SCA Promotions Response to Lance Armstrong

8/13/2019 SCA Promotions Response to Lance Armstrong

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SCA PROMOTIONS, INC.’S AMENDED JOINT RESPONSE IN OPPOSITION TO LANCE ARMSTRONG AND TAILWIND’S

MOTIONS TO STAY ARBITRATION AND / OR VACATE ARBITRATION AWARD PAGE 14851-9163-0616, v. 1

CAUSE NO. DC13-01564

SCA PROMOTIONS, INC., § IN THE DISTRICT COURT OF§

Plaintiff, §

§v. § DALLAS COUNTY, TEXAS§

LANCE ARMSTRONG, TAILWIND §SPORTS, INC., and WILLIAM §STAPLETON, §

§Defendants. § 116TH JUDICIAL DISTRICT

SCA PROMOTIONS, INC.’S AMENDED JOINT RESPONSE IN OPPOSITION TO LANCE

ARMSTRONG

AND TAILWIND’S MOTIONS TO STAY ARBITRATION AND / OR VACATE ARBITRATION AWARD

TO THE HONORABLE JUDGE OF SAID COURT:

SCA Promotions, Inc. (“SCA”) hereby submits this Amended Joint Response In

Opposition to Lance Armstrong’s Motion to Stay Arbitration and/or to Vacate Arbitration Award

and Tailwind’s Motion to Stay Arbitration and/or to Vacate Arbitration Award. In support of

this Response, SCA shows as follows:

INTRODUCTION AND SUMMARY

In 2006 — after the arbitration proceeding involving Mr. Armstrong, Tailwind and SCA

had concluded — Mr. Armstrong and Tailwind sought the exact procedural and substantive relief

that SCA now seeks. Mr. Armstrong and Tailwind asked the Panel to reconvene and sanction

SCA for its alleged post-arbitration conduct. In their motion, Mr. Armstrong and Tailwind

argued that “[t]his Panel has continuing jurisdiction to entertain [its] Motion for Sanctions.”

See Claimants’ Motion to Set Aside Nonsuit and Reinstate the Motion for Sanctions. The filing

DALLAS

2/19/2014 11:

GARY FITZS

DISTRI


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was just one more hard-nosed, scorched-earth tactic from Mr. Armstrong in his perpetual quest

to crush the truth (and SCA).

Among other relief, SCA now seeks to impose sanctions against Mr. Armstrong (also

based on the fact that the Panel has continuing jurisdiction). In response, Mr. Armstrong

suddenly switched his position, contradicted his former pleadings and argued to the Panel that

they had no authority or power to do exactly what he previously asked and told them they could

do but a few years ago. By now, however, Mr. Armstrong’s credibility as a litigant is, to put it

mildly, severely impaired. The Panel denied his efforts to block SCA’s request for arbitration.

Mr. Armstrong now goes a step further and asks this Court to overrule the Panel and halt

the arbitration in its entirety. Mr. Armstrong and Tailwind’s arguments rest on a thin claim that

there is no valid arbitration agreement. This claim lacks merit. This Court can deny Mr.

Armstrong and Tailwind’s motions for the following reasons.

1. Under the parties’ arbitration agreement, it is the arbitration panel thatdecides what is arbitrable and both Tailwind and Armstrong had waived any

challenge to that determination. The arbitration agreement contained in theComprehensive Settlement Agreement (to which Tailwind and Armstrong are bothsignatories) gives the arbitration panel exclusive jurisdiction over the parties’ disputesand further provides that all parties (including Tailwind and Armstrong) waive anychallenges to the jurisdiction of the Panel, including subject matter jurisdiction. Inother words, the Panel has the authority and power to decide what the scope of its jurisdiction and neither Armstrong or Tailwind (or SCA) can challenge thatdetermination. Thus, because any such challenges to the Panel’s jurisdiction have been contractually waived, this Court can summarily deny Armstrong and Tailwind’srequest.

2. The parties have two valid and binding arbitration agreements thatclearly cover the disputes in arbitration. To the extent the Court determines that ithas the power to decide the issue of arbitrability, it can easily make that determinationin favor of requiring arbitration. There are two binding arbitration agreements, bothof which contain broad language encompassing the very claims at issue. NeitherArmstrong or Tailwind can challenge the validity of these agreements because both previously sought arbitration pursuant to them. Moreover, SCA’s claims (andArmstrong’s defenses) all revolve around issues connected to the Contingent Prize


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Contract and the parties’ Comprehensive Settlement Agreement, both of whichrequire arbitration.

3. The Panel has the authority to hear the disputes before it. Armstrong’schallenge to the Panel’s “authority” to award sanctions and other relief are also

without merit. Armstrong and Tailwind have agreed that the Panel has such authorityand, in fact, have previously sought sanctions from the Panel. Likewise, SCA’s claimfor forfeiture is properly before the Panel and it has authority to decide the issue.Consequently, the Panel has both the authority and jurisdiction to hear such matters.

4. This Court cannot hear a motion to vacate a “Partial Final Award.” The jurisdictional award that Armstrong and Tailwind challenge is not a final award. As aresult, this Court cannot, under the Texas Arbitration Act, hear a challenge to itsvalidity. It must await a full final award before any challenges can be made.

KEY BACKGROUND FACTS

A. The Contingent Prize Contract.1. SCA entered into a Contingent Prize Contract #31122 with Disson Furst &

Partners (later known as Tailwind Sports, Inc.) to pay Lance Armstrong prize money if he was

the Official Winner of a series of successive Tour de France races in 2002, 2003 and 2004.1

2. The Contingent Prize Contract has an arbitration clause providing as follows:“Sponsor [Tailwind] agrees that any dispute arising under this contract shall be resolved by

binding arbitration pursuant to the Texas General Arbitration Act. The site of such arbitration

shall be Dallas, Texas.” A copy of that agreement is attached as Exhibit A (all exhibits

submitted as part of an Appendix).

3. Mr. Armstrong was declared the Official Winner of the Tour de France races in2002, 2003 and 2004. SCA paid the prize money in 2002 and 2003. However, a dispute arose in

2004 over whether SCA was still obligated to pay Mr. Armstrong based on him being the

1 Tailwind (a sports management company) had separately contracted with Mr. Armstrong to pay him the prizemoney if he won the Tour de France races. SCA, through the Contingent Prize Contract, was assuming Tailwind’srisk in exchange for a fee.


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Official Winner of the 2004 Tour de France race because there were credible allegations that he

may have cheated.

4. In response, Tailwind and Mr. Armstrong first sued SCA in Dallas state courtand then, as required under the Contingent Prize Contract, sought arbitration of the dispute. The

lawsuit as styled Lance Armstrong, et al. v. SCA Promotions, Inc., No. 04-9557M in the 298th

District Court. See Exhibit B (order closing case pending arbitration). The matter – at Lance

Armstrong’s request – was then referred to arbitration. As a result, Mr. Armstrong clearly

embraced and relied on the arbitration clause in the Contingent Prize Contract. A panel of

Richard Faulkner (Chairman and neutral); Richard Chernick (SCA’s party-appointed arbitrator)

and Ted Lyon (Tailwind and Armstrong's party-appointed arbitrator) were appointed to hear the

matter (referred to herein as the “Panel”).

B. The First Arbitration.5. An arbitration was then commenced. During the arbitration proceedings, both

Lance Armstrong and Bill Stapleton on behalf of Tailwind testified under oath, among other

things, that Mr. Armstrong never used performance enhancing drugs during the entirety of his

cycling career; that Mr. Armstrong had won the 2002-2004 Tour de France races legitimately

and without cheating; that SCA (and all witnesses who asserted otherwise) were lying and should

be punished accordingly; and that if Mr. Armstrong was ever stripped of his Tour de France

titles, he would be obligated to return the SCA prize money.

6. In 2005, in connection with the arbitration proceeding, Tailwind, LanceArmstrong and SCA entered into a Comprehensive Settlement Agreement. As part of that

agreement, they reaffirmed and expanded their arbitration agreement as follows:


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The Arbitration Panel consisting of Richard Faulkner, Richard Chernick and Ted

Lyon shall have exclusive jurisdiction over the parties hereto with respect to any

dispute or controversy among them arising under or in connection with this

SETTLEMENT AGREEMENT or Contingent Prize Contract #31122 and, by

execution and delivery of this SETLLEMENT AGREEMENT, each of the parties

hereby submits to the jurisdiction of that Panel and waives any objection to such

jurisdiction on the grounds of venue or forum non conveniens, the absence of in

personam or subject matter jurisdiction and any similar grounds, consents to

service of process by mail or any other means permitted by law, and irrevocably

agrees to be bound by any order or award issued or rendered thereby in

connection with this SETTLEMENT AGREEMENT.”

A copy of that Agreement is attached to the Appendix as Exhibit C.

7. In addition, based on the settlement, the Panel then issued an arbitration award for$7,500,000. This amount represented prize money. Mr. Armstrong was a party to that award.

See Exhibit D (copy of award).

8. Thereafter, Mr. Armstrong and Tailwind, aided by counsel, falsely claimed to the public that the arbitration award had “exonerated” Mr. Armstrong and that the award was the

Panel’s imprimatur that Mr. Armstrong did not cheat. Mr. Armstrong (and Mr. Stapleton) knew

that these public representations were false on two levels; that is false because this Panel had

made no such ruling and false because they both knew Mr. Armstrong had cheated and would

continue to cheat in future Tour de France races.

9. Upset that some of the more shocking evidence developed during the arbitration became public, Mr. Armstrong and Tailwind subsequently filed a Motion for Sanctions against

SCA. The motion, entitled Tailwind and Armstrong’s Motion to Set Aside Nonsuit and Reinstate

Motion for Sanctions, was filed after the arbitration had concluded and the Comprehensive

Settlement Agreement had been signed. See Exhibit E (copy of Motion).


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10. In their Motion for Sanctions, Armstrong and Tailwind maintained that the Panelhad the authority to reconvene and issue sanctions even after the proceedings had closed based

on the language of the Comprehensive Settlement Agreement. Id. They further claimed that the

Panel had the inherent power to exercise authority over the parties by sanctioning them.

C. Armstrong’s Fall From Grace.11. Mr. Armstrong’s carefully constructed house of lies came crashing down in late

2012. First , USADA issued its “reasoned decision,” which determined that Mr. Armstrong had

engaged in illegal and impermissible drug use in connection with his racing activities; had

repeatedly lied about it; and had harassed and sought to intimidate others into lying for him. See

Exhibit F (excerpts of report). Second , Mr. Armstrong subsequently declined to challenge

USADA’s reasoned decision (after a brief but unsuccessful court challenge) and the USADA

decision became final. As a result, Mr. Armstrong was stripped of all of his racing titles –

including the 2002, 2003 and 2004 Tour de France races – and was required to forfeit all prize

money. Third, with public pressure mounting and sponsors fleeing, Mr. Armstrong publically

“confessed” to Oprah Winfrey in a special edition of her popular talk show.

12. During the course of that interview, Mr. Armstrong admitted (among other things)that (1) he used performance enhancing drugs in every Tour de France race he allegedly “won,”

(2) that he cheated in the 2002-2004 Tour de France races; (3) that he lied under oath in this very

arbitration proceeding; and (4) that he sought to intimidate witnesses that had otherwise told the

truth about him and his conduct, including witnesses who testified in this proceeding Given that

Mr. Armstrong was no longer the Official Winner of the 2002-2004 Tour de France races and

had admitted that he (and Tailwind) had repeatedly lied under oath in his legal proceeding with

SCA and engaged in other unsavory conduct, this action became ripe and necessary.


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D. SCA’s Lawsuit and the Second Arbitration.13. SCA initially filed suit in February 2013, asserting claims against Tailwind,

Lance Armstrong, and Bill Stapleton. SCA asserted a series of claims, including fraud, unjust

enrichment, money had been received, an appointment of a receiver, civil contempt and

conspiracy. Tailwind and Armstrong answered the lawsuit and moved to dismiss the petition

under new Texas Rule Civil Procedure 91A.

14. However, it became apparent to SCA that several of the claims and requests forrelief that it initially asserted in the lawsuit had to be arbitrated. To avoid further delays and

complicated appellate issues, SCA filed its request with the Panel to reconvene the arbitration.

See Exhibit G (Motion to Reconvene).

15. SCA contends that it was required to arbitrate any claims before the same Paneland thus sought to “reconvene” the arbitration. If necessary, however, SCA also maintained that

it could institute a new arbitration before the same Panel.

16. In its Motion, SCA sought to sanction Armstrong, Tailwind and Bill Stapleton for perjury and other fraudulent conduct and to order the forfeiture of all prize money paid to

Armstrong by SCA pursuant to the Contingent Prize Contract and the Comprehensive Settlement

Agreement.

17. Armstrong, Tailwind and Stapleton opposed the effort to reconvene thearbitration, claiming that the Panel lacked jurisdiction to hear the dispute, primarily because

there was “no authority” for the Panel reconvene or to sanction Mr. Armstrong.

18. The Panel heard the jurisdictional challenge and denied Armstrong andTailwind’s requests in a written order dated October 29, 2013. The Panel did conclude,

however, that it had no jurisdiction over Mr. Stapleton. In its written order, the Panel rejected


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Armstrong’s arguments, including his functus officio doctrine challenge, and further found that

since Mr. Armstrong and Tailwind had themselves sought sanctions from the Panel after the

arbitration had concluded, they had waived any complaint that the Panel lacked such authority.

A copy of the Order is attached to the Appendix as Exhibit G.2

19. Armstrong and Tailwind then filed this Motion with the Court and challenge tothe very same issues decided by the Panel.

ARGUMENT

A. The Panel is Empowered to Decide the Issue of Arbitrability and Defendantshave Waived any Challenge to Their Ruling.

Tailwind and Armstrong initially seek to stay the arbitration under Tex. Civ. Prac. and

Rem. Code Section 171.023. That section provides that a court may stay an arbitration upon a

“showing that there is not an agreement to arbitrate.” The first threshold question, however, is

who decides that issue. Typically, the question of arbitrability is an issue of judicial

determination. However, just as parties can agree to arbitrate a dispute, they can also agree to

allow an arbitrator to decide the issue of arbitrability. See Roe v. Ladymon, 318 S.W.3d 502,

511-512 (Tex.App. – Dallas 2010, no pet.). As the Dallas Court of Appeals recently noted, the

“who decides” question of arbitrability also turns upon the agreement of the parties and that “a

court must defer to an arbitrator’s arbitrability decision when the parties submitted that matter to

arbitration.” Id. at 512 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).

Thus, when parties clearly agree to have arbitrators decide the issue of arbitrability, the matter is

resolved in arbitration and the court must defer to that determination much as it would any other

arbitrator decision. Id.

2 Armstrong and Tailwind quote extensively from the dissent. While dissents, of course, are not persuasive by theirvery nature, this dissent is particularly suspect because it is written by Mr. Armstrong’s party appointed arbitrator.


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In this case, the parties clearly agreed to have the original Panel resolve all disputes,

including the issue of arbitrability. Two reasons support this conclusion. First , the language of

the parties’ arbitration agreement as set out in the Comprehensive Settlement Agreement

provides that it is exclusive and comprehensive. It empowers not just any panel but the Panel to

resolve all disputes or controversies “arising under or in connection with this Settlement

Agreement or Contingent Prize Contract #31222.” Moreover, it specifically provides that “the

parties hereby submit to the jurisdiction of that Panel and waive any objection to such

jurisdiction on the grounds of venue, forum non conveniens, the absence of in personam

jurisdiction or subject matter jurisdiction and other similar grounds [.]” Id. at Exhibit C. There

could not be a more clear expression of the parties’ agreement that the Panel (and not a court)

has the power to decide its own jurisdiction given that the parties waived any challenge to its

determination.

Second , given that the parties agreed in writing to waive all challenges to jurisdiction, the

relief sought by Armstrong and Tailwind before this Court is barred. Mr. Armstrong and

Tailwind both expressly submitted themselves to the jurisdiction of the Panel and waived any

challenge thereto, including to subject matter jurisdiction. Their waiver is valid and binding and

eliminates the very challenge now asserted. This is particularly true given that Tailwind and Mr.

Armstrong first pursued all of the arguments they make to this Court before the Panel. It was

only after the Panel denied those arguments that they then turned to this Court.

Accordingly, this Court should conclude that (1) the issue of arbitrability is for the Panel

to decide; (2) the Panel’s determination that it has the power to arbitrate these disputes is due

complete deference from this Court and, (3) in any event, any challenge to that determination

has been contractually waived by Mr. Armstrong and Tailwind.


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B. There Are Valid and Binding Arbitration Agreements Between the Parties.If this Court concludes that the issue of arbitrability is for judicial determination, then the

standard for making such a determination is well known and favors SCA. The Court examines

two issues: (1) there is a valid agreement to arbitrate between the parties and, (2) if so, whether

the claims asserted fall within the scope of that agreement. In re Kellogg Brown & Root, Inc.,

166 S.W.3d 732, 737 (Tex. 2005). The burden for these issues, however, is different. SCA

bears the burden on the first issue. However, once it is established that there is a valid agreement

to arbitrate, then the burden shifts mightily to Tailwind and Mr. Armstrong on the second issue.

In re Rubiola, 334 S.W.3d 220 (Tex. 2010).

In deciding the second issue of arbitrability, this Court must employ a standard that leans

heavily towards finding that SCA’s claims are subject to arbitration. This is because arbitration

is favored by Texas courts. See Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex.

1996); Emerald Texas, Inc. v. Peel, 920 S.W.2d 398, 403 (Tex. App. – Houston [1st Dist.] 1996,

no writ). Indeed, a “presumption exists in favor of agreements to arbitrate under the FAA.” Id.

Therefore, any doubts regarding the scope of an arbitration agreement are to be resolved in favor

of arbitration. In re Rubiola, 334 S.W.3d 220, 221 (Tex. 2010).

In determining whether a particular claim falls within the scope of an agreement to

arbitrate, the focus should be on the factual allegations upon which the claim is based. See

Valero Energy Corp. v. Wagner & Brown, II, 777 S.W.2d 564, 566 (Tex.App. – El Paso 1989,

writ denied). If the claim is not a breach of contract claim but is a tort, the test is based on a

determination of whether the particular claim is so interwoven with the contract that it could not

stand alone or, on the other hand, is a tort completely independent of the contract and could be

maintained without reference to the contract. Id.


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In applying the above principles, the Court can easily conclude that the requirements are

satisfied.

1. The First Issue: The parties have two binding arbitration agreements. The first issue is easily resolved. The parties have two binding arbitration agreements:

The Contingent Prize Contract #31122 and the Comprehensive Settlement Agreement. These

are valid and enforceable agreements. Thus, the only real question is whether the parties’

disputes fall within the scope of those agreements.3

Mr. Armstrong contends that since he is not a signatory to the Contingent Prize

Contract, he is not bound by its arbitration agreement. This is without merit for two reasons.

First , the Comprehensive Settlement Agreement specifically provides that the parties must

arbitrate “all claims arising under or in connection with the Settlement Agreement or Contingent

Prize Contract #31122.” Hence, Mr. Armstrong does have a binding arbitration agreement with

respect to any claim pertaining to the Contingent Prize Contract because disputes connected to

that agreement were incorporated into the arbitration clause under the Comprehensive Settlement

Agreement. Thus, any issue regarding the Contingent Prize Contract is actually subject to two

arbitration agreements.

Second , Mr. Armstrong himself affirmatively sought to arbitrate his claims under the

Contingent Prize Contract. He participated in the arbitration as a party. He was even a party to

the arbitration award. Further, since it is his conduct in that arbitration that is now at issue in this

proceeding, he is bound to the arbitration agreement under the Contingent Prize Contract.

3 Mr. Armstrong tries to refashion “scope issues” (i.e., whether the claims fall within the scope of the arbitration provisions) as “existence of an arbitration agreement” issues. This is incorrect. There is no dispute that there existvalid arbitration agreements. Thus, the burden shifts entirely to Mr. Armstrong and Tailwind on the issue ofwhether the claims asserted fall within the arbitration provisions. Moreover, the scope issues carry a presumption infavor of SCA.


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Finally, Mr. Armstrong tries to avoid the above agreements by arguing there was no

agreement to “reconvene the 2006 arbitration.” See Motion at 12. This argument is wrong and,

in any event, misses the point. The issue is whether the disputes asserted by SCA are covered by

the parties’ arbitration agreements. The format of the resulting arbitration (whether it is

“reconvened” or an entirely new proceeding) is irrelevant and immaterial. The parties agreed to

employ the same arbitrators and thus whether it is a reconvened or a new arbitration, the result is

the same.

2. The Second Issue: The Claims are Subject to Arbitration.

Given that there are valid arbitration agreements, a presumption arises that the disputes

in question fall within their scope. Even without that presumption, however, it is readily

apparent that SCA’s claims are subject to arbitration. As the Panel noted in its Order, the claims

asserted by SCA “fit within the parties’ agreements, the language of the Contingent Prize

Contract and within the broad provision of the Comprehensive Settlement Agreement.” See

Exhibit H. In fact, even a cursory review of the claims confirms this conclusion.

SCA’s Claim for Sanctions. SCA’s first request for relief is that the Panel sanction Mr.

Armstrong and Tailwind for their outrageous conduct during the course of the arbitration,

including outright perjury. There is no dispute that Mr. Armstrong perjured himself repeatedly

during the arbitration proceeding; sought to have others perjure themselves as well; and tried to

intimidate any adverse witness. The proof? Mr. Armstrong has admitted to such conduct. There

also can be no dispute that Mr. Armstrong should be punished for his conduct. The only

remaining issues are (i) who should decide whether Mr. Armstrong is sanctioned and (ii) the

amount of any sanctions.


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The parties’ agreements (and applicable law) require that the Panel be the body that

decides both issues identified above. Several reasons support this contention. First, the parties’

Contingent Prize Contract requires arbitration of all claims or disputes, including this one.

SCA’s claim for sanctions is a “dispute arising under [the] contract” because the occasion and

basis for the perjured testimony (and other conduct) was a dispute over the parties’ contractual

obligations. The language of the Contingent Prize Contract is exceedingly broad and covers not

just disputes about the agreement itself, but any dispute that comes about because of or “under”

the contract.

Here, SCA’s request for sanctions is such a dispute. But for the Contingent Prize

Contract, Mr. Armstrong and Mr. Stapleton (testifying for Tailwind) would not have testified –

and likewise committed perjury -- before the Panel. Thus, the issue of whether they should be

punished for such wrongful conduct “arises under the contract.” Consequently, arbitration is

required under the terms of the Contingent Prize Contract.

Second, arbitration of this dispute is required under the terms of the parties’

Comprehensive Settlement Agreement. The Comprehensive Settlement Agreement requires that

disputes “arising under or in connection with” (i) the Settlement Agreement or (ii) the

Contingent Prize Contract must be arbitrated. SCA’s contention that Mr. Armstrong and

Tailwind should be punished is “connected to” the Comprehensive Settlement Agreement. For

starters, Mr. Armstrong’s primary defense to SCA’s request for sanctions is that the

Comprehensive Settlement Agreement bars SCA’s claims. SCA disputes that defense, of course,

but deciding whether Comprehensive Settlement Agreement itself bars such a claim is required

to be resolved by arbitration. Moreover, the Comprehensive Settlement Agreement provided the


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benefit to Mr. Armstrong that forms the very harm that SCA suffered due to his perjury. Thus,

SCA’s claim is connected to that agreement.

3. The issue of the Panel’s Authority to Sanction Mr. Armstrong.Mr. Armstrong sidesteps the above issues and argues that the Panel exceeds its authority

by hearing SCA’s request for sanctions. In fact, SCA’s request for sanctions only further

buttress the claim that this matter must be arbitrated. This is because the Panel has the authority

to sanction Mr. Armstrong and Tailwind for their misconduct and abuse of the arbitration

process based on the (1) broad arbitration agreement contained in the Settlement Agreement and

Contingent Prize Contract and (2) the parties’ conduct during the prior arbitration proceedings.

4

A broadly-worded arbitration agreement, with no limiting language to the contrary,

“confers inherent authority on arbitrators to sanction a party that participates in the arbitration in

bad faith.” See Seagate Tech., LLC v. W. Digital Corp., 2013 WL 3779231, at *7 (Minn. Ct.

App. July 22, 2013) (holding that the district court erred in holding that the arbitrator did not

have the authority to impose sanctions); Hamstein Cumberland Music Group v. Williams, ---

Fed. Appx. ---, 2013 WL 3227536, at *4 (5th Cir. May 10, 2013) (rejecting argument that

arbitrator was not empowered to issue sanctions, and finding that “arbitrators enjoy inherent

authority to police the arbitration process and fashion appropriate remedies to effectuate this

4 Armstrong and Tailwind argue that there is an issue of substantive arbitrability that must be decided by a courtregarding whether the arbitration agreement can be enforced against Tailwind, which dissolved more than threeyears ago. Armstrong and Tailwind are wrong. First, it is undisputed that Tailwind is a party to the arbitration

agreement and consented to and participated in the arbitration proceedings performed by this panel. The question ofwhether the arbitration agreement is enforceable against Tailwind based on its dissolution is a question of

procedural —not substantive—arbitrability, which is for the arbitrator, not the court. Arbitrators are empowered todetermine questions of procedural arbitrability like compliance with conditions precedent or prerequisites to theobligation to arbitrate. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002); In re Global Const. Co.,

LLC , 166 S.W.3d 795, 798 (Tex. App. – Houston 2005, no pet.). Second, Tailwind’s existence (or, if non-existent,its satisfaction of the notice requirement to known claimants or succession by a surviving entity) is a defenses toSCA’s claims that must be considered by the Panel. Even if such matters are conditions precedent to the undisputedobligation to arbitrate, they still are matters for the arbitrator.


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authority”); Forsythe Int’l., S.A. v. Gibbs Oil Co. of Tex., 915 F.2d 1017, 1023 (5th Cir. 1990)

(“Arbitrators may . . . devise appropriate sanctions for abuse of the arbitration process.”);

Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., 713 F.3d 797, 803 (5th Cir. 2013)

(emphasizing that arbitration clause, which called for “any dispute” to be submitted to binding

arbitration, contained no limits relevant to award because “[t]he remedy lies beyond the

arbitrator’s jurisdiction only if there is no rational way to explain the remedy handed down by the

arbitrator as a logical means of furthering the aims of the contract”) (emphasis added). “To give

arbitrators control over discovery and discovery disputes without the authority to impose

monetary sanctions for discovery violations and noncompliance with appropriate discovery

orders, would impede the arbitrators’ ability to adjudicate claims effectively in the manner

contemplated by the arbitration process.” Superadio Ltd. P’ship v. Winstar Radio Productions,

LLC , 446 Mass. 330 (Mass. Sup. Ct. 2006).

If arbitrators are not permitted to impose sanctions on parties who flagrantly disregard the

arbitrators’ rules and procedures, arbitrators will not be able to assert the power necessary to

properly adjudicate claims. See First Pres. Capital., Inc. v. Smith Barney, Harris Upsham &

Co., 939 F. Supp. 1559, 1565 (S.D. Fla. 1996) (affirming an arbitrator’s dismissal of a party’s

case for abuses of the discovery process).

Parties in arbitration must understand that willful violations of the discovery process can have severe consequences. They must be aware that arbitrators havethe power to enforce their directives. Allowing parties . . . to abuse the processnot only serves to undermine the principles of arbitration, it will ultimatelydiminish the integrity of any court in which information obtained through anabuse of arbitration is used.”

Id. at 1565; see also Murtagh v. Emory Univ., 741 S.E.2d 212, 215-16 (Ga. Ct. App. 2013)

(holding that arbitrators have the power to issue death penalty sanctions and charge attorney’s

fees and costs for discovery abuses). “Indeed, the underlying purposes of arbitration, i.e.,


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efficient and swift resolution of disputes without protracted litigation, could not be achieved but

for good faith arbitration by the parties. Consequently, sanctions, including attorney’s fees, are

appropriately viewed as a remedy within an arbitrator’s authority to affect the goals of

arbitration.” ReliaStar Life Ins. Co. of N.Y. v. EMC Nat'l Life Ins. Co., 564 F.3d 81, 86 (2d

Cir.2009).

Here, the arbitration agreement contained in the Contingent Prize Contract provides the

Panel with broad authority to resolve “any dispute arising under this contract” and the

Comprehensive Settlement Agreement provides this “Arbitration Panel consisting of Richard

Faulkner, Richard Chernick and Ted Lyon” with “exclusive jurisdiction over the parties hereto

[Armstrong, Tailwind, and SCA] with respect to any dispute or controversy among them arising

under or in connection with this Settlement Agreement or Contingent Prize Contract #31122.”

Accordingly, this broad grant of authority provides the panel with the inherent authority to police

the arbitration process and fashion appropriate remedies to effectuate its authority. See Seagate,

2013 WL 3779231, at *7 (holding that broadly-worded arbitration agreement that provided for

arbitration of “any dispute or controversy arising out of or relating to” the employment

agreement conferred the power to sanction); ReliaStar , 564 F.3d at 86 (holding that agreement

[providing that disputes arising under or relating to coinsurance agreement should be decided by

arbitration] was sufficiently broad to confer on arbitrators the equitable authority to sanction a

party’s bad faith conduct).

Moreover, Armstrong and Tailwind specifically gave this arbitration panel the authority

to police its processes by (repeatedly) asking the panel to do just that. See, e.g., Exhibit I

(Claimants’ Jan. 4, 2006 Motion to Exclude at 5 (asking the panel to exclude David Walsh’s

testimony because it “makes a mockery of the proceeding”)); and Exhibit E (Claimants’ Motion


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for Sanctions for SCA’s Flagrant Breach of the Panel’s Confidentiality Order). Indeed, after the

proceedings had closed, Armstrong and Tailwind twice sought sanctions and punitive damages

against SCA, arguing that “[t]his Panel has continuing jurisdiction to entertain [its] Motion for

Sanctions.” See Exhibit E at 2-3. Armstrong and Tailwind maintained that this Panel has the

authority to issue sanctions even after the proceedings had closed based on the arbitration

agreement (Paragraph 5.6) contained in the Settlement Agreement and the panel’s inherent

authority to protect “the integrity of th[e] proceeding” and “effectuate the authority of the

Tribunal”—the very same bases that provide this panel with the authority to sanction Armstrong

and Tailwind now. See id. (Claimants’ Motion for Sanctions at 2, 5). Accordingly, this panel

clearly has the authority to sanction Armstrong and Tailwind for their misconduct in the

arbitration proceedings. See Hamstein Cumberland Music Group, --- Fed. Appx. ---, 2013 WL

3227536, at *4 (holding that arbitrator did not exceed authority in sanctioning Williams because

(1) arbitrators have inherent authority to police the process and (2) the parties sought to confer

that power on the arbitrator by both moving for sanctions).

Contrary to Armstrong’s and Tailwind’s assertions, the arbitration panel does not lose its

power to sanction simply because Armstrong and Tailwind didn’t get caught until years later.

See Pisciotta v. Shearman Lehman Bros., Inc., 629 A.2d 520, 525 (D.C. 1993) (“We do not see

why that authority [of the arbitrator to issue sanctions] should vanish when the wrongdoing has

been concealed from the arbitrator but [later] discovered[.]”); Positive Software, 619 F.3d at 462-

63 (where case had been settled and administratively closed, Positive Software did not need

district court to issue sanctions because it could asked the arbitrators to reopen proceedings to

issue sanctions). The policy principles that support an arbitrator’s power to sanction willful

misconduct during the arbitration process do not diminish simply because the misconduct was


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not discovered until after the proceedings had closed. Parties in arbitration must understand that

willful violations of the discovery process can have severe consequences—even if they may

manage to make it through the arbitration process without getting caught. Regardless of when

the misconduct is discovered, allowing parties to abuse the process only “serves to undermine

the principles of arbitration.” See First Pres. Capital, 939 F. Supp. at 1565. Accordingly, just as

a court’s inherent power to police its proceedings can be applied after the case has closed, see,

e.g., Sutphin v. Tom Arnold Drilling Contractor, Inc., 17 S.W.3d 765 (Tex. App. – Austin 2000,

no pet.) (holding that court has inherent power to sanction conduct done in prior closed case,

even where court no longer has plenary power over the case); In re E.I. DuPont de Nemours &

Co.-Benlate Litig., 99 F.3d 363 (11th Cir. 1996) (holding that court has inherent power to

conduct independent investigation to see if it was defrauded in prior proceeding where settlement

was approved and case was closed), so too can an arbitrator’s power to police its proceedings be

applied after the case has closed. See Positive Software, 619 F.3d at 462-63. Indeed, where the

misconduct occurred during arbitration and the case has since closed, Fifth Circuit authority

indicates that any issuance of sanctions should be done by the arbitrators alone. See id.

(reversing district court’s imposition of sanctions, finding that district court lacked the inherent

authority to impose sanctions for conduct that took place in connection with the arbitration and

noting that movants could ask arbitrators to reopen case to issue sanctions); Brooks v. Susser

Holdings Corp., 2012 WL 5377825. At *2 (S.D. Tex. Oct. 30, 2012) (rejecting argument that

court must issue sanctions for misconduct committed in arbitration as asking court to “fill[] a gap

that does not exist”).

SCA’s Claim for Forfeiture of Prize Money. SCA’s second claim is for an order of

forfeiture against Mr. Armstrong and Tailwind in the amount of at least $12 million. The basis


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for the request is straightforward: (i) SCA paid Mr. Armstrong prize money for being the Official

Winner of the 2002-2004 Tour de France races; (ii) he has been ordered by USADA (the

governing organization) to forfeit all prize money, including any prize money paid by SCA; (iii)

Mr. Armstrong is no longer the Official Winner of the 2002-2004 Tour de France races; and (iv)

Mr. Armstrong, Tailwind, and his counsel all represented to the Panel during the proceedings

that if this day ever came (i.e., when Mr. Armstrong was no longer the “Official” Winner of the

Tour de France races in question), then he (and Tailwind) would be required to return the SCA

prize money. Well, that day has come and SCA now seeks to enforce the forfeiture and/or

disgorgement of all prize money it paid to Mr. Armstrong.

This claim must be arbitrated as well. The claim arises under the Contingent Prize

Contract, the Comprehensive Settlement Agreement and related principles of law and equity.

The prize money now sought to be forfeited was paid under the Contingent Prize Contract and,

hence, any dispute related to it must be arbitrated. Meanwhile, Mr. Armstrong and Tailwind

again will argue that the Settlement Agreement bars SCA’s claim and that there is no right to

forfeiture under the Contingent Prize Contract. SCA disputes those contentions, but those

disputes must be arbitrated under the Comprehensive Settlement Agreement and the Contingent

Prize Contract. Finally, the defense offered by Mr. Armstrong that the USADA Report provides

no basis to assess a forfeiture is a merits-based issue for the Panel. Thus, the issue of forfeiture

and/or disgorgement must be arbitrated.

RESPONSE TO MOTIONS TO VACATE

A. The Court Cannot Review (i.e., Vacate) a “Partial” Order of the Panel.In what amounts to an extension of its challenge to the arbitrability argument, Armstrong

and Tailwind also ask the court to vacate the Panel’s Partial Final Award. While this request is


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mooted by the arguments above, it also is procedurally improper. Texas law does not permit a

challenge to what amount to interim rulings of an arbitration panel. In Collins v. Tex Mall, LP,

297 S.W.3d 409 (Tex. App. – Fort Worth 2009, no pet.), the court confronted this exact issue. In

that case, a party under the exact same provision relied on by Armstrong and Tailwind (Section

171.086(b)(6)) tried to confirm (rather than vacate) a partial award.

The court held that the Texas Arbitration Act (and that Section in particular) “did not

grant the trial court the power to conduct judicial review of partial awards before the arbitrator’s

decision becomes final.” Id., 297 S.W.3d at 417. In so holding, the court noted the particular

language of the section (which speaks of a party filing “an application is pending”) but rejected

the notion that this language gives right to an independent review of partial awards. Id.

The court found that the language does not “abrogate the existing common law rule that

arbitration awards must be final to be legally enforceable and subject to judicial review.” Id.

Moreover, the court found that piecemeal review of arbitration awards would result in severe

delay, inefficiency and frustration of the fundamental purpose of arbitration. Id.

The court’s rationale applies with even greater force in this case. Here, the Panel has not

even made any ruling or determination regarding the merits. Indeed, the very arguments made

by Armstrong and Tailwind to this Court (i.e., that the Panel exceeds its authority by sanctioning

them) may never come to pass because the Panel may reject SCA’s arguments. Hence, Texas

law does not allow this preliminary challenge.

B. The Panel has not Exceeded Its Power.By and large, Armstrong and Tailwind’s Motion to Vacate the Panel’s Jurisdictional

Award relies on the same arguments as its Motion to Stay (i.e., Armstrong argues that the Panel

exceeded its authority in finding it had jurisdiction because, in fact, it has no such jurisdiction


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because there is no valid arbitration agreement). Thus, resolving the issue as to the Motion to

Stay resolves the Motion to Vacate because arbitration is required and hence the Panel is not

exceeding its authority. One last argument raised by Armstrong and Tailwind is a claim that one

functus officio doctrine robs the Panel of any authority. This is incorrect for several reasons.

First , the doctrine does not operate here because the award was never confirmed by the

court. The functus officio doctrine comes into play only after a court has confirmed the

arbitration decision. See Brown v. Witco Corp., 340 F.3d 209, 221 (5th Cir. 2003) (“Once a

court of competent jurisdiction has confirmed that an arbitration decision is unambiguous and

binding on the parties, the arbitrator becomes functus officio with respect to that portion of the

arbitration award and lacks authority to reconsider those aspects of his decision that are

unambiguous and binding.”) (emphasis added). Accordingly, because the panel’s award here was

never confirmed by the court, the doctrine has no application. See Martel v. Ensco Offshore Co.,

449 Fed. App. 351, 354 (5th Cir. 2011) (holding that doctrine does not prevent the arbitrator

from vacating award and issuing second award where “the arbitrator's original award was not

confirmed by the district court prior to the arbitrator vacating the award”).

Second , the doctrine does not apply here because SCA’s motion does not ask the

arbitrators to revisit the decided merits. The functus officio doctrine is a common-law bar that

generally prevents the arbitrator from revisiting the merits of an award. See Brown, 340 F.3d at

218. SCA’s motion to reconvene and request for sanctions does not ask the arbitration panel to

revisit the merits decided in the prior proceeding. Rather, SCA merely asks the arbitration panel

to sanction Armstrong’s and Tailwind’s flagrant and admitted abuse of and misconduct during

the arbitration. Accordingly, the doctrine of functus officio has no application here. See;

Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215, n.4 (5th Cir. 1991)


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(holding that the doctrine of functus officio “has no application here” where “the arbitration panel

has not attempted . . . to alter the decision it has rendered” and where “the arbitration panel’s

construction of the contract will not change”); Martel, 449 Fed. App. at 355 (holding that where

“arbitrator . . . did not revisit the merits of his decision, or change his substantive ruling,” he “did

not exceed his authority by vacating the original judgment and issuing an amended one”).

The Fifth Circuit implicitly recognized this in Positive Software Solutions, Inc. v. New

Century Mortgage Corp., 619 F.3d 458 (5th Cir. 2010). In that case, the movants asked the

district court to issue sanctions based on misdeeds that occurred during arbitration but were not

discovered until after the case had been settled and administratively closed. See id. at 462-63. In

holding that the district court did not have the authority to issue the requested sanctions, the Fifth

Circuit emphasized that it was not leaving the movants without any means to redress the

wrongdoing, and it specifically noted that the movants could have asked the arbitrators to reopen

the proceedings to issue sanctions. See id. at 463. The Fifth Circuit, therefore, implicitly

recognized that reconvening the arbitration panel to issue sanctions does not implicate the

functus officio doctrine. If the doctrine had precluded the arbitrators from reconvening to issue

sanctions, the Fifth Circuit clearly would not have stated that such a procedure was available.

Third , the clarification/completion exception to the functus officio doctrine applies here.

“[T]here are a number of well-recognized exceptions to the functus officio rule. An arbitrator

can (1) correct a mistake which is apparent on the face of his award; (2) decide an issue which

has been submitted but which has not been completely adjudicated by the original award; or (3)

clarify or construe an arbitration award that seems complete but provides to be ambiguous in its

scope and implementation.” Brown, 340 F.3d at 218. Where a contingency arises after the

award that the award did not address, the arbitrators can address the contingency without


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violating the functus officio doctrine. See Green v. Ameritech Corp., 200 F.3d 967 (6th Cir.

2000) (“Courts usually remand to the original arbitrator for clarification of an ambiguous award

when the award fails to address a contingency that later arises”); Olympia & York Fla. Equity

Corp. v. Gould , 776 F.2d 42, 46 (2d Cir. 1985) (remanding to arbitration panel where the award

failed to deal explicitly with the contingency which arose); Office & Professional Employees

Int’l Union, Local No. 471 v. Brownsville Gen. Hospital, 186 F.3d 326, 332 (3d Cir. 1999)

(recognizing that “an award predicated upon a state of facts that prove, after the award, not to be

true may be revisited on the ground of ambiguity”).

Here, the arbitration award was issued on the assumption that Armstrong was the

“official winner” of the 2004 Tour de France and that the title had not been revoked by the

relevant racing officials. During the arbitration proceedings and prior to the entry of the award,

all the parties recognized that the outcome would be different if Armstrong was later stripped of

his titles. See Exhibit J (Opening Statement of Tim Herman, counsel for Armstrong and

Tailwind, given on January 9, 2006 (Tr. at p. 628) (stating that “we don’t dispute that [if the

titles are stripped, then there’s an obligation to return the money]”); and at Tr. 641 (agreeing that

the relevant racing officials have “the authority to strip people of their tiles and require the

repayment of prize money” and that being “stripped by official action” is “the only way to

recover payments” made under the Contingent Prize Contract)); and at 627 (“If titles are stripped

as a result of official action, then Tailwind agrees to refund any payments made, which is

precisely what Tailwind has been saying since this case began.”)); and Exhibit K (Testimony of

Bill Stapleton at Armstrong Arbitration Hearing (Tr. at p. 1776) (testifying that “if some day that

result changes [i.e., Armstrong being the official winner of the 2004 Tour de France], . . . at that

point my position would be that if the results changed, that Tailwind’s obligation to Lance didn’t


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exist anymore and, therefore, SCA’s liability to Tailwind didn’t [exist either]”)). This

contingency, which was not provided for the in award, has since materialized. Accordingly,

under the well-established clarification/completion exception, the arbitration panel may address

the contingency without violating the functus officio doctrine.

Fourth, Armstrong and Tailwind essentially conceded that this arbitration panel has the

authority to reconvene in the event Armstrong is stripped of his titles. Armstrong and Tailwind

argued repeatedly to this panel that SCA’s liability under the Contingent Prize Contract did not

depend on whether Armstrong had actually cheated in fact but only on whether he was the

“official winner” of the 2004 Tour de France. See Exhibit K (Tr. at 1776 (“I [Stapleton] think

my position and Tailwind’s position has been very consistent here, which is we owe Lance $5

million based on him being the official winner of the [2004] Tour de France. SCA owes us $5

million to [Tailwind] to indemnify that liability. . . I can’t do anything about what [the racing

officials] – who they say won the tour.”)); Id. at 1688 (“[I]t’s not for me [Stapleton] or you or

SCA to decide who the official winner of the Tour de France is. As the CEO of Tailwind I’ve an

obligation to pay Lance if he’s declared the official winner by the people who declare him the

official winner, so the question of whether he can cheat and win or anyone can cheat and win is a

question for the [racing officials], not really for any of us.”)); Exhibit L (Testimony of Joe

Longley during the Armstrong Arbitration (Jan. 11, 2006) (Tr. at p. 1097-98) (“[T]he liability of

Tailwind became clear upon Lance Armstrong being declared the official winner of the 2004

Tour de France,” and the only thing that could change that would be the governing body of the

Tour de France stripping Armstrong of his title for 2004)).

Armstrong and Tailwind further conceded that, in the event that Armstrong was later

stripped of his titles and was no longer the “official winner,” SCA would have no liability under


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the Contract; but, they argued, until such a contingency occurred, SCA’s liability to pay the prize

money was clear. Accordingly, in their arguments to the panel, Armstrong and Tailwind

essentially conceded that this arbitration panel has the authority to reopen proceedings to address

the contingency in the event that Armstrong was later stripped of his titles. See Martel, 449 Fed.

Appx. at 355 (finding that Ingersoll “implicitly consented to the continuing jurisdiction of the

arbitrator over this matter” by asking arbitrator to refrain from issuing an amended award while

the parties attempted to work out other issues).

In the prior proceedings, Armstrong and Tailwind pressed the panel not to consider a

contingency that had not yet occurred and admitted that, upon the occurrence of such

contingency, SCA would no longer be liable under the Contingent Prize Contract. Therefore, it

is disingenuous for Armstrong and Tailwind to argue now—after the contingency has occurred—

that the arbitrators somehow lack the authority to address that contingency. See id. (agreeing

with the district court that “it is disingenuous for Ingersoll to have asked the arbitrator to wait to

issue an amended judgment, to have admitted that the ad damnum used in the original ward was

a clerical error, and to now claim that the arbitrator had no jurisdiction to amend his award and

the original, incorrect judgment must stand.”).5

Finally, the purpose of the doctrine has no application here. “The policy underlying [the

functus officio doctrine] is an ‘unwillingness to permit one who is not a judicial officer and who

5 For these reasons as well, Armstrong and Tailwind cannot seriously contend that the USADA’s Reasoned Decision provides no basis for SCA’s claims of forfeiture or from the authority of the Panel to hear that claim. In its

Reasoned Decision, the USADA found that “Lance Armstrong violated the applicable anti-doping rules” and that“his competitive results achieved since August 1, 1998 should be, and are, disqualified.” See Exhibit F at 57(Reasoned Decision at 164). After having repeatedly argued to the arbitration panel that SCA’s liability under theContingent Prize Contract depends on Armstrong’s “official winner” status, which can only be determined (andrevoked) by the relevant racing officials, Armstrong and Tailwind should be estopped from now arguing that theUSADA’s decision to strip Armstrong of all of his titles since August 1, 1998—including his 2004 Tour de Francetitle—provides no basis for reopening the arbitration proceedings. Under the clarification/completion exception tothe functus officio doctrine and Armstrong and Tailwind’s own admissions, the Reasoned Decision provides a basisfor reopening the proceedings and the forfeiture of all payments to which Armstrong is no longer legally entitled.


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acts informally and sporadically, to re-examine a final decision which he has already rendered,

because of the potential evil of outside communication and unilateral influence which might

affect a new conclusion.” Martel, 449 Fed. Appx. 351, at 355 (cites cases). “[I]t is feared that

disappointed parties will bombard [the arbitrators] with ex parte communications and that the

arbitrators, not being professional judges or subject to the constraints of judicial ethics, will

yield.” Id. (citing cases). Here, in contrast, the triggering event for the request to reconvene was

not SCA’s outside communication and unilateral influence; rather, the triggering event was the

revocation of Armstrong’s Tour de France titles and Armstrong’s own public admission that he

blatantly and repeatedly lied to this arbitration panel and made a mockery of the arbitration

process. Therefore, the purposes of the doctrine will not be furthered by (mis)applying the

doctrine here; accordingly, the doctrine should not be applied.

CONCLUSION

For the reasons stated herein, SCA requests that Armstrong and Tailwind’s Motions to

Stay and to Vacate be denied, and for such other relief as may be necessary or just.

Respectfully submitted,

________________________________________Jeffrey M. Tillotson, P.C.Texas Bar No. 20039200LYNN TILLOTSON PINKER & COX, L.L.P. 2100 Ross Avenue, Suite 2700Dallas, Texas 75201(214) 981-3800 Telephone(214) 981-3839 Facsimile [email protected]

ATTORNEYS FOR SCA PROMOTIONS, INC.


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MOTIONS TO STAY ARBITRATION AND/OR VACATE ARBITRATION AWARD PAGE 27

CERTIFICATE OF SERVICE

The undersigned hereby certifies that the foregoing document was served in compliancewith the Texas Rules of Civil Procedure by serving a copy to the following counsel of record on

February 19, 2014:

Via EmailTimothy J. HermanSean E. BreenHOWRY BREEN & HERMAN, L.L.P.1900 Pearl StreetAustin, Texas 78705-5408(512) 474-7300(512) 474-8557 [email protected]

[email protected]

________________________________________Jeffrey M. Tillotson, P.C.

4830-1438-5428,v.1

4851-9163-0616, v. 1

Documents

SCA Promotions Response to Lance Armstrong