TCR Sports Broadcasting Holding, LLP v. WN Partner, LLC (153 A.D.3d 140, 2017)

OPINION OF THE COURT

Per Curiam.

The order of the Supreme Court, New York County (Lawrence K. Marks, J.), entered on or about November 4, 2015, which, insofar as appealed from as limited by the briefs, denied respondent Washington Nationals Baseball Club, LLC’s motion to confirm an arbitration award issued June 30, 2014 by Major League Baseball’s Revenue Sharing Definitions Committee, granted the part of petitioner’s motion seeking to vacate the award, and denied the part of petitioner’s motion seeking to direct that a second arbitration proceed before an impartial panel unaffiliated with Major League Baseball, should be affirmed, without costs. The order of the same court and Justice, entered July 11, 2016, which denied the Nationals’ motion to compel the parties to re-arbitrate the claim before the Revenue Sharing Definitions Committee, and granted petitioner’s cross motion to stay the parties from compelling or conducting another arbitration of this dispute until the final determination of the appeals from the November 4, 2015 order, should be modified, on the law, to grant the Nationals’ motion, and otherwise affirmed, without costs.

Andrias, J.

(concurring). Pursuant to the negotiated terms of the parties’ written agreement, the subject arbitration, governed by the Federal Arbitration Act (FAA) (9 USC § 1 et seq.), was initiated before the Revenue Sharing Definitions Committee (RSDC) of Major League Baseball (MLB), to resolve a contractual dispute over telecast rights fees between TCR Sports Broadcasting Holding, LLP, doing business as the Mid-Atlantic Sports Network (MASN) and the Baltimore Orioles, and the Washington Nationals. For the reasons stated herein, we find that the arbitration award issued by the RSDC on June 30, 2014 was correctly vacated based on “evident partiality” (9 USC § 10 [a] [2]) arising out of the Nationals’ counsel’s unrelated representations at various times of virtually every participant in the arbitration except for MASN and the Orioles, and the failure of MLB and the RSDC, despite repeated protests, to provide MASN and the Orioles with full disclosure or to remedy the conflict before the arbitration hearing was held. However, even if this Court has the inherent power to disqualify an arbitration forum in an exceptional case, on the record before us there is no basis, in law or in fact, to direct that the second arbitration be heard in a forum other than the industry-insider committee that the parties selected in their agreement to resolve this particular dispute, fully aware of the role MLB would play in the arbitration process.

Contrary to the view of the dissent, there has been no showing of bias or corruption on the part of the members of the reconstituted RSDC, and the Nationals will use new counsel at the second arbitration. Speculation that MLB will dictate the outcome of the second arbitration by exerting pressure on the new members of the RSDC does not suffice to establish that they will not exercise their independent judgment or carry out their duties impartially, or that the proceedings will be fundamentally unfair.

In 2001, the Orioles and TCR Sports Broadcasting Holding, LLP (TCR) established the Orioles’ Television Network as a platform to broadcast Orioles games in a seven-state television territory. In 2002, MLB purchased the failing Montreal Expos for $120 million. In 2004, MLB announced the relocation of the Expos to Washington, D.C. to become the Nationals. The Orioles objected to the move on the grounds that the introduction of the Nationals into its previously-exclusive markets would cause it significant economic harm.

In an effort to resolve several issues associated with the Expos’ relocation, on March 28, 2005, MLB, TCR, the Nationals, and the Orioles entered into an agreement which provided, among other things, that TCR would be converted into a two-club regional sports network, MASN, which would have the sole and exclusive right to telecast, in the television territory, Nationals’ and Orioles’ games that were not otherwise retained or reserved by MLB’s national rights agreements. The Orioles would be the managing partner and, initially, own 90% of MASN. The Nationals would own 10%, with its stake increasing, starting in 2010, by 1% per year, until it reached 33% in 2032. This allocation would allow the Orioles to receive repara-tive compensation through the distribution of profits in accordance with its then-applicable supermajority interests.

The agreement set the annual telecast fees to be paid to the teams between 2005 and 2011. For 2005-2006, the Nationals would be paid $20 million per year. The Orioles would be paid up to $75,000 per game, with the final amount to be agreed upon between TCR and the Orioles. Beginning in 2007, the Orioles and the Nationals would each be paid $25 million per year, escalating at a noncompounded 4% rate.

The agreement also provided a methodology for determining future fees. “After 2011, and for each successive five year period, the Orioles, the Nationals and [MASN] [had to] first negotiate in good faith using the most recent information available which is capable of verification to establish the fair market value [FMV] of the telecast rights.” If they were unable to agree on FMV during the mandatory negotiation period (30 days), they were to enter into nonbinding mediation under the auspices of the American Arbitration Association (AAA) or JAMS. If negotiation and mediation failed, “then the fair market value of the Rights [would] be determined by [the RSDC] using the RSDC’s established methodology for evaluating all other related party telecast agreements in the industry.” The RSDC determination would be final and binding on the parties, who could seek to vacate or modify the FMV determination “only on the grounds of corruption, fraud or miscalculation of figures.”

In anticipation of the negotiations for 2012-2016, MASN, with MLB’s consent, retained the Bortz Media and Sports Group to calculate the fees pursuant to the “Bortz methodology,” an accounting based profit margin analysis derived from a regional sports network’s actual revenues and expenses. MASN maintains that the Bortz methodology is the “established methodology” adopted by the RSDC in at least 19 prior FMV determinations.

On January 4, 2012, MASN sent the Nationals a proposed rights fee schedule of $34 million per year. The Nationals, by their counsel, Proskauer Rose, LLP (Proskauer) rejected the proposal, valuing the Nationals’ rights at more than $110 million per year based on a different methodology which analyzed fees obtained by MLB clubs in comparable markets.

In 2012, after negotiations failed and the parties waived mediation before the AAA or JAMS, the matter proceeded to arbitration before the RSDC, which was to be comprised of representatives from the Tampa Bay Rays, Pittsburgh Pirates, and New York Mets. In accordance with customary practice, the arbitration was administered by MLB staff, who also provided analytical and legal assistance to the RSDC.

The Nationals were represented by Proskauer. Because Proskauer served as MLB’s longtime outside counsel, in January 2012, the Orioles’ counsel sent separate emails to MLB’s then-senior vice-president and general counsel and its then-executive vice-president, labor relations and human resources (Robert D. Manfred, Jr.), inquiring about Proskauer’s representation of MLB and MLB clubs, including those with representatives on the RSDC. In reply, counsel was told that Proskauer had been MLB’s principal labor counsel for years, represented MLB in the Los Angeles Dodgers bankruptcy matter and other matters, assisted in a small number of seminars/ conference calls for club counsel about ADA and DOJ enforcement, and possibly did salary arbitration work for the Rays. Counsel was advised to contact the clubs directly for further information concerning their relationships with Proskauer.

In a January 27, 2012 letter, the Orioles’ counsel advised Proskauer that the arbitration

“cannot be insulated from your firm’s deeply ingrained, concurrent representations of [MLB], and various [MLB] clubs (‘Clubs’) including one, if not more of the Clubs appointed by the Commissioner to serve on the RSDC as to the present rights fee dispute. As you know, the RSDC functions under the direct control of MLB and the Office of the Commissioner, and as your correspondence confirms, your firm has ‘performed certain work for the Office of the Commissioner . . .

In a separate letter dated that same day, TCR’s counsel advised Proskauer that he too had “serious concerns” about the firm’s role in the arbitration, including its

“longstanding representation of MLB itself, MLB’s Labor Relations Committee (which is tightly lined with the RSDC), and at least one of the three Clubs that are voting members of the RSDC. We do not believe it is appropriate for a firm that represents the decision-maker in the instant dispute also to represent a litigant before that decision maker.”

On February 2, 2012, the Nationals, the Orioles, and MASN met with Manfred and MLB staff for a prehearing organizational meeting. Counsel for MASN and the Orioles provided Manfred with a letter dated February 1, 2012 which reiterated that Proskauer’s substantial past and current representation of the Orioles, which Proskauer unilaterally terminated, and of MLB and various MLB clubs, “including at least one of the Clubs appointed by the Commissioner to serve on the RSDC,” tainted the proceedings. Particularly, the letter stated that

“Proskauer’s longstanding representations of litigant, ultimate decision-maker and participating RSDC member Club(s) raise, at a minimum, serious questions of partiality, prejudice, and misuse of confidential and proprietary information, which in view of well-established fair hearing and due process protections, compromise this proceeding and the rights and privileges to which the parties are entitled. Moreover, as a practical matter and, at the very least, the appearance of a conflict of interest on the part of Proskauer cannot be avoided and will thus diminish the credibility of the RSDC proceeding and undermine principles of fairness and impartiality.

“The full scope of Proskauer’s representations of MLB, including the Labor Relations Committee and other matters, and MLB Clubs, including at least the one Club participating on the RSDC, is not fully known at present to TCR or the Orioles and may, in fact, extend even further. Under the circumstances, therefore, and in view of recognized principles of fairness and due process, the Orioles and TCR respectfully request that the RSDC preclude Proskauer from participating in this proceeding. Anything less would he procedurally and substantively inappropriate and compromise the integrity of this appeal. We submit that this issue should be addressed prior to the RSDC addressing any substantive matters.”

Because MLB had yet to reveal the identities of the individuals representing the clubs that would be on the RSDC, and had instructed the parties not to communicate with the arbitrators directly, MASN and the Orioles asked Manfred to transmit the February 1, 2017 letter to the arbitrators (who were shown as “cc, Members Revenue Sharing Definition Committee”), and inform them of their objections to Proskauer’s participation in the arbitration. When MASN and the Orioles asked that Proskauer be disqualified from representing the Nationals, Manfred replied that the RSDC lacked the legal authority to disqualify counsel. Counsel for MASN then asked Manfred for a continuing objection as to Proskauer’s participation in the arbitration, which Manfred granted.

In March 2012, in their submissions statements to the RSDC, MASN and the Orioles expressly reserved their objections arising out of Proskauer’s conflicts and participation in the proceedings on behalf of the Nationals. Pursuant to protocol, these submission statements, as well as the Orioles’ reply, which reiterated the continuing objection to Proskauer’s involvement, were sent to Manfred for distribution to the RSDC members.

On April 3, 2012, the RSDC, composed of the president of the Pittsburgh Pirates, the principal owner of the Tampa Bay Rays and the chief operating officer of the New York Mets, held a one-day hearing. The Nationals asserted that their rights had an FMV averaging $118 million per year for 2012-2016, based on an analysis of factors including the size and attractiveness of the Nationals’ television market, a survey of the economic value of recent deals entered into by teams in other comparable markets, and the escalating value of live sports programming. MASN asserted that the Nationals should be paid an average $39.5 million per year based on the Bortz methodology, including an assumption that MASN should be guaranteed a 20% profit margin on baseball programming. During the arbitration, MASN and the Orioles repeated their objections to Proskauer’s representation of the Nationals numerous times.

In the summer of 2012, the approximate amounts of the rights fees determined by the RSDC were announced to the parties. However, the release of a final decision was deferred while then Commissioner Bud Selig attempted to negotiate a broader settlement.

During the course of these negotiations, MASN paid the Nationals for their telecast rights in the amounts that it had proposed to the RSDC. When the Nationals made clear that they viewed the resolution of their 2012-2013 compensation as a “condition precedent” to any broader settlement, MLB, to keep the negotiations going, advanced $25 million to the Nationals to reduce the shortfall between RSDC’s unreleased award and the amounts that MASN was paying for those two years. MLB documented this payment, which was made more than a year after the RSDC had informed the parties what its decision would be, in a letter agreement with the Nationals stating that “if the RSDC issues a decision that covers 2012 and/or 2013, any payments from MASN otherwise due to the Nationals will be made first to [MLB] to cover” the $25 million, plus interest. The agreement provided in the alternative that MLB could recover the $25 million if MASN was sold to a third party.

On June 30, 2014, the RSDC issued its final written decision in which it determined that the Nationals’ rights fees for 2012 would be roughly $53 million, and would rise by approximately $3 million per year through 2016. The RSDC rejected MASN’s and the Orioles’ argument that their interpretation of the Bortz methodology was the “RSDC’s established methodology,” stating that Bortz “does not estimate the fair market value of a Club’s broadcasting rights by reviewing the network’s revenue and expenses and nothing more,” but includes “additional information relevant to the Committee’s deliberations, including, for example, comparisons of the Club’s local rights fees with verified fees of Clubs in comparable Major League markets.” The RSDC also rejected the Nationals’ position that the RSDC’s “ ‘established methodology’ consists primarily of an analysis of rights fees obtained by Clubs in comparable markets.” Instead, the RSDC stated that its “established methodology includes an analysis of the income statement of the network, a review of broadcast agreements in comparable markets to verify the financial statement analysis, and a consideration of any additional factors raised by the parties that may impact the analysis.”

Although MLB cautioned all parties that they should not challenge the award in court, and threatened them with the strongest sanctions available under MLB’s constitution if they did so, in September 2014, MASN (on behalf of itself and the Orioles) commenced this proceeding seeking to vacate the arbitration award on the ground it was procured through bias, evident partiality, misconduct, fraud, corruption, and undue means, and was rendered beyond the scope of the arbitrators’ authority and in manifest disregard of the law. MASN also sought to have the matter remanded for a second arbitration before a different forum. The Nationals cross-moved to confirm the RSDC’s award.

In support of its petition, MASN alleged that MLB had a financial stake in the outcome of the arbitration due to the $25 million advance it made to the Nationals; that MLB, the Nationals and the arbitrators all used the same law firm without full disclosure as to possible conflicts; that MLB controlled the arbitration process; and that the arbitrators failed to apply the Bortz methodology, as required by the agreement. MASN further alleged that the RSDC was impossibly tainted by a conflict of interest because an increase in the rights fees, which are taxed by MLB, meant that more money would go into MLB’s revenue sharing pool, and the Rays and Pirates, whose representatives were on the RSDC, were teams that benefited from revenue-sharing.

By order dated November 4, 2015, the court denied the Nationals’ motion to confirm and granted the part of MASN’s motion seeking to vacate the RSDC’s award. The sole basis for this determination was the court’s finding that “evident partiality” had resulted from the Nationals’ representation by Proskauer. The court rejected MASN’s and the Orioles’ other challenges to the award, finding that there was no fraud or prejudicial misconduct, that there was no proof that RSDC had been improperly influenced by MLB’s purported financial stake in the award, and that the RSDC’s award was “reasonable on its face” and did not exceed the RSDC’s powers or constitute manifest disregard of the law.

In reaching its finding of evident partiality, the court stated that the arbitration proceedings had been rendered fundamentally unfair by (i) Proskauer’s representation of “MLB, its executives and closely related entities in nearly 30 other matters” and “interests associated with all three arbitrators,” and (ii) MLB, the arbitrators, the Nationals and/or Proskauer’s failure to take reasonable steps to address MASN’s and the Orioles’ concerns over Proskauer’s involvement. The court rejected the Nationals and MLB’s argument that such conflicts were to be expected because MASN and the Orioles agreed to an “inside baseball” arbitration, stating that MASN and the Orioles had not agreed to “a situation in which MASN’s arbitration opponent, the Nationals, was represented in arbitration by the same law firm that was concurrently representing MLB and one or more of the arbitrators and/or the arbitrators’ clubs in other matters.”

The court denied the part of petitioner’s motion seeking to direct that a second arbitration proceed before an impartial panel unaffiliated with MLB, stating that “re-writing the parties’ Agreement is outside of [the court’s] authority.”

MASN appealed on the issue of whether the court properly rejected its argument that a new arbitration should be before a different forum. The Nationals filed a cross appeal challenging the determination of evident partiality. Before the appeals were heard, the Nationals moved for an order compelling MASN and the Orioles to submit to a new RSDC arbitration. MASN opposed and cross-moved pursuant to CPLR 2201 for a stay of proceedings pending determination of the appeals.

The court denied the Nationals’ motion to compel a new arbitration before the RSDC. Pursuant to CPLR 2201, the court stayed the parties “from compelling or conducting another arbitration of this dispute, without the agreement of all the parties to this proceeding, until the final determination of the appeals.”

To vacate an award because of evident partiality under the FAA (9 USC § 10 [a] [2]), the movant bears the burden of showing that a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one party to the arbitration (see Kolel Beth Yechiel Mechil of Tartikov, Inc. v YLL Irrevocable Trust, 729 F3d 99, 104 [2d Cir 2013]; U.S. Elecs., Inc. v Sirius Satellite Radio, Inc., 17 NY3d 912 [2011] [adopting the Second Circuit’s “reasonable person standard”]). Although this requires “something more than the mere appearance of bias” (see Morelite Constr. Corp. [Div. of Morelite Elec. Serv., Inc.] v New York City Dist. Council Carpenters Benefit Funds, 748 F2d 79, 83 [2d Cir 1984] [internal quotation marks omitted]), “[p]roof of actual bias is not required” (Scandinavian Reins. Co. Ltd. v Saint Paul Fire & Mar. Ins. Co., 668 F3d 60, 72 [2d Cir 2012]). Rather, a finding of partiality can be inferred “from objective facts inconsistent with impartiality” (Kolel Beth Yechiel Mechil, 729 F3d at 104 [internal quotation marks omitted]).

“Among the circumstances under which the evident-partiality standard is likely to be met are those in which an arbitrator fails to disclose a relationship or interest that is strongly suggestive of bias in favor of one of the parties” (Scandinavian Reins. Co. Ltd., 668 F3d at 72). Factors to be considered include

“(1) the extent and character of the personal interest, pecuniary or otherwise, of the arbitrator in the proceedings; (2) the directness of the relationship between the arbitrator and the party he is alleged to favor; (3) the connection of that relationship to the arbitrator; and (4) the proximity in time between the relationship and the arbitration proceeding” (Yosemite Ins. Co. v Nationwide Mut. Ins. Co., 2016 WL 6684246, *7, 2016 US Dist LEXIS 157061, *19-20 [SD NY Nov. 10, 2016, 16 Civ 5290 (PAE)] [internal quotation marks omitted]).

“While the presence of actual knowledge of a conflict can be dispositive of the evident partiality test, the absence of actual knowledge is not” (Applied Indus. Materials Corp. v Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F3d 132, 138 [2d Cir 2007]).

The record shows that Proskauer, while representing the Nationals in the arbitration, had an extensive relationship with the clubs that comprised the RSDC and/or their representatives, and with MLB, which administered the proceeding. Discovery in the vacatur proceeding revealed that

i. the Proskauer attorneys representing the Nationals represented the Pirates in Senne v Office of the Commr. of Baseball, No. 14-00608 (ND Cal) and Garber v Office of the Commr. of Baseball, No. 12-03704 (SD NY). Proskauer had also represented the Pirates president, who was its representative on the RSDC, in Phillips, et al. v Selig, No. 1966 EDA 2007 (Pa Super Ct), and advised the Pirates on Americans with Disability Act matters.

ii. Proskauer represented the Rays in Senne and four separate salary arbitrations, one of which occurred during the arbitration; and

iii. Proskauer defended the father of Jeffery Wilpon, the Mets chief operating officer and its representative on the RSDC, and the father’s company, in a class action arising out of the Madoff Ponzi scheme, which was ongoing during the arbitration. Proskauer also represented the Mets in Senne.

Proskauer also concurrently represented MLB, its executives and closely-related entities in approximately 50 engagements. Although MASN and the Orioles repeatedly protested Proskauer’s involvement and requested complete disclosure so they could assess the extent of the potential conflicts, MLB and the arbitrators undisputedly failed to provide full disclosure or seek to conduct the proceeding with arbitrators who had no prior relationships with Proskauer. While the arbitrators aver in this proceeding that they have no recollection of MASN’s and the Orioles’ disclosure requests or objections, the record establishes conclusively that MASN and the Orioles reiterated their objections in their written submissions to the RSDC before the merits hearing was held and at the hearing itself.

The evidence that the same lawyers in the same firm were representing interests of the arbitrators and MLB at the same time as they represented the Nationals in the arbitration is an objective fact inconsistent with impartiality. The arbitrators had a duty to, but did not, investigate or disclose their relationships with Proskauer, and MLB failed to exercise what power it had to ensure confidence in the fairness of the proceedings in light of MASN’s stated concerns (see Applied Indus. Materials Corp., 492 F3d at 137 [where “(a)n arbitrator . . . knows of a material relationship with a party” but fails to disclose it, “(a) reasonable person would have to conclude that (the) arbitrator who failed to disclose under such circumstances was partial to one side,” even where the award itself was not clearly favorable to the other party]; Morelite, 748 F2d at 84 [vacating award based on “a father-son relationship between an arbitrator and the President of an international labor union,” without any suggestion that the father was sitting in some representative capacity]).

MASN did not waive its evident partiality challenge by failing to move for the disqualification of the arbitrators. MASN demonstrated its belief that it was improper for Proskauer to represent the Nationals given its role as MLB’s outside counsel, its representation of MLB clubs, including one club that had a representative of the RSDC panel, and MLB’s role in administering the proceeding and appointing the RSDC arbitrators, who might also have relationships with Proskauer. Particularly, in a February 13, 2012 email, Manfred stated that the Orioles’ and MASN’s objections should be separately documented to him. On February 14, 2012, counsel for the Orioles and MASN complied, asking Manfred whether anything more was needed. On February 16, 2012, counsel for the Orioles again wrote to Manfred, stating,

“To reiterate, what we agreed to when we met in New York on February 4, 2012 [sic], and what has been consistently stated in our discussions and all correspondence is that since the RSDC would not — or believed it did not have the authority to— preclude Proskauer as we had requested, the RSDC would grant, and in fact, granted the Orioles and TCR [MASN] a continuing objection to Proskauer’s representation of the Nationals and that all of the Orioles’ and TCR’s [MASN’s] objections, reservations, rights, privileges, claims and actions related to Proskauer’s participation in these proceedings would be preserved for all purposes, without any waiver of any kind, including by virtue of the Orioles’ and TCR’s [MASN’s] continued participation in this RSDC proceeding.”

In their March 12 submission statements to the RSDC, counsel for MASN and the Orioles expressly stated that they reserved and preserved all rights, claims, causes of action and privileges, waiving none, arising from or related to Proskauer’s participation in the proceedings on behalf of the Nationals. In a September 2, 2013 email, Manfred advised the Orioles’ counsel that “[w]e would never assert that you have waived your objection to Proskauer’s involvement.”

Accordingly, the trial court was correct in vacating the RSDC’s determination based on “evident partiality.” However, even if the dissent is correct that it must be within the inherent equitable power of the court to protect fundamental fairness by sending the arbitration to a new forum, we conclude, on the record before us, that the court correctly rejected MASN’s and the Oriole’s argument that the parties’ agreement should be disregarded and the matter remanded to an arbitral forum unaffiliated with MLB.

The FAA “requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms” (Volt Information Sciences, Inc. v Board of Trustees of Leland Stanford Junior Univ., 489 US 468, 478 [1989]). “Where, as here, the parties have agreed explicitly to settle their disputes only before particular arbitration fora, that agreement controls” (Merrill Lynch, Pierce, Fenner & Smith, Inc. v Georgiadis, 903 F2d 109, 113 [2d Cir 1990]).

The dissent nevertheless states that, under the “rare circumstances” presented, MASN’s and the Orioles’ expectations of a reasonably fair and impartial arbitration forum in the RSDC have been frustrated, and that the arbitration clause selecting the RSDC as the arbitral forum should be reformed to require a rehearing before a new forum. In delineating these rare circumstances, the dissent asserts that MLB and the Commissioner effectively control the RSDC, appointing its members and participating in the evidentiary and decision-making process, and that they have endorsed the original award in public comments and filings in this case that prejudge and predetermine the outcome of a future arbitration before the RSDC. The dissent also finds that the RSDC would be conflicted in a second arbitration because the only way MLB can now recover its $25 million advance is if the RSDC rejects the lower amount of telecast rights fees put forth by MASN and the Orioles, and awards the Nationals significantly higher amounts. Thus, the dissent posits that a rehearing by the same arbitral forum would be all but guaranteed to yield the same result, even though the panel has changed.

However, the circumstances cited by the dissent do not warrant the removal of the RSDC. While the dissent waxes poetic about the purity of the game of baseball, MLB is first and foremost a business, governed by its constitution and innumerable agreements and contracts. Because arbitration is a matter of contract, “the parties to an arbitration can ask for no more impartiality than inheres in the method they have chosen” (National Football League Mgt. Council v National Football League Players Assn., 820 F3d 527, 548 [2d Cir 2016]) and the FAA permits parties to select arguably partial arbitrators, if doing so serves their interests (see Sphere Drake Ins. Ltd. v All Am. Life Ins. Co., 307 F3d 617 [7th Cir 2002], cert denied 538 US 961 [2003]). In Sphere Drake, the Seventh Circuit explained:

“Parties are free to choose for themselves to what lengths they will go in quest of impartiality. Section 10 (a) (2) just states the presumptive rule, subject to variation by mutual consent. Industry arbitration, the modern law merchant, often uses panels composed of industry insiders, the better to understand the trade’s norms of doing business and the consequences of proposed lines of decision. The more experience the panel has, and the smaller the number of repeat players, the more likely it is that the panel will contain some actual or potential friends, counselors, or business rivals of the parties. Yet all participants may think the expertise-impartiality tradeoff worthwhile; the Arbitration Act does not fasten on every industry the model of the disinterested generalist judge. To the extent that an agreement entitles parties to select interested (even beholden) arbitrators, § 10 (a) (2) has no role to play” (307 F3d at 620 [citations omitted]; see also Yonkers Contr. Co. v Port Auth. Trans- Hudson Corp., 87 NY2d 927, 929 [1996] [“As a general proposition, parties to an arbitration contract are completely free to agree upon the identity of the arbitrators, and New York courts have therefore regularly refused to disqualify arbitrators on grounds of conflict of interest or partiality even in cases where the contract expressly designate(s) a single arbitrator . . . employed by one of the parties” (internal quotation marks and emphasis omitted)]).

Here, MASN, the Orioles and the Nationals expressly chose to carve out disputes over telecast fees for arbitration before the RSDC, an industry-insider committee with specialized knowledge on the complex issue of how to calculate the appropriate fees that television networks should pay to teams for broadcast rights. In contrast, their agreement specified that other disputes would be arbitrated before the Commissioner or the AAA, evidencing that the decision to carve out telecast fee disputes for arbitration before the RSDC was a conscious choice.

In making that choice, as the dissent acknowledges, the sophisticated parties, represented by experienced counsel, knew full well how the RSDC operated, including that MLB would have significant influence over the arbitration process. MASN and the Orioles knew that RSDC’s members are selected by MLB in its sole discretion, that there are no written rules of evidence, discovery rights or obligations, sworn testimony, or direct or cross-examination of witnesses. Most significantly, they knew that MLB staff would provide administrative, organizational and legal support, including analyzing financial information and preparing draft decisions in accordance with the instructions of the RSDC members who would make the final determinations. Indeed, while objecting to Proskauer’s involvement, MASN’s counsel acknowledged during proceedings before the motion court that MASN “bought into whatever the structure was, whatever [MLB] ’s role was; we agreed to that, we had to live with that.”

Furthermore, in 2004, the Orioles had used the RSDC to determine the FMV of the telecast rights fees the Orioles were receiving from their then regional sports network. In 2006, Orioles owner Peter G. Angelos testified before Congress as to the advantages of using the RSDC as a neutral body to determine the FMV of the future rights fees under the agreement, stating:

“Last year, we paid the Nationals $20 million to televise their games, which is more than Comcast SportsNet paid us to televise Orioles games. The agreement provides a mechanism to revalue the rights fees at a market-based rate through an MLB committee in the event TCR/MASN and the Nationals are not able to agree on a new contract. The benefits of that arrangement to both the Nationals and Orioles cannot be overstated. It guarantees each team a market rate as evaluated and set by a neutral third party determined by [MLB].”

MASN and the Orioles also waived the opportunity to mediate this dispute before the AAA or JAMS, electing to proceed directly to arbitration before the RSDC, as the preferred entity to resolve the dispute. The only reason that their position has changed is that they are unhappy with the RSDC’s refusal to accept their interpretation of the Bortz methodology as RSDC’s established methodology, which led to an award that exceeded their expectations.

Insofar as the dissent finds that MLB demonstrated a lack of concern for the fairness of the first proceeding by taking no action in response to petitioner’s objections to the participation of Proskauer as counsel for the Nationals, this defect has been remedied. Proskauer is no longer representing the Nationals and the composition of the RSDC has changed, with the appointment of three new arbitrators affiliated with different clubs.

The dissent’s position that the new panel will remain puppets of MLB, rather than exercise its independent judgment, is pure conjecture. An attack on the impartiality of the arbitrators “must be based on something overt, some misconduct on the part of an arbitrator [s], and not simply on [their] interest in the subject matter of the controversy or [their] relationship to the party who selected [them]” (Matter of Astoria Med. Group [Health Ins. Plan of Greater N.Y],, 11 NY2d 128, 137 [1962]). Indeed, if the dissent’s position is adopted, and the RSDC is disqualified based on the mere possibility that MLB will unduly influence it, it would eliminate the viability of any future arbitration by any MLB club before the RSDC, and place into question the viability of industry-insider arbitrations in general.

The dissent finds that MLB has a direct financial stake in the amount of the fees that will be awarded in the second arbitration because MLB will only recoup its $25 million advance if the Nationals are awarded more than the amount MASN and the Orioles have proposed. However, the Nationals have offered to post a bond to guarantee repayment of the advance to MLB regardless of the outcome of the arbitration. While the dissent states in conclusory fashion that the posting of a bond will not resolve the issue, and should not be considered because it was raised at oral argument, it does not persuasively explain why that is so, and ignores the circumstances that led to the advance and its purpose, turning the parties’ intent behind the advance on its head.

After the arbitrators made their draft decision known, the issuance of a final decision was deferred in the hope of reaching a global settlement among the parties. While negotiations continued and settlement proposals were exchanged, MASN continued to pay the Nationals the $39.5 million per year it maintained was due, notwithstanding its awareness that the RSDC would award over $50 million. The Nationals were not content with this continuing shortfall and MLB made the $25 million advance to keep the club at the negotiating table, which benefited both parties by allowing the Nationals to receive the proposed award at no financial cost to MASN and the Orioles, thereby forestalling litigation to enforce the RSDC award. To allow the Orioles to now use the advance, which maintained the status quo, as a sword to disqualify the RSDC defies logic and mischaracterizes MLB’s efforts to have the parties negotiate their differences without undue financial pressure on either side. Furthermore, given the fact that MASN has paid the Nationals over $30 million per year for the last five years for their telecast rights, it is speculative at best to conclude that the Nationals do not have the ability to repay the advance if the result of the second arbitration changes to its detriment.

Nor does the fact that MLB has made certain public statements expressing the view that the RSDC acted within the scope of its authority in setting the rights fees, and that MASN would have to abide by that determination “sooner or later,” warrant the transfer to a new forum. Again, it is the RSDC, not MLB or its Commissioner, that will render a final decision in this matter. Indeed, while the dissent casts MLB’s Commissioner as a “de facto fourth arbitrator,” it concedes that he does not have a vote. As to the dissent’s reliance on evidence that MLB has actively opposed MASN’s claims by threatening sanctions for pursuing a judicial remedy, those warnings were addressed to all parties. In taking this position, MLB was merely attempting to protect the binding arbitration process that the parties had previously agreed to and MLB’s constitution.

In an attempt to bring the forum dispute within the purview of the FAA, the dissent also finds that the initial decision reflects that the RSDC has been shown to be “so corrupt or biased” as to undermine the expectations of the parties to have a fundamentally fair hearing. However, when viewed in the context of the RSDC’s actual award, the dissent’s position is without foundation. In fact, the RSDC rejected both sides’ arguments as to the methodology that should be used to determine FMV and the award of $53 million per year was far closer to the $39.5 million proposed by MASN and the Orioles than the $118 million demanded by the Nationals. There has been no showing that the RSDC was either corrupt or biased.

Even if the second arbitration was referred to the AAA, as proposed by the dissent, any panel selected would necessarily be comprised of arbitrators with expertise in professional sports and broadcast fees. Thus, given the small pool of qualified arbitrators available, there would be no assurance that all potential conflicts or bias would be removed or that MASN and the Orioles would be satisfied with the RSDC’s successor and “would not bring yet another proceeding to disqualify him or her” (Marc Rich & Co., A. G. v Transmarine Seaways Corp. of Monrovia, 443 F Supp 386, 388 [SD NY 1978]).

The dissent’s reliance on Aviall, Inc. v Ryder Sys., Inc. (110 F3d 892 [2d Cir 1997], supra), and Erving v Virginia Squires Basketball Club (349 F Supp 716 [ED NY 1972], affd 468 F2d 1064 [2d Cir 1972]) as a basis for reforming the arbitration clause is misplaced.

In Aviall, the agreement required that the disputes only be submitted to the designated arbitrator if it were an “independent auditor” of both parties (Aviall at 894). The plaintiff sought removal of the arbitrator due to a “business relationship” with a party (id. at 893). While stating that in certain limited circumstances a court has the power to remove an arbitrator pursuant to section 2 of the FAA if the arbitration agreement itself “is subject to attack under general contract principles” (Aviall at 895), the Second Circuit affirmed the district court’s decision not to adjudicate the dispute over which arbitrator would hear the matter. The court reasoned that the dispute over whether the auditor arbitrator was sufficiently “independent” to satisfy the terms of the arbitration agreement did not constitute a claim “invalidating the contract” or a claim of some type of fraud in the inducement that would invalidate the agreement under general contract principles (id. at 895-897). This reasoning is equally applicable to this case.

In Erving, the Second Circuit affirmed the district court’s decision to substitute a neutral arbitrator in place of the Commissioner of the American Basketball Association based on an impermissible conflict of interest, that is, that the Commissioner was a partner at the law firm representing the defendant. Here, the dissent’s criticism is directed at MLB, not the arbitrators.

Even if a challenge to the panel’s independence was an equitable ground for reformation, we are not asked to replace arbitrators who have shown themselves to be less than impartial. Indeed, the new arbitrators on the reconstituted RSDC have not demonstrated any bias in the matter and there has been no showing of an impermissible conflict between them and MASN or the Orioles. Thus, MASN and the Orioles have not made the extraordinary showing of grounds needed to reform the agreement or disqualify the RSDC, without which we lack the authority to reform the contract.

In sum, it cannot be said that MASN’s and the Orioles’ expectation of a reasonably fair and impartial arbitration forum in the RSDC has been frustrated, and there is no basis to sever the clause in the parties’ agreement selecting the RSDC as the arbitral forum for this dispute or to reform the clause to require a rehearing before a new forum unconnected to MLB.

The motion court’s decision vacating the award was based solely on Proskauer’s conflicts, a defect that has been remedied in that the Nationals have retained new counsel. MASN and the Orioles have not and cannot show that the agreement is unenforceable under general contract principles. Everyone was aware that the RSDC was composed of MLB owners, or their designees, and of the inherent conflicts the panel’s relationship with MLB created. MASN and the Orioles have not established that MLB, whose staff are required to treat each club “fairly and equitably,” would wield any improper or unforeseen power over a newly constituted RSDC arbitration panel. Nor has it been shown that the new RSDC members (the principal owner of the Milwaukee Brewers and executives of the Toronto Blue Jays and Seattle Mariners) have any bias against MASN or the Orioles.

Under these circumstances, to compel the parties to arbitrate before a body other than one to which they knowingly agreed, just because MASN and the Orioles are dissatisfied with the result, would violate the Nationals’ right to assert their contractual rights under the agreement and create undue uncertainty within this industry, and others, that have chosen to use panels composed of industry insiders, with specialized expertise, to arbitrate complex disputes.

. Because telecast rights fees are MASN’s single largest expense, the amount of those fees directly affects MASN’s profitability. Thus, any increase in telecast rights fees necessarily decreases the Orioles’ compensation.

. Only during the vacatur proceeding did MASN and the Orioles learn that MLB claimed that it never did so.

. Citing Rabinowitz v Olewski (100 AD2d 539, 540 [2d Dept 1984]), the dissent finds that courts, in an appropriate case, have inherent power to disqualify an arbitral forum before an award has been rendered. However, Rabinowitz did not involve the FAA and the Second Circuit and other federal courts have held that although the FAA provides for vacatur where there was “evident partiality or corruption in the arbitrators, it does not provide for pre-award removal of an arbitrator” (Aviall, Inc. v Ryder Sys., Inc., 110 F3d 892, 895 [2d Cir 1997] [internal quotation marks and citation omitted]; PK Time Group, LLC v Robert, 2013 WL 3833084, *2-4, 2013 US Dist LEXIS 104449, *5-11 [SD NY July 23, 2013, No. 12 Civ 8200 (PAC)]; see also Gulf Guar. Life Ins. Co. v Connecticut Gen. Life Ins. Co., 304 F3d 476, 490 [5th Cir 2002]). The concurrence, citing Matter of Salvano v Merrill Lynch, Pierce, Fenner & Smith (85 NY2d 173, 181-182 [1995]) and Matter of Cullman Ventures (Conk) (252 AD2d 222, 228 [1st Dept 1998]), would also hold that “[t]his Court may not order that the arbitration take place in a forum other than the one selected by the parties, notwithstanding the possibility of a more impartial proceeding in another forum.” However, we need not, and, contrary to the dissent’s characterization, indeed do not, determine whether, in an exceptional case, Rabinowitz should apply to cases governed by the FAA. As discussed infra, even if such inherent power exists, MASN and the Orioles have not established that remand to the RSDC will be fundamentally unfair under the particular circumstances before us. Thus, we leave the issue for another day, if it arises in an appropriate case.

Kahn, J.

(concurring). I agree that Supreme Court correctly vacated the award based on evident partiality. I also concur in the result reached by the plurality that the arbitration may not be referred to another forum, but I do so on different grounds.

This arbitration is governed by the Federal Arbitration Act (FAA) (9 USC § 1 et seq.), and the substantial body of case law under the FAA holding that negotiated arbitration agreements must be judicially enforced according to their terms (Volt Information Sciences, Inc. v Board of Trustees of Leland Stanford Junior Univ., 489 US 468, 476 [1989]), in the absence of an established ground for setting such agreements aside, such as fraud, duress, coercion or unconscionability (Matter of Cullman Ventures [Conk], 252 AD2d 222, 228 [1st Dept 1998], citing Matter of Salvano v Merrill Lynch, Pierce, Fenner & Smith, 85 NY2d 173, 181-182 [1995]). The duty of courts in promoting the goal of the FAA is to “ ‘rigorously enforce’ arbitration agreements according to their terms” (Salvano at 181), even when they appear to be unwise.

Here, the conduct of Major League Baseball and its representatives has been far from neutral and balanced. But this was the forum the parties chose, even avoiding the opportunity for a hearing before a panel of the American Arbitration Association and proceeding directly to the Revenue Sharing Definitions Committee (RSDC). New arbitrators have been designated to hear the matter for the RSDC. This Court may not order that the arbitration take place in a forum other than the one selected by the parties, notwithstanding the possibility of a more impartial proceeding in another forum (Salvano at 181-182; Cullman Ventures, 252 AD2d at 228 [“Nor may courts direct that the arbitration take place in a forum other than that specified in the agreement, notwithstanding a possibly fairer or more convenient proceeding in a forum not designated in the agreement”]).

Acosta, P.J.

(dissenting in part). Part of what makes baseball such a beloved sport is its rules, which preserve the integrity and popularity of the game (see Office of the Commissioner of Baseball, Official Baseball Rules [2016], available at http:// mlb.com/mlb/downloads/y2016/official_baseball_rules.pdf [accessed June 29, 2017]). Players take the field with the expectation that the umpires are not predisposed to apply those rules in favor of one team over the other. The players win or lose each game based on their own skills and the fair application of the rules — not the influence of some outside force, such as partial umpires or illegal betting. In short, the game is fundamentally fair, a concept that is equally important in arbitrations. An arbitration, like most sports, requires that adversaries begin on a level playing field, with ground rules that are applied fairly to both sides, and without decision-makers who will prejudge the matter. Otherwise, there would be no integrity or trust in the process. Unfortunately, in this case, we are confronted with a fundamentally unfair arbitration that was conducted by Major League Baseball and involved a dispute between two baseball clubs.

I cannot recall having previously encountered such a confluence of factors that call for judicial intervention in an arbitration: Not only does the entity administering the arbitration (Major League Baseball [MLB]) have significant influence over the arbitrators, including the power to marshal evidence and draft arbitral award decisions, but it also made a bet on the outcome of the arbitration by loaning one of the parties $25 million to be repaid after an award in that party’s favor. And, more egregiously still, the Commissioner of Baseball who controls the arbitration process made public statements during post-award litigation indicating a position on the merits of the case. Under these unique circumstances, a rehearing by the same arbitral forum that conducted the initial arbitration under the purview of the Commissioner’s office would be all but guaranteed to yield the same result. Therefore, to effectuate the intent of the parties as expressed by their contractual choice to arbitrate the dispute before a panel of experts, I would hold that it is necessary and appropriate to exercise our inherent equitable power to reform the contract and refer the matter to a neutral arbitral forum, one that is possessed of expertise relevant to the specific issues involved, to conduct a fundamentally fair arbitration.

Justice Andrias’s concurring opinion (the plurality) appears to acknowledge that this Court may have the power to refer the matter to a neutral arbitral forum other than that chosen by the parties under the appropriate circumstances, but chooses not to exercise that power here. This invites the question: If courts do have the power to reform an arbitration clause to provide fundamental fairness in an arbitration, where, if not here, would the exercise of such power be proper? While I agree that the arbitral award was properly vacated due to evident partiality — where it was not fully disclosed that the law firm representing one of the parties also represented the entity conducting the arbitration and the interests of all three arbitrators in unrelated matters, and the arbitral forum refused to take any steps to correct this obvious unfairness — I dissent because this particularly egregious set of circumstances warrants the referral of the case to a neutral arbitral forum. Thus, I would instead hold that courts can and should refer the matter to an alternative forum in the rare circumstances presented here.

To the extent that Justice Kahn’s concurrence (the concurrence) suggests that this Court lacks the power to substitute an arbitral forum even in the most compelling circumstances, that argument is belied by the case law indicating that fundamental fairness is a requirement in any arbitration. And it fails to convincingly explain why this Court should abdicate its inherent equitable power to dispense justice in every case that comes before it (see NY Const, art VI, § 7 [a]; People v Correa, 15 NY3d 213, 227-228 [2010]). The concurrence would render this Court impotent to do anything other than vacate an arbitral award and remand it to the same forum for a subsequent arbitration — resulting in an endless loop of partial arbitrations, vacaturs, and remands — even where the parties’ chosen forum has shown itself to be unwilling to guarantee a baseline of impartiality. To adopt that position would be a mistake. In the same way that the Commissioner of Baseball has a duty to protect “the integrity of play on the field through appropriate enforcement of the Major League Rules” (MLB Rose Decision at 2), so too does this Court have the obligation, and the power, to ensure fundamental procedural fairness in an arbitration that is brought before it for review.

I. Background

Major League Baseball (MLB) purchased the Montreal Expos baseball franchise in 2002 and, in 2004, renamed the team “the Nationals” and relocated it to Washington, D.C. The Baltimore Orioles Baseball Club (the Orioles) objected to the relocation, as it had been the only MLB club in the Baltimore/ D.C. area since 1972 and had developed TCR Sports Broadcasting Holding (TCR), a regional sports network that gave the team the exclusive right to telecast baseball games in most of a seven-state television territory. The Orioles were concerned that the Nationals would dilute the market, cause fan attrition, and diminish the value of the Orioles’ telecast rights and other investments in the region.

In March 2005, after the Orioles and TCR threatened to take legal action, MLB, TCR, the Nationals, and the Orioles entered into an agreement to resolve the dispute. The agreement provided for annual compensation to the Orioles and TCR for the significant economic harms caused by the Nationals’ relocation. As relevant here, the agreement converted TCR into a two-club regional sports network named the Mid-Atlantic Sports Network (MASN), which was to be owned in supermajority by the Orioles and in minority by the Nationals and was given the exclusive right to present the games of both teams. The Orioles were initially given a 90% ownership stake in MASN, which would decrease by 1% per year from 2010 to 2032, at which point the Orioles would have a final stake of 67%. The Orioles would receive ongoing payments from MASN’s profits in proportion to their supermajority interest (i.e., for each dollar of profit, the Orioles would receive a percentage equal to their ownership stake at the time of profit distribution).

Because the telecast rights fees paid to the teams are MASN’s single largest expense, the amount of the fees directly impacts MASN’s profitability. Thus, any increase in telecast rights fees necessarily decreases the Orioles’ compensation. The parties negotiated the specific fees to be paid annually by MASN to the teams between 2005 and 2011, as well as a methodology for determining future fees. With regard to future fees, the agreement provided that, for each five-year period after 2011, “the Orioles, the Nationals and [MASN] first shall negotiate in good faith using the most recent information available which is capable of verification to establish the fair market value of the telecast rights.”

The agreement included a dispute resolution clause to be used in the event that the three entities (the Orioles, the Nationals, and MASN) could not reach an agreement on a fair market value of the rights. That clause provided that, if there was no resolution after a mandatory negotiation period, the entities would enter a nonbinding mediation “under the auspices of the American Arbitration Association or JAMS.” If that failed, the entities would then submit the dispute to arbitration before the MLB’s Revenue Sharing Definitions Committee (RSDC), which would make a binding determination as to the fair market value of the parties’ rights using “the RSDC’s established methodology for evaluating all other related party telecast agreements in the industry.”

In 2011, in advance of negotiations with the Nationals regarding the fair market value for the telecast rights fees for the 2012-2016 period, MASN devised a fee schedule based upon what it believed to be the “RSDC’s established methodology” — an accounting-based profit margin analysis derived from a regional sports network’s actual revenues and expenses that was developed by Bortz Media and Sports Group, Inc. (Bortz). With MLB’s consent, MASN retained Bortz to determine the fees pursuant to the Bortz methodology, and on January 4, 2012, MASN sent the Nationals a proposed fee schedule of $34 million per year for the period of 2012-2016. The Nationals rejected that valuation, instead valuing its rights at more than $110 million per year according to a different methodology, which was based on factors including the size and attractiveness of the Nationals’ television market, a survey of the economic value of recent deals entered into by teams in other comparable markets, and the escalating value of live sports programming.

The parties failed to resolve their dispute through negotiation, waived the agreement’s mediation requirement, and submitted the dispute to the RSDC. The RSDC conducted an arbitration administered by MLB staff, including Robert D. Manfred, Jr., then an executive vice-president of MLB and currently the Commissioner of Baseball. MLB and Manfred’s staff provided significant support to the RSDC, including legal analysis, participation in the decision-making process, and the drafting of an arbitral award.

At the RSDC arbitration, the Nationals were represented by Proskauer Rose LLP (Proskauer), a law firm that also served as MLB’s longtime outside counsel. MASN and the Orioles objected to Proskauer’s representation of the Nationals and sought complete disclosure of MLB’s and the individual arbitrators’ relationships with the firm. MLB provided only limited disclosures, which did not reveal the full extent of Proskauer’s representations of MLB and the arbitrators’ clubs and interests. In February 2012, Manfred held an organizational meeting to discuss the procedures for the arbitration before the RSDC; the arbitrators were not present at that meeting. MASN and the Orioles persisted in their objection — which they repeated at least 18 times throughout the arbitration — but Manfred stated that he did not believe MLB had the authority to disqualify Proskauer. In addition, counsel for MASN and the Orioles sent Manfred a letter dated February 1, 2012, explaining that Proskauer’s past representation of the Orioles — which Proskauer had unilaterally terminated — and the firm’s representation of MLB and various MLB clubs, “including at least one of the Clubs appointed by the Commissioner to serve on the RSDC,” tainted the proceedings. Counsel for MASN and the Orioles asked Manfred to transmit the letter to the individual arbitrators (whose identities had yet to be revealed) and to inform them of the objections to Proskauer’s participation in the arbitration.

In discovery before the motion court, it was revealed that Proskauer represented MLB, its executives, and closely related entities in nearly 50 separate engagements and that the firm also represented interests associated with all three arbitrators. Many of those representations were concurrent with the RSDC arbitration yet were not disclosed to the Orioles or MASN at the time. In the order appealed from, the motion court noted that there were nearly 30 engagements between MLB and Proskauer during the 2V2 years that the arbitration was pending.

The RSDC held a one-day hearing on the merits in April 2012. According to a sworn affidavit of MASN’s outside counsel who was present at the hearing, Manfred sat at the head table with the arbitrators and asked questions of counsel. That summer, MLB’s staff prepared a draft decision for the RSDC and all parties were advised of the approximate amounts of the telecast rights fees under it. Release of the RSDC’s final decision was deferred until June 2014 while then-Commissioner Allan H. (Bud) Selig attempted to negotiate a resolution of the dispute. In the interim, MASN paid the Nationals the Bortz-calculated fees, which were significantly lower than the estimated fees as set forth in the draft decision.

In August 2013, while negotiations were ongoi