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Several former National Football League (NFL) players, one player’s spouse, and several investment entities controlled by them sued the NFL and the National Football League Players’ Association (NFLPA) under Georgia law, after losing approximately $20 million in investments made with individuals listed in the NFLPA’s Financial Advisors Program.

What happened. The NFLPA provides a Financial Advisors Program to players due to a career planning program provision in the collective bargaining agreement (CBA) between the NFLPA and the NFL’s Management Council. The program, the NFLPA says, is offered to members to help meet the CBA’s mandate that players be provided with information regarding the handling of their personal finances.

The relevant section of the CBA states: “The parties will use best efforts to establish an in-depth, comprehensive Career Planning Program. The purpose of the program will be to help players enhance their career in the NFL and make a smooth transition to a second career. The program will also provide information to players on handling their personal finances, it being understood that players shall be solely responsible for their personal finances.”

During 2004 and 2005, several players and investment entities controlled by them invested about $20 million with two individuals who operated an investment company with other individuals. Both individuals were listed as registered financial advisors in the NFLPA’s Financial Advisors Program, which means that they had applied to be included in the program, paid a fee, and met the NFLPA’s eligibility requirements.

It was later revealed that one of the individuals was conducting a Ponzi scheme through which he stole most of the money the players had invested with his company, which eventually sought bankruptcy relief. The individual conducting the Ponzi scheme was convicted on federal felony charges and later committed suicide.

The players sued the NFL and the NFLPA, arguing that they would not have invested money with that investment company if the NFL and NFLPA had provided them with accurate information about the two individuals listed in the Financial Advisors Program and their investment company. The players maintained that the NFLPA included the individuals in the Financial Advisors Program without conducting a proper investigation of them, and they said the NFL provided inadequate background checks on the two individuals and the investment company.

The players asserted claims under Georgia law for negligence, negligent misrepresentation, and breach of fiduciary duty. The NFL and the NFLPA argued that Section 301 of the federal Labor-Management Relations Act (LMRA) preempted the players’ state-law claims because the claims arose from, or were substantially dependent upon an interpretation of, the CBA. The NFL pointed to the CBA’s disclaimer stating that “players shall be solely responsible for their personal finances” and argued that it was not liable for providing the players with any financial information.

The district court agreed that the LMRA preempted the state-law claims and granted summary judgment to the NFL and NFLPA on those claims. It also granted summary judgment to the players on several counterclaims. Both parties appealed to the U.S. Court of Appeals for 11th Circuit, which covers Alabama, Georgia, and Florida.

What the court said. The appeals court affirmed, agreeing with the district court that Section 301 of the LMRA preempts the players’ state-law claims, because their claims arise from, or are substantially dependent upon, an interpretation of the terms of the CBA.

“In order to insure [sic] the uniform interpretation of collective bargaining agreements throughout the nation, Sec. 301(a) completely preempts state-law claims, including state tort claims, that require the interpretation or application of a CBA,” the court explained. Atwater, et al. v. The National Football League Players Association and The National Football League, U.S. Court of Appeals, 11th Circuit, No. 09-12556 (11/23/10)

Point to remember: Employers offering investment information to employees should seek advice from legal counsel and include a disclaimer stating that employees will assume sole responsibility for their own finances