Orioles Reply in Support of Vacating Arbitration

8/10/2019 Orioles Reply in Support of Vacating Arbitration

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Nominal Respondents BOLP and the Orioles respectfully submit this consolidated reply

in support of MASNs Amended Petition to vacate the RSDC Award and opposition to the

Nationals cross-motion to confirm. This brief focuses on two specific grounds for vacatur

manifest disregard and exceeding the scopeand further explains why the proper remedy in this

case is to remand the dispute to a neutral arbitral panel rather than back to the RSDC. In

addition, BOLP and the Orioles adopt the arguments presented in MASNs reply brief.1

ARGUMENT

The Nationals and MLB have not offered any meaningful response to the two central

points that BOLP and the Orioles made in their opening brief: (1) Vacatur is warranted because

the RSDC manifestly disregarded the methodology mandated by the Settlement Agreement and

exceeded the scope of its authority under that contract; and (2) The Court should remand this

case to a neutral arbitral body instead of ordering another hopelessly tainted RSDC proceeding.

First, both MLB and the Nationals emphasize that the FAA and the CPLR give

arbitrators broad leeway in resolving a dispute. But they ignore the fact that there are clear and

fundamental limits to that poweran arbitrators power to decide a dispute is both created and

confined by the terms of the parties agreement to arbitrate. In this case, 2.J.3 of the Settlement

Agreement expressly limited the RSDCs authority by mandating that the panel apply a fixed,

preexisting rule of decision: the RSDCs own established methodology, as it had been applied

to all other related party telecast agreements in the industry.

In fact, the Nationals defense of the RSDC Award (like the text of the Award itself)

effectively concedes that the RSDC did not follow that unambiguous contractual directive.

Unable to explain away the Awards many impermissible deviations from the established

1Defined terms used here have the same meaning as in the nominal respondents Memorandum of Law in Supportof Petitioners Amended Petition to Vacate Arbitration Award (Orioles Br.) [Doc. No. 245].


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methodology, the Nationals repeat the RSDCs implausible statement that the established

methodology, as developed by Bortz Media and consistently applied by the RSDC for many

years, was not capable of determining fair market value in this case because the methodology

had never been applied prospectively. Nationals Br. 13. This claim is doubly wrong. The Bortz

methodology not only canbe used prospectively, butas explained by Mark Wyche, the man

who developed the Bortz methodology on MLBs behalf was specifically designed for that

purpose. See Wyche 11/3/14 Aff. Ex. A 2.d.i. Further, it is ultimately irrelevant whether, as

the Nationals contend, it makes little sense to use the established methodology prospectively.

Nationals Br. 12. Because the parties to the Settlement Agreement, including MLB, expressly

and unambiguously required the RSDC to use the very same established methodology that has

been applied to all other related party telecast agreements in the industry in addressing

prospective rights fee disputes arising under 2.J.3, the RSDC had no lawful authority to devise

and apply a different approach.

The Nationals argument, like the Award itself, thus confirms that the RSDC simply

refused to apply the RSDCs established methodologythe Bortz methodologywhich had

been applied to at least 19 other related-party RSNs both before and after the Settlement

Agreements execution, including after the arbitration in this case. SeeWyche 7/22/14 Aff. 7,

11. The RSDC refused to do so even though Mr. Manfred confirmed two days after the

Arbitration hearing that the RSDC did not have any methodology other than Bortz. Rifkin

1/12/15 Aff. 9. The RSDC instead resorted to using assumptions and approaches that are so

outside the norms of accepted economic standards that the resulting valuation of the Nationals

telecast rights is illegitimate and unreliable. Singer 7/27/14 Aff. 5. The RSDCs refusal to

use its own established Bortz methodology plainly constitutes manifest disregard of the


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arbitrators contractual duty, and just as clearly demonstrates that they exceeded the scope of

their powers by applying a one-off, ad hoc, and illegitimate sampling of concepts in place of the

established methodology that the Settlement Agreement directed them to use. The Award

accordingly cannot stand.

Second, respondents have failed to meet the Orioles and BOLPs demonstration that the

Court should remand this case to a new, neutral arbitral panel rather than to the now

demonstrably and irredeemably biased RSDC process. They primarily contend that no matter

how gross the misconduct in an arbitration, a court that vacates an award tainted by that

misconduct simply has no choice but to send the case back to the same arbitral forum and hope

against hope for a better result. Neither New York nor federal arbitration law supports such a

pointless exercise. The respondents position simply ignores the most pertinent case law

including decisions addressing arbitration in professional sports contexts. These cases establish

that where an arbitration occurs within a close industry circle, and that arbitration has

demonstrably failed to operate in the neutral, unbiased fashion that New York and federal law

rightly demand, a court need notand should notsend the case back to the same failed arbitral

forum. It follows a fortiorifrom these decisions that remand to a neutral forum is required here,

because MLB is hopelessly biased and controls both the RSDC process and the selection of

arbitrators, as demonstrated clearly by the record in this case. There is no way to eliminate that

taint on the RSDC as a fair forum. Thus, to effectuate the parties original intent to obtain a fair

and impartial arbitration, as well as the broader societal interest in ensuring that courts of law do

not inadvertently lend their authority to corrupt and biased private processes, the Court has clear

authority to send the dispute to an arbitral body that canbe expected to operate evenhandedly

such as an appropriately constituted AAA panel.


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These precedents point the way here because the RSDC demonstrably and spectacularly

failed in this case. The RSDC flagrantly refused to apply the RSDCs established

methodology employed in all other related party telecast agreements in the industry. MLB

and the RSDC refused to investigate or disclose the nature and extent of their relationships with

the Nationals counsel, Proskauer Rose LLP. MLB maintained a vise-like grip on the entire

RSDC process, capriciously (and silently) determining which of the parties objections and

submissions would reach the arbitrators and which would not, making procedural rulings that

prejudiced MASN and BOLP, and drafting the Award in its entirety, taking only ministerial edits

from the ostensible decision-makers. And, most egregiously, MLB took a $25 million stake in

the outcome of the Award, secretly agreeing to pay the Nationals that amount and then recoup its

payment from MASN through the inflated proceeds of an illegitimate RSDC award. MASN

could not have foreseen any of this in 2005 when it agreed to arbitrate before the RSDC, and for

obvious reasons never would have agreed to arbitrate under such conditions. This Court should

therefore give effect to the parties original contractual intent by appointing a neutral arbitral

body to decide this dispute fairly using the contractually agreed-upon methodology, in place of

the hopelessly failed RSDC forum.

I. The RSDC Manifestly Disregarded the Settlement Agreement and Exceeded the

Scope of Its Authority Under that Contract.

The Award itself makes clear, and the respondents arguments confirm, that the RSDC

did not apply the RSDCs established methodology for evaluating all other related party

telecast agreements in the industry, as mandated by the Settlement Agreement. MLB and the

Nationals defense of the Award boils down to a plea that the Court should slavishly defer to

whatever ruling an arbitral panel issues, and a set of excuses for the RSDCs failure to comply

with the Settlement Agreements clear mandate. But the court does not sit as an administrative


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rubber stamp over an arbitrators determination, Staklinski v. Pyramid Elec. Co., 6 N.Y.2d 159,

167 (1959), and the RSDCs deliberate refusal to apply the established methodology cannot be

excused.

To begin with, MLB and the Nationals misstate the applicable legal standards. First, the

Nationals argue that [s]ince the parties did not explicitly select New York arbitral law in the

Settlement Agreement, only the provisions of the FAA, and not those of CPLR article 75

apply in this case. Nationals Br. 9 (quoting Salvano v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 85 N.Y.2d 173, 180 (1995)). This assertion reflects a clear misreading of Salvano, in which

the Court of Appeals went on to discuss and apply the grounds for vacatur under both the New

York and federal statutes. See85 N.Y.2d at 183. As the First Department recently explained,

even [where] the FAA governs, this Court may apply state grounds for vacatur, where they are

consistent with the FAAs terms and purposes. ACN Digital Phone Serv., LLC v. Universal

Microelecs. Co., 982 N.Y.S.2d 126, 127 (1st Dept 2014). As relevant, the state and federal

grounds for vacatur are entirely consistent and thus are equally applicable.

Respondents also misstate the content of these standards. According to MLB, an award

cannot be vacated for exceeding the scope of the arbitrators authority unless the parties did not

intend for the panel to decide the issue in question. MLB Br. 20 n.18. The New York Court of

Appeals and the U.S. Supreme Court, however, have held that an award can be vacated on this

ground if the award . . . clearly exceeds a specifically enumerated limitation on the arbitrators

power, In re Kowaleski (New York State Dept of Corr. Servs.), 16 N.Y.3d 85, 90 (2010), or

the panel imposed its own policy choice instead of identifying and applying a rule of

decision derived from applicable authority, Stolt-Nielsen S.A. v. AnimalFeeds Intl Corp., 559

U.S. 662, 67677 (2010);see also City of Oswego v. Oswego City Firefighters Assn, 21 N.Y.3d


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880, 882 (2013) (affirming vacatur of award that explicitly conflicted with governing law). That

is precisely what MASN has shown herethe RSDC exceeded the scope of its powers by

impos[ing] its own policy choice and ignoring the specifically enumerated limitation that the

dispute could be resolved only by applying the RSDCs established methodology for evaluating

all other related party telecast agreements in the industry.

Similarly, both respondents contend that an award will survive manifest-disregard review

under the FAA as long as it provides a barely colorable justification for the outcome reached.

Nationals Br. 10; see MLB Br. 21. But an arbitrator may not ignore or violate the parties

agreement. To avoid vacatur, an award must always draw[] its essence from the parties

agreement, because the agreement is the sole source of the arbitrators power. See Dist. No. 1-

PCD v. Apex Marine Ship Mgmt. Co., 745 N.Y.S.2d 522, 526 (1st Dept 2002). When the

arbitrators words manifest an infidelity to this obligation, courts have no choice but to refuse

enforcement of the award. Id. Thus, whether or not the awards reasoning is colorable, it

must be vacated if the arbitrators dispense[d] [their] own brand of industrial justice, id., or

refused to apply (or ignored) a well-defined and clearly applicable legal or contractual principle,

see Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 481 (2006); Sawtelle v. Waddell

& Reed, Inc., 754 N.Y.S.2d 264, 270 (1st Dept 2003); see also Lumbermens Mut. Cas. Co. v.

Eugene, 467 N.Y.S.2d 125, 126 (Sup. Ct. N.Y. Co. 1983) (where the substantive provision at

issue is incorporated by reference into the very contract the arbitrator is bound to interpret, the

arbitrator is bound by that provision).2

2 MLB also suggests that, despite the Settlement Agreements express adoption of the established methodology asapplied in all other cases, the Court cannot consider materials extrinsic to the Settlement Agreement itself.MLB Br. 3 n.3, 1920. This assertion is meritless, and indeed is directly contradicted by authorities explaining thata petitioner may in fact show through extrinsic evidence that arbitrators exceeded their powers. See Overseas

Distributors Exch., Inc. v. Benedict Bros. & Co., 173 N.Y.S.2d 110, 112 (1st Dept 1958); 23A Carmody-Wait 2d 141:254 (2014 update) (same).


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Indeed, the respondents do not dispute (because they cannot) that the key language in the

Settlement Agreementthe command that the RSDC apply the RSDCs established

methodologyfor evaluating all other related party telecast agreements in the industrycan be

read only as referring to a singular, fixed, preexisting methodology. SeeOrioles Br. 8. Nor do

they dispute (because they cannot) that, until the arbitration in this case, the RSDC consistently

applied what the RSDC itself called the time-tested Bortz analysis, see Wyche 7/22/14 Aff.

10, which has always determined the fair market value of a Clubs telecast rights fees using

two bedrock assumptions: 1) a permissible profit margin of at least 20% from an RSNs

subscription television (cable) baseball programming; and 2) a historically accepted allocation of

the RSNs revenues and expenses between baseball and other programming. SeeOrioles Br. 5;

Wyche 7/22/14 Aff. 12, 26. The RSDC ignored both bedrock assumptions in manufacturing

its illegitimate award. SeeWyche 7/22/14 Aff. 2833. Indeed, neither respondent makes any

real effort to connect what the RSDC did in this case to what it had done in every other case.

Rather, they offer excuses for the RSDCs multiple, blatant deviations from the established

methodology, echoing the RSDCs own acknowledgement that the awardinstead of treating

this case like all other related party telecast agreements in the industrywas enough of a

departure that it shall not constitute precedent of the RSDC. Hall 9/23/14 Aff. Ex. 2 at 2 n.2.

But there is no way to justify the RSDCs ad hoc, result-driven approach, which is so far

divorced from any accepted valuation methodology that it is simply illegitimate. Singer

7/27/14 Aff. 5.

First, MLB and the Nationals both observe that the term Bortz does not appear in the

Settlement Agreement itself. Nationals Br. 10; MLB Br. 19. But there was no need for the

Agreement to use that term or spell out the established methodologys fundamental precepts,


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because the RSDCs own precedents made clear that its established methodology was the

time-tested Bortz analysis, including its 20% profit margin baseline. SeeWyche 7/22/14 Aff.

10, 26, 29;see alsoRifkin 1/12/15 Aff. 67. Indeed, this argument is impossible to square

with Commissioner Seligs ruling, just two months before the Settlement Agreement was

executed, that he was unwilling to endorse any material variation from the objective and

consistent Bortz methodology, and that for cable operations the assumed operating margin

ordinarily should be 20%. Hall 9/23/14 Aff. Ex. 29 at 2, 3 (emphasis added); see Wyche

7/22/14 Aff. 10. These precedents and rulings are the materials that MLB itself identified as

defining the established methodology when the parties negotiated the Settlement Agreement.

SeeRifkin 9/23/2014 Aff. 1824.

MLBs abrupt abandonment of the established Bortz methodology also cannot be

reconciled with Mr. Manfreds confirmation, just days after the RSDC hearing, that the RSDC

had not adopted any new methodology, and that insofar as the RSDC had decided to depart from

the Bortz approach when dealing with otherrelated-party RSN agreements going forward, that

decision would not [a]ffect[] a case applying an established methodology. Rifkin 1/12/15

Aff. 9. And, as recently as April 2014, Mr. Manfred himself acknowledged that no related-

party RSN that had actually achieved at least a 20% profit margin from its baseball programming

had ever been forced by the RSDC to operate on a profit margin from baseball programming less

than 20%, and in fact several related-party RSNs had been allowed to operate at substantially

greater profit margins. Rifkin 1/12/15 Aff. 58;see also Singer 7/27/14 Aff. 7 (explaining that

it is well established that the average [RSN operating margin] is between 30 and 40 percent).

The Nationals take MLBs argument a step further by asserting that the parties

deliberately left out language from an earlier draft of the Settlement Agreement that


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contemplated a Bortz approach. Nationals Br. 13. This is exactly backwards. The draft

language in question was stricken because it referred to the Nationals preferred approach of

basing the fees on supposedly comparable telecast agreements. SeeCohen 10/20/14 Aff. Ex. 11

at 8 (March 25, 2005 draft agreement striking, inter alia, the phrase the rights fees of

comparable markets where appropriate); Rifkin 1/12/15 Aff. 7. But a comparables approach

is, as the RSDC itself has previously said, inherently flawed, and was never the RSDCs

established methodology. SeeWyche 11/3/14 Aff. Ex. A 2.c.i, 2.c.iv (explaining that sports

television rights deals are based on distributor economics, not comparables. . . . [I]f

[comparables] are to be used for any purpose, it is essential to properly normalize them to

account for market-specific variations). Instead of the rejected comparables approach, the

parties to the Settlement Agreement incorporated the RSDCs established methodology, which

is and always has been, as the Commissioner has said, the objective and consistent Bortz

methodology. Hall 9/23/14 Aff. Ex. 29 at 3. For the same reason, the valuation offered by the

Nationals expert, Mr. Bevilacqua, is simply beside the point. Even if it were methodologically

sound (which it is not, because it is so distorted as to bankrupt MASN if put into practice, see

Wyche 11/3/14 Aff. Ex. A 2.c.i2.c.v), it is not the RSDCs established methodology. In fact,

the Nationals valuation merely highlights the RSDCs disregard for the established

methodology; like the Nationals expert, the RSDC relied on comparisons that inappropriately

combine[d] heterogeneous television markets without any correction for differences in market

size. Singer 7/27/14 Aff. 9.

Equally irrelevant is the fact that the Settlement Agreement does not expressly say that its

purpose is to compensate the Orioles for the ongoing harms caused by the Nationals invasion of

the Orioles markets. Nationals Br. 5. Even if the Agreement had no such purpose, that would


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not excuse the RSDCs failure to apply the RSDCs established methodology, i.e., Bortz. In

any event, contemporaneous documents demonstrate that compensation plainly was the

Agreements key premise. See, e.g., Rifkin 9/23/14 Aff. Ex. 23 (memorandum agreement

between MLB and the Orioles confirming that the Orioles and Major League Baseball have

reached an agreement with regard to compensation for the location of the [Nationals] to

Washington, D.C.), Ex. 24 (minutes from MLB Executive Council conference call addressing

Agreement with Orioles for Compensation). Indeed, it is bizarre for the Nationals to say that

the Agreement makes no reference to any purpose of compensating the Orioles while

observing in the very next breath that the Agreement gives the Orioles tremendous benefits,

Nationals Br. 5, in exchange for the release of any claims related to the relocation of the

[Nationals] to Washington, D.C. Hall 9/23/14 Aff. Ex. 1 11.I.

Next, the Nationals contend that the RSDCs mandate was to determine the telecast rights

fees fair market value, full stop. Thus, they say, the RSDC was free to depart from the Bortz

methodology because a strict adherence to Bortz would have written market out of the

Agreement. Nationals Br. 13. Both the premise and the conclusion of this argument are wrong.

First, the entire function of the Bortz methodology is to determine the fair market value of

telecast rights fees in a closed-market setting where there is no open-market competitive bidding,

i.e., the circumstance of a related-party RSN. Bortz developed its methodology on MLBs behalf

specifically for use where a Club or Clubs own, in whole or in part, their own RSN. SeeWyche

7/22/14 Aff. 10; Wyche 11/3/14 Aff. Ex. A 2.d.iii (the Bortz methodology, including the 20%

baseball programming margin, is specifically designed to produce a rights fee result that reflects

fair market value.). In any event, the RSDC did not have any legal or contractual authority to

set the telecast rights fees in any way it saw fit. To the contrary, its contractual mandatewhich


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is also to say, all that it was lawfully empowered to do with respect to this disputewas to set

those fees using the RSDCs established methodology for evaluating all other related party

telecast agreements in the industry. Hall 9/23/14 Aff. Ex. 1 2.J.3. The Nationals argument

that the RSDC based its decision on a supposedly new and improved formula thus does not

provide any legitimate basis for confirming the Award. To the contrary, that argument directly

demonstrates that the Award must be vacated. See Stolt-Nielsen, 559 U.S. at 67677 (vacatur

ordered where arbitration panel exceeded its authority by impos[ing] its own policy choice);

Apex Marine Ship Mgmt. Co., 745 N.Y.S.2d at 52527 (similar).3

In much the same vein, the Nationals argue that the Bortz methodology was not capable

of determining fair market value in this case because the RSDC had previously applied Bortz

only retrospectively, not prospectively. SeeNationals Br. 13. In the Nationals view, applying

Bortz prospectively makes little sense, and so the RSDC was free to disregard the Settlement

Agreements express command. Id.at 12. This argument simply parrots the RSDCs rationale

for distinguishing this case from all others, offering the claimed retrospective/prospective

distinction as a pretext for rejecting the established methodologys requirement of a minimum

20% operating margin for baseball programming and other mandates imposed by the Bortz

methodology. SeeHall 9/23/14 Aff. Ex. 2 at 1011. This contentionaside from amounting to

a concession that the RSDC did not apply the established methodologyis wrong in two critical

respects. First, as Mr. Wyche explains, he developed the Bortz approach specifically for the

3 The Nationals claim that the Orioles previously acknowledged that the established methodology would includeexamination of the market for comparable rights fees, rather than a strict Bortz approach. Nationals Br. 13. Thatargument reflects a mischaracterization of Mr. Peter Angeloss observation that the Nationals could request asurvey of rights fees. In point of fact, the Nationals werepermitted to present the RSDC with evidence of rightsfees that other Clubs receive. But Mr. Angelos did not in any way suggest that, in the event of an arbitrable disputeunder 2.J.3 of the Settlement Agreement, a survey approach would displace the Settlement Agreementsunambiguous directive that the RSDC would proceed by faithfully applying the Committees establishedmethodology, just as it has done in evaluating all other related party telecast agreements in the industry.


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purpose of determining the fair market value of rights in competitive markets on a prospective

basis, and so a retrospective use is actually the exception . . . rather than the rule. Wyche

11/3/14 Aff. Ex. A 1.d, 2.d (emphasis added). Second, the RSDC was bound to apply the

Bortz methodology because the Settlement Agreement specifically and unambiguously required

it to apply the very same established methodology it had used for evaluating all other related

party telecast agreements in the industry in resolving any prospective valuation dispute that

might arise under 2.J.3 of that Agreement. That was the mandate agreed to by the parties and

the governing standard set forth in the Settlement Agreement. The RSDC was bound by that

contractual mandate, which unmistakably limit[ed] the authority of the arbitrator[s], Apex

Marine Ship Mgmt. Co., 745 N.Y.S.2d at 527, and therefore had no lawful authority whatsoever

to jettison the Bortz methodology and instead dispense [its] own brand of industrial justice, id.

at 526;see also Wien & Malkin LLP, 6 N.Y.3d at 481.

Finally, the Nationals claim that they were disappointed with the Award because the

RSDCs fee determination was closer to what MASN had proposed than to the staggering and

ridiculous number the Nationals requested. Nationals Br. 2, 8. But that fact merely underscores

that the Nationals proposalunder which they would have been paid telecast rights fees that

exceed what the New York Yankees and Los Angeles Dodgers receive in markets that dwarf the

Nationalswas wildly unrealistic. The Nationals vigorous defense of the Award tells the

Court all it needs to know about their claim that the Award is a huge victory for MASN and the

Orioles. Cohen 10/20/14 Aff. 55. By the same token, if the Award were a huge victory for

MASN and the Orioles, it would be beyond strange for them to ask the Court to vacate it.

Respondents defenses aside, the Award itself confirms that the RSDC did not consider

itself constrained by its prior decisions. At the outset, the RSDC explained that it viewed this


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case as a one-off that shall not constitute precedent of the RSDC. Hall 9/23/14 Aff. Ex. 2 at 2

n.2;see also id.at 11 (framing the dispositive question as what fair market operating margin is

appropriate for MASN). The RSDC then acknowledged that its usual practice involves a

bottom up or closed market analysis of the [RSNs] revenue and expenses, which is often

referred to as the Bortz approach. Id. at 56. But the RSDC openly distinguished this case

from all others in the industry and jettisoned that approachin the RSDC chairs words, the

panel had thrown Bortz out, Pet. 120instead adopting an analysis that completely corrupts

the established methodology and the RSDCs ultimate decision, Wyche 7/22/14 Aff. 38, and

itself is simply illegitimate and unreliable, Singer 7/27/14 Aff. 5. Because that novel, result-

driven analysis was not authorized by the parties agreement or derived from the RSDC

precedents, which the parties had expressly chosen to govern the dispute, the Award must be

vacated. See Stewart Tabori & Chang, Inc. v. Stewart, 723 N.Y.S.2d 492, 494 (1st Dept 2001);

see also Apex Marine Ship Mgmt. Co., 745 N.Y.S.2d at 52527; In re UBS Warburg LLC, 744

N.Y.S.2d 364, 365 (1st Dept 2002) (affirming vacatur for manifest disregard where the panel

did not adequately discuss or apply the governing rule and one panel member declared that she

would not consider the applicable authorities).

II. The Court Should Remand This Dispute to Neutral Arbitrators.

The record in this case clearly establishes that the RSDC was not remotely a neutral

forum for the determination of the telecast rights fees and that MLBs interest in the outcome of

this dispute means that the RSDC cannot ever be a fair and impartial forum to decide the matter.

At every step, MLB has influenced, delayed, cajoled, obfuscated, and threatened, all with the

clear purpose of imposing, and then forcing MASN, the Orioles, and BOLP to accept, an

unfavorable decision or an unfair settlement. Alone, MLBs subversion of the arbitral process

provides firm grounds to remand the case to new arbitrators. But MLB went even further.


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Midway through the process, MLB cast its lot with the Nationals by paying them $25 million, to

be repaid by MASN if the RSDC issued an award favorable to the Nationals, i.e., a rights fee

determination in excess of what the Bortz methodology could support. Under these

circumstances, the RSDC can no longer be trusted to call balls and strikes fairly in this dispute.

The Court should therefore exercise its clear authority to replace the RSDC with a neutral

arbitral body.

At the outset, there is no merit to respondents claims that this Court lacks authority to

appoint an impartial decision-maker. To be sure, after vacating an award, courts typically

remand to a new arbitrator within the same arbitral forum. See MLB Br. 24. But that is not

because they lack the power to do otherwise. Rather, it is because the failure of any individual

arbitrator or panel usually does not indicate that the forum as a whole cannot be trusted. Bias on

the part of one AAA arbitrator does not ordinarily imply anything about the capacity of the next

AAA arbitrator to operate evenhandedly. But New York law recognizes that where the

arbitration tribunal designated in the agreement cannot function, the Court may order

arbitration in another forum, approximating the parties original selection to the degree possible.

Options on Shares, Inc. v. Edwards & Hanly, 347 N.Y.S.2d 715, 716 (1st Dept 1973) (per

curiam) (emphasis added); see also Kingsbrook Jewish Med. Ctr. v. Katz, Waisman, Weber,

Strauss, Blumenkrans, Bernhard, 321 N.Y.S.2d 773, 77576 (1st Dept) (where the parties

agreed to arbitrate before an industry association, but the association was unavailable, the court

ordered arbitration before the AAA), affd, 29 N.Y.2d 854 (1971); cf. Klines v. Green, 156

N.Y.S.2d 242, 24344 (2d Dept 1956) (where the parties contracts expressly named two

individuals to arbitrate, but one was unavailable, the court rejected the argument that the

agreements render the court powerless to name a substitute), affd, 3 N.Y.2d 816 (1957).


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By the same token, where misconduct in an initial arbitration demonstrates an on-going

institutional bias in favor of one party over another, courts have not hesitated to cut off that

possibility at the pass by appointing a new, neutral arbitrator. For example, if an arbitration

agreement specifies a specific arbitrator, and that named arbitrator proves biased, courts do not

remand the dispute to that same arbitrator. See Pitta v. Hotel Assn of N.Y.C., Inc., 806 F.2d

419, 423 (2d Cir. 1986) (rejecting the argument that the designated arbitrator could not be

replaced on remand because there was no provision in the [arbitration] Agreement for any other

individual or forum to resolve the dispute); Bos. Ins. Co. v. Carpinter & Baker, Inc., 275

N.Y.S.2d 573, 574 (1st Dept 1966) (parties are in no way obligated to accept the services of

. . . partial arbitrators);cf. Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 93840 (4th Cir. 1999)

(where one party took on the duty under the parties contract to set up a neutral arbitral forum,

but created a biased forum instead, the other party could not be compelled to arbitrate there).

What matters is the parties intent to arbitrate in a fair and impartial manner; if changed

circumstances have frustrated that intent, the Court may take appropriate steps to effectuate it.

See Options on Shares, 347 N.Y.S.2d at 716; Klines, 156 N.Y.S.2d at 24344; see also Aviall,

Inc. v. Ryder Sys., Inc., 110 F.3d 892, 896 (2d Cir. 1997).

Here, where the entire RSDC process has been controlled by MLB from start to finish in

order to ensure an outcome that is in MLBs financial interest, the chosen forum is inherently

incapable of producing a fair result. It would be fanciful to imagine that MLB, given its

significant and continuing financial stake in the outcome and total control over every aspect of

the process, would take its thumb off the scales in any renewed RSDC proceeding. And the

Court should reject any such belated assurance. Mr. Manfred, who played a direct and central

role in the prior tainted RSDC process, will become the Commissioner in a few short weeks. If


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there were a renewed RSDC proceeding, he alone has the power to select the RSDCs members

and he already has shown that he will guide its operations. Nor is there any broader forum

here in which other disinterested arbitrators could be found; the RSDC isthe forum, and the only

available arbitrators are people chosen by the Commissioner, and representing Clubs that are

affected every day by decisions made in the Commissioners Office. Cf. Hooters of Am., 173

F.3d at 939 (Given the unrestricted control that one party . . . has over the panel, the selection of

an impartial decision maker would be a surprising result.).

Equally baseless is the Nationals claim that MASNs requested relief is somehow

unavailable because MASN is seeking remand to a neutral body, rather than a pre-award

disqualification. Nationals Br. 25. If credited, that position would produce the truly absurd

result that parties to a corrupt arbitration would be forever condemned to return to the same

biased arbitrator, who would remain free to issue one-sided (and non-confirmable) awards time

and time again. The law does not require this absurdity. To the contrary, where unforeseen

events have frustrat[ed] . . . the parties contractual intent to submit their dispute to a neutral

expert, the Court has the power to give effect to that intent by reforming the contract and

appointing a new decisionmaker. Aviall, Inc., 110 F.3d at 896; Options on Shares, 347 N.Y.S.2d

at 716;see also, e.g.,Erving v. Va. Squires Basketball Club, 349 F. Supp. 716, 719 (E.D.N.Y.),

affd, 468 F.2d 1064 (2d Cir. 1972); Morris v. N.Y. Football Giants, Inc., 575 N.Y.S.2d 1013,

101617 (Sup. Ct. N.Y. Co. 1991). Indeed, the Settlement Agreement plainly recognizes and

reflects the basic point that a dispute between MLB and one of its Clubs (which is what has

unfolded here) cannot be fairly arbitrated by the Commissioner, and for that reason contemplates

AAA arbitration in that event before a panel constituted of persons with specialized knowledge,

experience or expertise in broadcasting, media rights, or professional sports. Hall 9/23/14 Aff.


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Ex. 1 8.C; cf. Kingsbrook Jewish Med. Ctr., 321 N.Y.S.2d at 775 (ordering arbitration before

the AAA, where the parties designated forum was unavailable and AAA arbitration was

consistent with their intent, as reflected in their agreement and the rules of their chosen forum).

As BOLP and the Orioles have already shown, there is ample reason for the Court to

exercise its own power here to achieve a similar result. The RSDCs manifest disregard for the

established methodology, MLBs and the RSDCs failure to investigate or disclose their myriad,

tangled relationships with Proskauer, and MLBs domination of the arbitral process all justify

replacing the RSDC with an impartial decisionmaker. Orioles Br. 1520. At the very least,

these facts create such a strong appearance of impropriety as to require a new panel of

arbitrators. See Velez Org. v. J.C. Contracting Corp., 734 N.Y.S.2d 164, 165 (1st Dept 2001);

In re Catalyst Waste-to-Energy Corp., 560 N.Y.S.2d 22, 24 (1st Dept 1990). And now, further

factual development has driven home just how strongly MLB is motivated to subvert the arbitral

process, and how easily it can do so.

From the outset, MLB seemed intent on warping the RSDC process to produce an Award

favorable to the Nationals. SeeOrioles Br. 1920. Now, however, it is clear that MLB has an

unwavering motivation to do so. In August 2013, MLB agreed to pay the Nationals roughly $25

million dollars, allegedly to buy time for the parties to reach a settlement or sell MASN. At the

time the payment was made, MLB did not reveal: 1) the full amount of the payment; 2) that

MLB and the Nationals had agreed among themselves as to the repayment terms, including that

MLB intended to recoup its payment through the proceeds of an inflated RSDC award; and 3)

that if MASN were ever sold, MLB would block the sale unless MASN agreed to pay MLB the

$25 million. Rifkin 1/12/15 Aff. 39. Mr. Manfred stated onlyand misleadinglythat MLB

had resolved the Nationals demands for additional telecast rights fees payments, would fund


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the entire cost of the resolution, and would not ask BOLP and MASN to do anything other than

make MASNs regular year-end profits distribution. Rifkin 1/12/15 Aff. 41 & Ex. 17.

MASN did not learn the actual amountof this payment until late 2013, months after the

deal had been struck. See id. 45. MASN did not learn the repayment termsincluding that

MLB and the Nationals had agreed to make MASNa source of repaymentuntil March 2014.

Id. 4849. Nor did MASN receive a copy of the agreement until the Nationals produced it in

this litigation.4 MLBs claim that MASN and the Orioles were aware of this payment and

provided active encouragement is thus wildly misleading: The record shows that, in fact, Mr.

Manfred kept MASN and the Orioles in the dark about the true terms of the deal that MLB and

the Nationals were making.

As MLBs counsel has since acknowledged in open court, MLBs secret side-agreement

provides that the Nationals will neverhave to repay these funds; rather, the funds would have

[to be] paid, by MASN, to Major League Baseball, to recoup what Major League Baseball had

laid out. 12/15/14 Hrg Tr. 84:910, 84:1820 (emphasis added). By entering into that

agreement, MLB acquired a direct pecuniary interest in the outcome of the RSDC proceeding,

in contravention of the most basic principles of fair play and due process. See Caperton v. A.T.

Massey Coal Co., 556 U.S. 868, 87778 (2009); Coty Inc. v. Anchor Const., Inc., 7 A.D.3d 438,

439 (1st Dept 2004) (affirming vacatur based on arbitrators direct financial interest in the

matter). And while MLBs counsel argued to this court that $25 million is not a material

amount to his client, see 12/15/14 Hrg Tr. 85:1115, the record demonstrates that MLB has

placed great importance on recovering that $25 million stake. Not only did MLB structure its

4 In an August 12, 2014 letter requesting pre-discovery production of the agreement, newly retained counsel forBOLP and the Orioles misstated the approximate date on which the letter was first shown to Mr. Rifkin. SeeAkowuah 1/12/15 Aff. Ex. A. That misstatement was corrected in emails dated August 14, 2014 and August 15,2014. Akowuah 1/12/15 Aff. Exs. B, C.


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secret side-deal with the Nationals in a way that, in Mr. Manfreds words, gave MLB two routes

to recovering our 25 million, but Mr. Manfred himself described the possibility of settling the

dispute without an RSDC award as a huge give for us, precisely because it would eliminate

one of those two routes. Rifkin 1/12/15 Aff. 48 & Ex. 18 (emphasis added). In the same e-

mail, Mr. Manfred said that [p]rotection on the 25 million remained a source of significant

concern for MLB. Id. He also expressed, on another occasion, that he was under pressure to

repay the third-party lender from which MLB borrowed the $25 million. Id. 51. Just as issuing

the Award effectively put $25 million into MLBs pocket, a decision vacating the award would

take that money back out. And if this dispute were returned to the RSDC, MLB would once

again have a $25 million motive to ensure that any resulting award favors the Nationals.

MLB not only has a powerful financial motive to distort the RSDC process, but

undeniably has the means to do so as well. It is now clear that MLBand particularly the

current Commissioner-elect, Mr. Manfredexercised pervasive control over the Arbitration.

MLB decided (without informing MASN or the Orioles of its decisions) which party

submissions would be transmitted to the RSDC members. CompareManfred 11/19/2014 Aff.

20(a), with Rifkin 1/12/2015 Aff. 27. Mr. Manfred and MLB repeatedly requested that

MASN and the Orioles submit materials in connection with the Arbitration, and yet never

forwarded selected materials to the Arbitratorsa course of conduct makes sense only if it was

MLB, and not the Arbitrators, that reviewed the materials and made the determinations relevant

to the Award. MLB ruled (without informing the RSDC) on both procedural and substantive

matters. MLB instructed the RSDC as to the meaning of the Settlement Agreement. SeeRifkin

11/07/2014 Aff. 17. And MLB even drafted the Awardthough it did permit the ostensible

arbitrators to review its drafts for typographical errors. SeeHall 1/12/15 Aff. Ex. 3 (MLB00248,


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MLB00250). In light of these undisputed facts, MLBs unelaborated claim that the RSDC

members exercised their independent judgment, MLB Br. 1415, rings hollow.

After the RSDC hearing ended, MLBs control persisted. Despite the RSDCs supposed

independence, the sitting Commissioner repeatedly ordered that the RSDC not issue a decision,

apparently without even telling the RSDC members themselves, let alone obtaining their

approval. This delay went on for two years, during which time MLB used the threat of an

unfavorable Award to try to coerce MASN to restructure its partnership. SeePet. 140141.

When the decision finally issuedafter MLB had paid out the $25 millionthe Commissioner

threatened that any attempt to seek judicial review of the Award would be met with the

strongest sanctions available. Hall 9/23/14 Aff. Ex. 21 at 2. When MASN nevertheless

exercised its absolute statutory right to seek vacatur of the Award, the Commissioner ordered

MASN to withdraw its petition, Hall 9/23/14 Aff. Ex. 22 at 1, and then demanded, again under

threat of sanctions, that MASN pay the Nationals the amounts supposedly due under the Award

for 2014 even while MASN was challenging the Award in Court, Hall 9/23/14 Aff. Ex. 23 at 2.

Only the Courts orders enjoining such conduct by the Commissioner brought that effort to an

end.

Indeed, financial motivations aside, MLBs litigation conduct further proves that MLB

and its Commissioner cannot fairly oversee a second arbitration of this dispute. Baseball could

have stood to the side once this case reached its merits stage, leaving the parties to make their

arguments for and against vacatur. But Baseball did just the opposite. Just as in the arbitration

proceeding, Baseball pressed itself to the center, and here has openly fought on the Nationals

side. In doing so, it has firmly embraced the RSDCs contorted position on the meaning and

operation of the Settlement Agreementthe very issue that would be at the core of any


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subsequent RSDC proceeding. The result is that this litigation has been just as much a dispute

between MASN and MLB as it is a dispute between MASN and the Nationals. And as a result,

MLB is not in any position to approach this disputeor these partiesin a neutral and open-

minded way. See Morris, 575 N.Y.S.2d at 101617 (NFL Commissioners past advocacy of a

position in opposition to plaintiffs position herein, deprive[d] him of the necessary neutrality);

see also Palmer Plastics v. Rubin, 108 N.Y.S.2d 514, 520 (Sup. Ct. Kings Co. 1951) (arbitrator

could not be impartial going forward after, inter alia, having pressured one party to settle).

In light of all this, MLB cannot be trusted to shepherd the RSDC to a fair outcome if

given another chance. And given its iron-fisted control over the RSDC process, it is irrelevant

whether MLB itself or a committee appointed by MLB, advised by MLB, and substantially

controlled by MLB, nominally serves as the decisionmaker. MLB Br. 25. It is also irrelevant

that some of the RSDC members have been replaced by different club representatives, Nationals

Br. 25, who are also appointed by the Commissioner, and are presumably just as eager to please

the new boss as the old. Indeed, in unsuccessfully resisting MASNs discovery requests, MLB

portrayed Mr. Manfred and his staff as essentially inseparable from the arbitrators themselves,

acting as legal advisors and law clerks to the panel. E.g., Manfred 11/19/14 Aff. 8. Likewise,

the privilege log that MLB subsequently produced asserts that Mr. Manfred and certain unnamed

MLB in-house counsel and RSDC Support Staff provided legal advice to the RSDC while this

matter was pending. No court would accept the argument that a law clerk could properly work

on a case in which she has a direct financial stake simply because the judge and not the clerk will

ultimately decide the matter. See, e.g., Williams v. N.Y.C. Hous. Auth., 287 F. Supp. 2d 247, 250

(S.D.N.Y. 2003) (a law clerk may not work on a case if she has a financial interest in the

controversy). And here, Mr. Manfred and his staff exercised far more influence over the RSDC


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and its operations than any law clerk ever would. MLB not only wrote the RSDC Award (which

the panel members then accepted with only ministerial edits, see Hall 1/12/15 Aff. Ex. 3

(MLB00248, MLB00250), but also made final rulings on disputed issues, decided which of the

parties submissions the panel would see, and determined whether and when the Award would

actually issue. Nor has Mr. Manfred denied informing Mr. Rifkin that he instructed the

arbitrators as to their charge. Rifkin 11/07/2014 Aff. 17. Simply put, MLB exercised

pervasive control over the entire RSDC process and surely would do the same if this case were

remanded to the RSDC.

None of these problems can be waved away with the claim that MASN agreed to arbitrate

before the RSDC and thus knew what it signed up for. While MASN agreed to resolve certain

telecast rights fees disputes before an MLB committee, it did not agree to a tainted and contrived

process. Rather, by agreeing to conduct an arbitration, MLB and the RSDC took on an

affirmative obligation to act as neutraladjudicators, carrying out a fair and impartial decisional

process in a manner consistent with federal and state arbitration law, and obeying the specific

terms of the arbitration clause in section 2.J.3 of the Settlement Agreement. See Hooters of Am.,

173 F.3d at 940; see also Goldfinger v. Lisker, 68 N.Y.2d 225, 231 (1986) (arbitrators . . . are

expected to faithfully and fairly hear the controversy over which they have been chosen to

preside . . . and ought to conduct themselves in such a manner as to safeguard the integrity of the

arbitration process); Catalyst Waste-to-Energy Corp., 560 N.Y.S.2d at 24 (basic, fundamental

principles of justice require complete impartiality on the part of the arbitrator and mandate that

the proceedings be conducted without any appearance of impropriety). It is therefore irrelevant

whether the RSDC ordinarily falls below these minimum standards of fair procedure and

unbiased decisionmaking mandated by the FAA and the CPLR when it acts in other, non-


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adversarial settings. Cf. Belanger v. State Farm Mut. Auto. Ins. Co., 444 N.Y.S.2d 406, 407

(Sup. Ct. Albany Co. 1981) (rejecting the argument that the petitioner should not now be heard

that he is aggrieved because of the rules and regulations surrounding the forum which he has

elected, because he was entitled to have a fair, impartial, equitable and legal arbitration).

When the RSDC became an arbitration panel, the law required it to act like one.5

MASN and BOLP bargained for a fair and neutral arbitral process, but that is not what

the RSDC delivered. Instead, at every turn, MLB has chosen one side in this dispute: the

Nationals. It chose the Nationals when it allowed Proskauer to represent them despite myriad

and breathtaking conflicts of interest; when it dictated the outcome of the RSDC process; when it

gave the Nationals money while secretly putting MASN on the hook for repayment; when it

attempted to coerce MASN to abandon its challenge to the Award in this Court; when it tried to

make MASN pay the Nationals even while this suit was pending; and when it joined the

Nationals in asking this Court to dismiss MASNs vacatur petition. In view of that history, the

Court should assume that MLB will do whatever it can to prevent the RSDC from being a neutral

forum for the fair resolution of this dispute. At this point, the parties contractual agreement to

arbitrate this dispute before an impartial decisionmaker can be salvaged only by replacing the

RSDC with a neutral, outside body. Accordingly, under both Federal and State law . . . neutral

arbitrator[s] should be substituted for the [RSDC] in order to insure a fair and impartial hearing.

Morris, 575 N.Y.S.2d at 1016.

5 Even if MLB were right that MASN accepted a process with fewer procedural safeguards by agreeing to arbitratein front of the RSDC, that would merely heighten the need to ensure that the process was administered fairly andimpartially. See Fein v. Fein, 610 N.Y.S.2d 1002, 1007 (Sup. Ct. Nassau Co. 1994) (For the purposes ofenforcement under CPLR Article 75, the need to guarantee impartiality . . . increases in direct proportion to thedegree to which the tribunal departs from procedural requirements common to statutory arbitration.).


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Documents

Orioles Reply in Support of Vacating Arbitration