to file an arbitration with Commissioner Goodell pursuant to the provisions of the NFL Constitution. Commissioner Goodell is unlikely to preside over the arbitration, out of the concern that any decision he makes could then be vacated by a court on the ground of bias. Commissioner Goodell has historically taken one of three routes in these situations: (1) he designates internal NFL counsel to preside over the matter (often General Counsel Jeff Pash); (2) he designates an outside attorney who formerly worked for the NFL or one of its clubs to be arbitrator (Harold Henderson and Bob Wallace, for example); or (3) in high-profile matters where judicial scrutiny is likely, he designates a respected arbitrator or attorney to serve. The most likely choice would be an attorney or arbitrator with labor and employment expertise and some NFL ties but not so much as to create a strong impression of bias. 

The last option is what Commissioner Goodell chose in 2022 when the NFL appealed an arbitrator’s decision to suspend Cleveland Browns quarterback DeShaun Watson for six games rather than the 14 games the NFL wanted. Commissioner Goodell had the right under the collective bargaining to hear the appeal but instead appointed Peter Harvey, a former Attorney General for New Jersey and NFL consultant as arbitrator. The parties settled for an 11-game suspension before any appeal was heard.

Mr. Gruden is more than two years into this legal battle and, given his pugnacious reputation, is unlikely to drop the case now. Moreover, given the judicial scrutiny Commissioner Goodell’s involvement has already received, it is more likely that Mr. Gruden will be able to have his claims fairly considered by a neutral (or near neutral) party.