Players Sue NFLPA Over Failed Hedge Fund Investment

A group of NFL players has sued the players’ union, claiming the union improperly certified a hedge fund manager under its Financial Advisor Program. The LA Times has the story here. Kirk Wright, who has since been apprehended and charged by the SEC, was looting the fund.

The players’ allege that the union should be blamed because it was aware that Mr. Wright’s partner had financial / tax trouble (and had liens against him) at the time the union certified Wright as a financial advisor. I can’t find the complaint itself, but what this argument seems to boil down to is a sort of “negligent certification” claim. The NFL views the lawsuit as unfounded and so do I. Unless there is some way to get the NFLPA on a securities law suitability claim or that the NFLPA is an unregistered investment advisor, the players will face an uphill battle.

The leading negligence case by an athlete against his own union is Peterson v. NFLPA, in which the court found for the NFLPA in an athlete’s claim for misdirecting him to an “injury grievance” procedure when he ought to have filed a “non-injury grievance.” The court explained:

A union breaches its duty of fair representation only when its conduct toward a member of the collective bargaining unit is "arbitrary, discriminatory, or in bad faith." . . . The Supreme Court has long recognized that unions must retain wide discretion to act in what they perceive to be their members' best interests. . . . A union's representation of its members "need not be error free." . . . We have concluded repeatedly that mere negligent conduct on the part of a union does not constitute a breach of the union's duty of fair representation. . . . [A] union's unintentional mistake is "arbitrary" if it reflects a "reckless disregard" for the rights of the individual employee, but not if it represents only " simple negligence violating the tort standard of due care."

There’s certainly no claim that the NFLPA intentionally recommended a bad investment. Is recommending an investment manager knowing his partner has financial troubles reckless? That is, does it constitute a knowing and conscious disregard of a substantial risk of serious harm? That seems unlikely. The union’s role in certifying investment advisers is limited. The union is not recommending particular investments, simply certifying that an adviser is what he says he is. According to the Regulations of the NFLPA Financial Advisor program,

The first step is that financial advisors have appropriate qualifications to be eligible to participate. Background checks and due diligence will be performed to ensure that financial advisers meet our eligibility standards. Secondly, by joining the Program, all financial advisors agree to abide by rules which are designed to both protect and inform our players.

While I might tone down some of this language were I the NFLPA’s counsel, it seems clear that the union is not certifying the quality of investments or assuming the risk of theft of client funds by investment advisors. Under the deferential Peterson standard, while the union’s certification of Wright might be “error,” it is hardly malicious or arbitrary.

The sad thing about this case is what it might do to this program. The NFLPA was the first union to recognize that many players and retired players were making incredibly poor investment decisions and dooming themselves to a life of post-retirement financial insecurity. If this case has any traction whatsoever, it might lead the NFLPA to walk away from the program, and could certainly deter other player unions from following the NFLPA’s lead.

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