Recently, Lance Armstrong attracted national attention when an arbitration panel in Texas ordered him to pay $10 million in sanctions to a promotions company for lying about his use of performance-enhancing drugs to win the 2004 Tour de France. Sanctions, especially of this type and magnitude, are not widely recognized in arbitration, which shows that arbitration, like litigation, is not always as predictable as the researching eye would hope.
Arbitration offers a number of benefits to clients. Well-drafted arbitration clauses can reduce risk and expense, offer assurance as to forum, guarantee some assurance of an arbitrator who is familiar with the subject of the dispute, and generally make business dispute resolution more predictable. With that in mind, Armstrong's most recent arbitration experience provides a warning against some of the risks associated with arbitration that are not readily apparent.
In 2004, Armstrong and his management company sued SCA Promotions for a $5 million bonus which Armstrong claimed SCA owed him from his 2004 Tour de France victory. SCA had withheld payment of the bonus because its founder read accusations that Armstrong had used PEDs to win the race. During the arbitration hearings, Armstrong testified that he did not dope to win the race. The arbitrators believed him, or SCA certainly thought they did. In 2006, the parties settled the dispute privately and entered into a public "consent" arbitration award whereby SCA paid Armstrong $7.5 million – $5 million for the bonus, plus $2.5 million in fees. Most importantly, the settlement agreement gave the arbitrators exclusive jurisdiction to settle future disputes related to the bonus or the settlement agreement.
In 2012, the news broke of Armstrong's pervasive use of performance enhancing drugs, and Armstrong's seven consecutive Tour de France titles were stripped from him. Months later, he admitted publicly to doping in each of the seven races. Immediately after Armstrong's admission, SCA filed a motion to reconvene the arbitration and requested sanctions against Armstrong. In 2013, seven years after the arbitration ended, the parties were back before the same arbitration panel originally appointed in 2004. Although SCA did not seek to vacate the settlement based on a theory of fraudulent inducement (as the settlement almost certainly disclaimed either party's reliance on any statement by the other), the panel responded to SCA's request by sanctioning Armstrong $10 million.
"Perjury must never be profitable," the 2-1 majority opened. "Deception demands real, meaningful sanctions." The arbitrators acknowledged that the authority of arbitrators to award monetary sanctions is not universally accepted but found that it had not only the authority but also the "duty" to award sanctions for Armstrong's conduct which was a "calculated affront to the integrity of the arbitration process." Notably, the panel found that Armstrong's perjury contravened the implied covenant not to frustrate or impede the arbitration agreement under Texas law. Of further note, Texas law does not recognize a civil penalty for perjury; even in court, Armstrong's "sanction" for perjury would be imprisonment, not $10 million payable to the other side. The arbitrators went on to examine whether Armstrong's attorneys should be sanctioned but declined to impose sanctions because the panel found that counsel "did not knowingly participate" in Armstrong's perjury. Because arbitration awards are difficult to vacate, Armstrong is likely stuck with the $10 million award.
This cautionary tale teaches several valuable lessons. First, arbitrators may potentially award sanctions, including monetary sanctions, even though the rules and the precedent do not specifically allow such relief. Second, grounds for overturning an arbitration award are limited, and even poorly reasoned arbitration awards are unlikely to be set aside. Finally, arbitrators, in the face of egregious behavior during the arbitration proceedings, may look behind the actions of the parties to examine whether their counsel knowingly participated in the bad acts.
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