The First Circuit Court of Appeals recently found an agreement’s arbitration clause unconscionable where one party was given almost unfettered control over the selection of the arbitrators. In Trout v. Organización Mundial de Boxeo, Inc., plaintiff Austin Trout (“Trout”), a professional boxer, claimed the defendant World Boxing Organization’s (“WBO”) decision to move him from a weight class cost him to opportunity to pursue a world championship in that class. He brought claims under the Muhammad Ali Boxing Reform Act, as well as breach of contract, fraud, and negligence claims.
The WBO had “Championship Regulations” which stated that all WBO participants agreed that any disputes arising from the Championship Regulations would be resolved pursuant to the WBO Appeal Regulations. The WBO Appeal Regulations established arbitration by the “WBO Grievance Committee” as the designated dispute resolution mechanism. The WBO Grievance Committee consisted of three members, all of whom would be selected by the WBO President. The only limitation on the Grievance Committee was that its arbitrators could not be members of the WBO Executive Committee, but that the Executive Committee must approve the President’s selection. During oral argument before the First Circuit, the WBO admitted that under the WBO Appeal Regulations the WBO President could appoint WBO employees and even his own assistant if he so desired.
Trout contended the WBO’s complete control over the selection of arbitrators would deprive him of a fair opportunity to pursue his claims, since the arbitrators would be inherently biased towards the WBO. The District Court for the District of Puerto Rico, disagreed with Trout and granted the WBO’s Motion to Compel Arbitration and dismissed Trout’s claims without prejudice. On appeal, the First Circuit sided with Trout, vacating the District Court’s order and remanding for further proceedings. The First Circuit held that the WBO’s complete and exclusive control over the selection of arbitrators was unconscionable. The Court rejected the WBO’s argument that the WPO Appeal Regulations’ requirement that the Grievance Committee “shall act as fair and independent arbitrators” was sufficient to establish the arbitrators as independent when they could be selected from the WBO’s own ranks. As the Court pointed out, no party can serve as both “party and judge,” or as more aptly for this case, no party can serve as both party and arbitrator.