Lawsuit: Peter Nowak 'may have improperly profited from player transactions' as Philadelphia Union manager

According to documents recently filed as part of Peter Nowak's lawsuit against the Philadelphia Union, Peter Nowak "may have improperly profited from player transactions" involving "contracts for players in South America" while manager of the team.

That allegation came to light as part of a series of motions filed by both sides' attorneys in the case, which is being adjudicated in U.S. District Court, Eastern District of Pennsylvania. The main question in the case right now is whether Nowak's complaint should be settled by an arbitrator or a federal judge.

But the procedural chess game isn't the big story. You want the juicy stuff, and there's plenty of it.

The newest accusation against Nowak came to light in a motion filed by Nowak's attorneys last week. The motion had to do with the arbitrator vs. judge question, but it also included this clause as part of a summary of facts in the case:

Counsel for Defendants stated that Mr. Nowak had engaged in "criminal and fraudulent" conduct.

Counsel for Defendants indicated that if Mr. Nowak refused to sign the Separation and Release Agreement, Mr. Nowak might be subject to a criminal complaint, but that if he did sign the document, those allegations would somehow disappear. A copy of the communication between counsel regarding this matter is attached as Exhibit A.

The exhibit in question is a chain of e-mails between the two sides. The first use of the phrase "criminal and fraudulent" is seen in an e-mail from Nowak's lead attorney, Clifford Haines, to Harris R. Eisenberg, a colleague of Union attorney Julie L. Gottshal.

Haines is based in Philadelphia and works for Haines and Associates; Eisenberg and Gottshal are based in Chicago and work for Katten Muchin Rosenman LLP.

Here's what that e-mail, dated July 18, 2012, says:

In order to advise my client properly, I need to know the specifics of "criminal and fraudulent" acts you told me your client had uncovered regarding Piotr Nowak. Despite the incendiary nature of the claim, we need to know precisely what your client says our client did.

You have alluded to some involvement on Piotr's part in negotiating contracts for players in South America. I have no idea what is "criminal" or "fraudulent" about that.

I am requesting that you provide me immediately - particularly in light of your deadline - with all of the facts of misconduct your client says was fraudulent or criminal. By facts I mean, names, dates, places, and the particular act or acts done by Mr. Nowak.

Gottshall sent the following reply on July 19:

With regard to the potentially fraudulent activity referenced in your email, investigation continues. The Company has reason to believe that Mr. Nowak may have improperly profited from player transactions over the past 12-18 months.

The Company is continuing to gather evidence on the extent and import of this conduct, and is under no obligation to share with you or your client what it has uncovered to date.

Our objective in sharing this limited information at all was to put your client on notice of the many issues that will be scrutinized if the parties get into a legal dispute - not to get off on a tangent regarding the scope of Mr. Nowak's misconduct or distract from the immediate and pending issue regarding the terms of his separation.

The Company invoked Cause to terminate Mr. Nowak's employment before it learned of this latest issue and can establish Cause even without it.

That same day, Haines responded to Gottshal with the following:

The allegations of criminal conduct - and I note you leave out of you e-mail that word - we specifically made to me and were used in conjunction with having Piotr sign your proposed settlement agreement. I was further told those allegations would somehow disappear if Piotr signed the agreement.

While criminal accusations might intimidate Piotr were they sustainable, apparently they are not. The mention of them was obviously intended in a way clearly improper under the Rules of Professional Conduct here in Pennsylvania. But, as you suggest, we will deal with that at later time.

It's worth noting – very worth noting, in fact – that in Exhibit A, there's no reference to the words "criminal" or "fraudulent" before Haines' e-mail. Indeed, it was confirmed to me by attorneys on both sides that no further previous correspondence was submitted as evidence.

Insofar as I want to keep my own opinions out of this, I doubt it would be too hard for a judge to notice that the e-mail chain stopped where it did.

A counter-motion by the Union's counsel rather pointedly called out Nowak's counsel for creating a distraction from the real matter at hand.

Nowak attempts to distract from the preliminary procedural issue pending before this Court with incendiary and misleading allegations about the conduct of Defendants and their attorneys, gratuitously attaching to their brief communications between opposing counsel that have no bearing on the matter at hand and no place in the public record.

This tactic, which reveals much about Plaintiff's motivation for trying to avoid arbitration with a contrived "declaratory judgment" claim, underscores the need to honor the parties' prior agreement to arbitrate matters relating to his termination from employment.

Now for the latest back-and-forth over whether claims relating to Nowak's dismissal should be heard by an arbitrator or a federal judge.

Recall that on August 24, the Union's attorneys moved to dismiss Nowak's lawsuit against the team. The Union's counsel argues that the terms of Nowak's contract stated that complaints should be settled by an arbitrator; Nowak's counsel argues he has the right to take the matter to court.

Nowak's attorneys had 21 days to file a response. They made their move on September 6, responding to the motion by claiming that Nowak was within his rights to take the matter to court.

I'm not in any position to judge who's right and who isn't. But I do know enough about the legal profession to know that the language used in the filings makes for some pretty good theatrics.

Here are a few highlights. I've tried to pick out segments that don't have too much legalese, but still keep the discussion in context. Hopefully it will make sense to the non-lawyers among you.

Let's start with the motion from Nowak's attorneys. The crux of their argument is that because there was a clause in Nowak's contract allowing for a dispute to be taken to court, he should as a result be allowed to do so.

Defendants' motion should be denied because the agreement between the parties specifically permits the parties to seek equitable relief and, in addition, Defendants have failed to follow the procedures set forth in the Federal Arbitration Act to compel arbitration.

That refers to the following clause in Nowak's original contract, with my own emphasis added:

Any controversy or claims for wrongful termination or employment discrimination or disputes regarding Manager's right to Severance Payments hereunder, shall be settled by arbitration in accordance with the rules of the American Arbitration Association and under the laws of the State of Pennsylvania (without giving effect to the choice or conflict of law principles thereof); provided, however, that nothing herein shall prevent either party from seeking equitable relief from a court of competent jurisdiction.

From this, Nowak's counsel concludes:

In the instant matter, there is not a clear and unmistakable provision that states that arbitration is the only avenue of redress. The language is not express and unequivocal that arbitration is the only remedy … Accordingly, Mr. Nowak should not be deprived of his contractual right to seek equitable relief. 

There's also this zinger:

Defendants' drafted the agreement between the parties, included the language for equitable remedies, and now that Mr. Nowak is attempting to rely on this language, Defendants ask this Court to declare that the language in meaningless and void. Defendants' conduct lacks good faith.

Nowak's counsel goes on to accuse the Union's counsel of committing "an outrageous display of unethical conduct" by threatening to hit Nowak with a criminal complaint.

While Defendants gave Mr. Nowak notice of his termination on June 13, 2012, their conduct surrounding the termination lacked good faith. They provided no notice to Mr. Nowak, nor any right to cure, both of which are required under the contract except in extraordinary circumstances which did not exist here. (Compl., Ex. A ¶ III(C).)

Defendants only presented Mr. Nowak with two documents: The first was the Separation and Release Agreement through which Mr. Nowak would release all claims against Defendants in exchange for being paid through the end of 2012, rather than through December 2015 as agreed to in the Extension Agreement.

The second was a threatening letter indicating that if Mr. Nowak did not sign the Separation and Release Agreement, the Defendants would take the position that his termination was "for cause," state various untruths about him, and give him nothing financially.

Mr. Nowak retained the undersigned counsel, who attempted to reach a resolution and get some understanding of the "facts" driving Defendants' decision to terminate Mr. Nowak.

In an outrageous display of unethical conduct, counsel for Defendants indicated that if Mr. Nowak refused to sign the Separation and Release Agreement, he might be subject to a criminal complaint but that if he did sign the document, those allegations would somehow vanish.

A week after Nowak's team made its filing, the Union's counsel responded with a filing of its own on September 13. That motion directly rebuts the claims from Nowak's counsel, and it does so with some pretty strong language.

Nowak glosses over [legal precedent] analysis in favor of inapposite legal argument and inappropriate "factual" presentation. As anticipated, Nowak contends that the arbitration provision's exception for "equitable relief" entitles him to pursue what is fundamentally a breach of contract claim as a declaratory judgment action in court.

In making this assertion, Nowak entirely ignores the many cases cited in Defendants' opening brief where the Third Circuit Court of Appeals expressly recognized that a declaratory judgment action relating to a breach of contract is legal, not equitable, in nature and should be treated as such.

This binding authority, coupled with a plain reading of the Employment Agreement and a common sense interpretation of Nowak's claims, reveals clearly that Defendants' Motion to Dismiss should be granted.

The Union's counsel then attacks the claim by Nowak's counsel that "arbitration is the only form of redress. They claim that line is a "false premise," and that the argument from Nowak's counsel "fails from every point of analysis":

First, Nowak ignores extensive language in the Agreement dictating that matters involving his termination must go to arbitration.

Both Article III (Termination) and Article XIII (Governing Law, Arbitration and Attorneys' Fees) specifically provide that arbitration "shall be" the manner in which to settle disputes relating to wrongful termination, Nowak's right to severance payments, and any other disputes arising out of or related to the Agreement.

Nowak neglects to mention these provisions at all, much less to explain how they fall short of constituting an "express, unequivocal agreement" to arbitrate. Moreover, Nowak fails to articulate how his lawsuit - which raises exactly these issues - can be legitimately interpreted as outside these provisions regardless of how it is styled.

Whether the case actually reaches a physical courtroom is ultimately up to judge Mary A. McLaughlin. The decision will come at the judge's discretion, which means there's no timeline for it.

I have been told, though, that the two sides are done filing motions for now. Which means that it may be a while before any more dirty laundry gets aired.

Links to case documents

1. Motion by Nowak's attorneys to keep the case before a federal judge

2. Exhibits entered by Nowak's attorneys to accompany that motion, including the e-mails accusing Nowak of profiting from player transactions

3. Counter-motion by the Union's attorneys backing up their argument

Past posts on the Nowak lawsuit

July 24, 2012: Former Philadelphia Union manager Peter Nowak sues team for wrongful termination and unpaid severance money

August 24, 2012: Philadelphia Union move to dismiss lawsuit by former manager Peter Nowak