On July 10, 2020, the First Circuit Court of Appeals invalidated as unconscionable the portion of the Appeal Regulations of the World Boxing Organization (the WBO, the English translation of "Organización Mundial de Boxeo, Inc.”) providing for arbitrator selection. Trout v. Organización Mundial de Boxeo, Inc. (No. 19-1068, July 10, 2020).
Under those arbitrator-selection provisions, the WBO has exclusive control over the appointment of the arbitrators to a “grievance committee” that hears appeals of sanctions decisions. As the court stated:
. . . the WBO could even appoint its own employees—including direct aides to the head of the WBO—to the arbitration panel with no input from Trout. In consequence, Trout argues that the arbitration agreement does not provide him with a "fair opportunity" to pursue either his claim under MABRA [the “Muhammad Ali Boxing Reform Act,” 15 U.S.C. § 6309(d)] or his claims under Puerto Rico law because the arbitrator, in virtue of the method of selection, would be inherently biased.
The sources of law for the decision were the Federal Arbitration Act (FAA) and Puerto Rican contract law. However, elsewhere in the sports world, both the Eighth and Second Circuits have upheld arbitration awards under the collective bargaining agreement between the National Football League (NFL) and the football players’ union where the head of the NFL unilaterally selected an NFL employee/subordinate as the arbitrator for players’ grievances. Those latter two cases, which arose under the Labor Management Reporting and Disclosure Act (LMRDA) but relied on FAA precedents as well, were not even mentioned in the First Circuit opinion in Trout. The substance of the First Circuit’s decision in Trout is clearly at odds with those NFL decisions, thereby raising the question whether LMRDA collective bargaining agreement arbitrations operate under different bias rules than FAA arbitrations generally despite the “evident partiality” vacatur provisions of the FAA.
In Trout, the court accepted Trout’s argument that the arbitration agreement was “‘unreasonable and unjust” due to the WBO’s unilateral right to select the arbitrator and the absence of any limitation preventing the WBO from appointing an interested person. In the court’s view, these provisions permitted the WBO to act as both “party and judge.’”
In so holding, the First Circuit panel applied unconscionability principles from Puerto Rican contract law, because the WBO Appeal Regulations (the WBO regulations) refer to Puerto Rican law for decision. In addition, the WBO is organized under Puerto Rican law and the grievance committee formally sits in Puerto Rico.
The court rejected the WBO’s contention that the requirement in the WBO regulations that the grievance committee act as a “fair and independent arbitrator” was sufficient to save the arbitrator-selection provisions from invalidation. The court stated that that such a “bare instruction . . . does not address the concern that the WBO is entitled to choose Grievance Committee members under the direct control of the head of the WBO itself and that anyone so chosen is for that reason presumptively not “independent” in the least.”
The court did not invalidate the entire arbitration agreement, though. It pointed to a “savings clause” in WBO regulations, that potentially allowed the court to sever the arbitrator-selection provisions but preserve the remainder of the arbitration agreement with the arbitrator appointed by the district court under §5 of the FAA.
Accordingly, the court remanded the dispute back to the District Court for the District of Puerto Rico for further development of the factual record and to decide “whether the arbitrator-selection provision at issue here is severable from the remainder of the arbitration agreement.”