• In the NHL, bizarre contractual squabbles are the delight of everyone

    by  • September 15, 2010 • Uncategorized • 15 Comments

    The Washington Capitals have gotten themselves into a pretty spectacular mess with Eric Belanger. James Mirtle has an excellent story in the Globe that you should all go read immediately. The gist of it is this:

    The agent for veteran centre Eric Belanger is threatening legal action after he says the Washington Capitals backed out of an agreement made to sign his client five weeks after it was initially made.

    Joe Tacopina, a high profile New York defence lawyer who has recently begun representing NHL players, told The Globe and Mail on Tuesday that the Capitals agreed over the phone to give Belanger a one-year, $1.85-million deal on July 16 that would be made official after general manager George McPhee completed a trade.

    Tacopina said Capitals assistant GM Don Fishman then advised him five weeks later that the deal may fall through, after the team had already helped Belanger move and lease a home in Washington. His children were also registered for school in the area.

    Belanger signed a one-year, $750,000 contract with the Phoenix Coyotes on Tuesday, taking a more than $1-million pay cut from the deal Tacopina says the Capitals offered.

    This may sound more than a little familiar to Oilers fans – it’s sort of a mirror image of what happened with Michael Nylander in 2007, albeit with a couple of major distinctions. Longtime readers may remember that I didn’t think that the Oilers had a leg to stand on in 2007 and that their bluster about exploring their legal options would lead nowhere, which it did. I also liked this passage from that piece:

    This whole thing strikes me as silly anyway. Two years from now, when Kevin Lowe is the VP of Remembering the Eighties and someone (competent?) is running the show, I’d suspect that the Oilers management will be happy not have Nylander around pulling down $4.75 or whatever he got from Washington. The only downside I can see is that I pretty much have to withdraw my comments about them seeming to have a plan. I think that they got lucky here. Maybe it’s for the best that their attention was diverted from spending money on UFA’s for the past few days – I’d hate to see what they could have done with that money.

    Prescient! Except that they ended up spending that money on Sheldon Souray, so it was pissed away anyway and we didn’t end up with someone competent running the show. The lesson? I’m not cynical enough.

    Anyway…I see this as being a different situation for a number of reasons. There’s a doctrine called promissory estoppel that I could see as providing the basis of a cause of action here. It arose out of a desire of the court to protect the reasonable expectations of parties in circumstnaces in which a formal contract did not exist. As an aside, my recollection is that you can’t found an action on a promissory estoppel on Canada but that the United States, or at least some jurisdictions, permit this. There’s a famous line from a court case that promissory estoppel is a shield, not a sword, although the Aussies have moved beyond that and, as I say, I believe the Americans have as well. I’ll leave that aside for the purposes of discussing this and just, for the sake of discussion, assume that it could be used as a sword in both jurisdictions:

    I’m going to lift the definition from Wikipedia, which cites the American Restatement of Contracts:

    A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

    So, roughly speaking, the elements to be made out are as follows:

    1. A promise;

    2. Which the promisor should reasonably expect to induce action or forbearance of action on the part of the promisee;

    3. Which does induce such forebearance; and

    4. Injustice that can be avoided only by enforcement of the promise.

    It’s clear from the CBA that no contract is formed in these circumstances. That does not, however, end the story – there’s still the question of whether a court would protect the expectations of the wronged party. The Oilers/Nylander case was considerably different than the Capitals/Belanger case, in that I think the Oilers would have had considerable trouble in showing that they had suffered some loss as a result. The Nylander thing fell apart quickly and he was a second tier free agent – what, precisely, would they have lost by waiting for Nylander to sign a deal?

    In Belanger’s case, it’s a bit different. I think that the first two elements are pretty clearly made out. Rajeev Ananda, a frequent commenter here and a very smart guy, vehemently disgarees with me on the second point – if I understand his argument correctly, he doesn’t think that the Capitals should be held to have expected that Belanger would rely on their promise of a contract. I vehemently disagree with him on that – I think advancing that argument is tantamount to saying “We never thought someone would be so foolish as to believe what we were telling them” but he’s a bright guy and there’s a point of dispute there.

    Belanger has signed a $750,000 contract with the Coyotes after five weeks of getting strung along by the Capitals, if you accept his agent’s story at face value. James attaches a complete copy of the agent’s letter to the Capitals and it’s well worth reading. It includes this paragraph:

    As a matter of fact on the August 17th call, Don said for the first time that while you were trying to get this done there was “no guarantee” that the trade would be made and therefore you might not be in the position to sign eric. In response to that I told Don that our agreement was never a matter of “if” the trade was done , it was a matter of “when” it got done. Don stated that that was “true, but the market changed.” I reminded him of the commitment he asked eric to give to washington by agreeing to the deal and not going back on that agreement once you made the trade (and thereby discontinuing conversations with the other teams) and the teams equal commitment to eric, a veteran of over 600 NHL games who has a reputation of doing whatever he has to for the good of the team. In light of all of the positive reinforcement that we were given throughout the weeks proceeding the August 17th call, the new “no guarantee” position was very upsetting and I believe very unfair. While Don has now taking to repeating “you can move on if your restless” I have repeatedly said to him that with training camp 2+ weeks away, there are no longer situations for us to move on to!

    Leaving aside the disagreement between Rajeev and myself, where this case really diverges from the Oiler/Nylander case is with what happened after the purported promise. Things dragged on for five weeks. It seems reasonable to me to think that there was a real loss here – Belanger may well have lost more lucrative and desireable opportunities that were available to him as a result of the Capitals’ conduct. I don’t think that you can say that about the Oilers with respect to Nylander – they were able to find an equally stupid mistake to make shortly thereafter and I’ve never heard it said that they lost out on anyone because they thought that their deal with Nylander was done.

    Two other points come out of James’ article that I want to touch on, both emerging from a quote from an agent:

    “They don’t have a legal leg to stand on,” one agent said Wednesday. “The entire situation is governed by the CBA. An agent and the player are obligated under the CBA to take individual legal action or you can lose your certification to be an agent … The sole remedy would be a grievance.

    Not every possible legal interaction between a player and the NHL is governed by the CBA. In order for something to be prevented by the CBA, it has to set out as being barred. 17.1 of the CBA says the following with respect to grievances:

    17.1 Grievance. A “Grievance” is any dispute involving the interpretation or
    application of, or compliance with, any provision of this Agreement, including any SPC.
    All Grievances will be resolved exclusively in accordance with the procedure set forth in
    this Article, except wherever another method of dispute resolution is set forth elsewhere
    in this Agreement.

    The potential cause of action that I’m describing has nothing to do with the CBA, so quite frankly, I’m not sure how an agent could say that the entire situation is governed by the CBA. Subject to Richard Bloch reading it, the CBA doesn’t deal with potential actions for promissory estoppel.

    I also don’t entirely understand the statement that “…an agent and the player are obligated under the CBA to take individual legal action or you can lose your certification to be an agent.” To start with, the agent has no cause of action here. If anyone does, it’s Belanger. One might argue, I suppose, that his agent should be named as a defendant in the action along with the Capitals, which would be spectacularly messy.

    Any action against the agent would be on the basis that it was negligent for him to advise Belanger to discontinue his efforts to go elsewhere and wait for the Capitals to finalize the deal, assuming that such advice was given. In effect, it’s an either/or thing – if it was unreasonable of him to take the Capitals at their word and his agent advised him to do so, the agent might have a problem. If, however, the agent said “Well, look, their request is all fine and well but it’s not a deal and you can’t rely on them to actually come through,” he’s probably fine.

    Secondly, I don’t understand how a lawyer could be certified pursuant to a scheme that bars him from advising his client to pursue legal rights that might be available to him outside of the CBA. The Law Society of Upper Canada, at least, has pretty clear rules about who your owe your duty to – it’s your client, not to a scheme concocted by the NHL and NHLPA to ensure that things get arbitrated, as opposed to litigated. It strikes me as odd, if it actually were to apply to circumstances like this.

    One other point – Tacopina takes a hammering in Mirtle’s article for his failure to get a signed deal. I have some difficulty with that. While we all know that there’s no deal under the CBA until one is signed, a lot of lawyers work on trust when it comes to their dealings with other lawyers. George McPhee is a lawyer. Don Fishman’s title is Director of Legal Affairs, so I assume he’s a lawyer as well. If you can’t trust the lawyer with whom you’re dealing, a lot of legal dealings become a lot more arduous. Lawyers will generally try to accomodate one another when they can and, where someone is told that a deal is done but that it won’t be formalized yet for other reasons, I can understand why Tacopina was inclined to let it go. You generally get to burn someone like Tacopina has been burned only once though, if it’s public enough, as this is.

    In any event, regardless of the potential legal consequences, if there’s any truth to Tacopina’s account, the Capitals have acted in a pretty despicable manner, most likely to Belanger’s detriment. Doctrines like promissory estoppel arose as a response to shortfalls in contract law, as basically a way for courts to protect reasonable expectations that people form in circumstances where they’ve relied on the promises of others to their detriment. Even if there is no legal remedy here – and I’m not an American lawyer and this has been sort of stream of consciousness thinking, if you need legal advice, you should speak to a lawyer – the Capitals’ conduct is shameful. The Capitals can probably forget about ever getting the slightest indulgence again from a player, because there isn’t an agent in the world who would advise them to do so. That’s something that has a cost, even if they saved money by not signing Belanger.

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    15 Responses to In the NHL, bizarre contractual squabbles are the delight of everyone

    1. Brian
      September 15, 2010 at

      The deal possibly (probably) fell through because Belanger’s and the Caps situation was leaked. Depending on who leaked the story (probably not the Caps, since they suffered as a result), does that throw a wrench into any promissory estoppel legal action?

      On July 16, Tacopina states that Don Fishman said:
      “He told me that you didn’t want to sign the deal then because you were working on a trade and you didn’t want eric’s signing to get in the way of that trade by increasing the other team’s leverage”

      James Mirtle reported on August 12 that “multiple sources” had Belanger going to the Caps, and that Belanger said he’s about to sign but can’t say where. http://www.theglobeandmail.com/sports/hockey/globe-on-hockey/belanger-to-sign-with-capitals/article1670370/

      I know there’s quite a bit of time between July 16 and August 12, but it is possible the Caps were close to a trade and Mirtle’s report killed it.

      Finally, Tacopina ought to know that “when” is the same as “if” in such a delicate negotiation as a pro sports trade.

      If I’m Belanger, I’m firing my agent for such poor judgement, not the Washington Capitals for attempting to follow through and failing.

    2. Tyler Dellow
      September 15, 2010 at

      Finally, Tacopina ought to know that “when” is the same as “if” in such a delicate negotiation as a pro sports trade.

      On his version of events, it wasn’t presented as being contingent.

      In any event, on Tacopina’s version, the Capitals didn’t take the position that they couldn’t sign him because he buggered up the trade. They said that the market changed. If Tacopina’s evidence on that point is accurate, I don’t see how the leaks matter.

    3. Brian
      September 15, 2010 at

      I hear those points. I guess the Caps could come back and say they were still in the process of trying to make a trade when Belanger signed with the other team. In other words, the Capitals were in the process of trying to get a trade done in order to sign Belanger back in July, and remained in that process even as they gave Belanger the go ahead to move on if he chose (“restless”). Tacopina claims the Caps said that they “might not” be able to sign Belanger, not that they definitively would not. The Caps could say that they would have been perfectly ok if Belanger wanted to continue to wait for a potential trade to be made before signing him.

      I’m not saying this whole thing’s not a mess for the Caps, too. It’s just that when I read something that indicates a signature will take place after a trade is made, I can’t help but find more fault with the agent than with the Caps. The trade still isn’t made, so why would Tacopina expect the Caps to sign Belanger?

    4. September 15, 2010 at

      if I understand his argument correctly, he doesn’t think that the Capitals should be held to have expected that Belanger would rely on their promise of a contract.

      That’s kind of my point, I think, but with respect to the reasonableness of the reliance – the crux of the estoppel claim – I think the focus should be more on the behavior of the promisee (Belanger) than the promisor (the Caps). I’d phrase the issue like this: Any reliance by Tacopina (Belanger’s agent) on text messages or phone conversations with the Caps regarding the existence of an agreement and/or the Caps asking Belanger to take himself off the market, in the context of the NHL’s UFA signing period and w/o an SPC ever being delivered to Belanger, was unreasonable.

      I focus on the context of the negotiations because knowing what sophisticated participants know about the UFA process, namely, that the market for players and team needs change relatively quickly, and that a legitimate contract is not formed until the SPC is registered, I would argue that it was completely unreasonable for Tacopina to rely on the Caps’ promise. You could certainly imagine other contexts when such reliance would be reasonable, but negotiating UFA contracts have their own set of practices/assumptions.

      My guess is, Tacopina relied on the Caps promise only because it was so much better than any other offers coming in for his client. Do you think if on Aug 1st the Canadians offered Belanger a 1yr/1.5M deal Belanger wouldn’t have accepted it? Would the Caps have a strong estoppel claim against him then? Waiting around more than a month for the Caps to send him the SPC was a pure desperation hope play, an attempt to hit a home-run from a low percentage position, ironically the type of hockey play that Belanger has become a valuable NHL player for not making.

      All that said, if I’m Tacopina, I’d be inclined to file breach of contract and estoppel claims against the Caps. The breach claim is clearly unwinnable. I think the estoppel claim is a loser too, but it’s not hopeless. Hope that the bad publicity from the case is enough for the Caps to shell out a couple hundred thousand to settle. I’d have to weigh that against the potential bad PR Tacopina himself would take. On the one hand he comes off as a straight shooter willing to take on the big bad team when his client has been wronged, and potential clients would no doubt have some sympathy for Belanger and Tacopina here. But I’d think the concern that he just didn’t know what he was doing here, didn’t understand how teams, the CBA, or contract law operates would be too big. I think he just has to walk away, hopefully having learned a lesson.

      Also, what are Belanger’s damages here? If you believe that he didn’t really have any firm offers as of July 16 that weren’t there when he signed yesterday (which is what I believe), then his damages are zero.

      I’m not sure how Tacopina could be named as a defendant here. I don’t know much about malpractice law (knock on wood), but can giving bad advice in a contract negotiation be actionable? I’ll admit that I have no idea, but I wouldn’t think so.

      Re the Caps behavior, I kinda agree with you. Sending the moving vans is pretty terrible and hard to believe. I have to think McPhee was pissed the agreement got leaked to begin with, but having Belanger talk to Boudreau and the stuff with the lease on the house is brutal. But all that was Belanger’s call. Were the Caps telling him, “you should really get your kids enrolled in school and get a house here.” They look bad, for sure, but they also look like more shrewd hockey team builders than they would have had they given Belanger that deal on a team with a plethora of equally able centers. Be a huge dick or field a crappy hockey team? Unlike Brian Burke, McPhee isn’t comfortable doing both.

    5. September 15, 2010 at

      if I understand his argument correctly, he doesn’t think that the Capitals should be held to have expected that Belanger would rely on their promise of a contract.

      Just to clarify this further for the legal nerds out there, there’s two distinct elements re reliance: 1) that the Caps intended Belanger to rely on the promise; 2) that Belanger did reasonably rely on it. Clearly, 1) is satisfied here, but I’m not so sure 2) is.

    6. Schitzo
      September 15, 2010 at

      One note, Tyler – promissory estoppel is a shield, not a sword. I would suggest that negligent misrepresentation might be more accurate.

    7. Tyler Dellow
      September 15, 2010 at

      Hah! From the post:

      As an aside, my recollection is that you can’t found an action on a promissory estoppel on Canada but that the United States, or at least some jurisdictions, permit this. There’s a famous line from a court case that promissory estoppel is a sword, not a shield, although the Aussies have moved beyond that and, as I say, I believe the Americans have as well. I’ll leave that aside for the purposes of discussing this…

    8. Schitzo
      September 15, 2010 at

      Oh. Yeah, I saw where you flipped the sword and shield and thought that your entire argument was permised on estoppel as a sword.

      In that case, all I have of value to offer is that you made a typo.

    9. Tyler Dellow
      September 15, 2010 at

      My argument is premised on estoppel as a sword but I’m pretty sure that’s legal in US.

    10. Schitzo
      September 15, 2010 at

      Carry on then. I’ll go back to my articling student dungeon.

    11. Gerald
      September 15, 2010 at

      I am pretty sure the issue is moot, Tyler. THe CBA must govern in this respect, and as we both know the rules are pretty clear regarding SPCs (and contrary to your suggestion, this issue is pertaining to SPCs). It is foursquare within the exclusive jurisdiction of the CBA, in fact.

    12. September 15, 2010 at

      My argument is premised on estoppel as a sword but I’m pretty sure that’s legal in US.

      It is a cause of action in the US and can be a sword and not just a shield (actually, I’m not even sure I understand how it could be used as a shield). I think there was a typo in Tyler’s original post where he mixed up the “famous line” which is probably that “estoppel is a shield and not a sword” (that famous line is def often used with respect to declaratory judgment actions) and not the other way around. I think that’s what created a li’l confusion, but the point is clear, I think.

    13. Tyler Dellow
      September 15, 2010 at

      With respect Gerald, I think you’re wrong. That’s why I quoted the section from the CBA.

      A “Grievance” is any dispute involving the interpretation or application of, or compliance with, any provision of this Agreement, including any SPC.

      An action founded on promissory estoppel doesn’t involve the interpretation or application of the CBA or an SPC. Promissory estoppel is an alternative doctrine to contract. The CBA doesn’t deal with it.

    14. Tyler Dellow
      September 15, 2010 at

      Rajeev –

      Say we have a contract. I agree to pay you rent for a building. Things aren’t going well for me and you agree to accept 50% for a while. Three years later I win the lottery and you sue me for the unpaid back rent. I plead that a promissory estoppel arose and that you can’t now claim the back rent. Shield, not a sword.

      Oddly, you can use declaratory judgments as a sword here, as far as I know. Strange.

    15. Gerald
      September 15, 2010 at

      We will have to agree to disagree then. The entire matter is in relation to the negotiation and alleged conclusion (or failure to reach conclusion) of an SPC. All of the facts that one would conceivably rely upon in a claim for promissory estoppel are in respect of the negotiation of that SPC, without exception.

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