Is Tom Brady's Victory Over the NFL a Game-Changer for Hollywood? (Analysis)

Many talent-side litigators believe studios have rigged the arbitration process.

Roger Goodell is to Tom Brady as  _________  is to every A-list director, actor and writer in Hollywood.

Ask many talent-side litigators, and the NFL commissioner's place in Hollywood would be occupied by JAMS, the arbitration outfit that plays an outsized, if obscure, role in adjudicating disputes in entertainment. The Hollywood Reporter breaks more news about quarreling in this industry than anyone, and yet we're only scratching the surface of problems arising from contracts, labor and intellectual property because most disputes are buttoned-up through arbitration agreements.

So what's the problem with JAMS? (Or, to a smaller degree, competitors ADR Services, AAA and other independent arbitrators and mediators?) Why does it deserve to be mentioned in the same breath as the unpopular overseer of professional football who just suffered one of the league's greatest legal defeats in its 95-year history?

A recent article in the UCLA Entertainment Law Review spelled out the reason. Many talent-side litigators suspect that JAMS arbitrators are biased in favor of studios because they don't wish to lose repeat business. There are arguments to the contrary (more on those soon), but it's being argued that arbitration essentially cost the Tom Bradys of Hollywood tens and maybe hundreds of millions of dollars each year in lost profit participation. The arbitration venues are designated by contract, negotiated when talent has little leverage to say no. To that end, some litigators have claimed that arbitration provisions are forced upon talent.

"Every studio requires arbitration," says Neville Johnson, one such attorney who has been most vociferous in anti-JAMS sentiment. "It's a stacked deck. You can't win... Generally, there are only three ways to overturn an arbitration ruling. (The arbitrator) has to be drunk, bribed or he won't let in relevant evidence."

This is where Brady's victory on Thursday arguably comes into play.

U.S. District Judge Richard Berman vacated Goodell’s decision to uphold the Patriots quarterback’s four-game suspension for being "generally aware" of a scheme to deflate footballs. The federal judge found that Goodell was not being a neutral arbitrator. Berman's decision to overturn the commissioner's ruling rested on two key points: First, Brady didn't have adequate notice he could be punished for doing what he allegedly did, and second, and potentially more crucial for future attempts to vacate arbitration rulings, Berman decided that attorneys for the NFL Players Association should have been allowed to question NFL general counsel Jeffrey Pash and been given access to his investigative notes. In other words, Brady was denied a fair opportunity to present his case.

Berman's decision rested on faulty process rather than the merits of the suspension, but process matters. The problem for almost everybody who has attempted to overturn an arbitration ruling in the past is that judges are usually incredibly deferential to the decisions of arbitrators (who are often retired judges). In the run-up to Thursday's ruling, the Brady side cited 19 instances where an arbitration was reversed, but this is really a small number compared to the number upheld. And only a fraction of arbitrations are even challenged. There's a cost associated with doing so. Furthermore, we're not aware of a single arbitration ruling in the entertainment industry that has been vacated (at least recently), and attorneys we've consulted can't cite any either.

The Brady decision provides at least limited precedent (it's now going up to the 2nd Circuit, which covers New York and neighboring states) to have arbitration rulings shredded over the denial of relevant discovery. More importantly, it could be a confidence boost for talent-side litigators.

"This is going to be one of the big issues in the coming century," says Johnson, who is currently representing two of the creators of Disney's Hannah Montana in an effort to vacate an arbitrator's interim decision that a profit agreement didn't allow them to share in the Miley Cyrus show's merchandise revenue. Johnson has gone to a Los Angeles Superior Court complaining of an arbitrator who wouldn't make Disney hand over evidence of profits to one of Hannah Montana's other creators.

"I have no doubt that losing parties will cite the Brady decision in court challenges to arbitration awards," says Daniel Petrocelli, a litigator at O'Melveny & Myers, who represents Fox, Warner Bros. and most recently, Disney in a battle with Johnson over whether studios have further fixed the arbitration game by only allowing certain accounting firms into the auditing process.

Petrocelli asserts that arbitrations are really a "mixed blessing" for Hollywood studios. In his view, they insist upon them in contract negotiations as a risk-mitigation decision because it beats the prospect of going before a "runaway jury" that might not understand the business and could impose wild punitive damages. Plus, there are confidentiality upsides (though, contrary to popular belief, disputing parties are usually free to discuss what happens). But Petrocelli adds that the open court process allows more early outs whereas arbitrations almost always result in trials. Plus, he says, factoring in settlements, "at end of day, most include a payment to plaintiff."

As for his view of the Brady decision, while Petrocelli expects that the headline-making case will be leaned upon by the Hollywood plaintiffs bar, it won't make efforts to overturn arbitrations any less difficult. "In the Brady case, there was lack of clarity in the collective bargaining agreement that allowed the challenge to occur," he says. "I don't think it will have any precedential effect because all cases are fact-specific."

The NFL is now appealing its loss, reportedly against the wishes of some of the league's owners. Goodell could be looking to protect his ability to render punishment going forward.

Meanwhile, while deflated footballs might not appear at first blush to be anything like disputes over true authorship, firings and light profit participation checks, one should very much expect coming legal briefs comparing "capricious, unfair and tainted" JAMS arbitrators to a power-hungry NFL commissioner who got his comeuppance in court.