The Philadelphia Union have formally responded to former manager Peter Nowak's lawsuit against the team.
On Thursday, team counsel David E. Landau filed a motion to the U.S. District Court for the Eastern District of Pennsylvania, arguing that a federal courtroom is the wrong place to settle the issue.
Landau is a Philadelphia-based attorney with the prominent local firm Duane Morris LLP. He handles the Union's legal representation in local matters. The club's primary counsel is the Chicago-based firm Katten Muchin Roseman LLP. Both firms are representing the club in this case.
Both Keystone and Pennsylvania Professional Soccer were named as defendants in Nowak's lawsuit. The former organization is the parent of the latter, which is the Union's official owner.
According to documents filed with the court, the two organizations share a corporate headquarters address in Dover, Del. That address is registered to a company called National Registered Agents, Inc.
Summons were issued to Keystone and Pennsylvania Professional Soccer (you can read them here and here) on August 2, and the companies were given 21 days after that date to respond.
(Although the date of issue listed on both summons documents is July 20, the court's recognized start date for the 21-day response period was August 2. As such, the deadline to respond was August 23.)
In his filing, which you can read in full here, Landau argues that Nowak's contract contained an explicit clause which calls for disputes over termination to be settled by an arbitrator.
The key quote from Landau's filing is the following:
At the inception of his employment with Defendants, Nowak signed an Employment Agreement (the "Agreement") providing, among other things, that the Club could terminate his employment with written notice upon the occurrence of certain for-cause events.
On June 13, 2012, the Club exercised its right to terminate Nowak for cause, providing him with a termination letter detailing the many ways in which he had committed cause. Nowak, in turn, initiated this lawsuit seeking an "expedited declaratory judgment" that Defendants failed to satisfy a condition precedent to terminating him and lacked the contractual right to effectuate the discharge.
The Agreement, however, explicitly provides that any claim arising out of or related to the Agreement or the breach thereof, including claims for wrongful termination or disputes regarding Nowak's right to severance, "shall be settled by arbitration" before the American Arbitration Association.
Indeed, the full clause from Nowak's original contract with the Union states the following:
Any controversy or claim arising out of or relating to this Agreement or the breach hereof, including, without limitation, any claims for wrongful termination or employment discrimination or disputes regarding Manager's right to Severance Payments hereunder, shall be settled by arbitration in accordance with the rules of the American Arbitration Association and under the laws of the State of Pennsylvania (without giving effect to the choice or conflict of law principles thereof); provided, however, that nothing herein shall prevent either party from seeking equitable relief from a court of competent jurisdiction.
Judgment on any award rendered may be entered in any court of competent jurisdiction. Any such arbitration shall be in the Philadelphia, Pennsylvania metropolitan area and the parties hereby consent to jurisdiction of any court located in Pennsylvania as may be necessary to enforce this provision or from which equitable relief is sought hereunder.
In other words, Landau argues that Nowak's attorneys are trying to exploit a potential loophole in the contract which may allow for a dispute to be resolved in a court instead of by an arbitrator.
To counter that claim, Landau cited (and added some of his own emphasis to) a section in Nowak's contract which deals specifically with termination:
Whether Club has terminated this Agreement pursuant to Paragraph III(A) [for cause and without severance] or (B) [not for cause and with severance] shall be determined in good faith by Club at its reasonable discretion; provided that (i) prior to terminating Manager pursuant to Paragraph III(A), Club shall specify in reasonable detail the reason Manager is being so terminated and give Manager an opportunity to respond thereto, (ii) such determination shall be subject to Paragraph XIII [Governing Law, Arbitration and Attorneys' Fees] and (iii) prior to terminating Manager pursuant to clause (2), (3), or (7) of Paragraph III(A), Club shall allow Manager fifteen (15) days to cure the occurrence, except that Club shall have no obligation to provide Manager such opportunity to cure if Club determines, in its good faith judgment, that the occurrence is of a nature that is not curable or that Manager's continued employment during a cure period could be reasonably be expected to result in material harm to Club. (Compl. Ex. A, ¶ III(C))
I realize that's a pretty big chunk of text. Here's a shorter summary of the point from later in the filing:
Nowak asks this Court to find that the Club did not act in good faith in discharging him, that it lacked the contractual right to terminate him and that it breached the Agreement by failing to provide him with notice and an opportunity to cure the misconduct underlying the for-cause determination.
Under Articles III and XIII, the parties have agreed that these issues must be resolved through arbitration.
The memorandum continued with citations of past cases which set the precedent for this case to be dismissed. If you're a lawyer or a law school student, that will sound quite familiar; if not, I won't bore you with all the details.
But I will highlight a clause in which Landau directly attacks the claim by Nowak's attorneys that the case should be taken up in court:
In attempting to avoid arbitration, Nowak will no doubt point to the proviso in Article XIII providing that "nothing herein shall prevent either party from seeking equitable relief from a court of competent jurisdiction."
Indeed, Nowak presumably styled what is clearly a breach of contract action as a declaratory judgment action for the sole purpose of trying to exploit this caveat. The mere styling of his dispute as a declaratory judgment action, however, does not render it a claim for equitable relief nor does it allow him to circumvent the parties' agreement to arbitrate.
By the standards of the legal community, that's a pretty serious smackdown.
Landau concludes by making a point that has a sporting overtone to it:
Nowak's filing of this declaratory judgment action represents an obvious and inappropriate form of procedural fencing. The issues raised by Nowak's Complaint — whether the Club breached the Agreement or acted without good faith in making the discharge decision — is fundamentally a legal claim for breach of contract that falls squarely within the Agreement's arbitration provision.
As such, the Court should dismiss Nowak's Complaint in favor of arbitration.
Landau had no comment when I spoke with him Thursday afternoon. But Nowak's attorney, Clifford Haines, had quite a few things to say.
"If we felt this matter properly belonged in arbitration, we would not have brought it to the court's attention," Haines told me. "There is a clause in the contract that calls for arbitration, but also calls for equitable relief in a court of law ... There are a lot of issues that are raised by how [the Union] proceeded that we think preclude this from going to arbitration."
Haines then reiterated a point he made to me when the suit was first filed.
"We don't quarrel with [the team's] right to terminate Peter – that's clearly their right," he said. "The question is their financial obligation when they entered into a conract to emply somebody to the end of 2015."
Haines claimed that the Union "decided to dig in its heels and say we're firing you, we're going to give you a severance of some modest amount, and goodbye – take it or we're going to claim we fired you for cause."
"Peter said 'No, that's not acceptable,' " Haines continued. In addition to having a three-year contract, Haines claims that Nowak "bought a home at [the Union's] insistence."
Haines then noted specifically that the Union stopped paying Nowak on the day they fired him in June.
I asked Haines how long he has known Nowak. Haines told me that he came to know Nowak on account of this case. Nowak's longtime Chicago-based attorney, William Daluga of Daluga & Bond LLC, asked Haines if he could take over the case because it is based in the Philadelphia area.
That said, Haines is well aware of the evidence in the case, including the Union's letter to Nowak explaining its causes for termination. Haines cited one of the more prominent causes in his converstaion with me.
"If, in fact a coach has mistreated players by denying them water, wouldn't the ownership have said, 'Peter, we're not going to accept that kind of behavior, so change it?' " Haines said. "There's no indication that any such things happened, but they list that as a for-cause reason to terminate a contract."
Haines claimed that "to elevate that [evidence] to a basis on which to fire somebody, is, in my view, just a tad absurd."
"There was obviously some reason why nine months ago [the Union] wanted to give [Nowak] a three-year extension," Haines continued. "They contend that there's some behavior on the part of Peter that justifies a firing for cause. We don't think so under the terms of the conract."
Haines and the rest of Nowak's legal team now have 21 days to respond to the Union's motion for dismissal. After that, a final decision on the matter will be made by judge Mary A. McLaughlin at her discretion.
Links to case documents
1. Summons to Keystone Sports & Entertainment, LLC
2. Summons to Pennsylvania Professional Soccer, LLC
3. Memorandum from the Union's attorneys requesting dismissal of Nowak's lawsuit
July 24, 2012: Former Philadelphia Union manager Peter Nowak sues team for wrongful termination and unpaid severance money