Professional football players may be burly and menacing on the field, but they aren't invincible in the courtroom.
On Nov. 23, 2010, in Atwater v. National Football League Players Association, an 11th Circuit panel ruled against six former National Football League (NFL) players who sued the league and its players union, the National Football League Players Association (NFLPA), for negligence, negligent misrepresentation and breach of fiduciary duty.
The players had invested $20 million with a firm owned by hedge fund manager Kirk Wright, one of about 500 accredited advisers listed in the union's Financial Advisors Program, meant to provide investment guidance to players. Unbeknownst to his shareholders, Wright was leading a massive Ponzi scheme and squandering their investments on luxury vehicles, real estate and a $500,000 wedding.
Suspicious of Wright's too-good-to-be-true returns, the players tried to withdraw their money. They never received it. The Securities and Exchange Commission (SEC) investigated Wright's firm, discovered its financial statements were fabricated and shut it down in February 2006. Wright fled but was eventually arrested and committed suicide in jail (see "Unsportsmanlike Conduct").
The players sued the NFL and their union for suggesting a corrupt adviser. But the NFL and NFLPA pointed out that the Financial Advisors Program was part of the league's collective bargaining agreement (CBA), which states that "players shall be solely responsible for their personal finances." The defendants argued that Section 301 of the Labor-Management Relations Act, which governs the enforceability of CBAs, pre-empted the players' state-law claims because the claims were dependent on the CBA. The district court agreed and granted summary judgment to the defendants. The decision was affirmed on appeal.
The language stipulated in the CBA secured a win for the NFL and NFLPA, but some experts question whether the Financial Advisors Program is a good idea.
Wright Was Wrong
"I have not seen another CBA with such a program," says Jonathan Spitz, partner at Jackson Lewis and national co-coordinator of the firm's Collegiate and Professional Sports Industry Group. "If the league and the players association take it upon themselves to create this program, people do have the right to expect that they're going to take some level of care."
Although Atwater presents distinct circumstances, Spitz says the case is germane to companies outside the sports world. "If you're an employer and you insert yourself into the situation [by offering a list of financial advisers], you need to expect that people are going to hold you accountable," he says.
Fortunately for the NFL and the NFLPA, they were able to prove they weren't liable for the players' losses. The Financial Advisors Program was established to comply with the CBA's requirement that the union provide information to players on managing their personal finances. To become listed advisers, applicants had to pay a fee, meet stringent eligibility requirements and undergo background checks. Furthermore, the list included a disclaimer that the individuals weren't endorsed.
"As I understand the different procedures by players associations to ensure that financial advisers and representatives are capable, the NFLPA has developed a fairly rigorous system," says Michael McCann, director of the Sports Law Institute at the Vermont Law School.
The players claimed the NFLPA wasn't careful when it conducted Wright's background check, which they felt was a duty owed to them. But the court found that the NFLPA's duty to perform the check arose solely from the CBA, meaning Section 301 pre-empted the plaintiffs' claims.
Wright may have been chiefly responsible for the players' losses, but the players should have done their own due diligence in determining his trustworthiness. "Professional athletes earn huge sums of money, many times at a young age, but that doesn't mean they shouldn't be responsible for managing their own affairs or that their employer has different legal responsibilities," says Spitz.
David Goldstein, a shareholder at Littler Mendelson who has represented teams in the NFL, says everyone--from athletes to corporate employees--should be active in his or her finances. "It's unfortunate for an individual to not be personally involved in what they're investing in and try to understand it," he says.
Game Plan
Atwater should prompt businesses to be cautious in the way they present company investment plans. Employers can provide prudently chosen investment options, such as mutual fund groups, but doling out lists of hundreds of advisers from assorted firms isn't wise.
"This case is a reminder that plan fiduciaries have a general obligation to provide participants with options and educational tools to make smart decisions," says Goldstein.
Section 404(c) of the Employee Retirement Income Security Act outlines duties an employer must fulfill in order to transfer investment-related liability to employees. "As part of compliance with 404(c), most employers are providing information and options for places for employees to put their money, but they're sticking to the larger, well-established mutual fund companies and brokerage firms that are well-known, well-insured and well-financed that may offer some opportunities for individually managing money," says Goldstein.
Spitz also advocates the concept. "There are main players out there that are household names--we all know who they are. They're easy to investigate, and you can determine whether there have been charges brought against them," he says. He notes, though, that investing always has a risk factor. "The trustees of the fund are expected to be prudent; they've not expected to be clairvoyant."
